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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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LITCHFIELD FINANCIAL CORPORATION
(NAME OF SUBJECT COMPANY)
(NAME OF PERSON FILING STATEMENT)
COMMON STOCK, $.01 PAR VALUE PER SHARE
(TITLE OF CLASS OF SECURITIES)
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536619 10 9
(CUSIP NUMBER OF CLASS OF SECURITIES)
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RICHARD A. STRATTON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
LITCHFIELD FINANCIAL CORPORATION
430 MAIN STREET
WILLIAMSTOWN, MASSACHUSETTS 01267
(413) 458-1000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON
BEHALF OF THE PERSON(S) FILING STATEMENT)
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WITH A COPY TO:
JAMES WESTRA, ESQ.
HUTCHINS, WHEELER & DITTMAR
A PROFESSIONAL CORPORATION
101 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
(617) 951-6600
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Litchfield Financial Corporation, a
Massachusetts corporation (the "Company"), and the address of the principal
executive offices of the Company is 430 Main Street, Williamstown, Massachusetts
01267. The title of the class of equity securities to which this statement
relates is the common stock, $.01 par value per share, of the Company (the
"Common Stock").
ITEM 2. TENDER OFFER OF ACQUISITION.
This statement relates to a cash tender offer by Textron Financial
Corporation, a Delaware corporation ("Parent"), and its wholly-owned subsidiary,
Lighthouse Acquisition Corp., a Massachusetts corporation ("Acquisition"),
disclosed in a Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1"),
dated September 29, 1999, to purchase all of the issued and outstanding shares
of Common Stock (the "Shares") at a price of $24.50 per share (such amount, or
any greater amount per share paid pursuant to the Offer, being hereafter
referred to as the "Per Share Amount"), net to the seller in cash, upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
September 29, 1999 (the "Offer to Purchase"), and the related Letter of
Transmittal (which together constitute the "Offer"). Textron Financial
Corporation is a wholly-owned subsidiary of Textron Inc., a Delaware corporation
("Textron").
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of September 22, 1999 (the "Merger Agreement"), by and among Parent,
Acquisition and the Company. The Merger Agreement provides that, among other
things, as soon as practicable after the consummation of the Offer and
satisfaction or waiver of all conditions to the Merger (as defined in the Merger
Agreement), subject to conditions set forth below in the section entitled
"Meeting of Stockholders; Proxy Statement," Acquisition will be merged with and
into the Company, with the Company surviving the Merger. A copy of the Merger
Agreement is filed herewith as Exhibit 1, and is incorporated herein by
reference.
Based on the information in the Offer to Purchase, the principal executive
offices of Parent and Acquisition are located at 40 Westminster Street,
Providence, Rhode Island 02903.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
statement, are set forth in Item 1 above.
(b) Except as set forth below, none of the officers or directors of the
Company is presently a party to any transaction with the Company or its
affiliates (other than for services as employees, officers and directors),
including without limitation any material contract, agreement, arrangement or
understanding (i) providing for the furnishing of services to or by, (ii)
providing for rental of real or personal property to or from, or (iii) otherwise
requiring payments to or from, any officer or director, any member of the family
of any officer or director or any corporation, partnership, trust or other
entity in which any officer or director has a substantial interest or is an
officer, director, trustee or partner.
STOCK OPTIONS
As of the Effective Time, each outstanding, unexercised stock option to
purchase shares of the Company's Common Stock (a "Company Stock Option") issued
under the Company's 1990 Stock Option Plan, as amended (the "1990 Plan") and the
1995 Stock Option Plan for Non-Employee Directors, as amended (the "Director
Plan") shall terminate and be canceled and each holder of a Company Stock Option
shall be entitled to receive, in consideration therefor, a cash payment from the
Company equal to the product of (a) the excess, if any, of (x) the Merger
Consideration over (y) the per share exercise price of such Company Stock
Option, times (b) the number of Shares (as defined in the Merger Agreement)
subject to the Company Stock Option (whether or not then exercisable or vested).
As of September 22, 1999, there were options covering 913,720 shares outstanding
at exercise prices ranging from $1.44 to $23.25. With respect to Company Stock
Options, including those accelerated pursuant to the Merger Agreement, the
executive officers and directors of the Company will respectively receive the
following approximate amounts: Richard A.
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Stratton will receive $3,575,169; Heather A. Sica will receive $2,467,907;
Ronald E. Rabidou will receive $746,098; John Costa will receive $310,812; John
J. Malloy will receive $255,625; Joseph Weingarten will receive $681,562; Gerald
Segel will receive $405,769; James Westra will receive $100,755; James Zinn will
receive $42,317; Eugene McMahon will receive $42,317; and Grant Wilson will
receive $42,317.
CERTAIN CONTRACTS
Certain contracts, agreements, arrangements and understandings between the
Company or its affiliates and certain of its executive officers, directors or
affiliates are described under the heading "Employment Agreements, Change of
Control Severance Agreements, Stock Option Plans" in the Information Statement
pursuant to Section 14(f) of the Securities Exchange Act of 1934, attached as
Annex A hereto and incorporated by reference herein.
CHANGE OF CONTROL SEVERANCE AGREEMENTS
On September 22, 1999, the Board of Directors of the Company approved a
Severance Agreement (the "Severance Agreement") to be entered into by the
Company and Joseph Weingarten (the "Executive"). On January 1, 1999, the Company
executed severance agreements with each of Richard A. Stratton, Heather A. Sica
and Ronald E. Rabidou, each containing substantially the same terms and
conditions as the Severance Agreement. On March 22, 1999, the Company executed a
Severance Agreement with John Costa containing substantially the same terms and
conditions as the Severance Agreement. Pursuant to a separate arrangement with
Mr. Costa entered into at the commencement of Mr. Costa's employment with the
Company, Mr. Costa will be entitled to an additional payment of $71,250 upon the
completion of the Merger. The Severance Agreement provides that if, following a
Transaction (as defined in the Severance Agreement), the Executive's employment
has been terminated by the Company for any reason, other than Cause (as such
term is defined therein) or the death or disability of the Executive, or by the
Executive for Good Reason (as such term is defined therein), then the Company
will pay the Executive, a lump sum equal to the higher of (i) the Executive's
total salary and bonus for the most recently completed fiscal year, and (ii) the
Executive's total annualized salary and bonus, based on the partial fiscal year
in which the date of termination occurs (the "Severance Payments"). In addition
to such lump-sum severance payment, the Executive shall (i) be entitled to
participate in the Company's medical insurance plan for a period of twelve
months following the termination date at the Company's expense, after which the
Executive will have COBRA rights as provided by law and (ii) for a period of
twelve months, be permitted to participate in any of the Company's other benefit
plans in which the Executive is participating as of the termination date
pursuant to Company policy. The foregoing summary of certain provisions of the
Severance Agreement is qualified in its entirety by reference to the form of
Severance Agreement, which is incorporated herein by reference, and a copy of
which is filed herewith as Exhibit 2.
The Severance Agreement further provides that, in the event that the excise
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code"), or any penalty or excise tax subsequently imposed by law applies
to any payment or benefit received or to be received by the Executive in
connection with a Transaction or the termination of the Executive's employment
(whether pursuant to the terms of the Severance Agreement or any other plan,
arrangement, or agreement with the Company, any Person whose actions result in
the Transaction or any Person affiliated with the Company or such Person) (all
such payments and benefits, including the Severance Payments, being hereinafter
called "Total Payments"), an additional amount shall be paid by the Company to
the Executive such that the aggregate after-tax amount that he shall receive
with respect to the Total Payments, including this section, shall have a present
value equal to the aggregate after-tax amount that he would have received and
retained had such excise or penalty tax (and any interest or penalties in
respect thereof) not applied to him. For this purpose, the Executive shall be
presumed to be subject to tax in each year relevant to the computation at the
then maximum applicable combined Federal and Massachusetts income tax rate, and
the present value of payments to him shall be made consistent with the
principles of Section 280G of the Code.
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THE MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement.
This summary is not a complete description of the terms and conditions thereof
and is qualified in its entirety by reference to the full text thereof, which is
incorporated herein by reference and a copy of which is filed herewith as
Exhibit 1.
The Offer. The Merger Agreement provides that no later than five business
days from the date of initial public announcement of the Merger Agreement,
Acquisition will commence the Offer. The parties to the Merger Agreement have
agreed in the Merger Agreement that the obligations of Acquisition to accept for
payment and pay for Shares tendered pursuant to the Offer will be subject only
to the satisfaction or waiver of the conditions described below under "Offer
Conditions", including the Minimum Condition. Under the Merger Agreement,
Acquisition expressly reserves the right, in its sole discretion, to waive any
such condition (other than the Minimum Condition), provided, that, without the
prior written consent of the Company, Acquisition will not (i) decrease the
amount to be paid per share in the Offer to below $24.50, (ii) change the form
of consideration to be paid in the Offer, (iii) reduce the maximum number of
Shares to be purchased in the Offer or the Minimum Condition, (iv) impose
conditions to the Offer in addition to the Offer Conditions or (v) amend any
other term of the Offer in a manner which, in the Company's reasonable judgment,
is adverse to the holders of the Shares (provided that a waiver by Acquisition
of any condition other than the Minimum Condition shall not be deemed to be
adverse to the holders of the Shares or the Company).
Notwithstanding the foregoing, Acquisition may, without the consent of the
Company, extend the Offer for an aggregate period of up to five business days
beyond the Expiration Date if there shall not have been tendered sufficient
Shares so that the Merger could be effected without a meeting of the Company's
stockholders in accordance with Section 82 of the MBCL. Acquisition shall have
no obligation to pay interest on the purchase price of tendered Shares.
Company Board Representation. The Merger Agreement provides that, promptly
upon purchase by Acquisition of Shares pursuant to the Offer, and from time to
time thereafter, Acquisition shall be entitled to designate up to such number of
directors, rounded up to the next whole number, on the Board of Directors of the
Company as shall give Acquisition representation on the Board of Directors equal
to the product of the total number of directors on such Board (including any
vacancies or unfilled newly-created directorships) multiplied by the percentage
that the aggregate number of Shares beneficially owned by Acquisition or any
affiliate of Acquisition bears to the total number of Shares then outstanding,
and the Company shall amend, or cause to be amended, its by-laws to provide for
the foregoing and shall, at such time, promptly take all action necessary to
cause Acquisition's designees to be so elected, including either increasing the
size of the Board of Directors or securing the resignations of incumbent
directors or both; provided, that there shall at all times be at least two
Disinterested Directors (as defined in the Merger Agreement). The Merger
Agreement further provides that the Company's obligations to appoint designees
to its Board of Directors will be subject to Section 14(f) of the Exchange Act
and Rule 14f-1 thereunder.
The Merger. The Merger Agreement provides that, upon the terms and subject
to the conditions thereof, at the Effective Time and in accordance with the
MBCL, Acquisition will be merged with and into the Company. As a result of the
Merger, the separate corporate existence of Acquisition will cease and the
Company will continue as the Surviving Corporation.
The Merger Agreement provides that the Amended and Restated Articles of
Organization of the Company, as in effect immediately prior to the Effective
Time, shall be the articles of organization of the Surviving Corporation until
thereafter amended as provided by law. At the Effective Time, the by-laws of
Acquisition as in effect immediately prior to the Effective Time will be the
by-laws of the Surviving Corporation, until thereafter altered, amended or
repealed as provided by law. The Merger Agreement provides that the directors of
Acquisition immediately prior to the Effective Time will be the initial
directors of the Surviving Corporation and the officers of the Company
immediately prior to the Effective Time will be the initial officers of the
Surviving Corporation, each to hold office until their respective successor
shall be duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the articles of organization and
by-laws of the Surviving Corporation.
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The Merger Agreement provides that, at the Effective Time, each Share that
is issued and outstanding immediately prior to the Effective Time (other than
Shares owned by the Company or by Parent, Acquisition or any direct or
indirectly wholly-owned subsidiary of the Company, Parent or Acquisition, which
shall be cancelled, and other than Shares, if any (collectively, "Dissenting
Shares"), held by stockholders who have properly exercised appraisal rights
under Section 89 of the MBCL) will, by virtue of the Merger and without any
action on the part of the Company, Acquisition or the holders of the Shares, be
cancelled, extinguished and converted into and become a right to receive $24.50
in cash (the "Merger Consideration"), payable to the holder thereof, without
interest, upon surrender of the certificate formerly representing such Share,
less any required withholding taxes. All Shares that are owned by the Company
(as treasury stock or otherwise) and all Shares owned by Parent, Acquisition or
any direct or indirect wholly-owned subsidiary of the Company, Parent or
Acquisition, if any, will be canceled and retired and cease to exist, and no
cash or other consideration will be delivered in exchange therefore.
The Merger Agreement provides that Shares that are issued and outstanding
immediately prior to the Effective Time and which are held by a stockholder who
has not voted in favor of the Merger and who is otherwise entitled to demand,
and who properly demands appraisal for such Shares in accordance with all the
provisions of the MBCL concerning the rights of holders of Shares to dissent
from the Merger and require appraisal of their Shares, will not be converted
into or exchangeable for the right to receive the Merger Consideration unless
such holder fails to perfect or otherwise effectively withdraws or loses such
holder's right to appraisal, if any. Such holders will be entitled to receive
the appraised value of such Shares held by them in accordance with the
applicable provisions of the MBCL. If, after the Effective Time, such holder
fails to perfect or loses its right to appraisal, each Share of such holder will
be treated as if it had been converted as of the Effective Time into the right
to receive the Merger Consideration, without any interest thereon.
The Merger Agreement provides that each share of common stock of
Acquisition will be converted into one share of common stock of the Surviving
Corporation.
The Merger Agreement provides that each option granted to a Company
employee or director pursuant to the Company's 1990 Stock Option Plan, as
amended, and 1995 Stock Option Plan for Non-Employee Directors, as amended
(together, the "Stock Plans") to acquire shares of Company Common Stock (each
such option hereinafter is referred to as an "Option") that is outstanding
immediately prior to the Effective Time, whether or not then vested or
exercisable, shall, effective as of immediately prior to the Effective Time, be
canceled and the holder thereof shall be entitled to receive at the Effective
Time or as soon as practicable thereafter from the Company in consideration for
such cancellation an amount in cash equal to the product of (1) the number of
Shares previously subject to such Option and (2) the excess, if any, of the
Merger Consideration over the exercise price per share of such Option (subject
to any applicable withholding taxes).
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties of the parties thereto including,
without limitation, representations and warranties by the Company as to the
Company's organization and authorized capital stock, subsidiaries,
noncontravention and consents, filings with the Commission, financial
statements, no material adverse change, legal proceedings, subsequent events,
commissions and fees, offering documents, employee benefit plans, compliance
with the law, intellectual property, taxes and opinion of financial advisor.
Some of the representations are qualified by the limitation that, in order for
the representation to have been breached, the event breaching the representation
must have a Material Adverse Effect. A "Material Adverse Effect" as to the
Company means any change or effect that would (i) be materially adverse to the
business, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole or (ii) prevent or materially delay the
consummation of the Offer or the Merger; provided, however, that a decline in
the price of the Company's Common Stock as traded on the Nasdaq National Market
as a result of the Company (i) failing to complete contemplated off-balance
sheet financings, (ii) attempting to reacquire assets serviced by the Company
and financed off-balance sheet, or (iii) discontinuing "gain on sale
accounting," shall not be deemed to have a Material Adverse Effect unless it is
otherwise a result of an event or occurrence that is materially adverse to the
business, financial condition or results of operations of the Company and its
subsidiaries taken as a whole.
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In addition, the Merger Agreement contains representations and warranties
of Parent and Acquisition concerning their organization, authorization of the
agreement, noncontravention and consents, commissions and fees, and funds.
AGREEMENTS OF THE COMPANY, ACQUISITION AND PARENT.
Conduct of Business Pending the Merger. Pursuant to the Merger Agreement,
the Company has covenanted and agreed that, prior to the Effective Time, the
Company and its subsidiaries will conduct their operations according to their
ordinary and usual course of business and consistent with past practice. The
Merger Agreement further provides that, without limiting the generality of the
foregoing, and except as expressly contemplated by the Merger Agreement, prior
to the Effective Time, neither the Company nor any of its subsidiaries will,
without the prior written consent of Parent:
(a) amend or otherwise change its articles of organization or by-laws
or equivalent organizational documents;
(b) issue, deliver, sell, pledge, dispose of or encumber, or authorize
or commit to the issuance, sale, pledge, disposition or encumbrance of, (i)
any shares of capital stock of any class, or any options, warrants,
convertible securities or other rights of any kind to acquire any shares of
capital stock, or any other ownership interest (including but not limited
to stock appreciation rights or phantom stock), of the Company or any of
its subsidiaries (except for the issuance of up to 913,720 Shares required
to be issued pursuant to the terms of options outstanding as of September
22, 1999) or (ii) any assets of the Company or any of its subsidiaries,
except in the ordinary course of business and in a manner consistent with
past practice;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock;
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof; (ii) incur any indebtedness for borrowed money or issue
any debt securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any person, or
make any loans, advances or capital contributions to, or investments in,
any other person (other than in the ordinary course of business consistent
with past practice) and other than existing committed facilities; (iii)
enter into any contract or agreement other than in the ordinary course of
business consistent with past practice; or (iv) authorize capital
expenditures (during any three month period) which are, in the aggregate,
in excess of $25,000 for the Company and its subsidiaries taken as a whole;
(f) except to the extent required under existing employee and director
benefit plans, agreements or arrangements as in effect on the date of the
Merger Agreement or as provided in the Merger Agreement, increase the
compensation or fringe benefits of any of its directors, officers or
employees, except for increases in salary or wages of employees of the
Company or its subsidiaries who are not officers of the Company in the
ordinary course of business in accordance with past practice, or grant any
severance or termination pay not currently required to be paid under
existing severance plans to or enter into any employment, consulting or
severance agreement or arrangement with any present or former director,
officer or other employee of the Company or any of its subsidiaries, or
establish, adopt, enter into or amend or terminate any collective
bargaining agreement or employee benefit plan, including, but not limited
to, bonus, profit sharing, thrift, compensation, stock option, restricted
stock, pension, retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or arrangement for
the benefit of any directors, officers or employees;
(g) except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
practices or principles used by it, other than discontinuance of the gain
on sale method;
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(h) make any material tax election change for any annual tax
accounting period, change any method of tax accounting, file any amended
tax return or settle or compromise any material federal, state, local or
foreign tax liability;
(i) settle or compromise any pending or threatened suit, action or
claim which is material or which relates to the transactions contemplated
hereby;
(j) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any of its subsidiaries not constituting
an inactive subsidiary (other than the Merger);
(k) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction (i) in the ordinary course of
business and consistent with past practice of liabilities reflected or
reserved against in the financial statements of the Company or incurred in
the ordinary course of business and consistent with past practice and (ii)
of liabilities required to be paid, discharged or satisfied pursuant to the
terms of any contract in existence on the date of the Merger Agreement;
(l) (i) make or commit to make any financial services loan;
(ii) make or commit to make any other loan except as specifically
provided in clauses (iii) through (ix) of this paragraph (l);
(iii) purchase or commit to purchase consumer land loans from a single
dealer exceeding an aggregate amount of (y) $1,000,000 in the case of a
dealer that is an approved dealer as of the date of the Merger Agreement or
(z) $2,500,000 in the case of a dealer that becomes an approved dealer on
or after the date of the Merger Agreement;
(iv) purchase or commit to purchase consumer timeshare loans from a
single seller exceeding an aggregate amount of (y) $500,000 in the case of
a seller that is an approved seller as of the date of the Merger Agreement
or (z) $1,000,000 in the case of a seller that becomes an approved seller
on or after the date of the Merger Agreement;
(v) make or commit to make loans for the acquisition and/or
construction of timeshare units that exceed (y) $2,500,000 in the case of a
new loan to an approved borrower (or group of affiliated borrowers) as of
the date of the Merger Agreement; provided however, that any increase in an
existing commitment shall not exceed $1,000,000, and provided, further,
that any additional loans or increases as described in this clause (y)
shall not cause the aggregate commitments to such borrower to exceed
$2,500,000 or (z) $2,000,000 in the case of a borrower (or group of
affiliated borrowers) which becomes an approved borrower on or after the
date of the Merger Agreement;
(vi) make or commit to make loans for the acquisition and/or
development of landlots that exceed (y) $500,000 in the case of a new loan
to an approved borrower (or group of affiliated borrowers) as of the date
of the Merger Agreement; provided however, that any increase in an existing
commitment shall not exceed $100,000, and provided, further, that any
additional loans or increases as described in this clause (y) shall not
cause the aggregate commitments to such borrower to exceed $1,500,000 or
(z) $1,000,000 in the case of a borrower (or group of affiliated borrowers)
which becomes an approved borrower on or after the date of the Merger
Agreement;
(vii) make or commit to make loans for the finance or purchase of land
(not including consumer loans as provided in clause (iii) of this paragraph
(l)) that exceed (y) $1,000,000 in the case of a new loan to an approved
borrower (or group of affiliated borrowers) as of the date of the Merger
Agreement; provided however, that any increase in an existing commitment
shall not exceed $250,000, and provided, further, that any additional loans
or increases as described in this clause (y) shall not cause the aggregate
commitments to such borrower to exceed $2,500,000 or (z) $500,000 in the
case of a borrower (or group of affiliated borrowers) which becomes an
approved borrower on or after the date of the Merger Agreement;
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(viii) make or commit to make loans for the finance or purchase of
timeshare units (not including consumer loans as provided in clause (iv) of
Section 5.1(l) above) that exceed (y) $5,000,000 in the case of a new loan
to an approved borrower (or group of affiliated borrowers) as of the date
of the Merger Agreement; provided however, that any increase in an existing
commitment shall not exceed $2,500,000, and provided, further, that any
additional loans or increases as described in this clause (y) shall not
cause the aggregate commitments to such borrower to exceed $5,000,000 or
(z) $5,000,000 in the case of a borrower (or group of affiliated borrowers)
which becomes an approved borrower on or after the date of the Merger
Agreement; or
(ix) purchase or commit to purchase any tax lien certificate greater
than $500,000;
provided, that nothing in this paragraph (l) shall prohibit the Company from
honoring any contractual obligation in existence on the date of the Merger
Agreement;
(m) refinance or restructure any existing loan, except in the ordinary
course of business consistent with past practice and prudent lending
practices;
(n) make any material changes in its polices or practices concerning
loan underwriting and credit scoring, or which persons may approve loans or
credit scoring;
(o) except in the ordinary course of business consistent with past
practice and prudent business practices, enter into any securities
transaction for its own account or purchase or otherwise acquire any
investment security for its own account other than (A) securities backed by
the full faith and credit of the United States or an agency thereof and (B)
other readily marketable securities not in excess of $100,000;
(p) foreclose upon or otherwise take title to or possession or control
of any real property (other than residential property) without first
obtaining a phase one environmental report thereon;
(q) enter into any new, or modify, amend or extend the terms of any
existing, contracts relating to the purchase or sale of financial or other
futures, or any put or call option relating to cash, securities or
commodities or any interest rate swap agreements or other agreements
relating to the hedging of interest rate risk, except in the ordinary
course of business consistent with past practices and prudent business
practices; or
(r) take, or offer or propose to take, or agree to take in writing or
otherwise, any of the actions described in paragraphs (a) through (q) or
any action which would make any of the representations or warranties of the
Company contained in the Merger Agreement untrue and incorrect as of the
date when made if such action had then been taken, or would result in any
of the Offer Conditions not being satisfied.
No Solicitation of Transactions. The Merger Agreement provides that the
Company, its affiliates and their respective officers, directors, employees,
representatives and agents shall immediately cease any existing discussions or
negotiations, if any, with any parties conducted theretofore with respect to any
acquisition or exchange of all or any material portion of the assets of, or any
equity interest in, the Company or any of its subsidiaries or any business
combination with or involving the Company or any of its subsidiaries. The Merger
Agreement also provides that, at any time prior to consummation of the Offer,
the Company may, directly or indirectly, furnish information and access, in each
case only in response to a request for such information or access to any person
made after the date thereof which was not encouraged, solicited or initiated by
the Company or any of its affiliates or any of its or their respective officers,
directors, employees, representatives or agents after the date thereof, pursuant
to appropriate confidentiality agreements, and may participate in discussions
and negotiate with such person concerning any merger, sale of assets, sale of
shares of capital stock or similar transaction (including an exchange of stock
or assets) involving the Company or any subsidiary or division of the Company,
in each case (whether furnishing information and access or participating in
discussions and negotiations) only if such person has submitted a written
proposal to the Board of Directors of the Company relating to any such
transaction and the Board by majority vote determines in good faith, based upon
the advice of outside counsel to the Company, that failing to take such action
would constitute a breach of the Board's fiduciary duty under applicable law.
The Board is required to provide a copy of any such written
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proposal to Parent immediately after receipt thereof, notify Parent immediately
if any proposal (oral or written) is made and in such notice indicate in
reasonable detail the identity of the offeror and the terms and conditions of
any proposal and keep Parent promptly advised of all developments which could
reasonably be expected to culminate in the Board of Directors withdrawing,
modifying or amending its recommendation of the Offer, the Merger and the other
transactions contemplated by the Merger Agreement. Except as set forth in
Section 6.5 of the Merger Agreement, neither the Company or any of its
affiliates, nor any of its or their respective officers, directors, employees,
representatives or agents shall, directly or indirectly, encourage, solicit,
participate in or initiate discussions or negotiations with, or provide any
information to, any corporation, partnership, person or other entity or group
(other than Parent and Acquisition, any affiliate or associate of Parent and
Acquisition or any designees of Parent or Acquisition) concerning any merger,
sale of any material portion of assets, sale of any of the shares of capital
stock or similar transactions (including an exchange of stock or assets)
involving the Company or any subsidiary or division of the Company; provided,
that the Board of Directors of the Company may take, and disclose to the
Company's stockholders, a position contemplated by Rules 14d-9 and 14e-2
promulgated under the Exchange Act with regard to any tender offer; provided,
further, that the Board of Directors may not recommend that the stockholders of
the Company tender their Shares in connection with any such tender offer unless
the Board by majority vote shall have determined in good faith, based upon the
advice of outside counsel to the Company, that failing to take such action would
constitute a breach of the Board's fiduciary duty under applicable law. The
Merger Agreement provides that the Company shall not release any third party
from, or waive any provisions of, any confidentiality or standstill agreement to
which the Company is a party, unless the Board by majority vote shall have
determined in good faith, based upon the advice of outside counsel to the
Company, that failing to release such third party or waive such provisions would
constitute a breach of the fiduciary duties of the Board of Directors under
applicable law.
Meeting of Stockholders; Proxy Statement. The Merger Agreement provides
that if required by applicable law in order to consummate the Merger, the
Company will duly call, give notice of, convene and hold a meeting of its
stockholders ("Stockholders Meeting") promptly after the consummation of the
Offer to consider and vote upon the Merger Agreement and the Merger. At the
Stockholders Meeting, Parent and Acquisition will cause all Shares then owned by
them and their subsidiaries to be voted in favor of the approval and adoption of
the Merger Agreement and approval of the Merger. If the Stockholders Meeting is
called, the Company will prepare and file with the Commission a proxy statement
(the "Proxy Statement") to be mailed to the stockholders of the Company in
connection with the meeting of such stockholders to consider and vote upon the
Merger and, except if the Board of Directors by majority vote determines in good
faith, based on the advice of outside legal counsel to the Company that to do so
would constitute a breach of fiduciary duty under applicable law, include in the
Proxy Statement the unanimous recommendation of the Board of Directors that the
stockholders of the Company vote in favor of the approval and adoption of the
Merger Agreement and the transactions contemplated thereby. As soon as
practicable following the consummation of the Offer, the Company will file the
Proxy Statement with the Commission. The Company, Parent and Acquisition will
use their reasonable best efforts to respond promptly to all comments of and
requests by the Commission and to cause the Proxy Statement and all required
amendments and supplements thereto to be mailed to holders of Shares entitled to
vote at the Stockholders Meeting at the earliest practicable time following
expiration or termination of the Offer. The Merger Agreement provides that in
the event that Acquisition shall acquire at least 90% of the outstanding Shares,
the Company will, at the request of Acquisition, take all necessary and
appropriate action to cause the Merger to become effective as soon as reasonably
practicable after such acquisition, without a meeting of the Company's
stockholders, in accordance with Section 82 of the MBCL.
Access to Information; Confidentiality. The Merger Agreement provides
that, prior to the Effective Time, the Company shall, and shall cause its
subsidiaries, officers, directors, employees, auditors and other agents to,
afford the officers, employees, auditors and other agents of Parent complete
access, consistent with applicable law, at all reasonable times to its officers,
employees, agents, properties, offices, plants and other facilities and to all
books and records, and shall furnish Parent with all financial, operating and
other data and information as Parent through its officers, employees or agents
may from time to time reasonably request.
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Information obtained by Parent or Acquisition will be subject to the
confidentiality agreement between the Company and Parent (the "Confidentiality
Agreement").
Public Disclosures. The Merger Agreement provides that Parent and the
Company will consult with each other before issuing any press release or
otherwise making any public statements with respect to the Offer or the Merger
and will not issue any such press release or make any such public statement
prior to such consultation and without the consent of the other party, except as
may be required by applicable law or any listing agreement with its securities
exchange.
Indemnification and Insurance. The Merger Agreement provides that Parent
will use its reasonable best efforts to cause to be maintained in effect for six
years from the Effective Time the current policies of the directors' and
officers' liability insurance maintained by the Company (provided that Parent
may substitute therefor policies of at least the same coverage containing terms
and conditions which are not materially less advantageous) with respect to
matters occurring prior to the Effective Time to the extent available; provided,
however, that in no event will Parent or the Company be required to expend more
than an amount per year equal to 150% of current annual premiums paid by the
Company (which the Company represented and warranted in the Merger Agreement to
be not more than $46,000) to maintain or procure insurance coverage pursuant to
the Merger Agreement.
The Merger Agreement also provides that, for six years after the Effective
Time, Parent will or will cause the Surviving Corporation to indemnify and hold
harmless each present and former director and officer of the Company, determined
as of the Effective Time and their heirs and representatives (the "Indemnified
Parties"), against any costs or expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages or liabilities (collectively, "Costs")
(but only to the extent such Costs are not otherwise covered by insurance and
paid) incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative
(collectively, "Claims"), arising out of or pertaining to matters existing or
occurring at or prior to the Effective Time, whether asserted or claimed prior
to, at or after the Effective Time, to the fullest extent permitted under
applicable law (and Parent will, or will cause the Surviving Corporation to,
also advance expenses as incurred to the fullest extent permitted under
applicable law provided the person to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined that such
person is not entitled to indemnification).
The Merger Agreement further provides that any Indemnified Party wishing to
claim indemnification as described above, upon learning of any such Claim, shall
promptly notify Parent thereof, but the failure to so notify shall not relieve
Parent of any liability it may have to such Indemnified Party if such failure
does not materially prejudice Parent. In the event of any such Claim (whether
arising before or after the Effective Time), (i) Parent or the Surviving
Corporation shall have the right to assume the defense thereof and Parent shall
not be liable to such Indemnified Parties for any legal expenses of other
counsel or any other expenses subsequently incurred by such Indemnified Parties
in connection with the defense thereof, except that if Parent or the Surviving
Corporation elects not to assume such defense, or counsel for the Indemnified
Parties advises that there are issues that raise conflicts of interest between
Parent or the Surviving Corporation and the Indemnified Parties, the Indemnified
Parties may retain counsel satisfactory to them, and Parent or the Surviving
Corporation shall pay all reasonable fees and expenses of such counsel for the
Indemnified Parties promptly as statements therefor are received; provided,
however, that Parent shall be obligated to pay for only one firm of counsel for
all Indemnified Parties in any jurisdiction unless the use of one counsel for
such Indemnified Parties would present such counsel with a conflict of interest,
(ii) the Indemnified Parties will cooperate in the defense of any such matter
and (iii) Parent shall not be liable for any settlement effected without its
prior written consent, which consent shall not be unreasonably withheld; and
provided, further, that Parent shall not have any obligation to any Indemnified
Party when and if a court of competent jurisdiction shall ultimately determine,
and such determination shall have become final, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
law.
Further Assurances. The Merger Agreement provides that, subject to the
other provisions of the Merger Agreement, each of the parties will use its best
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to
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consummate and make effective the transactions contemplated by the Merger
Agreement, including, without limitation, the Offer and the Merger, which
efforts shall include, without limitation, using its reasonable best efforts to
promptly make all required regulatory filings and applications including,
without limitation, responding promptly to requests for further information and
to obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and parties to contracts
with the Company and its subsidiaries and Parent and its subsidiaries as are
necessary for the consummation of the transactions contemplated by the Merger
Agreement and to fulfill the conditions to the Offer and the Merger.
Notice of Subsequent Events. The Merger Agreement provides that each party
will give the other party notice of the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty contained in the Merger Agreement to be untrue or
inaccurate and any failure of a party to comply or satisfy any covenant,
condition or agreement to be complied with under the Merger Agreement.
Employment; Employee Welfare. The Merger Agreement provides that Parent
will maintain for a period of one year following the Effective Time employee
benefit plans and programs, for the benefit of employees of the Company and its
subsidiaries (other than those employees covered by collective bargaining
arrangements) that are in the aggregate no less favorable than those provided to
Parent's similarly situated employees, under the plans as in effect immediately
prior to the Closing (the "Existing Plans"). Parent will credit the prior
service of all employees of the Company and its subsidiaries for purposes of
determining the eligibility, and vesting under any employee benefit plan
provided by Parent for the benefit of the employees. Employees covered by
collective bargaining agreements shall be provided with such benefits as shall
be required under the terms of any applicable collective bargaining agreement.
In addition, the Surviving Corporation will assume and honor in accordance with
their terms all existing employment and severance agreements and arrangements
which are set forth in the Company Disclosure Schedule.
Offer Conditions. Notwithstanding any other provision of the Offer, but
subject to the terms and conditions of the Merger Agreement, Acquisition shall
not be required to accept for payment or, subject to any applicable rules and
regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating
to Acquisition's obligation to pay for or return tendered Shares promptly after
termination or withdrawal of the Offer), pay for any Shares tendered pursuant to
the Offer, and may postpone the acceptance for payment or, subject to the
restriction referred to above, payment for any Shares tendered pursuant to the
Offer, and may amend or terminate the Offer (whether or not any Shares have
theretofore been purchased or paid for) to the extent permitted by the Merger
Agreement if, (i) at the expiration of the Offer, a number of Shares which
constitutes more than 66 2/3% of the Shares (determined on a fully-diluted
basis) have not been validly tendered and not properly withdrawn pursuant to the
Offer (the "Minimum Condition") or (ii) at any time on or after the date of this
Agreement and prior to the acceptance for payment of Shares, any of the
following conditions occurs or has occurred:
(a) there shall have been entered any order, preliminary or permanent
injunction, decree, judgment or ruling in any action or proceeding before
any court or governmental, administrative or regulatory authority or
agency, or any statute, rule or regulation enacted, entered, enforced,
promulgated, amended or issued that is applicable to Parent, Acquisition,
the Company or any subsidiary or affiliate of Acquisition or the Company or
the Offer or the Merger, by any legislative body, court, government or
governmental, administrative or regulatory authority or agency that is
reasonably likely to have the effect of : (i) making illegal or otherwise
directly or indirectly restraining or prohibiting the making of the Offer
in accordance with the terms of the Merger Agreement, the acceptance for
payment of, or payment for, some of or all the Shares by Acquisition or any
of its affiliates or the consummation of the Merger; (ii) prohibiting the
ownership or operation by the Company or any of its subsidiaries, or Parent
or any of its subsidiaries, of all or any material portion of the business
or assets of the Company or any of its subsidiaries, taken as a whole, or
Parent or its subsidiaries, taken as a whole, or (iii) materially limiting
the ownership or operation by the Company or any of its subsidiaries, or
Parent or any of its subsidiaries, of all or any material portion of the
business or assets of the Company or any of its subsidiaries, taken as a
whole, or Parent or its subsidiaries, taken as a whole (other than, in
either case, assets or businesses of the Company or its subsidiaries that
are not material (measured in relation to the combined assets or
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revenues of the Company and its subsidiaries, taken as a whole)) or
compelling Parent or any of its subsidiaries to dispose of or hold separate
all or any portion of the businesses or assets of the Company or any of its
subsidiaries or Parent or any of its subsidiaries (other than, in either
case, assets or businesses of the Company or its subsidiaries that are not
material (measured in relation to the combined assets or revenues of the
Company and its subsidiaries, taken as a whole)), as a result of the
transactions contemplated by the Offer or the Merger Agreement; (iv)
imposing limitations on the ability of Parent, Acquisition or any of
Parent's affiliates effectively to acquire or hold or to exercise full
rights of ownership of the Shares, including without limitation the right
to vote any Shares acquired or owned by Parent or Purchaser or any of its
affiliates on all matters properly presented to the stockholders of the
Company, including without limitation the adoption and approval of the
Merger Agreement and the Merger or the right to vote any shares of capital
stock of any subsidiary directly or indirectly owned by the Company; or (v)
requiring divestiture by Parent or Acquisition or any of their affiliates
of any Shares;
(b) there shall have occurred any event, other than events arising out
of the announcement of the Offer and the transactions contemplated by the
Merger Agreement, that is reasonably likely to have a Material Adverse
Effect;
(c) there shall have occurred (i) any general suspension of trading
in, or limitation on prices (other than suspensions or limitations
triggered on the New York Stock Exchange by price fluctuations on a trading
day) for, securities on any national securities exchange or in the
over-the-counter market in the United States, (ii) a declaration of a
banking moratorium or any suspension of payments in respect of banks in the
United States, (iii) any material limitation (whether or not mandatory) by
any government or governmental, administrative or regulatory authority or
agency in the United States on, the extension of credit by banks or other
lending institutions, (iv) a commencement of a war directly involving the
United States and materially adversely affecting (or material delaying) the
consummation of the Offer or (v) in the case of any of the foregoing
existing at the time of commencement of the Offer, a material acceleration
or worsening thereof;
(d) it shall have been publicly disclosed or Acquisition shall have
otherwise learned that beneficial ownership (determined for the purposes of
this paragraph as set forth in Rule 13d-3 promulgated under the Exchange
Act) of more than 20% of the outstanding Shares has been acquired by any
corporation (including the Company or any of its subsidiaries or
affiliates), partnership, person or other entity or group (as defined in
Section 13(d)(3) of the Exchange Act), other than Parent or any of its
affiliates; or (ii) (A) the Board of Directors of the Company or any
committee thereof shall have withdrawn or modified in a manner adverse to
Parent or Acquisition the approval or recommendation of the Offer, the
Merger or the Merger Agreement, or approved or recommended any takeover
proposal or any other acquisition of Shares other than the Offer and the
Merger, (B) any such corporation, partnership, person or other entity or
group shall have entered into a definitive agreement or an agreement in
principle with the Company with respect to a tender offer or exchange offer
for any Shares or a merger, consolidation or other business combination
with or involving the Company or any of its subsidiaries, or (C) the Board
of Directors of the Company or any committee thereof shall have resolved to
do any of the foregoing;
(e) any of the representations and warranties of the Company set forth
in the Merger Agreement that are qualified by reference to materiality or a
Material Adverse Effect shall not be true and correct, or any such
representations and warranties that are not so qualified shall not be true
and correct in all material respects, in each case as if such
representations and warranties were made at the time of such determination;
(f) the Company shall have failed to perform in any material respect
any material obligation or to comply in any material respect with any
material agreement or material covenant of the Company to be performed or
complied with by it under the Merger Agreement;
(g) the Merger Agreement shall have been terminated in accordance with
its terms or the Offer shall have been terminated with the consent of the
Company; or
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(h) any waiting periods under the HSR Act applicable to the purchase
of Shares pursuant to the Offer or the Merger, and any applicable waiting
periods under any foreign statutes or regulations, shall not have expired
or been terminated;
(i) the Company shall have terminated the employment agreement of
Richard A. Stratton, without the prior written consent of Acquisition; or
(j) the Company shall not have obtained the consent of each member of
the Board of Directors of the Company to the cancellation of all options
held by such Directors as contemplated by the Merger Agreement;
which, in the reasonable judgment of Acquisition with respect to each and every
matter referred to above and regardless of the circumstances (except for any
action or inaction by Acquisition or any of its affiliates constituting a breach
of the Merger Agreement) giving rise to any such condition, makes it inadvisable
to proceed with the Offer or with such acceptance for payment of or payment for
Shares or to proceed with the Merger.
Conditions to the Merger. The Merger Agreement provides that the
respective obligations of each party to effect the Merger is subject to the
satisfaction, at or prior to the Effective Time, of each of the following
conditions: (i) if required by the MBCL, the Merger Agreement shall have been
adopted by the affirmative vote of the stockholders of the Company by the
requisite vote in accordance with the Company's articles of organization and the
MBCL; (ii) no statute, rule, regulation, executive order, decree, ruling,
injunction or other order (whether temporary, preliminary or permanent) shall
have been enacted, entered, promulgated or enforced by any United States,
foreign, federal or state court or governmental authority which prohibits,
restrains, enjoins or restricts the consummation of the Merger; (iii)
Acquisition shall have purchased Shares pursuant to the Offer; and (iv) any
waiting period applicable to the Merger under the HSR Act shall have terminated
or expired.
Termination; Fees and Expenses. The Merger Agreement provides that it may
be terminated at any time and the Offer and Merger may be abandoned at any time
prior to the Effective Time:
(a) by mutual written consent of Parent, Acquisition and the Company;
(b) by Parent or the Company if any court of competent jurisdiction or
other governmental body located or having jurisdiction within the United
States shall have issued a final order, injunction, decree, judgment or
ruling or taken any other final action restraining, enjoining or otherwise
prohibiting the Offer or the Merger and such order, injunction, decree,
judgment, ruling or other action is or shall have become final and
nonappealable;
(c) by Parent if due to an occurrence or circumstance which resulted
in a failure to satisfy any of the Offer Conditions, Acquisition shall have
(i) terminated the Offer or (ii) failed to pay for Shares pursuant to the
Offer on or prior to the Outside Date (as defined below);
(d) by the Company (only following the Outside Date, in the case of
clause (ii)(B) of this paragraph) if (i) there shall have been a material
breach of any covenant or agreement on the part of Parent or Acquisition
contained in the Merger Agreement which materially adversely affects
Parent's or Acquisition's ability to consummate (or materially delays
commencement or consummation of) the Offer, and which shall not have been
cured prior to the earlier of (A) 10 business days following notice of such
breach and (B) two business days prior to the date on which the Offer
expires, (ii) Acquisition shall have (A) terminated the Offer or (B) failed
to pay for Shares pursuant to the Offer on or prior to the Outside Date
(unless such termination or failure is caused by or results from the
failure of any representation or warranty of the Company to be true and
correct in any material respect or the failure of the Company to perform in
any material respect any of its covenants or agreements contained in the
Merger Agreement) or (iii) prior to the purchase of Shares pursuant to the
Offer, any person shall have made a bona fide offer to acquire the Company
(A) that the Board of Directors of the Company by majority vote determines
in its good faith judgment is more favorable to the Company and the
Company's stockholders than the Offer and the Merger and (B) as a result of
which the Board of Directors by
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majority vote determines in good faith, based upon the advice of outside
counsel to the Company, that it is obligated by its fiduciary obligations
under applicable law to terminate the Merger Agreement, provided that such
termination under this clause (iii) shall not be effective until the
Company has made payment of the full fee and expense reimbursement required
to be paid as described below; and
(e) by Parent prior to the purchase of Shares pursuant to the Offer,
if (i) there shall have been a breach of any representation, warranty,
covenant or agreement on the part of the Company contained in the Merger
Agreement which is reasonably likely to have a Material Adverse Effect on
the Company or which materially adversely affects (or materially delays)
the consummation of the Offer, which shall not have been cured prior to the
earlier of (A) 10 business days following notice of such breach and (B) two
business days prior to the date on which the Offer expires, (ii) the Board
shall have withdrawn or modified (including by amendment of the Schedule
14D-9) in a manner adverse to Acquisition its approval or recommendation of
the Offer, the Merger Agreement or the Merger or shall have recommended
another offer or transaction, or shall have resolved to effect any of the
foregoing, or (iii) the Minimum Condition shall not have been satisfied by
the expiration date of the Offer as it may have been extended pursuant
hereto and on or prior to such date (A) any person (including the Company
but not including Parent or Acquisition) shall have made a public
announcement, disclosure or communication to the Company with respect to a
Third Party Acquisition (as defined below) or (B) any person (including the
Company or any of its affiliates or subsidiaries), other than Parent or any
of its affiliates shall have become (and remain at the time of termination)
the beneficial owner of 20% or more of the Shares (unless such person shall
have tendered and not withdrawn such person's Shares pursuant to the
Offer). The "Outside Date" is the latest to occur (but in no event later
than 90 days following the date of the Merger Agreement) of (i) the date
that is 60 days following the date of the Merger Agreement and (ii)
provided that the Minimum Condition has been satisfied within 60 days
following the date of the Merger Agreement, the date on which either (x)
the applicable waiting period under the HSR Act shall have expired or been
terminated or (y) the final terms of a consent decree between Parent and
the appropriate governmental authority with respect to the Offer and the
Merger shall have been agreed to.
The Merger Agreement provides that if:
(i) (x) Parent terminates the Merger Agreement pursuant to
paragraph (e)(i) above and (y) prior to such termination a proposal or
offer with respect to a Third Party Acquisition shall have been made to
the Company and (z) within 12 months after such termination, the Company
enters into an agreement with respect to a Third Party Acquisition, or a
Third Party Acquisition occurs; or
(ii) (x) the Company terminates the Merger Agreement pursuant to
paragraph (d)(iii) above or (y) the Company terminates the Merger
Agreement pursuant to paragraph (d)(ii)(B) above and at such time Parent
would have been permitted to terminate the Merger Agreement under
paragraph (e)(ii) or (iii) above or (z) Parent terminates the Merger
Agreement pursuant to paragraph (e)(ii) or (iii) above;
then the Company shall pay to Parent and Acquisition, within three business days
following the execution and delivery of such agreement or such occurrence, as
the case may be, or simultaneously with any termination contemplated by
paragraph (a)(ii) above, a fee, in cash, of $5.5 million (less any amounts
previously paid as described in the next paragraph, provided, however, that the
Company in no event shall be obligated to pay more than one such fee with
respect to all such agreements and occurrences and such termination. "Third
Party Acquisition" means the occurrence of any of the following events: (i) the
acquisition of the Company by merger or similar business combination by any
person other than Parent, Acquisition or any affiliate thereof (a "Third
Party"); (ii) the acquisition by a Third Party of 20% or more of the book or
fair market value of the consolidated assets of the Company and its
subsidiaries, taken as a whole; or (iii) the acquisition by a Third Party of 20%
or more of the outstanding Shares.
The Merger Agreement provides that, upon the termination thereof (i) under
circumstances in which Parent shall have been entitled to terminate the
Agreement pursuant to paragraph (e)(i) above (whether or not expressly
terminated on such basis) or (ii) if any of the representations and warranties
of the Company
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contained in the Merger Agreement were untrue or incorrect in any material
respect when made and at the time of termination remained untrue or incorrect in
any material respect and such misrepresentation materially adversely affected
the consummation (or materially delayed commencement or consummation) of the
Offer, then the Company shall reimburse Parent, Acquisition and their affiliates
(not later than three business days after submission of statements therefor) for
all actual documented out-of-pocket fees and expenses actually incurred by any
of them or on their behalf in connection with the Offer and the Merger and the
consummation of all transactions contemplated by the Merger Agreement
(including, without limitation, fees and disbursements payable to financing
sources, investment bankers, counsel to Acquisition or Parent or any of the
foregoing, and accountants) up to a maximum amount of $1,000,000. Unless
required to be paid earlier pursuant to paragraph (d) above, the Company shall
in any event pay the amount requested within three business days of such
request, subject to the Company's right to demand a return of any portion as to
which invoices are not received in due course after request by the Company.
The Merger Agreement further provides that, except as otherwise
specifically provided therein, each party shall bear its own expenses in
connection with the Merger Agreement and the transactions contemplated thereby.
RECEIVABLES PURCHASE AGREEMENT
On September 16, 1999, TBS Business Services, Inc. ("TBS"), an affiliate of
Parent, purchased $49,999,881.48 outstanding principal amount of land loan
receivables from the Company at par pursuant to the terms of a Receivables
Purchase Agreement (the "RPA") dated September 16, 1999 by and between the
Company and TBS. Pursuant to a supplement to the RPA dated September 16, 1999 by
and between the Company and TBS, the Company obtained to the right to repurchase
the land loan receivables sold to TBS pursuant to the RPA at par at any time on
or prior to December 8, 1999.
CONFIDENTIALITY AGREEMENT
In connection with negotiations relating to the Offer and as a condition to
the Company providing any non-public information to Parent, the Company (through
its agent, CIBC World Markets Corp.) and Parent entered into a Confidentiality
Agreement, dated July 20, 1999 (the "Confidentiality Agreement"), which
generally provides that Parent and its representatives will keep confidential
any non-public information furnished to them by the Company. The foregoing
summary of certain provisions of the Confidentiality Agreement is qualified in
its entirety by reference to the Confidentiality Agreement, which is
incorporated herein by reference, and a copy of which is filed herewith as
Exhibit 3.
ACTUAL OR POTENTIAL CONFLICTS OF INTEREST
Indemnification of Officers and Directors and Insurance. Under the Merger
Agreement, the Company will indemnify each person who at any time has been or
becomes a director or officer prior to the Effective Time, and his heirs and
personal representatives, against all expenses incurred in connection with any
proceeding arising out of or pertaining to any action or omission occurring
prior to the Effective Time to the full extent permitted under Massachusetts law
and the Surviving Corporation's By-Laws in effect as of the Effective Time or
under any indemnification agreement in effect as of the date of the Merger
Agreement. Parent or the Surviving Corporation will, for a period of not less
than six (6) years following the Effective Time, maintain directors' and
officers' liability insurance covering each person presently covered by the
Company's officers' and directors' liability insurance or who will be so covered
at the Effective Time with respect to actions or omissions occurring prior to
the Effective Time, on terms no less favorable than such insurance maintained in
effect by the Company as of the date of the Merger Agreement in terms of
coverage and amounts; provided that the Parent and the Surviving Corporation
will not be required to pay in the aggregate an annual premium for directors'
and officers' liability insurance in excess of 150% of the last annual premium
paid prior to the date of the Merger Agreement; provided that the Parent and the
Surviving Corporation will be obligated to provide as much coverage as may be
obtained for such amount.
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Certain Transactions. James Westra, a director of the Company since April
1995, is a stockholder in the law firm of Hutchins, Wheeler & Dittmar, A
Professional Corporation, which provides counsel to the Company on various
matters including public debt and equity offerings and the Offer and the Merger.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) RECOMMENDATION OF THE BOARD OF DIRECTORS.
The Board of Directors has approved the Merger Agreement and the
transactions contemplated thereby and determined that each of the Offer and the
Merger is fair to, and in the best interests of, the Stockholders of the
Company. The Board of Directors recommends that all holders of Shares accept the
Offer and tender their Shares pursuant to the Offer.
(b) BACKGROUND; REASONS FOR THE RECOMMENDATION.
Reasons for the Transaction; Factors Considered by the Board.
In 1996, the Parent and the Company had discussions regarding a business
combination. The parties determined not to pursue a transaction at such time.
In the summer of 1998, the Company was approached by an investment banker
to consider an acquisition proposal from a commercial bank. After some
discussions with the inquiring bank, the Company retained CIBC World Markets
Corp. ("CIBC World Markets"), in July 1998, to serve as a financial advisor in
that proposed transaction. After a series of meetings with the inquiring bank,
it was concluded that the bank could not provide a form and level of
consideration acceptable to the Company. Due to the downturn in the capital
markets in the fall of 1998, the Company told its advisors that it would not
entertain any additional proposals.
In the spring of 1999, while the Company was developing its five-year
business plan, it decided to ask CIBC World Markets to assist in evaluating
means to fund its operations. The Company was exploring (i) the formation or
acquisition of an industrial loan corporation, a bank or unitary thrift; (ii) a
combination with a like-size specialty financial services company; (iii) a
strategic investment by a financial investor who would provide funding in
exchange for a minority interest in the Company; and (iv) the potential sale of
the Company.
An Offering Memorandum describing the Company was prepared in June of 1999.
CIBC World Markets approached eighty-three (83) large and mid-cap financial
services companies and financial investors in June and July of 1999. Of the
parties contacted by CIBC World Markets, forty-six (46) received a
Confidentiality Agreement, thirty-five (35) signed a Confidentiality Agreement
and thirty-four (34) subsequently received information on the Company. Parent
was not one of the parties to receive such information.
On June 30, 1999, Mr. David Wisen and Mr. Richard Mitterling, executive
officers of Parent, spoke on the telephone with Mr. Richard Stratton, President
and CEO of the Company, regarding an interest in exploring a possible business
combination with, or acquisition of, the Company.
On July 6, 1999, Messrs. Wisen, Mitterling and Stratton met in Hartford,
CT, to follow up their earlier telephonic discussions on the possibility of a
business combination.
On July 20, 1999, Parent executed a Confidentiality Agreement with CIBC
World Markets, as agent for the Company.
On July 22, 1999 Heather Sica and Ronald Rabidou met with representatives
of Parent in Hartford, CT to discuss the possibility of a business combination.
During the week of July 26, 1999 CIBC World Markets asked interested
parties to submit written preliminary non-binding indications of interest.
On August 10, 1999, the Company received a letter from Parent expressing
Parent's interest in acquiring 100% of the Common Stock of the Company for $24
per share in cash, or alternatively, some other amount of non-cash form of
consideration.
On August 18, 1999, Richard Stratton and Joseph Weingarten met with
representatives of Parent in Providence, RI, to further discuss the possibility
of a business combination.
15
<PAGE> 17
On August 19, 1999, the Company's Board of Directors had discussions with
representatives of CIBC World Markets, who detailed the efforts of CIBC World
Markets since the spring of 1999 in exploring potential third-party transactions
on behalf of the Company. The CIBC World Markets representatives advised the
Board that it was their belief that the dissemination of information to
interested parties, along with CIBC World Markets' subsequent negotiations with
several of the recipients of that information, constituted a sufficient market
check to determine whether the approximate valuation that Parent placed on the
Company represented fair value to the stockholders of the Company, and that on
the basis of those efforts they felt it was unlikely that a third party would
offer more than the price offered by Parent. Following a discussion among the
members of the Board of Directors with respect to the proposed transaction and
its timing, impact on employees and relation to the market in general, the Board
authorized the Company to enter into a letter of understanding with Parent (the
"Letter of Understanding") providing for the conduct of a due diligence review
by Parent and the concurrent negotiation of an acquisition agreement relating to
a potential acquisition of the Company by Parent, and all the relevant terms of
such an acquisition, including price, and further providing that, in
consideration of the mutual efforts being expended in connection therewith, for
the Company to agree to not solicit other indications of interest for a period
beginning with the acceptance by Parent of the Letter of Understanding and
ending on September 8, 1999; providing, however, that if Textron's Executive
Leadership Team determined to recommend the transaction to Textron's Board of
Directors, the non-solicitation period would extend to September 23, 1999.
On August 20, 1999, Parent executed the Letter of Understanding submitted
by the Company. On September 7, 1999, Parent informed the Company that Textron's
Executive Leadership Team had voted to recommend the proposed transaction to
Textron's Board of Directors, thus extending the non-solicitation period to
September 23, 1999 pursuant to the terms of the Letter of Understanding.
During the two weeks following August 20, 1999, representatives of the
Parent and the Company negotiated the various aspects of the proposed offer. As
a result of these negotiations, the Parent's offer was presented as a cash
tender offer for all of the outstanding shares of the Company's Common Stock,
followed by a merger of Acquisition, a subsidiary of Parent, with and into the
Company. Pursuant to Massachusetts law, such a merger would be subject to the
approval of two-thirds in interest of the holders of the Shares, or, if Parent
was able to obtain at least 90% of the outstanding Shares, the approval of the
Company's Board of Directors. The Parent also completed its due diligence review
of the Company, thereby obviating the need to include a due diligence condition
in the Merger Agreement.
On September 9, 1999, counsel for Parent presented a proposed form of
merger agreement (the "Merger Agreement") to the Company and its
representatives, who distributed it among the members of the Board of Directors
and discussed it with them.
On September 15, 1999, the Board of Directors met with its financial and
legal advisors to consider the proposed transaction. At this meeting, the
Company's advisors and members of senior management reported on the progress of
the proposed transaction, including the status of Parent's due diligence review,
the discussions management had conducted with Parent regarding the conduct of
the business following the consummation of the proposed transaction, the impact
of the proposed transaction on the Company's employees, and the possible roles
for members of current management following the proposed transaction. The
Company's legal advisor then outlined the material provisions of the draft
Merger Agreement from Parent, copies of which had been previously circulated to
the members of the Board. The representatives from CIBC World Markets explained
the approach CIBC World Markets would take over the upcoming week in order to
assess the fairness, from a financial point of view, of the proposed
transaction. A discussion followed among the members of the Board of Directors
with respect to the proposed transaction and its timing, impact on employees,
and relation to the market in general. In particular, they noted that the terms
of the Merger Agreement permitted the Board of Directors, if required in the
exercise of the Board's fiduciary duties, to withdraw its recommendation of the
Merger and to accept an acquisition proposal which is more favorable to the
stockholders of the Company upon payment of a break up fee and expense
reimbursement.
The parties further negotiated the terms of the proposed Merger Agreement
during the following seven days. During this period, the Company continued to
conduct price negotiations with Parent. In addition, Parent negotiated the terms
of an employment agreement with Richard A. Stratton, President and Chief
16
<PAGE> 18
Executive Officer of the Company, covering the period following the Merger, with
the understanding that such employment agreement would be signed
contemporaneously with the Merger Agreement.
On September 22, 1999, the Board of Directors of the Company met to discuss
the status of the offer from the Parent. The Directors discussed at length the
changes which had been made to the offer, including the final offering price of
$24.50 per share. CIBC World Markets also delivered to the Directors its oral
opinion that the consideration offered by the Parent was fair to the
Stockholders of the Company from a financial point of view. At approximately
4:45 p.m., by unanimous vote of all of the Directors present, the Board
determined the Merger to be fair and in the bests interests of the Company and
its stockholders, approved the Merger Agreement and the transactions
contemplated thereby, including the Merger, and recommended that the
stockholders vote in favor of approval and adoption of the Merger Agreement and
the transactions contemplated thereby. The Company and the Parent issued a joint
press release to such effect prior to the opening of the market on the following
day. The Board of Directors also considered whether it was appropriate to
approve a severance agreement for Joseph Weingarten. After careful
consideration, the Board of Directors determined that it was in the best
interest of the Stockholders to insure that all members of senior management be
given appropriate assurances that they would receive severance benefits in the
event that their employments were terminated following an acquisition by the
Parent. Accordingly, the Board of Directors authorized the execution of the
severance agreement with Mr. Weingarten pursuant to which he will be entitled to
receive the same severance benefits as all other members of the Company's senior
management.
The Board of Directors, by unanimous vote of all of the Directors present,
approved the Merger Agreement and the transactions contemplated thereby and
determined that each of the Offer and the Merger is fair to, and in the best
interest of, the stockholders of the Company. The Board of Directors recommends
that all stockholders tender their Shares in response to the Offer and vote
their Shares in favor of the Merger.
In approving the Merger Agreement and the transactions contemplated
thereunder, and recommending that all stockholders tender their Shares in
response to the Offer and vote for Shares in favor of the Merger Agreement, the
Board of Directors considered the following material factors:
The Board of Directors and the Company's senior management have reviewed
the Company's strategic position in the specialty finance industry, the near and
longer term prospects for that industry, the consolidation trends within that
industry and the strategic alternatives available to the Company, all with a
view to maximizing stockholder value. In conducting its review, the Board of
Directors considered the Company's results of operations for the quarter ended
June 30, 1999, and for the six months then ended. The Board of Directors also
considered the recent trading prices of the Company's Common Stock. In light of
the Board's review of the Company's competitive position, recent operating
results and stock price, anticipated trends in the industry in which the Company
competes, and the price per Share being offered by Parent, the Board of
Directors determined that it would be in the best interest of the Company's
stockholders to approve the Merger Agreement. In approving the Merger Agreement
and the transactions contemplated thereby and recommending that all holders of
Shares of the Company's Common Stock tender their Shares pursuant to the Offer,
the Board of Directors considered the following material factors:
(i) the terms of the Merger Agreement, and the fact that they were the
product of arm's length negotiations among the parties;
(ii) the trading price of shares of the Company's Common Stock since
its initial public offering, recent trends and the expected trading prices
for the foreseeable future;
(iii) the Company's projected financial performance, competitive
position and current trends in the specialty finance industry;
(iv) the results of the Company's discussions during 1998 and 1999,
and the results of the process undertaken by the Company in 1998 and 1999,
with respect to a potential sale of the Company, and the low likelihood
that a third party would propose a cash price higher than Parent's $24.50
per share;
(v) the fact that Textron's offer was not subject to a financing
contingency or a contingency linked to the condition of the securities or
financial markets generally, but rather was subject only to the usual and
customary conditions;
17
<PAGE> 19
(vi) views expressed by senior management at the meetings of the Board
of Directors held on August 19, 1999, September 15, 1999 and September 22,
1999 with respect to the results of operations of the Company;
(vii) the financial presentation of CIBC World Markets to the Board in
connection with the Offer and Merger, including its written opinion dated
September 22, 1999, to the effect that, as of such date and based upon and
subject to certain matters stated in its opinion, the $24.50 per Share cash
consideration to be received in the Offer and Merger by holders (other than
Parent and its affiliates) of Shares pursuant to the Merger Agreement was
fair, from a financial point of view, to such holders. The full text of
CIBC World Markets' written opinion dated September 22, 1999, which sets
forth the assumptions made and matters considered, is attached hereto as
Exhibit 5, and is incorporated herein by reference. CIBC World Markets'
opinion is directed only to fairness, from a financial point of view, of
the $24.50 per Share cash consideration to be received by holders of Shares
(other than Parent and its affiliates) pursuant to the Offer and the Merger
Agreement, and is not intended to constitute, and does not constitute, a
recommendation as to whether any stockholder should tender Shares pursuant
to the Offer. HOLDERS OF SHARES ARE URGED TO READ THE OPINION OF CIBC WORLD
MARKETS CAREFULLY IN ITS ENTIRETY;
(viii) the fact that the terms of the Merger Agreement allow the Board
of Directors, if required by the Board's fiduciary duties, to withdraw its
recommendation of the Merger to accept an acquisition proposal which is
more favorable to the stockholders upon payment of a reasonable breakup fee
and reimbursement of expenses;
(ix) the fact that an affirmative vote of two-thirds of the
outstanding shares of the Company is required to approve and adopt the
Merger Agreement; and
(x) the availability of the dissenters' rights of appraisal in the
Merger.
The Board of Directors did not assign relative weight to the above factors
or determine that any factor was of particular importance. Rather, the Board of
Directors viewed its position and recommendations as being based on the totality
of the information presented to and considered by it.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
For its services in connection with the Merger, the Company shall pay CIBC
World Markets a total transaction fee of approximately $2,286,250 (the
"Transaction Fee"). Of the Transaction Fee, $50,000 was paid upon the execution
of the engagement letter with CIBC World Markets, $250,000 was paid upon
delivery of CIBC World Markets' oral opinion as the fairness, from a financial
point of view, of the consideration to be received by the Company's stockholders
(the "Opinion Fee") and the balance becomes payable upon consummation of the
Merger. The Company also has agreed to reimburse CIBC World Markets for its
reasonable out-of-pocket expenses, including the fees and expenses of legal
counsel and other advisors, and to indemnify CIBC World Markets and certain
related persons or entities against certain liabilities, including liabilities
under the federal securities laws, relating to or arising out of its engagement.
In the ordinary course of its business, CIBC World Markets and its affiliates
may actively trade the debt and equity securities of Parent for their own
account and for the accounts of customers and, accordingly, may at any time hold
a long or short position in such securities.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) No transactions in the Shares have been effected during the past sixty
(60) days by the Company or, to the best of the Company's knowledge, by any
executive officer, director, affiliate or subsidiary of the Company, other than
the following: (i) on August 19, 1999, the Company granted options for the
purchase of 645 Shares, with an exercise price of $18.00 per Share, to each of
James Zinn, Jim Westra, Gerald Segel, Grant Wilson and Eugene McMahon, (ii) on
August 19, 1999, the Company granted an option for the purchase of 10,000
Shares, with an exercise price of $18.00 per Share, to Joseph Weingarten, and
(iii) on
18
<PAGE> 20
September 13, 1999, the Company granted an option for the purchase of 100
Shares, with an exercise price of $18.00 per Share, to Michele Bartlett.
(b) To the best of the Company's knowledge, to the extent permitted by
applicable securities laws, rules or regulations, all of the Company's executive
officers, directors and affiliates who own Shares presently intend to tender
such Shares to Parent pursuant to the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY SUBJECT COMPANY.
(a) Except as set forth herein, the Company is not engaged in any
negotiation in response to the Offer which relates to or would result in (i) an
extraordinary transaction, such as a merger or reorganization, involving the
Company or any subsidiary of the Company; (ii) a purchase, sale or transfer of a
material amount of assets by the Company or any subsidiary of the Company; (iii)
a tender offer for or other acquisition of securities by or of the Company; or
(iv) any material change in the present capitalization or dividend policy of the
Company.
(b) Except as set forth herein, there are no transactions, Board of
Directors' resolutions, agreements in principle or signed contracts in response
to the Offer that relate to or would result in one or more of the events
referred to in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
The Information Statement attached hereto as Annex A is being furnished
pursuant to Rule 14f-1 under the Exchange Act in connection with the possible
designation by Parent and Acquisition, pursuant to the Merger Agreement, of
certain persons to be appointed to the Board of Directors other than at a
meeting of the Company's stockholders.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
Exhibit-1 Agreement and Plan of Merger, dated as of September 22,
1999, by and among Litchfield Financial Corporation, Textron
Financial Corporation and Lighthouse Acquisition Corp.
Exhibit-2 Form of Severance Agreement.
Exhibit-3 Confidentiality Agreement.
Exhibit-4 Chapter 156B, Sections 86 to 98, Massachusetts Business
Corporation Law.
Exhibit-5 Opinion of CIBC World Markets Corp.*
Exhibit-6 Press Release issued by Litchfield Financial Corporation,
dated September 23, 1999.
Exhibit-7 Letter to Stockholders of Litchfield Financial Corporation.*
</TABLE>
- ---------------
* Included in copies mailed to Stockholders.
19
<PAGE> 21
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
LITCHFIELD FINANCIAL CORPORATION
By: /s/ RICHARD A. STRATTON
------------------------------------
Richard A. Stratton
President and Chief Executive
Officer
Dated: September 29, 1999
20
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
Exhibit-1 Agreement and Plan of Merger, dated as of September 22,
1999, by and among Litchfield Financial Corporation, Textron
Financial Corporation and Lighthouse Acquisition Corp.
Exhibit-2 Form of Severance Agreement.
Exhibit-3 Confidentiality Agreement.
Exhibit-4 Chapter 156B, Sections 86 to 98, Massachusetts Business
Corporation Law.
Exhibit-5 Opinion of CIBC World Markets Corp.*
Exhibit-6 Press Release issued by Litchfield Financial Corporation,
dated September 23, 1999.
Exhibit-7 Letter to Stockholders of Litchfield Financial Corporation.*
</TABLE>
- ---------------
* Included in copies mailed to Stockholders.
<PAGE> 23
ANNEX A
LITCHFIELD FINANCIAL CORPORATION
430 MAIN STREET
WILLIAMSTOWN, MASSACHUSETTS 01267
------------------------
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about September 29, 1999,
as part of the Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") to holders of the Common Stock of Litchfield Financial
Corporation (the "Corporation"). Capitalized terms used and not otherwise
defined herein shall have the meaning set forth in the Schedule 14D-9. You are
receiving this Information Statement in connection with the possible election of
persons (the "Parent Designees") designated by Textron Financial Corporation
(the "Parent") to a majority of the seats on the Board of Directors of the
Corporation.
Pursuant to the Merger Agreement, on September 29, 1999, Lighthouse
Acquisition Corp. commenced the Offer. The Offer is scheduled to expire at 12:00
Midnight on October 27, 1999, unless otherwise extended.
The information contained in this Information Statement (including
information incorporated by reference) concerning Parent and Lighthouse
Acquisition Corp. and the Parent Designees has been furnished to the Corporation
by Parent and Lighthouse Acquisition Corp., and the Corporation assumes no
responsibility for the accuracy or completeness of such information.
GENERAL INFORMATION REGARDING THE CORPORATION
GENERAL
The common stock, $.01 par value per share ("Common Stock"), is the only
class of voting securities of the Corporation outstanding. Each share of Common
Stock has one vote. As of September 22, 1999, there were 6,984,601 shares of
Common Stock outstanding. The Corporation does not have any treasury shares. The
Board of Directors of the Corporation currently consists of eight (8) members
and there are currently no vacancies on the Board. The Board of Directors has
three classes and each director serves a term of three years until his successor
is duly elected and qualified or until his earlier death, resignation or
removal.
PARENT DESIGNEES
The Merger Agreement provides that effective upon the purchase and payment
for shares by Lighthouse Acquisition Corp., the Parent shall have the right to
designate that portion of the Board of Directors of the Corporation equal to the
percentage of Common Stock owned by Parent and Lighthouse Acquisition Corp.
combined, and such designees shall become directors of the Corporation.
Lighthouse Acquisition Corp. is a wholly owned subsidiary of the Parent. At such
time, certain of the current directors will resign.
A-1
<PAGE> 24
DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION
DIRECTORS OF THE CORPORATION
The names of the current directors, their ages, their positions with the
Corporation, the period during which they have served as directors and their
principal occupations and other directorships held by them are set forth below.
As indicated above, some of the current directors may resign effective
immediately following the purchase of shares by Lighthouse Acquisition Corp.
pursuant to the Offer.
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED A
NAME OF DIRECTOR AGE DIRECTOR POSITION WITH THE CORPORATION
---------------- --- ---------- -----------------------------
<S> <C> <C> <C>
Term ending in 2002:
James Zinn 45 1999 Formerly Chief Financial Officer of LifeMinders.com.
Chief Financial Officer of Capital One Financial
Corporation from 1994 to 1999. Prior to that, a
financial services partner at Ernst & Young, LLP,
consulting on emerging financial services,
accounting, auditing and other business issues.
Gerald Segel 78 1989 Prior to his retirement in May 1990, was Chairman of
Tucker Anthony Incorporated, an investment banking
company, from 1987 through 1990. Also a Director of
Hologic, Inc., Vivid Technologies, Inc. and Boston
Communications Group, Inc. Received his AB from
Harvard College.
Heather A. Sica 37 1995 Executive Vice President of the Company since 1991.
Treasurer of the Company from 1991 to 1998 and Chief
Financial Officer of the Company from 1991 to 1995.
Vice President of the Company from 1989 to 1991.
Prior to joining the Company, was an associate with
the Real Estate Group of General Electric Investment
Corporation and a certified public accountant with
KPMG Peat Marwick. Received her BS in Business
Administration from the University of Vermont and
her MBA from the Wharton School of the University of
Pennsylvania.
Term ending in 2001:
Eugene McMahon 59 1999 Management consultant since 1997, specializing in
financial services consulting. Retired partner from
Ernst & Young, LLP after 32 years, including 21 as a
partner, specializing in the financial services
industry.
Grant Wilson 57 1999 Since 1978, a private investor who organized or
co-founded over 30 businesses. Director of Guilford
Mills, New Balance Athletic Shoes, Austin Financial
Services, Inc. and Cape Air, Inc.
</TABLE>
A-2
<PAGE> 25
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED A
NAME OF DIRECTOR AGE DIRECTOR POSITION WITH THE CORPORATION
---------------- --- ---------- -----------------------------
<S> <C> <C> <C>
John A. Costa 43 1995 Executive Vice-President of the Corporation since
March 1999. Previously at Cardholder Management
Services, a credit card servicing business since
1995, serving first as Managing Director of Planning
and Business Development and then as Senior Vice
President. Served as a consultant to corporate
clients from 1992 to 1995 in areas that include
mergers and acquisitions, financial modeling, asset
securitization and lending facility development.
Previously served as Director of Consumer Finance
with U.S. West Financial Services Inc. in 1992 and
as Director of Structured Finance for Arsht &
Company, Inc. from 1990 to 1992. Received his BA
from New York University.
Term ending in 2000:
James Westra 47 1995 Stockholder of the law firm of Hutchins, Wheeler &
Dittmar, A Professional Corporation, where he has
practiced law since 1977. Mr. Westra graduated from
Harvard College in 1973 and from Boston University
Law School in 1977.
Richard A. Stratton 49 1988 Co-founder of the Company and has been the Chief
Executive Officer of the Company since 1996 and
President of the Company since 1988. Prior to
joining the Company, served as Vice President of
Finance for Patton Corporation and Vice President of
Marketing for Summit Software Technology, Inc. and
held senior marketing and management positions with
the Gillette Company and the American Appraisal
Company in Boston, Massachusetts. Graduate of The
College of The Holy Cross.
</TABLE>
There are no family relationships among any of the directors or executive
officers of the Corporation.
INFORMATION CONCERNING THE BOARD OF DIRECTORS OF THE CORPORATION
During fiscal 1998, there were four (4) meetings of the Board of Directors
of the Corporation and, additionally, the Board acted by unanimous written
consent four (4) times. All of the directors attended at least 75% of the
aggregate of (i) the total number of meetings of the Board of Directors during
which they served as director and (ii) the total number of meetings held by
committees of the Board of Directors on which they served. The Board of
Directors has established an Audit Committee, a Stock Option Committee and a
Compensation Committee. The Board of Directors does not have a Nominating
Committee.
During fiscal 1998 there was one (1) meeting of the Audit Committee of the
Board of Directors. The Audit Committee of the Board of Directors reviews, with
the Corporation's independent auditors, the scope of the audit for the year, the
results of the audit when completed, and the independent auditors' fees for
services performed. The Audit Committee also recommends independent auditors to
the Board of Directors and reviews, with management, various matters related to
its internal accounting controls. The present members of the Audit Committee are
James Zinn, Eugene McMahon and Gerald Segel.
The Corporation also has a Stock Option Committee, whose purpose is to
administer the Corporation's 1990 Stock Option Plan. The present members of the
Stock Option Committee are John Costa, Gerald Segel and James Westra. The Stock
Option Committee met on one occasion in 1998 and granted options to purchase an
aggregate of 159,952 shares to employees of the Corporation.
A-3
<PAGE> 26
The Corporation also has a Compensation Committee whose functions include
reviewing and approving the compensation of directors, officers and key
employees. The present members of the Compensation Committee are Gerald Segel,
Grant Wilson and Richard Stratton. The Compensation Committee met one time
during fiscal 1998.
EXECUTIVE OFFICERS OF THE CORPORATION
The names of the current executive officers, their ages, their positions
with the Corporation and their prior business experience during the past five
years are set forth below.
Richard A. Stratton, 49 years old, has been the Chief Executive Officer of
the Company since 1996 and President of the Company since 1998. See "Directors
of the Corporation" above.
Heather A. Sica, 37 years old, has been an Executive Vice President of the
Company since 1991. See "Directors of the Corporation" above.
Ronald E. Rabidou, 48 years old, has been an Executive Vice President and
Treasurer since 1998 and Chief Financial Officer of the Company since May 1995.
Prior to joining the Company, Mr. Rabidou was a certified public accountant with
Ernst & Young LLP from 1987 to May 1995. Mr. Rabidou received his MBA and BA
from the University of Massachusetts.
Joseph S. Weingarten, 34 years old, has been an Executive Vice President of
the Company since 1998. He served as a Senior Vice President of the Company from
1997 to 1998. Prior to joining the Company, Mr. Weingarten served from 1993 to
1997 in the Structured Finance Group of ING Capital, most recently a Vice
President, originating and managing structured leading and asset-backed
securitization transactions, with an emphasis on specialty finance companies.
Previously, he served as the Manager of Portfolio Administration for US West
Financial Services, Inc., and as a certified public accountant for Arthur
Anderson & Company. Mr. Weingarten received his BA from New York University.
John A. Costa, 43 years old, has been an Executive Vice President of the
Company since March 1999. See "Directors of the Corporation" above.
Wayne M. Greenholtz, 58 years old, has been a Senior Vice President of the
Company since April 1995. Prior to joining the Company, Mr. Greenholtz was the
Senior Vice President of Operations for Government Employees Financial
Corporation, a subsidiary of GEICO Corporation, from 1989 to 1995. Mr.
Greenholtz is a graduate of the University of Maryland.
John J. Malloy, 42 years old, has been a Senior Vice President and General
Counsel of the Company since January 1998. Prior to joining the Company, Mr.
Malloy was an attorney in private practice from 1986 to 1997 at Battle Fowler
LLP, New York, New York, where he was a partner in the corporate department. Mr.
Malloy received his BA from Carleton College and his JD from Rutgers University
School of Law.
James Shippee, 38 years old, has been Senior Vice President of Mortgage
Operations since 1989. Prior to joining the Company, Mr. Shippee was Vice
President of Patten Financial Services from 1987 to 1989.
James Yearwood, 51 years old, has been a Senior Vice President of the
Company since 1998 after joining the Company in 1992 as a Vice President in
charge of vacation ownership receivable funding. He served as a First Vice
President of the Company from 1996 to 1998. Prior to joining the Company, Mr.
Yearwood was a Vice President with Del-Val Capital Corporation from 1989 to 1991
where he specialized in vacation ownership receivable lending. Mr. Yearwood
graduated from Southern Connecticut State University.
A-4
<PAGE> 27
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
SUMMARY COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain information concerning compensation
paid to the Company's Chief Executive Officer and each of the other Named
Executive Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL ------------
COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
SALARY BONUS OPTIONS COMPENSATION(A)
NAME AND POSITION YEAR ($) ($) (#) ($)
----------------- ---- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Richard A. Stratton............ 1998 $245,000 $190,000 -- $ 8,000
Chief Executive Officer 1997 175,000 225,000 -- 8,000
1996 215,000 248,646 94,501 7,500
Ronald E. Rabidou.............. 1998 $130,000 $ 70,000 32,500 $ 8,000
Executive Vice President, 1997 125,000 32,500 -- 7,729
Chief Financial Officer and 1996 115,000 30,000 5,250 6,490
Treasurer
Heather A. Sica................ 1998 $150,000 $ 75,000 15,000 $ 8,000
Executive Vice President 1997 150,000 50,000 -- 8,000
1996 115,000 30,000 5,250 6,400
Joseph S. Weingarten(b)........ 1998 $132,500 $165,000 30,000 $ 8,000
Executive Vice President 1997 86,000 90,000 30,000 66,000
John J. Malloy(c).............. 1998 $150,000 $ 35,000 35,000 $79,750
Senior Vice President,
General Counsel and Clerk
</TABLE>
- ---------------
(a) Represents contributions to Litchfield Financial Corporation Employee 401(k)
Plan in 1998. In the case of Mr. Weingarten, also includes $66,000 of
reimbursement to Mr. Weingarten for relocation expenses in 1997. In the case
of Mr. Malloy, also includes $76,000 of reimbursement to Mr. Malloy for
relocation expenses in 1998.
(b) Mr. Weingarten joined the Company in April of 1997.
(c) Mr. Malloy joined the Company in January of 1998.
GRANTS OF STOCK OPTION
The following tale sets forth certain information with respect to
individual grants of stock options to the Named Executive Officers during the
year ended December 31, 1998.
<TABLE>
<CAPTION>
1998 OPTION GRANTS
INDIVIDUAL GRANTS
------------------------------------------------ POTENTIAL REALIZABLE
NUMBER OF % OF VALUE AT ASSUMED
SECURITIES TOTAL PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
GRANTED EMPLOYEES PRICE EXPIRATION ---------------------
(#) IN 1998 ($/SH) DATE 5%($) 10%($)
---------- ---------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Ronald E. Rabidou................ 7,500(b) 4.7% $21.00 2/5/08 $ 99,068 $251,055
Executive Vice President, Chief 25,000(a) 15.7 12.69 10/13/08 199,511 505,597
Financial Officer And Treasurer
</TABLE>
A-5
<PAGE> 28
<TABLE>
<CAPTION>
1998 OPTION GRANTS
INDIVIDUAL GRANTS
------------------------------------------------ POTENTIAL REALIZABLE
NUMBER OF % OF VALUE AT ASSUMED
SECURITIES TOTAL PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
GRANTED EMPLOYEES PRICE EXPIRATION ---------------------
(#) IN 1998 ($/SH) DATE 5%($) 10%($)
---------- ---------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Heather A. Sica.................. 15,000(a) 9.4 12.69 10/13/08 119,707 303,358
Executive Vice President
Joseph S. Weingarten............. 5,000(b) 3.1 21.00 2/5/08 66,045 167,370
Executive Vice President 25,000(a) 15.7 12.69 10/13/08 199,511 505,597
John J. Malloy................... 25,000(c) 15.7 19.00 1/8/08 298,775 757,150
Senior Vice President, General 10,000(a) 6.3 12.69 10/13/08 79,804 202,239
Counsel and Clerk
</TABLE>
- ---------------
(a) The options will vest 33.33% each year on December 31, 1999, 2000 and 2001,
subject to certain performance related requirements, and in any case, ten
years from the grant date. The assumed annual rates of appreciation of five
and ten percent would result in the price of the Company's stock increasing
to $20.67 and $32.91, respectively.
(b) The options vested 33.33% on December 31, 1998 and will best 33.33% each
year on December 31, 1999 and 2000, subject to certain performance related
requirements, and in any case, ten years from the grant date. The assumed
annual rates of appreciation of five and ten percent would result in the
price of the Company's stock increasing to $34.21 and $54.47, respectively.
(c) The options will vest 25% each year on January 1, 1999, 2000, 2001 and 2002.
The assumed annual rates of appreciation of five and ten percent would
result in the price of the Company's stock increasing to $30.95 and $49.29,
respectively.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUE
Set forth in the table below is information concerning the value of stock
options held at the end of the year ended December 31, 1998 by Named Executive
Officers of the Company.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE 1998 DECEMBER 31, 1998
----------- -------- --------------------------- ---------------------------
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
(#) ($) (#) (#) ($) ($)
----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Stratton........... -- -- 268,393 -- $2,099,003 --
Chief Executive Officer
and President
Heather A. Sica............... -- -- 139,283 15,000 $1,524,663 $ 94,688
Executive Vice President
Ronald E. Rabidou............. -- -- 28,422 36,891 $ 192,828 $209,049
Executive Vice President
Chief Financial Officer
and Treasurer
Joseph S. Weingarten.......... -- -- 9,167 50,833 $ 34,688 $261,875
Executive Vice President
John J. Malloy................ -- -- -- 35,000 -- $ 63,125
Senior Vice President,
General Counsel and Clerk
</TABLE>
A-6
<PAGE> 29
COMPENSATION OF DIRECTORS
Each outside director receives an annual retainer of $6,000, a $750 fee for
each meeting attended and reimbursement of expenses. In addition, Mr. Segel has
been granted options to purchase 8,682, 8,682, 1,448, 1,838, 2,000, 2,000, 2,000
and 645 shares of Common Stock at exercise prices of $4.61, $6.19, $11.23,
$12.02, $20.38, $22.00, $17.25, and $18.00 per share, respectively. Mr. Westra
has been granted options to purchase 5,513, 2,000, 2,000, 2,000 and 645 shares
of Common Stock at exercise prices of $12.02, $20.38, $22.00, $17.25 and $18.00
per share, respectively. Mr. Costa has been granted options to purchase 5,513,
2,000 and 2,000 shares of Common Stock at exercise prices of $12.02, $20.38 and
$22.00 per share, respectively. Each of Messrs. Zinn, Wilson and McMahon has
been granted options to purchase 5,000 and 645 shares of Common Stock at
exercise prices of $16.88 and $18.00 per share, respectively.
EMPLOYEE AGREEMENTS, CHANGE OF CONTROL SEVERANCE AGREEMENTS,
STOCK OPTION PLANS
EMPLOYMENT AGREEMENTS
On July 19, 1996 the Company entered into an amended and restated
employment agreement with Richard A. Stratton. The agreement provided for an
annual base salary of $215,000 from January 1, 1996 to December 31, 1996,
$225,000 from January 1, 1997 to December 31, 1997 and $245,000 from January 1,
1998 to December 31, 1998. By subsequent agreement with the Company, the base
salary for the period January 1, 1997 to December 31, 1997 was reduced to
$175,000. The agreement also provided that the Company shall pay to Mr. Stratton
a bonus with respect to the year ended December 31, 1996 equal to 2.9% of the
Company's pretax income (as defined therein) for that year, if the earnings per
share (as defined therein) of the Company for that year was equal to at least
115% of the earnings per share of the Company for the immediately preceding
year. Additionally, the employment agreement provided the Company shall pay to
Mr. Stratton a bonus with respect to each of the years ended December 31, 1997
and 1998 equal to his base salary (prior to the reduction in 1997 described
above), if the earnings per share of such year equal at least 118% of earnings
per share of the Company for the immediately preceding year. For the year ended
December 31, 1998, the maximum bonus Mr. Stratton could have received amounted
to $245,000, since the earnings per share of the Company for 1998 equaled at
least 118% of the earnings per share of the Company for the immediately
preceding year. A bonus of $190,000 was accrued in 1998 pursuant to this
agreement.
The amended and restated agreement also provided that upon election by the
Company, by written notice to the employee within 30 days following termination
of employment for any reason, Mr. Stratton would not engage in any business or
render any services to any business in the United States with which the Company
had a current relationship or pending relationship at the date of termination in
any capacity for a period of the first to occur of 12 months (18 months in
certain circumstances) following (i) termination or (ii) December 31, 1998 if
such business is competitive with any product or service being developed,
produced or marketed by the Company at the time of such termination. If the
Company elected to enforce the non-competition provision, it would have paid Mr.
Stratton his base salary in effect on the date of termination and one-half of
the bonus paid to Mr. Stratton for the year immediately preceding the year in
which termination occurred during the non-competition period. The agreement
expired on December 31, 1998.
On July 19, 1996, the Company entered into an employment agreement with
Heather A. Sica which called for Ms. Sica to receive a base salary of $150,000
per year through December 31, 1998. In addition, Ms. Sica received a bonus for
each of the years ended December 31, 1996, 1997 and 1998 equal to one half of
the aggregate base salary and bonus paid or payable to Richard A. Stratton for
that year reduced by the base salary paid to her for that year. A bonus of
$75,000 was accrued in 1998 pursuant to this agreement. Ms. Sica's agreement
contained a non-competition provision substantially the same as Mr. Stratton's
agreement. The agreement expired on December 31, 1998.
On March 17, 1997, the Company entered into an employment agreement with
Joseph S. Weingarten pursuant to which Mr. Weingarten serves as an Executive
Vice President of the Company. The term of Mr. Weingarten's employment under
this agreement is from April 7, 1997 to March 30, 2000. The agreement
A-7
<PAGE> 30
provides for an annual salary at a rate of $125,000 from April 7, 1997 to March
30, 1998, $135,000 from April 1, 1998 to March 30, 1999, and $145,000 from April
1, 1999 to March 30, 2000. In addition, Mr. Weingarten was eligible for a total
bonus of $120,000 in 1997 and is eligible for total bonuses of $135,000 and
$145,000 in 1998 and 1999, respectively. The bonuses are comprised of a
discretionary portion based on performance versus agreed upon goals and a
mandatory portion based on earnings per share growth (as defined therein) to the
extent the earnings per share growth exceeds 10%. The discretionary portions are
$40,000, $45,000 and $45,000 for 1997, 1998 and 1999, respectively. For each
percentage increase in earnings per share over 10% but less than 15%, Mr.
Weingarten will receive bonuses of $7,500, $8,500 and $9,500 in 1997, 1998 and
1999 respectively. For each percentage increase in earnings per share from 15%
to 20%, Mr. Weingarten will receive bonuses of $8,500, $9,500 and $10,500, in
1997, 1998 and 1999, respectively. In 1998, a bonus of $30,000 was paid and a
bonus of $135,000 was accrued pursuant to this agreement.
Mr. Weingarten's employment agreement provides that upon election by the
Company, by written notice to the employee within 30 days following termination
of employment for any reason, Mr. Weingarten will not engage in any business or
render any services to any business in the United States with which the Company
has a current relationship or pending relationship at the date of termination in
any capacity for a period of the first to occur of 12 months (18 months in
certain circumstances) following (i) termination or (ii) March 30, 2000 if such
business is competitive with any product or service being developed, produced or
marketed by the Company at the time of such termination. If the Company elects
to enforce the non-competition provision, it has agreed to pay Mr. Weingarten
his base salary in effect on the date of termination and one-half of the bonus
paid to Mr. Weingarten for the year immediately preceding the year in which
termination occurs during the non-competition period.
On January 1, 1998, the Company entered into an employment agreement with
John J. Malloy, pursuant to which Mr. Malloy serves as a Senior Vice President
and General Counsel of the Company. The term of Mr. Malloy's employment under
this agreement is from January 1, 1998 until December 31, 2000. The agreement
provides for an annual salary at a rate of $150,000 from January 1, 1998 to
December 31, 1998, $155,000 from January 1, 1999 to December 31, 1999 and
$160,000 from January 1, 2000 until December 31, 2000. In addition, Mr. Malloy
was eligible for a total bonus of $15,000 in 1998 and is eligible for total
bonuses of $20,000 and $25,000 in 1999 and 2000, respectively. The bonuses are
based on earnings per share growth (as defined therein) to the extent earnings
per share growth exceeds 10%. For each percentage increase in earnings per share
over 10% but less than 15%, Mr. Malloy will receive bonuses of $1,250, $1,750
and $2,250 in 1998, 1999 and 2000, respectively. For each percentage increase in
earnings per share from 15% to 20%, Mr. Malloy will receive bonuses of $1,500,
$2,000 and $2,500 in 1998, 1999 and 2000, respectively. A bonus of $35,000 was
accrued in 1998 pursuant to this agreement. Mr. Malloy's agreement contains a
non-competition provision substantially the same as Mr. Weingarten's.
CHANGE OF CONTROL SEVERANCE AGREEMENTS
On July 19, 1996, the Company entered into an agreement with Ronald E.
Rabidou which calls for the Company to pay Mr. Rabidou severance compensation
equal to his total annual compensation including benefits in the event his
position is eliminated, his responsibilities are materially altered or his
compensation is diminished following a sale or change in control of the Company.
On January 1, 1999, the Company entered into Severance Agreements (the
"Severance Agreements") with each of Richard A. Stratton, Heather A. Sica and
Ronald E. Rabidou (the "Executives"). On March 22, 1999, the Company entered
into a severance agreement with John Costa containing substantially the same
terms and conditions as the Severance Agreements. Each Severance Agreement
provides that if, following a Transaction (as defined in the Severance
Agreement), the Executive's employment has been terminated by the Company for
any reason, other than Cause (as such term is defined therein) or the death or
disability of the Executive, or by the Executive for Good Reason (as such term
is defined therein), then the Company will pay the Executive, a lump sum equal
to the higher of (i) the Executive's total salary and bonus for the most
recently completed fiscal year, and (ii) the Executive's total annualized salary
and bonus, based on the partial fiscal year in which the date of termination
occurs (the "Severance Payment"). In addition to such lump-sum severance
payment, the Executive shall (i) be entitled to participate in the Company's
medical insurance plan
A-8
<PAGE> 31
for a period of twelve months following the termination date at the Company's
expense, after which the Executive will have COBRA rights as provided by law and
(ii) for a period of twelve months, be permitted to participate in any of the
Company's other benefit plans in which the Executive is participating as of the
termination date pursuant to Company policy.
The Severance Agreements further provides that, in the event that the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), or any penalty or excise tax subsequently imposed by law
applies to any payment or benefit received or to be received by the Executive in
connection with a Transaction or the termination of the Executive's employment
(whether pursuant to the terms of this Agreement or any other plan, arrangement,
or agreement with the Company, any Person whose actions result in the
Transaction or any Person affiliated with the Company or such Person) (all such
payments and benefits, including the Severance Payments, being hereinafter
called "Total Payments"), an additional amount shall be paid by the Company to
the Executive such that the aggregate after-tax amount that he shall receive
with respect to the Total Payments, including this section, shall have a present
value equal to the aggregate after-tax amount that he would have received and
retained had such excise or penalty tax (and any interest or penalties in
respect thereof) not applied to him. For this purpose, the Executive shall be
assumed to be subject to tax in each year relevant to the computation at the
then maximum applicable combined Federal and Massachusetts income tax rate, and
the present value of payments to him shall be made consistent with the
principles of Section 280G of the Code.
OPTION PLANS
The Company's 1990 Stock Option Plan, as amended (the "1990 Plan"), enables
a committee of the Board of Directors (the "Option Committee") to grant options
to employees, directors or consultants of the Company for the purchase of up to
an aggregate of 1,422,319 shares of Common Stock. The 1990 Plan is administered
by the Option Committee which has complete discretion to select the eligible
individuals who receive option grants. In determining the eligibility of an
individual to be granted an option, as well as in determining the number of
options to be granted to an individual, the Option Committee considers the
position and responsibilities of the individual being considered, the nature and
value to the Company of his or her service and accomplishments, his or her
present and potential contribution to the success of the Company and such other
factors as the Option Committee may deem relevant. The 1990 Plan provides for
the issuance of either non-qualified options or incentive stock options,
provided that incentive stock options must be granted with an exercise price of
not less than fair market value at the time of grant. All options are non-
transferable other than by will or the laws of descent and distribution. Options
are exercisable for a period of up to ten years from the date of grant, provided
the optionee remains an employee of the Company, or prior to the last day of the
third month following the date of termination of employment. If an optionee dies
or becomes disabled while in the employ of the Company, the option is
exercisable prior to the last day of the twelfth month following the date of
termination of employment. Any options which are exercisable following
termination of employment are only exercisable to the extent the optionee was
entitled to exercise the option on the date of termination. Options currently
outstanding vest over a three or four-year period.
Since the inception of the 1990 Plan, options to purchase a total of
1,234,182 shares of Common Stock have been granted to certain employees and
options to purchase a total of 54,306 shares have been granted to certain
directors. All options to date have been granted at the fair market value of the
underlying shares at the date of grant, ranging from $1.15 to $23.25 per share.
As of September 22, 1999, options for an aggregate of 66,709 shares with a
weighted average exercise price of $8.42 per share have been canceled due to the
termination of employment of the option holder. As of September 22, 1999,
options for an aggregate of 349,048 shares with a weighted average exercise
price of $8.22 per share have been exercised. As of September 22, 1999, options
for a total of 872,631 shares of Common Stock were outstanding. During 1999,
options for an aggregate of 42,050 shares were granted with an average exercise
price of $17.17 per share. Of such amount, options for an aggregate 40,000
shares were granted to executive officers.
On April 28, 1995, the Company's stockholders approved a Stock Option Plan
for Non-Employee Directors (the "Non-Employee Directors' Plan") which provides
for the grant of non-qualified options for the purchase of 5,513 shares of the
Company's Common Stock to each non-employee director of the Company
A-9
<PAGE> 32
serving on the Board at the time the Non-Employee Directors' Plan was approved,
and to each new non-employee director elected in the five-year period commencing
on the date of the adoption of the Non-Employee Directors' Plan. On February 5,
1998, the Board of Directors amended the Plan granting discretion to the Board
or a committee consisting of two or more members of the Board to administer the
Non-Employee Directors' Plan, and authorizing the Board to grant options for
additional shares of the Company's common stock, $.01 par value ("Common Stock")
to any non-employee director. No options have been cancelled under this plan. As
of September 22, 1999, options for an aggregate of 9,188 shares with a weighted
average exercise price of $12.02 per share have been exercised. During 1999,
options for an aggregate of 22,225 shares were granted with an exercise price of
$17.11 per share. As of September 22, 1999, 41,089 of such options were
outstanding. The exercise price of the options granted under the Non-Employee
Directors' Plan is the fair market value of the shares of Common Stock covered
by the option on the date of grant. Options granted under the Non-Employee
Directors' Plan are not exercisable prior to the first year anniversary of the
date of grant, and are exercisable thereafter on a cumulative basis as to
one-third of the shares covered thereby on each of the first, second and third
anniversaries of the date of grant. No option is exercisable after ten years
from the date of grant. Options granted under the Non-Employee Directors' Plan
are not assignable or transferable by the optionee otherwise than by will or the
laws of descent and distribution or pursuant to a qualified domestic relations
order. The exercise price of the options granted under the Non-Employee
Directors' Plan must be paid in full, in cash or shares of Common Stock of the
Company already owned for a period of at least six months by the person
exercising the option, valued at fair market value on the date of exercise. In
the event of death or disability of an optionee, the option may be exercised
within one year after the date of death or termination of the optionee's
directorship with the Company on account of disability or, if earlier, prior to
the date on which the option expires by its terms. In the event the optionee
ceases to be a director of the Company other than by reason of death or
disability, the option may be exercised within one month after the optionee
ceases to be a director of the Company, unless such termination was for cause,
in which case the option shall terminate at the time the optionee ceases to be a
director of the Company. In no event may an option be exercised except to the
extent that the right to exercise has accrued and is in effect at the time of
death or termination of service as a director.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
INTERLOCKS AND INSIDER PARTICIPATION
GENERAL
Messrs. Segel, Costa and Stratton served as members of the Compensation
Committee of the Board of Directors during all of fiscal 1998 and participated
in deliberations on executive compensation. Mr. Stratton served as President and
Chief Executive Officer during fiscal 1998. Mr. Segel and Mr. Costa were not
officers or employees of the Corporation or any of its subsidiaries during
fiscal 1998. In March 1999, Mr. Costa became an Executive Vice-President of the
Corporation, and resigned from the Compensation Committee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
James Westra, who became a director of the Company in April 1995, is a
stockholder in the law firm of Hutchins, Wheeler & Dittmar, A Professional
Corporation, which provides counsel to the Company on various matters including
public debt and equity offerings, the Offer and the Merger.
BOARD COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Compensation Committee has provided the following Board Compensation
Committee Report:
The Company's executive compensation is supervised by the Compensation
Committee of the Board of Directors. The Company seeks to provide executive
compensation that will support the achievement of the Company's financial goals
while attracting and retaining talented executives and rewarding superior
performance.
A-10
<PAGE> 33
In general, the Company compensates its executive officers through a
combination of base salary, annual incentive compensation in the form of cash
bonuses and long-term incentive compensation in the form of stock options. In
addition, executive officers participate in benefit plans, including medical and
retirement plans, that are available generally to the Company's employees.
CHIEF EXECUTIVE OFFICER AND PRESIDENT COMPENSATION
Mr. Stratton's compensation is intended to provide levels of base
compensation comparable with standard market compensation practices for
executive officers in other companies within the financial services industry or
other companies of comparable size, taking into consideration the position's
complexity, responsibility and need for special expertise.
At the same time, the Compensation Committee has sought to link a larger
percentage of the salary of Mr. Stratton to annual earnings per share growth.
For the years ended December 31, 1997 and 1998, the Company's bonus plan for Mr.
Stratton provides for the payment of a bonus equal to his base salary for such
year if the Company's earnings per share for such year equal 118% of the
earnings per share of the Company for the previous year. A bonus totaling
$190,000 was accrued in 1998 pursuant to this agreement.
ANNUAL COMPENSATION
The Company sets base salary levels for other executive officers comparable
to the salary levels of executive officers in other companies within the
financial services industry or other companies of comparable size, taking into
consideration the position's complexity, responsibility and need for special
expertise. Management sets targets based on growth in earnings per share, for
earning incentive compensation.
LONG-TERM INCENTIVE COMPENSATION
The Company provides long-term incentive compensation through its stock
option plan. The number of shares covered by a grant were determined by the
Stock Option Committee considering observed market practices for similar
positions in similar industries and individual performance and responsibilities.
COMPENSATION COMMITTEE
Gerald Segel
Richard Stratton
Grant Wilson
A-11
<PAGE> 34
PERFORMANCE GRAPH
The Stock Price Performance Graph set forth below compares the cumulative
total stockholder return to the Company's stockholders for the period commencing
February 24, 1992, the date shares of common stock were first registered under
Section 12 of the Securities and Exchange Act of 1934, as amended, to August 31,
1999, with the cumulative return on the NASDAQ Composite Index and a peer group
index (NASDAQ Financial Stock Index):
[STOCK PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
NASDAQ STOCK MARKET
LITCHFIELD (US) NASDAQ FINANCIAL STOCKS
---------- ------------------- -----------------------
<S> <C> <C> <C>
'1992' 100.00 100.00 100.00
'1993' 174.23 114.77 116.22
'1994' 175.42 112.18 116.50
'1995' 218.23 158.68 169.72
'1996' 247.61 195.23 217.88
'1997' 325.25 239.23 333.31
'1998' 318.95 337.14 323.55
'1999' 316.85 422.63 320.68
</TABLE>
The stock performance graph assumes $100 was invested on February 25, 1992.
A-12
<PAGE> 35
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of shares of Common Stock of the Company, as of June 30, 1999 by all
stockholders of the Company known to be beneficial owners of more than 5% of the
outstanding Common Stock of the Company, by each director, each of the Named
Executive Officers (as defined herein) and all directors and officers of the
Company as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENTAGE
NAME OWNERSHIP(A) OF CLASS
- ---- ----------------- ----------
<S> <C> <C>
John McStay Investments................................ 777,813 11.1%
5949 Sherry Lane
Dallas, TX 75225
JP Morgan.............................................. 719,900 10.3%
522 Fifth Avenue -- 14th Floor
New York, NY 10036
Arthur D. Charpentier.................................. 592,779 8.5%
660 White Plains Road, Suite 400
Tarrytown, NY 10591
Munder Capital Management.............................. 387,580 5.6%
480 Pierce Street
Birmingham, MI 48009
Wellington Management Co. ............................. 361,200 5.2%
75 State Street
Boston, MA 02109
Richard A. Stratton(b)................................. 383,556(c) 5.3%
Chief Executive Officer, President and
Director
Heather A. Sica(b)..................................... 141,598(d) 2.0%
Executive Vice President and Director
Ronald E. Rabidou(b)................................... 35,313(e) *
Executive Vice President, Chief Financial
Officer and Treasurer
Gerald Segel........................................... 21,983(f) *
Director
Tucker Anthony
One Beacon Street
Boston, MA 02108
Joseph S. Weingarten(b)................................ 16,667(g) *
Executive Vice President
</TABLE>
A-13
<PAGE> 36
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENTAGE
NAME OWNERSHIP(A) OF CLASS
- ---- ----------------- ----------
<S> <C> <C>
James Westra................................................ 8,582(h) *
Director
Hutchins, Wheeler & Dittmar,
A Professional Corporation
101 Federal Street
John Costa(b)............................................... 7,840(h) *
Executive Vice President and Director
John J. Malloy(b)........................................... 6,250(i) *
Senior Vice President, General Counsel and Clerk
All directors and executive officers as a group (11
persons).................................................. 687,246(j) 9.1%
</TABLE>
- ---------------
* Less than one percent.
(a) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission and includes general voting power and/or
investment power with respect to securities. Shares of commons stock
subject to options currently exercisable or exercisable within 60 days of
June 30, 1999 are deemed outstanding for computing the percentage of a
person holding such options but are not deemed outstanding for computing
the percentage of any other person. The persons named in the table above
have sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them.
(b) Address: 430 Main Street, Williamstown, Massachusetts, 01267.
(c) Includes 268,393 shares of Common Stock issuable upon exercise of options.
Such options are exercisable within 60 days.
(d) Includes 139,283 shares of Common Stock issuable upon exercise of options.
Such options are exercisable within 60 days.
(e) Includes 35,313 shares of Common Stock issuable upon exercise of options.
Such options are exercisable within 60 days.
(f) Includes 21,983 shares of Common Stock issuable upon exercise of options.
Such options are exercisable within 60 days.
(g) Includes 16,667 shares of Common Stock issuable upon exercise of options.
Such options are exercisable within 60 days.
(h) Includes 6,847 shares of Common Stock issuable upon exercise of options.
Such options are exercisable within 60 days.
(i) Includes 6,250 shares of Common Stock issuable upon exercise of options.
Such options are exercisable within 60 days.
(j) In addition to the shares of Common Stock and options to purchase Common
Stock deemed to be beneficially owned by the directors and officers, as set
forth above, includes options to purchase Common Stock held by the
following executive officers in the following amounts: James Shippee --
35,279 shares; Wayne M. Greenholtz -- 16,608 shares; and James Yearwood --
13,570 shares. Such options are exercisable currently or within 60 days.
A-14
<PAGE> 37
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Officers and Directors and persons owning more than 10% of the outstanding
common stock of the Company to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers, Directors and
greater than 10% holders of common stock are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on copies of such forms furnished as provided above, or
written representations that no such forms were required, the Company believes
that during the fiscal year ended December 31, 1998, all Section 16(a) filing
requirements applicable to its officers, Directors and owners of greater than
10% of its common stock were met.
INFORMATION WITH RESPECT TO PARENT DESIGNEES
PURCHASER DESIGNEES
The Company has been advised by Parent that Acquisition will choose the
Parent Designees from among the directors and officers of Parent and Acquisition
listed in Schedule I of the Offer to Purchase, a copy of which is being mailed
to stockholders of the Company together with this Schedule 14D-9. The
information on such Schedule I with respect to such directors and officers is
incorporated herein by reference. Parent has advised the Company that all such
persons have consented to serve as director if so designated. Parent has
informed the Company that none of the Parent Designees (i) is currently a
director of, or holds any position with, the Company, (ii) has a familial
relationship with any of the directors or executive officers of the Company, or
(iii) to the best knowledge of Parent and Acquisition, beneficially owns any
securities (or rights to acquire any securities) of the Company. The Company has
been advised by Parent that, to the best knowledge of Parent and Acquisition,
none of the Parent Designees has been involved in any transactions with the
Company or any of its directors, executive officers or affiliates which are
required to be disclosed pursuant to the rules and regulations of the Commission
except as may be disclosed herein or in the Schedule 14D-9.
A-15
<PAGE> 1
EXECUTION COPY
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AGREEMENT AND PLAN OF MERGER
Among
TEXTRON FINANCIAL CORPORATION,
LIGHTHOUSE ACQUISITION CORP.
and
LITCHFIELD FINANCIAL CORPORATION
Dated as of September 22, 1999
----------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE I
THE OFFER.................................................................................1
SECTION 1.1 The Offer....................................................................1
SECTION 1.2 Company Action...............................................................2
ARTICLE II
THE MERGER................................................................................3
SECTION 2.1 The Merger...................................................................3
SECTION 2.2 Closing; Effective Time......................................................4
SECTION 2.3 Effects of the Merger........................................................4
SECTION 2.4 Articles of Organization; By-Laws............................................4
SECTION 2.5 Directors and Officers.......................................................4
SECTION 2.6 Conversion of Securities.....................................................4
SECTION 2.7 Treatment of Options.........................................................5
SECTION 2.8 Dissenting Shares............................................................5
SECTION 2.9 Surrender of Shares; Stock Transfer Books....................................6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............................................7
SECTION 3.1 Organization and Qualification; Subsidiaries.................................7
SECTION 3.2 Articles of Organization and By-Laws.........................................7
SECTION 3.3 Capitalization...............................................................8
SECTION 3.4 Authority Relative to This Agreement.........................................9
SECTION 3.5 No Conflict; Required Filings and Consents...................................9
SECTION 3.6 Compliance..................................................................10
SECTION 3.7 SEC Filings; Financial Statements...........................................10
SECTION 3.8 Absence of Certain Changes or Events........................................11
SECTION 3.9 Absence of Litigation.......................................................12
SECTION 3.10 Employee Benefit Plans.....................................................12
SECTION 3.11 Tax Matters................................................................13
SECTION 3.12 Offer Documents; Proxy Statement...........................................14
SECTION 3.13 Environmental Matters......................................................15
SECTION 3.14 Real Estate Matters........................................................17
SECTION 3.15 Loans; Investments.........................................................18
SECTION 3.16 Licenses...................................................................21
SECTION 3.17 Allowance for Possible Loan Losses.........................................21
SECTION 3.18 Brokers....................................................................22
SECTION 3.19 Sole Representations and Warranties........................................22
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER...................................22
SECTION 4.1 Corporate Organization......................................................22
SECTION 4.2 Authority Relative to This Agreement........................................22
SECTION 4.3 No Conflict; Required Filings and Consents..................................23
SECTION 4.4 Offer Documents; Proxy Statement............................................23
SECTION 4.5 Brokers.....................................................................24
SECTION 4.6 Funds.......................................................................24
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER...................................................24
SECTION 5.1 Conduct of Business of the Company Pending the Merger.......................24
ARTICLE VI
ADDITIONAL AGREEMENTS....................................................................27
SECTION 6.1 Stockholders Meeting........................................................27
SECTION 6.2 Proxy Statement.............................................................27
SECTION 6.3 Company Board Representation; Section 14(f).................................28
SECTION 6.4 Access to Information; Confidentiality......................................29
SECTION 6.5 No Solicitation of Transactions.............................................29
SECTION 6.6 Employee Benefits Matters...................................................30
SECTION 6.7 Directors' and Officers' Indemnification and Insurance......................31
SECTION 6.8 Intentionally Omitted.......................................................32
SECTION 6.9 Notification of Certain Matters.............................................32
SECTION 6.10 Further Action; Commercially Reasonable Efforts............................33
SECTION 6.11 Public Announcements.......................................................34
SECTION 6.12 Disposition of Litigation..................................................34
ARTICLE VII
CONDITIONS OF MERGER.....................................................................34
SECTION 7.1 Conditions to Obligation of Each Party to Effect the Merger.................34
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER........................................................35
SECTION 8.1 Termination.................................................................35
SECTION 8.2 Effect of Termination.......................................................36
SECTION 8.3 Fees and Expenses...........................................................36
SECTION 8.4 Amendment...................................................................38
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SECTION 8.5 Waiver......................................................................38
ARTICLE IX
GENERAL PROVISIONS.......................................................................38
SECTION 9.1 Non-Survival of Representations, Warranties and Agreements..................38
SECTION 9.2 Notices.....................................................................38
SECTION 9.3 Certain Definitions.........................................................39
SECTION 9.4 Severability................................................................40
SECTION 9.5 Entire Agreement; Assignment................................................40
SECTION 9.6 Parties in Interest.........................................................41
SECTION 9.7 Governing Law...............................................................41
SECTION 9.8 Headings....................................................................41
SECTION 9.9 Counterparts................................................................41
SECTION 9.10 Specific Performance.......................................................41
</TABLE>
Annex A - Offer Conditions
iii
<PAGE> 5
AGREEMENT AND PLAN OF MERGER, dated as of September 22, 1999 (the
"Agreement"), among TEXTRON FINANCIAL CORPORATION, a Delaware corporation
("Parent"), LIGHTHOUSE ACQUISITION CORP., a Massachusetts corporation and a
wholly owned subsidiary of Parent ("Purchaser"), and LITCHFIELD FINANCIAL
CORPORATION, a Massachusetts corporation (the "Company").
WHEREAS, the Board of Directors of the Company has determined that it
is in the best interests of the Company and the stockholders of the Company to
enter into this Agreement with Parent and Purchaser, providing for the merger
(the "Merger") of Purchaser with the Company in accordance with the
Massachusetts Business Corporation Law ("MBCL"), upon the terms and subject to
the conditions set forth herein; and
WHEREAS, the Board of Directors of Parent and Purchaser have each
approved the Merger of Purchaser with the Company in accordance with the MBCL
upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Parent, Purchaser and the Company hereby agree as follows:
ARTICLE I
THE OFFER
SECTION 1.1 The Offer. (a) Provided that this Agreement shall not have
been terminated in accordance with Section 8.1 and no event shall have occurred
and no circumstance shall exist which would result in a failure to satisfy any
of the conditions or events set forth in Annex A hereto (the "Offer
Conditions"), Purchaser shall, as soon as reasonably practicable after the date
hereof (and in any event within five business days from the date of initial
public announcement of the execution hereof), commence an offer (the "Offer") to
purchase for cash all of the issued and outstanding shares of Common Stock, par
value $0.01 per share (referred to herein as either the "Shares" or "Company
Common Stock"), of the Company at a price of $24.50 per Share, net to the seller
in cash. The obligation of Purchaser to accept for payment Shares tendered
pursuant to the Offer shall be subject only to the satisfaction or waiver by
Purchaser of the Offer Conditions. Purchaser expressly reserves the right, in
its sole discretion, to waive any such condition (other than the Minimum
Condition as defined in the Offer Conditions) and make any other changes in the
terms and conditions of the Offer, provided that, unless previously approved by
the Company in writing, no change may be made which changes the Minimum
Condition or decreases the price per Share payable in the Offer, changes the
form of consideration payable in the Offer (other than by adding consideration),
reduces the maximum number of Shares to be purchased in the Offer, or amends the
terms or Offer Conditions in a manner which, in the Company's reasonable
judgment, is adverse to the holders of the Shares or the Company, or which
imposes conditions or terms to the Offer in addition to those set forth herein.
Purchaser covenants and agrees that, subject to the terms and conditions of this
Agreement, including but not limited to the Offer Conditions, it will accept for
payment and pay for Shares as soon as it is permitted to do so under applicable
law; provided that
<PAGE> 6
2
Purchaser shall have the right, in its sole discretion, to extend the Offer for
up to five business days, notwithstanding the prior satisfaction of the Offer,
solely if necessary in order to attempt to satisfy the requirements of Section
82 of the MBCL. It is agreed that the Offer Conditions are for the benefit of
Purchaser and may be asserted by Purchaser regardless of the circumstances
giving rise to any such condition (except for any action or inaction by
Purchaser or Parent constituting a breach of this Agreement) or, except with
respect to the Minimum Condition, may be waived by Purchaser, in whole or in
part at any time and from time to time, in its sole discretion. Subject to the
terms and conditions of the Offer, Parent and Purchaser will each use reasonable
best efforts to take, or cause to be taken, all actions and to do, or cause to
be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate the Offer.
(b) As soon as reasonably practicable on the date the Offer is
commenced, Purchaser shall file a Tender Offer Statement on Schedule 14D-1 (the
"Schedule 14D-1") with respect to the Offer with the Securities and Exchange
Commission (the "SEC"). The Schedule 14D-1 shall contain an Offer to Purchase
and forms of the related letter of transmittal (which Schedule 14D-1, Offer to
Purchase and other documents, together with any supplements or amendments
thereto, are referred to herein collectively as the "Offer Documents"). Parent
and Purchaser agree that the Company and its counsel shall be given an
opportunity to review the Schedule 14D-1 before it is filed with the SEC.
Parent, Purchaser and the Company each agrees promptly to correct any
information provided by it for use in the Offer Documents that shall have become
false or misleading in any material respect, and Parent and Purchaser further
agree to take all steps necessary to cause the Schedule 14D-1 as so corrected to
be filed with the SEC and the other Offer Documents as so corrected to be
disseminated to holders of Shares, in each case as and to the extent required by
applicable federal securities laws.
SECTION 1.2 Company Action. (a) The Company hereby approves of and
consents to the Offer and represents and warrants that: (i) its Board of
Directors, at a meeting duly called and held on September 22, 1999, has
unanimously (A) determined that this Agreement and the transactions contemplated
hereby, including the Offer and the Merger, are advisable and are fair to and in
the best interests of the holders of Shares and the Company, (B) approved this
Agreement and the transactions contemplated hereby, including each of the Offer
and the Merger, and (C) resolved to recommend that the stockholders of the
Company accept the Offer, tender their Shares to Purchaser thereunder and
approve this Agreement and the transactions contemplated hereby (it being
understood that, notwithstanding anything in this Agreement to the contrary, if
the Company's Board of Directors by majority vote shall have determined in good
faith, based upon the advice of outside counsel to the Company, that failure to
modify or withdraw its recommendation would constitute a breach of the Board's
fiduciary duty under applicable law, the Board of Directors may so modify or
withdraw its recommendation); and (ii) CIBC World Markets (the "Financial
Advisor") has delivered to the Board of Directors of the Company its written
opinion that, subject to the limitations and qualifications stated therein, the
consideration to be received by holders of Shares, other than Parent and
Purchaser, pursuant to the Offer and the Merger is fair to such holders from a
financial point of view. The Company has been authorized by the Financial
Advisor to permit, subject to prior review by such Financial Advisor, the
inclusion of such fairness opinion (or a reference thereto with the consent of
the Financial Adviser) in the Schedule 14D-9 referred to below and the Proxy
Statement referred to in Section 3.12. The Company hereby consents to the
inclusion in the Offer
<PAGE> 7
3
Documents of the recommendations of the Company's Board of Directors described
in this Section 1.2(a).
(b) The Company shall file with the SEC, contemporaneously with the
commencement of the Offer pursuant to Section 1.1, a Solicitation/Recommendation
Statement on Schedule 14D-9 (together with all amendments and supplements
thereto, the "Schedule 14D-9"), containing the recommendations of the Company's
Board of Directors described in Section 1.2(a)(i) and shall promptly mail the
Schedule 14D-9 to the stockholders of the Company. The Schedule 14D-9 and all
amendments thereto will comply in all material respects with the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder. The Company, Parent and Purchaser each
agrees promptly to correct any information provided by it for use in the
Schedule 14D-9 that shall have become false or misleading in any material
respect, and the Company further agrees to take all steps necessary to cause the
Schedule 14D-9 as so corrected to be filed with the SEC and disseminated to
holders of Shares, in each case as and to the extent required by applicable
federal securities laws.
(c) In connection with the Offer, if requested by Purchaser, the
Company shall promptly furnish Purchaser with mailing labels, security position
listings, any non-objecting beneficial owner lists and any available listings or
computer files containing the names and addresses of the record holders of
Shares, each as of a recent date, and shall promptly furnish Purchaser with such
additional information (including but not limited to updated lists of
stockholders, mailing labels, security position listings and non-objecting
beneficial owner lists) and such other assistance as Parent, Purchaser or their
agents may reasonably require in communicating the Offer to the record and
beneficial holders of Shares. Subject to the requirements of law, and except for
such steps as are necessary to disseminate the Offer Documents and any other
documents necessary to consummate the Offer and the Merger, Parent, Purchaser
and each of their affiliates and associates shall hold in confidence the
information contained in any of such lists, labels or additional information
and, if this Agreement is terminated, shall promptly deliver to the Company all
copies and extracts of such information then in their possession or under their
control.
ARTICLE II
THE MERGER
SECTION 2.1 The Merger. Upon the terms and subject to the conditions
of this Agreement and in accordance with the MBCL, at the Effective Time (as
defined in Section 2.2), Purchaser shall be merged with and into the Company. As
a result of the Merger, the separate corporate existence of Purchaser shall
cease and the Company shall continue as the surviving corporation of the Merger
(the "Surviving Corporation"). At Parent's election, any direct or indirect
subsidiary of Parent other than Purchaser may be merged with and into the
Company instead of the Purchaser. In the event of such an election, the parties
agree to execute an appropriate amendment to this Agreement in order to reflect
such election.
<PAGE> 8
4
SECTION 2.2 Closing; Effective Time. Subject to the provisions of
Article VII, the closing of the Merger (the "Closing") shall take place in New
York City at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue,
New York, New York, as soon as practicable but in no event later than the first
business day after the satisfaction or waiver of the conditions set forth in
Article VII, or at such other place or at such other date as Parent and the
Company may mutually agree. The date on which the Closing actually occurs is
hereinafter referred to as the "Closing Date." At the Closing, the parties
hereto shall cause the Merger to be consummated by filing this Agreement or
articles of merger (the "Certificate of Merger") with the Secretary of State of
the Commonwealth of Massachusetts, in such form as required by and executed in
accordance with the relevant provisions of the MBCL (the date and time of the
filing of the Certificate of Merger with the Secretary of State of the
Commonwealth of Massachusetts (or such later time as is specified in the
Certificate of Merger) being the "Effective Time").
SECTION 2.3 Effects of the Merger. The Merger shall have the effects
set forth in the applicable provisions of the MBCL. Without limiting the
generality of the foregoing and subject thereto, at the Effective Time all the
property, rights, privileges, immunities, powers and franchises of the Company
and Purchaser shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Purchaser shall become the debts,
liabilities and duties of the Surviving Corporation.
SECTION 2.4 Articles of Organization; By-Laws. (a) At the Effective
Time and without any further action on the part of the Company and Purchaser,
the Amended and Restated Articles of Organization of the Company (as amended,
the "Articles of Organization"), as in effect immediately prior to the Effective
Time, shall be the articles of organization of the Surviving Corporation until
thereafter and further amended as provided therein and under the MBCL.
(b) At the Effective Time and without any further action on the part
of the Company and Purchaser, the By-Laws of Purchaser, as in effect immediately
prior to the Effective Time, shall be the By-Laws of the Surviving Corporation
and thereafter may be amended or repealed in accordance with their terms or the
Articles of Organization of the Purchaser and as provided by law.
SECTION 2.5 Directors and Officers. The directors of Purchaser
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Articles of
Organization and By-Laws of the Surviving Corporation (directors of the Company
shall tender their resignations effective upon the Effective Time), and the
officers of the Company immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed (as the case may be) and
qualified. Nothing herein shall be deemed to limit the ability of Parent to
cause the Surviving Corporation to elect or appoint different or additional
officers.
SECTION 2.6 Conversion of Securities. At the Effective Time, by virtue
of the Merger and without any action on the part of Purchaser, the Company or
the holders of any of the following securities:
<PAGE> 9
5
(a) Each Share issued and outstanding immediately prior to the
Effective Time (other than any Shares to be canceled pursuant to Section
2.6(b) and any Dissenting Shares (as defined in Section 2.8(a))) shall be
canceled, extinguished and converted into the right to receive $24.50 in
cash or any higher price that may be paid pursuant to the Offer (the
"Merger Consideration") payable to the holder thereof, without interest,
upon surrender of the certificate formerly representing such Share in the
manner provided in Section 2.9, less any required withholding taxes.
(b) Each share of Company Common Stock held in the treasury of the
Company and each Share owned by Parent, Purchaser or any other direct or
indirect subsidiary of Parent or of the Company, in each case immediately
prior to the Effective Time, shall be canceled and retired without any
conversion thereof and no payment or distribution shall be made with
respect thereto.
(c) Each share of common stock of Purchaser issued and outstanding
immediately prior to the Effective Time shall be converted into and become
one validly issued, fully paid and nonassessable share of common stock of
the Surviving Corporation.
SECTION 2.7 Treatment of Options. Immediately prior to the Effective
Time, each outstanding stock option and any related stock appreciation right
granted to employees and non-employee directors of the Company and its
subsidiaries (together, an "Option"), whether or not then exercisable or vested,
shall be canceled by the Company, and the holder thereof shall be entitled to
receive at the Effective Time or as soon as practicable thereafter from the
Company in consideration for such cancellation an amount in cash equal to the
product of (a) the number of Shares previously subject to such Option and (b)
the excess, if any, of the Merger Consideration over the exercise price per
Share previously subject to such Option (such payment to be net of applicable
withholding taxes).
SECTION 2.8 Dissenting Shares. (a) Notwithstanding anything in this
Agreement to the contrary, shares of Company Common Stock that are issued and
outstanding immediately prior to the Effective Time and which are held by
stockholders who have not voted in favor of or consented to the Merger and shall
have delivered a written demand for appraisal of such shares of Company Common
Stock in the time and manner provided in Section 89 of the MBCL and shall not
have failed to perfect or shall not have effectively withdrawn or lost their
rights to appraisal and payment under the MBCL (the "Dissenting Shares") shall
not be converted into the right to receive the Merger Consideration, but shall
be entitled to receive the consideration as shall be determined pursuant to
Sections 89 and 90 of the MBCL; provided, however, that if such holder shall
have failed to perfect or shall have effectively withdrawn or lost his, her or
its right to appraisal and payment under the MBCL, such holder's shares of
Company Common Stock shall thereupon be deemed to have been converted, at the
Effective Time, into the right to receive the Merger Consideration set forth in
Section 2.6(a) of this Agreement, without any interest thereon.
(b) The Company shall give Parent (i) prompt notice of any demands for
appraisal pursuant to Section 85 of the MBCL received by the Company,
withdrawals of such demands, and any other instruments served pursuant to the
MBCL and received by the Company and (ii) the
<PAGE> 10
6
opportunity to direct all negotiations and proceedings with respect to demands
for appraisal under the MBCL. The Company shall not, except with the prior
written consent of Parent, make any payment with respect to any such demands for
appraisal or offer to settle or settle any such demands.
SECTION 2.9 Surrender of Shares; Stock Transfer Books. (a) Prior to
the Effective Time, Purchaser shall designate a bank or trust company to act as
agent for the holders of Shares in connection with the Merger (the "Paying
Agent") to receive the Merger Consideration to which holders of Shares shall
become entitled pursuant to Section 2.6(a). When and as needed, Parent or
Purchaser will make available to the Paying Agent sufficient funds to make all
payments pursuant to Section 2.9(b). Such funds shall be invested by the Paying
Agent as directed by Purchaser or, after the Effective Time, the Surviving
Corporation, provided that such investments shall be in obligations of or
guaranteed by the United States of America, in commercial paper obligations
rated A-1 or P-1 or better by Moody's Investors Service, Inc. or Standard &
Poor's Corporation, respectively, or in certificates of deposit, bank repurchase
agreements or banker's acceptances of commercial banks with capital exceeding
$500 million. Any net profit resulting from, or interest or income produced by,
such investments will be payable to the Surviving Corporation or Parent, as
Parent directs.
(b) Promptly after the Effective Time, the Surviving Corporation shall
cause to be mailed to each record holder, as of the Effective Time, of an
outstanding certificate or certificates which immediately prior to the Effective
Time represented Shares (the "Certificates"), a form of letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon proper delivery of the Certificates to
the Paying Agent) and instructions for use in effecting the surrender of the
Certificates for payment of the Merger Consideration therefor. Upon surrender to
the Paying Agent of a Certificate, together with such letter of transmittal,
duly completed and validly executed in accordance with the instructions thereto,
and such other documents as may be required pursuant to such instructions, the
holder of such Certificate shall be entitled to receive in exchange therefor the
Merger Consideration for each Share formerly represented by such Certificate,
and such Certificate shall then be canceled. No interest shall be paid or
accrued for the benefit of holders of the Certificates on the Merger
Consideration payable upon the surrender of the Certificates. If payment of the
Merger Consideration is to be made to a person other than the person in whose
name the surrendered Certificate is registered, it shall be a condition of
payment that the Certificate so surrendered shall be properly endorsed or shall
be otherwise in proper form for transfer and that the person requesting such
payment shall have paid any transfer and other taxes required by reason of the
payment of the Merger Consideration to a person other than the registered holder
of the Certificate surrendered or shall have established to the satisfaction of
the Surviving Corporation that such tax either has been paid or is not
applicable.
(c) At any time following one year after the Effective Time, the
Surviving Corporation shall be entitled to require the Paying Agent to deliver
to it any funds (including any interest received with respect thereto) which had
been made available to the Paying Agent and which have not been disbursed to
holders of Certificates, and thereafter such holders shall be entitled to look
to the Surviving Corporation (subject to abandoned property, escheat or other
similar laws) only as general creditors thereof with respect to the Merger
Consideration payable upon due surrender of their Certificates. Notwithstanding
the foregoing, neither the Surviving Corporation nor the Paying
<PAGE> 11
7
Agent shall be liable to any holder of a Certificate for Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(d) At the Effective Time, the stock transfer books of the Company
shall be closed and thereafter there shall be no further registration of
transfers of shares of Company Common Stock on the records of the Company. From
and after the Effective Time, the holders of Certificates evidencing ownership
of Shares outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to such Shares except as otherwise provided for
herein or by applicable law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Purchaser
that, except as set forth in the disclosure schedule delivered by the Company to
Purchaser prior to the date of execution of this Agreement (the "Company
Disclosure Schedule"):
SECTION 3.1 Organization and Qualification; Subsidiaries. Except as
set forth in Section 3.1 of the Company Disclosure Schedule, each of the Company
and each of its subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
has the requisite corporate power and authority and any necessary governmental
approvals to own, lease and operate its properties and to carry on its business
as it is now being conducted, except where the failure to be so organized,
existing and in good standing or to have such power, authority and governmental
approvals is not reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect (as defined below). Each of the Company and each of its
subsidiaries is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary, except for such failures to be
so duly qualified or licensed and in good standing as are not reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect. When used
in connection with the Company or any of its subsidiaries, the term "Material
Adverse Effect" means any change or effect that would (i) be materially adverse
to the business, financial condition or results of operations of the Company and
its subsidiaries taken as a whole or (ii) prevent or materially delay the
consummation of the Offer or the Merger; provided, however, that a decline in
the price of the Company's Common Stock as traded on the Nasdaq National Market
as a result of changes in the accounting practices or business practices set
forth in Section 5.1 of the Company Disclosure Schedule shall not be deemed to
have a Material Adverse Effect unless it is otherwise a result of an event or
occurrence that is materially adverse to the business, financial condition or
results of operations of the Company and its subsidiaries taken as a whole.
SECTION 3.2 Articles of Organization and By-Laws. The Company has
heretofore furnished to Parent a complete and correct copy of the Articles of
Organization and the By-Laws of the Company as currently in effect. Such
Articles of Organization and By-Laws are in full force and
<PAGE> 12
8
effect and no other organizational documents are applicable to or binding upon
the Company. The Company is not in violation of any of the provisions of its
Articles of Organization or By-Laws.
SECTION 3.3 Capitalization. The authorized capital stock of the
Company consists of 12,000,000 shares of Company Common Stock and 1,000,000
shares of Preferred Stock, par value $0.01 per share ("Company Preferred
Stock"). As of September 22, 1999, (i) 6,984,601 shares of Company Common Stock
were issued and outstanding, all of which were duly authorized, validly issued,
fully paid and nonassessable and were issued free of preemptive (or similar)
rights, (ii) no shares of Company Common Stock were held in the treasury of the
Company and (iii) an aggregate of 913,720 shares of Company Common Stock were
reserved for issuance and issuable upon or otherwise deliverable in connection
with the exercise of outstanding Options issued pursuant to the Company Plans
(as defined in Section 3.10). Since September 22, 1999, no options to purchase
shares of Company Common Stock have been granted and no shares of Company Common
Stock have been issued except for shares issued pursuant to the exercise of
Options outstanding as of September 22, 1999. As of the date hereof, no shares
of Company Preferred Stock are issued and outstanding. Except (i) as set forth
above or (ii) as a result of the exercise of Options outstanding as of September
22, 1999, there are outstanding (a) no shares of capital stock or other voting
securities of the Company, (b) no securities of the Company convertible into or
exchangeable for shares of capital stock or voting securities of the Company,
(c) no options or other rights to acquire from the Company, and no obligation of
the Company to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of the
Company and (d) no equity equivalents, interests in the ownership or earnings of
the Company or other similar rights (collectively, "Company Securities"). Except
as set forth in Section 3.3 of the Company Disclosure Schedule, there are no
outstanding obligations of the Company or any of its subsidiaries to repurchase,
redeem or otherwise acquire any Company Securities. Except as set forth in
Section 3.3 of the Company Disclosure Schedule, there are no other options,
calls, warrants or other rights, agreements, arrangements or commitments of any
character relating to the issued or unissued capital stock of the Company or any
of its subsidiaries to which the Company or any of its subsidiaries is a party.
All shares of Company Common Stock subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, shall be duly authorized, validly issued, fully paid
and nonassessable and free of preemptive (or similar) rights. Except as set
forth in Section 3.3 of the Company Disclosure Schedule, there are no
outstanding contractual obligations of the Company or any of its subsidiaries to
repurchase, redeem or otherwise acquire any shares of Company Common Stock or
the capital stock of any subsidiary or to provide funds to or make any
investment (in the form of a loan, capital contribution or otherwise) in any
such subsidiary or any other entity. Except as set forth in Section 3.3 of the
Company Disclosure Schedule, each of the outstanding shares of capital stock of
each of the Company's subsidiaries is duly authorized, validly issued, fully
paid and nonassessable and all such shares are owned by the Company or another
wholly owned subsidiary of the Company and are owned free and clear of all
security interests, liens, claims, pledges, agreements, limitations in voting
rights, charges or other encumbrances of any nature whatsoever, except where the
failure to own such shares free and clear is not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect. The Company has
delivered to Parent prior to the date hereof a list of the subsidiaries and
associated entities of the Company which evidences, among other things, the
percentage of capital stock or other equity interests owned by the Company,
directly or indirectly,
<PAGE> 13
9
in such subsidiaries or associated entities. No entity in which the Company
owns, directly or indirectly, less than a 50% equity interest is, individually
or when taken together with all such other entities, material to the business of
the Company and its subsidiaries taken as a whole.
SECTION 3.4 Authority Relative to This Agreement. The Company has all
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of the Company
are necessary to authorize this Agreement or to consummate the transactions so
contemplated (other than, with respect to the Merger, the approval of this
Agreement by the holders of two-thirds of the outstanding shares of Company
Common Stock if and to the extent required by applicable law, and the filing of
appropriate merger documents as required by the MBCL). This Agreement has been
duly and validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery hereof by Parent and Purchaser,
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms. The Board of Directors of the
Company has approved this Agreement and the transactions contemplated hereby
(including but not limited to the Offer and the Merger) so as to render
inapplicable hereto and thereto the limitation on business combinations
contained in Chapter 110D and Chapter 110F, Section 1, of the Massachusetts
Corporation-Related Laws. As a result of the foregoing actions, subject to
Section 82 of the MBCL, the only vote required to authorize the Merger is the
affirmative vote of two-thirds of the outstanding Shares.
SECTION 3.5 No Conflict; Required Filings and Consents. (a) Except as
set forth in Section 3.5(a) of the Company Disclosure Schedule, the execution,
delivery and performance of this Agreement by the Company do not and will not:
(i) conflict with or violate the Articles of Organization or By-Laws of the
Company or the equivalent organizational documents of any of its subsidiaries;
(ii) assuming that all consents, approvals and authorizations contemplated by
clauses (i), (ii) and (iii) of subsection (b) below have been obtained and all
filings described in such clauses have been made, conflict with or violate any
law, rule, regulation, order, judgment or decree applicable to the Company or
any of its subsidiaries or by which its or any of their respective properties
are bound or affected; or (iii) result in any breach or violation of or
constitute a default (or an event which with notice or lapse of time or both
could become a default) or result in the loss of a material benefit under, or
give rise to any right of termination, amendment, acceleration or cancellation
of, or result in the creation of a lien or encumbrance on any of the properties
or assets of the Company or any of its subsidiaries pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries or its or any of
their respective properties are bound or affected, except, in the case of
clauses (ii) and (iii), for any such conflicts, violations, breaches, defaults
or other occurrences which are not, individually or in the aggregate, reasonably
likely to have a Material Adverse Effect.
(b) Except as set forth in Section 3.5(b) of the Company Disclosure
Schedule, the execution, delivery and performance of this Agreement by the
Company and the consummation of
<PAGE> 14
10
the Merger by the Company do not and will not require any consent, approval,
authorization or permit of, action by, filing with or notification to, any
governmental or regulatory authority, domestic or foreign, or any other person,
except for (i) applicable requirements, if any, of the Exchange Act and the
rules and regulations promulgated thereunder, the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), or other foreign filings
or approvals, state securities, takeover and "blue sky" laws, (ii) the filing
and recordation of appropriate merger or other documents as required by the MBCL
and (iii) such consents, approvals, authorizations, permits, actions, filings or
notifications the failure of which to make or obtain are not, individually or in
the aggregate, reasonably likely to (x) prevent or materially delay the Company
from performing its obligations under this Agreement or (y) have a Material
Adverse Effect.
(c) if the adoption of this Agreement and the approval of the Merger
by the stockholders of the Company is required by the MBCL, such adoption and
approval may be accomplished in accordance with the Company's Articles of
Organization and the MBCL solely by the affirmative vote of two-thirds of the
outstanding Shares.
SECTION 3.6 Compliance. Neither the Company nor any of its
subsidiaries is in conflict with, or in default or violation of, (i) any law,
rule, regulation, order, judgment or decree applicable to the Company or any of
its subsidiaries or by which its or any of their respective properties are bound
or affected, or (ii) any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or its or any of their respective properties are bound or
affected, except, in the case of each of clauses (i) and (ii), for any such
conflicts, defaults or violations which are not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect.
SECTION 3.7 SEC Filings; Financial Statements. (a) The Company and, to
the extent applicable, each of its then or current subsidiaries, has filed all
forms, reports, statements and documents required to be filed with the SEC since
January 1, 1996 (collectively, the "SEC Reports"), each of which has complied in
all material respects with the applicable requirements of the Securities Act of
1933, as amended (the "Securities Act"), and the rules and regulations
promulgated thereunder, or the Exchange Act, and the rules and regulations
promulgated thereunder, each as in effect on the date so filed. None of the SEC
Reports (including but not limited to any financial statements or schedules
included or incorporated by reference therein) contained when filed, or (except
to the extent revised or superseded by a subsequent filing with the SEC)
contains, any untrue statement of a material fact or omitted or omits to state a
material fact required to be stated or incorporated by reference therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) Each of the audited and unaudited consolidated financial
statements of the Company (including any related notes thereto) included in its
Annual Reports on Form 10-K for each of the two fiscal years ended December 31,
1997 and 1998 filed with the Commission has been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto) and fairly presents
<PAGE> 15
11
the consolidated financial position of the Company and its subsidiaries at the
respective date thereof and the consolidated results of its operations and
changes in cash flows for the periods indicated.
(c) Except as and to the extent set forth on the consolidated balance
sheet of the Company and its subsidiaries at December 31, 1998, including the
notes thereto, neither the Company nor any of its subsidiaries has any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) which would be required to be reflected on a balance sheet or in
the notes thereto prepared in accordance with generally accepted accounting
principles, except for liabilities or obligations incurred since December 31,
1998 (i) in the ordinary course of business consistent with past practice and
(ii) which are not, individually or in the aggregate, reasonably likely to have
a Material Adverse Effect.
(d) The Company has heretofore furnished or made available to Parent a
complete and correct copy of any amendments or modifications which have not yet
been filed with the SEC to agreements, documents or other instruments which
previously had been filed by the Company with the SEC pursuant to the Securities
Act and the rules and regulations promulgated thereunder or the Exchange Act and
the rules and regulations promulgated thereunder.
SECTION 3.8 Absence of Certain Changes or Events. Since December 31,
1998, except as contemplated by this Agreement or disclosed in the SEC Reports
filed and publicly available prior to the date of this Agreement, the Company
and its subsidiaries have conducted their businesses only in the ordinary course
and in a manner consistent with past practice and, since such date, there has
not been: (i) any changes in the business, financial condition or results of
operations of the Company or any of its subsidiaries having or reasonably likely
to have a Material Adverse Effect; (ii) any damage, destruction or loss (whether
or not covered by insurance) with respect to any assets of the Company or any of
its subsidiaries which is reasonably likely, individually or in the aggregate,
to have a Material Adverse Effect; (iii) any material change by the Company in
its accounting methods, principles or practices; (iv) any revaluation by the
Company of any of its material assets, including but not limited to writing down
the value of inventory or writing off notes or accounts receivable other than in
the ordinary course of business; (v) any entry by the Company or any of its
subsidiaries into any commitment or transactions material to the Company and its
subsidiaries taken as a whole (other than commitments or transactions entered
into in the ordinary course of business); (vi) any declaration, setting aside or
payment of any dividends or distributions in respect of the Shares; (vii) any
increase in or establishment of any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing, stock option (including
without limitation the granting of stock options, stock appreciation rights,
performance awards, or restricted stock awards), stock purchase or other
employee benefit plan or agreement or arrangement, or any other increase in the
compensation payable or to become payable to any present or former directors,
officers or key employees of the Company or any of its subsidiaries, except for
increases in base compensation in the ordinary course of business consistent
with past practice, or pursuant to any employment, consulting or severance
agreement or arrangement previously entered into with any such present or former
directors, officers or key employees; or (viii) any other action which, if it
had been taken after the date hereof, would have required the consent of Parent
under Section 5.1 (except for the actions described in Sections 5.1(e)(iii),
5.1(e)(iv), 5.1(h), 5.1(l) and 5.1(p) hereof).
<PAGE> 16
12
SECTION 3.9 Absence of Litigation. Except as disclosed in the SEC
Reports filed and publicly available prior to the date of this Agreement, there
are no suits, claims, actions, proceedings or investigations pending or, to the
knowledge of the Company, threatened against the Company or any of its
subsidiaries, or any properties or rights of the Company or any of its
subsidiaries, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign, that, individually or in the
aggregate, is reasonably likely to have a Material Adverse Effect. As of the
date hereof, neither the Company nor any of its subsidiaries nor any of their
respective properties is or are subject to any order, writ, judgment,
injunction, decree, determination or award having, or which, insofar as can be
reasonably foreseen, is reasonably likely to have a Material Adverse Effect.
SECTION 3.10 Employee Benefit Plans. Except (i) as set forth in the
SEC Reports filed and publicly available prior to the date of this Agreement,
(ii) as set forth in Section 3.10 of the Company Disclosure Schedule, or (iii)
with respect to subsections (b) through (g) of this Section 3.10, as is not,
individually or in the aggregate, reasonably likely to have a Material Adverse
Effect:
(a) Section 3.10 of the Company Disclosure Schedule contains a true
and complete list of each "employee benefit plan" (within the meaning of
section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), including, without limitation, multiemployer plans
within the meaning of ERISA section 3(37)), stock purchase, stock option,
severance, employment, change-in-control, fringe benefit, collective
bargaining, bonus, incentive, deferred compensation and all other employee
benefit plans, agreements, programs, policies or other arrangements,
whether or not subject to ERISA (including any funding mechanism therefor
now in effect), whether formal or informal, oral or written, legally
binding or not, under which any employee or former employee of the Company
or any of its subsidiaries, has any present or future right to benefits or
under which the Company or any of its subsidiaries has any present or
future liability. All such plans, agreements, programs, policies and
arrangements shall be collectively referred to as the "Company Plans".
(b) With respect to each Company Plan, the Company has delivered or
made available to Parent a current, accurate and complete copy (or, to the
extent no such copy exists, an accurate description) thereof and, to the
extent applicable: (i) any related trust agreement or other funding
instrument; (ii) the most recent determination letter, if applicable; (iii)
any summary plan description and other written communications by the
Company or any of its subsidiaries to their employees concerning the extent
of the benefits provided under a Company Plan; and (iv) for the three most
recent years (A) the Form 5500 and attached schedules, (B) audited
financial statements and (C) actuarial valuation reports.
(c) (i) Each Company Plan has been established and administered in
accordance with its terms, and in compliance with the applicable provisions
of ERISA, the Internal Revenue Code of 1986, as amended (the "Code"), and
other applicable laws, rules and regulations; (ii) each Company Plan which
is intended to be qualified within the meaning of Code section 401(a) has
received a favorable determination letter as to its qualification, and
nothing has occurred, whether by action or failure to act, that would cause
the revocation of such
<PAGE> 17
13
determination letter; (iii) no event has occurred and no condition exists
that would subject the Company or any of its subsidiaries, either directly
or by reason of their affiliation with any member of their "Controlled
Group" (defined as any organization which is a member of a controlled group
of organizations within the meaning of Code sections 414(b), (c), (m) or
(o)), to any tax, fine, lien or penalty imposed by ERISA, the Code or other
applicable laws, rules and regulations; (iv) for each Company Plan with
respect to which a Form 5500 has been filed, no material change has
occurred with respect to the matters covered by the most recent Form since
the date thereof; and (v) no "reportable event" (as such term is defined in
ERISA section 4043), "prohibited transaction" (as such term is defined in
ERISA section 406 and Code section 4975) or "accumulated funding
deficiency" (as such term is defined in ERISA section 302 and Code section
412 (whether or not waived)) has occurred with respect to any Company Plan.
(d) With respect to each of the Company Plans that is not a
multiemployer plan within the meaning of section 4001(a)(3) of ERISA but is
subject to Title IV of ERISA, as of the Effective Time, the assets of each
such Company Plan are at least equal in value to the present value of the
accrued benefits (vested and unvested) of the participants in such Company
Plan on a termination basis, based on the actuarial methods and assumptions
indicated in the most recent actuarial valuation reports.
(e) With respect to any multiemployer plan (within the meaning of
ERISA section 4001(a)(3)): (i) none of the Company, any of its subsidiaries
or any member of their Controlled Group has incurred any withdrawal
liability under Title IV of ERISA or would be subject to such liability if,
as of the Effective Time, the Company, any of its subsidiaries or any
member of their Controlled Group were to engage in a complete withdrawal
(as defined in ERISA section 4203) or partial withdrawal (as defined in
ERISA section 4205) from any such multiemployer plan; and (ii) no
multiemployer plan to which the Company, any of its subsidiaries or any
member of their Controlled Group has any liabilities or contributes, is in
reorganization or insolvent (as those terms are defined in ERISA sections
4241 and 4245, respectively).
(f) With respect to any Company Plan, (i) no actions, suits or claims
(other than routine claims for benefits in the ordinary course) are pending
or, to the knowledge of the Company, threatened, and (ii) no facts or
circumstances exist, to the knowledge of the Company, that are likely to
give rise to any such actions, suits or claims.
(g) No Company Plan exists that could result in the payment to any
present or former employee of the Company or any of its subsidiaries of any
money or other property or accelerate or provide any other rights or
benefits to any present or former employee of the Company or any of its
subsidiaries as a result of the transaction contemplated by this Agreement,
whether or not such payment would constitute a parachute payment within the
meaning of Code section 280G.
SECTION 3.11 Tax Matters. The Company and each of its subsidiaries,
and any consolidated, combined, unitary or aggregate group for tax purposes of
which the Company or any
<PAGE> 18
14
of its subsidiaries is or has been a member has timely filed all Tax Returns
required to be filed by it in the manner provided by law, has paid all Taxes
(including interest and penalties) owed (whether or not shown on any Tax
Returns) other than Taxes that (i) are being contested in good faith, (ii) have
not been finally determined and (iii) for which an adequate reserve has been
provided in its financial statements according to generally accepted accounting
principles. All such Tax Returns were true, correct and complete in all material
respects. No claim has been made in writing by any Taxing authority in a
jurisdiction where any of the Company or its Subsidiaries does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction. Except as
has been disclosed to Parent in Section 3.11 of the Company Disclosure Schedule:
(i) no material claim for unpaid Taxes has become a lien or encumbrance of any
kind against the property of the Company or any of its subsidiaries or is being
asserted against the Company or any of its subsidiaries; (ii) as of the date
hereof there are no audits or disputes for Taxes upon the Company or any of its
subsidiaries; and (iii) none of the payments required by this Agreement would be
non-deductible under Code Section 162(m). Proper and accurate amounts have been
withheld by the Company and its subsidiaries from their employees in compliance
with the tax withholding provisions of applicable federal, state and local laws
and have been paid over to the appropriate taxing authorities. None of the
Company and its subsidiaries has filed a consent under Code Section 341(f)
concerning collapsible corporations. None of the Company and its subsidiaries
has been required to include in income any adjustment pursuant to Code Section
481 (or any similar provision of state, local or foreign tax law) by reason of a
voluntary change in accounting method initiated by the Company or any of its
subsidiaries, and, to the Company's best knowledge, the IRS has not initiated or
proposed any such adjustment or change in accounting method. Except as set forth
in Section 3.11 of the Company Disclosure Schedule, neither the Company nor any
of its subsidiaries (i) has been a member of an affiliated group filing
consolidated federal income tax return (other than a group the common parent of
which was the Company), (ii) is a party to a Tax allocation or Tax sharing
agreement (other than an agreement solely among members of a group the common
parent of which is the Company), or (iii) has any liability for the Taxes of any
person (other than any of the Company or its subsidiaries) under Treasury
Regulation section 1.1502-6 (or any similar provision of state, local or foreign
law), as a transferee or successor, by contract or otherwise. As used herein,
"Taxes" shall mean any taxes of any kind, including but not limited to those on
or measured by or referred to as income, gross receipts, capital, sales, use, ad
valorem, franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, value added, property or windfall profits
taxes, customs, duties or similar fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts imposed by any governmental authority, domestic or foreign.
As used herein, "Tax Return" shall mean any return, report or statement required
to be filed with any governmental authority with respect to Taxes, including any
schedule or attachment thereto or amendment thereof.
SECTION 3.12 Offer Documents; Proxy Statement. Neither the Schedule
14D-9, nor any of the information supplied by the Company for inclusion in the
Offer Documents, shall, at the respective times such Schedule 14D-9, the Offer
Documents or any amendments or supplements thereto are filed with the SEC or are
first published, sent or given to stockholders, as the case may be, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
Neither the proxy statement to be sent to the
<PAGE> 19
15
stockholders of the Company in connection with the Stockholders Meeting (as
defined in Section 6.1) or the information statement to be sent to such
stockholders, as appropriate (such proxy statement or information statement, as
amended or supplemented, is herein referred to as the "Proxy Statement"), shall,
at the date the Proxy Statement (or any amendment thereof or supplement thereto)
is first mailed to stockholders and at the time of the Stockholders Meeting and
at the Effective Time, be false or misleading with respect to any material fact,
or omit to state any material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they are made, not misleading or necessary to correct any statement
in any earlier communication with respect to the solicitation of proxies for the
Stockholders Meeting which has become false or misleading. Notwithstanding the
foregoing, the Company makes no representation or warranty with respect to any
information supplied by Parent or Purchaser or any of their respective
representatives which is contained in the Schedule 14D-9 or the Proxy Statement.
The Schedule 14D-9 and the Proxy Statement will comply in all material respects
as to form with the requirements of the Exchange Act and the rules and
regulations promulgated thereunder.
SECTION 3.13 Environmental Matters. (a) Except as disclosed in SEC
Reports filed and publicly available prior to the date of this Agreement and to
the extent that the inaccuracy of any of the following (or the circumstances
giving rise to such inaccuracy), individually or in the aggregate, is not
reasonably likely to have a Material Adverse Effect:
(i) (A) the Company and its subsidiaries are, and within the period of
all applicable statutes of limitation have been, in compliance with all
applicable Environmental Laws; and (B) the Company and each of its
subsidiaries believes that each of them will, and will not incur material
expense in excess of the amounts reflected in the Company's financial
statements and capital budgets to, timely attain or maintain compliance
with any Environmental Laws applicable to any of their current operations
or properties or to any of their planned operations over the next three
years;
(ii) (A) the Company and its subsidiaries hold all Environmental
Permits (each of which is in full force and effect) required for any of
their current operations and for any property owned, leased, or otherwise
operated by any of them, and are, and within the period of all applicable
statutes of limitation have been, in compliance with all such Environmental
Permits; and (B) neither the Company nor any of its subsidiaries has
knowledge that over the next three years: any of their Environmental
Permits will not be, or will entail material expense to be, timely renewed
or complied with; any additional Environmental Permits required of any of
them for current operations or for any property owned, leased, or otherwise
operated by any of them, or for any of their planned operations, will not
be timely granted or complied with; or any transfer or renewal of, or
reapplication for, any Environmental Permit required as a result of the
Merger will not be, timely effected;
(iii) no review by, or approval of, any Governmental Authority or
other person is required under any Environmental Law in connection with the
execution or delivery of this Agreement or the consummation of the
transactions contemplated hereby;
<PAGE> 20
16
(iv) neither the Company nor any of its subsidiaries has received any
Environmental Claim (as hereinafter defined) against any of them, and
neither the Company nor any of its subsidiaries has knowledge of any such
Environmental Claim being threatened;
(v) Hazardous Materials are not present on any property owned, leased,
or operated by the Company or any of its subsidiaries, that is reasonably
likely to form the basis of any Environmental Claim against any of them;
and neither the Company nor any of its subsidiaries has reason to believe
that Hazardous Materials are present on any other property that is
reasonably likely to form the basis of any Environmental Claim against any
of them;
(vi) neither the Company nor any of its subsidiaries has knowledge of
any material Environment Claim pending or threatened, or of the presence or
suspected presence of any Hazardous Materials that is reasonably likely to
form the basis of any Environmental Claim, in any case against any person
or entity (including without limitation any predecessor of the Company or
any of its subsidiaries) whose liability the Company or any of its
subsidiaries has or may have retained or assumed either contractually or by
operation of law or against any real or personal property which the Company
or any of its subsidiaries formerly owned, leased, or operated, in whole or
in part; and
(vii) the Company has informed the Parent and the Purchaser of: all
material facts which the Company or any of its subsidiaries reasonably
believes could form the basis of a material Environmental Claim against the
Company or any of its subsidiaries arising out of the non-compliance or
alleged non-compliance with any Environmental Law, or the presence or
suspected presence of Hazardous Materials at any location; all material
costs the Company reasonably expects it and any of its subsidiaries to
incur to comply with Environmental Laws during the next three years; and
all material costs the Company and any of its subsidiaries expect to incur
for ongoing, and reasonably anticipated, investigation and remediation of
Hazardous Materials (including, without limitation, any payments to resolve
any threatened or asserted Environmental Claim for investigation and
remediation costs).
(b) For purposes of this Agreement, the terms below shall have the
following meanings:
"Environmental Claim" means any claim, demand, action, suit,
complaint, proceeding, directive, investigation, lien, demand letter, or
notice (written or oral) of noncompliance, violation, or liability, by any
person or entity asserting liability or potential liability (including
without limitation liability or potential liability for enforcement,
investigatory costs, cleanup costs, governmental response costs, natural
resource damages, property damage, personal injury, fines or penalties)
arising out of, based on or resulting from (i) the presence, discharge,
emission, release or threatened release of any Hazardous Materials at any
location, (ii) circumstances forming the basis of any violation or alleged
violation of any Environmental Laws or Environmental Permits, or (iii)
otherwise relating to obligations or liabilities under any Environmental
Law.
<PAGE> 21
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"Environmental Laws" means any and all laws, rules, orders,
regulations, statutes, ordinances, guidelines, codes, decrees, or other
legally enforceable requirement (including, without limitation, common law)
of any foreign government, the United States, or any state, local,
municipal or other governmental authority, regulating, relating to or
imposing liability or standards of conduct concerning protection of human
health as affected by the environment or Hazardous Materials (including
without limitation employee health and safety) or the environment
(including without limitation indoor air, ambient air, surface water,
groundwater, land surface, subsurface strata, or plant or animal species).
"Environmental Permits" means all permits, licenses, registrations,
approvals, exemptions and other filings with or authorizations by any
Governmental Authority under any Environmental Law.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity (including, without
limitation, a court) exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
"Hazardous Materials" means all hazardous or toxic substances, wastes,
materials or chemicals, petroleum (including crude oil or any fraction
thereof), petroleum products, asbestos, asbestos-containing materials,
pollutants, contaminants, radioactivity, electromagnetic fields and all
other materials, whether or not defined as such, that are regulated
pursuant to any Environmental Laws or that could result in liability under
any applicable Environmental Laws.
SECTION 3.14 Real Estate Matters. (a) Except as set forth in Section
3.14 of the Company Disclosure Schedule, the Company or its subsidiaries has
good, valid, and, in the case of Owned Properties (as defined below), marketable
fee title to: (i) all of the material real property and interests in real
property owned by the Company or its subsidiaries and used by the Company or its
subsidiaries in the conduct of their business, except for properties hereafter
sold or otherwise disposed of in the ordinary course of business (the "Owned
Properties"), and (ii) all of the material leasehold estates in all real
properties leased by the Company or its subsidiaries, except leasehold interests
hereafter terminated in the ordinary course of business (the "Leased
Properties"; the Owned Properties and Leased Properties being sometimes referred
to herein as the "Real Properties"), in each case free and clear of all
mortgages, liens, security interests, easements, covenants, rights-of-way,
subleases and other similar restrictions and encumbrances ("Encumbrances"),
except for Encumbrances which, (i) individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect or (ii) are disclosed in
Section 3.14(a) of the Company Disclosure Schedule.
(b) Except as disclosed in Section 3.14 of the Company Disclosure
Schedule, and except to the extent that the inaccuracy of any of the following
(or the circumstances giving rise to such inaccuracy), individually or in the
aggregate, are not reasonably likely to have a Material Adverse Effect: (i) each
of the agreements by which the Company has obtained a leasehold interest in each
Leased Property (individually, a "Lease" and collectively, the "Leases") is in
full force and effect in accordance with its respective terms and the Company or
its subsidiary is the holder of the
<PAGE> 22
18
lessee's or tenant's interest thereunder; to the knowledge of the Company, there
exists no default under any Lease and no circumstance exists which, with the
giving of notice, the passage of time or both, is reasonably likely to result in
such a default; the Company and its subsidiaries have complied with and timely
performed all conditions, covenants, undertakings and obligations on their parts
to be complied with or performed under each of the Leases; the Company and its
subsidiaries have paid all rents and other charges to the extent due and payable
under the Leases; (ii) there are no leases, subleases, licenses, concessions or
any other contracts or agreements granting to any person or entity other than
the Company or any of its subsidiaries any right to the possession, use,
occupancy or enjoyment of any Real Property or any portion thereof; (iii) the
current operation and use of the Real Properties does not violate any statute,
law, regulation, rule, ordinance, permit, requirement, order or decree now in
effect; (iv) the use being made of each Real Property at present is in
conformity with the certificate of occupancy issued for such Real Property; (v)
there are no existing, or to the knowledge of the Company, threatened,
condemnation or eminent domain proceedings (or proceedings in lieu thereof)
affecting the Real Properties or any portion thereof and (vi) no default or
breach exists under any of the covenants, conditions, restrictions,
rights-of-way, or easements, if any, affecting all or any portion of a Real
Property, which are to be performed or complied with by the Company or any of
its subsidiaries.
(c) Neither the Company nor any of its subsidiaries is obligated under
or bound by any option, right of first refusal, purchase contract, or other
contractual right to sell or dispose of any Owned Property or any portions
thereof or interests therein which property, portions and interests,
individually or in the aggregate, are material to the Company and its
subsidiaries.
SECTION 3.15 Loans; Investments. (a) The following terms shall have
the meaning ascribed to them below:
(i) "Investor" means any person or entity who has acquired a Loan from
the Company or any of its subsidiaries, other than the Parent or any of its
subsidiaries.
(ii) "Investor Requirements" means any outstanding contractual, legal
and regulatory obligation of the Company or any of its subsidiaries to any
Investor, including but not limited to, the representations, warranties and
covenants made by the Company or any of its subsidiaries to any Investor.
(iii) "Loan" means any loan or lease at any time held, serviced or
sold by the Company or any of its subsidiaries to the extent that the
Company or any of its subsidiaries could have any liability, obligation or
duties with respect thereto.
(iv) "Loan Documents" means the note, mortgage, deed of trust,
security agreement, or other instrument securing the note and the related
documents for each Loan.
(v) "Mortgage Loan" shall mean a Loan secured by a mortgage.
(vi) "Serviced Loans" means all Loans serviced by the Company or its
subsidiaries for its own account or for others.
<PAGE> 23
19
(vii) "Servicing Requirements" means prudent practice and industry
standards together with any contractual, legal or regulatory obligation of
the Company or any of its subsidiaries relating to the Serviced Loans.
(b) Except as would not have a material adverse effect on the
Company's portfolio of Loans, the Loan Documents evidencing each Loan (other
than Serviced Loans serviced for the account of others that have never been
owned by the Company or its subsidiaries) that is currently outstanding
constitute the legal, valid and binding obligations of the parties thereto and
are enforceable against such parties in accordance with their terms, except as
the enforceability thereof may be limited by bankruptcy, insolvency, moratorium
or other similar laws affecting the rights of lending institutions or creditors
generally and by general equitable principles. Expect as would not have a
material adverse effect on the Company's portfolio of Loans, no Loan is subject
to any legally enforceable right of rescission, set-off, counterclaim or
defense, including the defense of usury or, to the knowledge of the Company,
lack of legal capacity of any borrower or guarantor, nor will the operation of
any of the terms of any Loan, or the exercise of any legally enforceable right
thereunder, render any Loan or any of the Loan Documents unenforceable, in whole
or in part, or subject to any right of rescission, setoff, counterclaim or
defense, including the defense of usury or, to the knowledge of the Company,
lack of legal capacity of any borrower or guarantor, and no such right of
rescission, set-off, counterclaim or defense has been asserted with respect to
any Loan for which there is any recourse against, or responsibility or exposure
of, the Company or any of its subsidiaries.
(c) Except as would not have a material adverse effect on the
Company's portfolio of Loans, the Loan Documents for each Loan (other than
Serviced Loans serviced for the account of others that have never been owned by
the Company or its subsidiaries) have been duly executed and recorded, or are in
the process of being recorded, and are in due and proper form. Except as would
not have a material adverse effect on the Company's portfolio of Loans, the
Company has at all times maintained the Loan Documents in all material respects
in accordance with Investor Requirements, Servicing Requirements and otherwise
in accordance with all legal and regulatory requirements and contractual
obligations applicable to the Company and its subsidiaries.
(d) Except as would not have a material adverse effect on the
Company's portfolio of Loans, all outstanding Loans sold by the Company or any
of its subsidiaries complied in all material respects with Investor Requirements
on the date of sale.
(e) Except as would not have a material adverse effect on the
Company's portfolio of Loans, the Company and its subsidiaries have at all times
been and are in compliance in all material respects with the Servicing
Requirements relating to the Serviced Loans and Loans previously serviced by any
of them.
(f) Except as would not have a material adverse effect on the
Company's portfolio of Loans, each advance outstanding with respect to any Loan
has been made in accordance with all material requirements of the Loan
Documents.
<PAGE> 24
20
(g) Except as would not have a material adverse effect on the
Company's portfolio of Loans, neither the Company nor any of its subsidiaries is
in material default with respect to any of its obligations under any Loan.
(h) Neither the Company nor any of its subsidiaries is in violation in
any material respect of any federal, state, or local law, statute, ordinance,
rule, regulation, order or guideline applicable to the Company or its
subsidiaries pertaining to the Loans or otherwise relating to its purchase or
sale of Loans or its lending business.
(i) Except as would not have a material adverse effect on the
Company's portfolio of Loans, all Loans securitized in a pool, at the time of
inclusion in the pool, and at the time of any pool certification or any
recertification, met all applicable guidelines for such pool. The principal
balance outstanding and owing on the Serviced Loans in each pool equals or
exceeds the principal amount owing to the corresponding security holder of such
pool.
(j) Set forth in Section 3.15(j) of the Company Disclosure Schedule is
a list, as of the date hereof, of all interest rate swaps, caps, floors, and
option agreements and other interest rate risk management arrangements to which
the Company or any of its subsidiaries is a party or by which any of their
properties or assets may be bound. Except as would not have a material adverse
effect on the Company's portfolio of Loans, all interest rate swaps, caps,
floors and option agreements and other interest rate risk management
arrangements to which the Company or any of its subsidiaries is a party or by
which any of their properties or assets may be bound were entered into in the
ordinary course of business and, to the best knowledge of the Company, in
accordance with then-customary practice and all applicable rules and regulations
and with counterparties believed to be financially responsible at the time and
are legal, valid and binding obligations and are in full force and effect,
except as the enforceability thereof may be limited by bankruptcy, insolvency,
moratorium, reorganization, receivership, conservatorship or similar laws
relating to or affecting the enforcement of creditors' rights generally, and by
general principles of equity, whether applied by a court of law or equity. The
Company and its subsidiaries have duly performed in all material respects all of
their respective obligations thereunder to the extent that such obligations to
perform have accrued, and to the best knowledge of the Company, there are no
material breaches, violations or defaults or allegations or assertions of such
by any party thereunder. Except as set forth in Section 3.15(l), of the Company
Disclosure Schedule, none of the transactions contemplated by this Agreement
would permit: (i) a counterparty under any interest rate swap, cap, floor and
option agreement or any other interest rate risk management agreement or (ii)
any party to any financing arrangement, including, but not limited to
mortgage-backed financing, to accelerate, discontinue, terminate or otherwise
modify any such agreement or arrangement or would require the Company or any of
its subsidiaries to recognize any gain or loss with respect to such arrangement.
(k) Except as set forth in Section 3.15(k) of the Company Disclosure
Schedule, the Company has not received notice from any governmental,
quasi-governmental or private agency of pending or threatened actions or
investigations relating to the Company's activities in respect of the Loans.
<PAGE> 25
21
(l) Except as would not have a material adverse effect on the
Company's portfolio of Loans, the terms of each Loan have not been impaired,
waived, altered or modified in any material respect from the date of its
origination except by a written instrument, which written instrument has been
recorded if recordation is necessary to protect the interests of the owner
thereof. The substance of any such waiver, alteration or modification has been
communicated to and approved in writing by: (i) the relevant Investor, to the
extent required by the relevant Investor Requirements; and (ii) the title
insurer, to the extent required by the relevant policies, and its terms are
reflected in the Loan Documents. Where the Investor's authorization is required,
neither the Company nor any of its subsidiaries has, without the Investor's
knowledge: (i) subordinated the lien of any Mortgage Loan to any other mortgage
or lien or given any other mortgage or lien equal priority with the lien of a
mortgage loan; or (ii) executed any instrument of release, cancellation or
satisfaction with, in whole or in part, respect to any Mortgage Loan.
(m) Except as would not have a material adverse effect on the
Company's portfolio of Loans and except as set forth in Section 3.15(o) of the
Company Disclosure Schedule, as of the date hereof, neither the Company nor any
of its subsidiaries is subject to any repurchase obligation under any Loan.
(n) Except as would not have a material adverse effect on the
Company's portfolio of Loans, neither the Company nor any of its subsidiaries
has received notice of a servicing default for any Loan, and each Loan serviced
by the Company or its subsidiaries has been properly serviced and accounted for
in all material respects in accordance with the applicable Servicing
Requirements. All pools for which the Company or any of its subsidiaries is
responsible are in compliance in all material respects with all applicable
Investor Requirements, procedures, rules, regulations and guidelines.
(o) To the knowledge of the Company, no facts currently exist with
respect to existing securitizations heretofore undertaken by the Company that
would be reasonably likely to materially and adversely affect the ability of the
Company or any of its subsidiaries to continue to do securitizations in the
future in accordance with existing practices.
SECTION 3.16 Licenses. Section 3.16 of the Company Disclosure Schedule
sets forth all licenses, permits, franchises and other authorizations of any
governmental authority (collectively, "Licenses") that are material to the
operation of its business as currently conducted. Except as set forth in Section
3.16 of the Company Disclosure Schedule, the Company has been granted and
possesses all such Licenses, all such Licenses are in full force and effect and
no proceeding is pending or threatened seeking the revocation or limitation of
any such License. Except as set forth in Section 3.16 of the Company Disclosure
Schedule, none of such Licenses will be subject to revocation or other
limitation as a result of this Agreement or the transactions contemplated
hereby.
SECTION 3.17 Allowance for Possible Loan Losses. The reserve for
losses shown on the audited consolidated financial statements as of December 31,
1998 was adequate in all material respects to provide for possible or specific
losses, and contained an additional amount of unallocated reserves for
unanticipated future losses, at a level considered adequate under generally
<PAGE> 26
22
accepted accounting principles and standards applied to the specialty finance
business conducted by the Company and its subsidiaries. To the knowledge of the
Company, the aggregate principal amount of all receivables including, but not
limited to, Loans and leases contained in the Loan and lease portfolio of the
Company and its subsidiaries as of December 31, 1998, arose in the ordinary
course of business and are not the subject of any asserted claim or set off,
except to the extent reserves have been taken against such receivables.
SECTION 3.18 Brokers. No broker, finder or investment banker (other
than the Financial Adviser) is entitled to any brokerage, finder's or other fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by and on behalf of the Company. The Company has
heretofore furnished to Parent a complete and correct copy of all agreements
between the Company and the Financial Adviser pursuant to which such firm would
be entitled to any payment relating to the transactions contemplated hereby.
SECTION 3.19 Sole Representations and Warranties. The representations
and warranties set forth in this Article III and elsewhere in this Agreement, as
modified by the Company Disclosure Schedule, are the only representations and
warranties of the Company in connection with this Agreement and the transactions
contemplated hereby, and supersede any and all previous written and oral
statements made to Parent.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
PARENT AND PURCHASER
Parent and Purchaser hereby, jointly and severally, represent and
warrant to the Company that:
SECTION 4.1 Corporate Organization. Each of Parent and Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of its respective jurisdiction of organization and has the requisite corporate
power and authority and any necessary governmental approval to own, operate or
lease its properties and to carry on its business as it is now being conducted,
except where the failure to be so organized, existing and in good standing or to
have such power, authority and governmental approvals is not, individually or in
the aggregate, reasonably likely to prevent or materially delay the consummation
of the Offer or the Merger.
SECTION 4.2 Authority Relative to This Agreement. Each of Parent and
Purchaser has all necessary corporate power and authority to enter into this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by each of Parent and Purchaser and the consummation by each of
Parent and Purchaser of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and Purchaser
other than filing and recordation of appropriate merger documents as required by
the MBCL. This Agreement has been duly executed and delivered by Parent and
Purchaser and, assuming due authorization, execution and delivery by
<PAGE> 27
23
the Company, constitutes a legal, valid and binding obligation of each such
corporation enforceable against such corporation in accordance with its terms.
SECTION 4.3 No Conflict; Required Filings and Consents. (a) The
execution, delivery and performance of this Agreement by Parent and Purchaser do
not and will not: (i) conflict with or violate the respective certificates of
incorporation or by-laws of Parent or Purchaser; (ii) assuming that all
consents, approvals and authorizations contemplated by clauses (i), (ii) and
(iii) of subsection (b) below have been obtained and all filings described in
such clauses have been made, conflict with or violate any law, rule, regulation,
order, judgment or decree applicable to Parent or Purchaser or by which either
of them or their respective properties are bound or affected; or (iii) result in
any breach or violation of or constitute a default (or an event which with
notice or lapse of time or both could become a default) or result in the loss of
a material benefit under, or give rise to any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the property or assets of Parent or Purchaser pursuant to,
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Parent or Purchaser
is a party or by which Parent or Purchaser or any of their respective properties
are bound or affected, except, in the case of clauses (ii) and (iii), for any
such conflicts, violations, breaches, defaults or other occurrences which are
not, individually or in the aggregate, reasonably likely to prevent or
materially delay the consummation of the Offer or the Merger.
(b) Except for the Licenses identified in Section 3.16 of the Company
Disclosure Schedule and any other consents, approvals, authorizations, permits
or filings as may be required by any governmental authority in order for the
Surviving Corporation to operate after the Effective Time the business of the
Company as currently conducted, including, without limitation, the filing of
applications and notices with federal and state regulatory authorities governing
consumer finance, commercial finance, mortgage lending and insurance in the
states in which the Company and its subsidiaries operate their respective
businesses, the execution, delivery and performance of this Agreement by Parent
and Purchaser do not and will not require any consent, approval, authorization
or permit of, action by, filing with or notification to, any governmental or
regulatory authority, domestic or foreign, except (i) for applicable
requirements, if any, of the Exchange Act and the rules and regulations
promulgated thereunder, the HSR Act or other foreign filings or approvals, state
securities, takeover and "blue sky" laws, (ii) the filing and recordation of
appropriate merger or other documents as required by the MBCL, and (iii) such
consents, approvals, authorizations, permits, actions, filings or notifications
the failure of which to make or obtain are not, individually or in the
aggregate, reasonably likely to prevent or materially delay the consummation of
the Offer or the Merger.
SECTION 4.4 Offer Documents; Proxy Statement. The Offer Documents, as
filed pursuant to Section 1.1, will not, at the time such Offer Documents are
filed with the SEC or are first published, sent or given to stockholders, as the
case may be, contain any untrue statement of a material fact or omit to state
any material fact required to be stated or incorporated by reference therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The information supplied by Parent
for inclusion in the Proxy Statement shall not, on the date the Proxy Statement
is first mailed to stockholders, at the time
<PAGE> 28
24
of the Stockholders Meeting (as defined in Section 6.1), if any, or at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or shall omit to state a material fact required to be
stated therein or necessary in order to make the statements therein not false or
misleading or necessary to correct any statement in any earlier communication
with respect to the solicitation of proxies for the Stockholders Meeting which
has become false or misleading. Notwithstanding the foregoing, Parent and
Purchaser make no representation or warranty with respect to any information
supplied by the Company or any of its representatives which is contained in or
incorporated by reference in any of the foregoing documents or the Offer
Documents. The Offer Documents, as amended and supplemented, will comply in all
material respects as to form with the requirements of the Exchange Act and the
rules and regulations promulgated thereunder.
SECTION 4.5 Brokers. No broker, finder or investment banker (other
than Donaldson, Lufkin & Jenrette, Inc.) is entitled to any brokerage, finder's
or other fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by and on behalf of Parent or
Purchaser.
SECTION 4.6 Funds. Parent or Purchaser, at the expiration date of the
Offer and at the Effective Time, will have the funds necessary to consummate the
Offer and the Merger, respectively.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.1 Conduct of Business of the Company Pending the Merger. The
Company covenants and agrees that, during the period from the date hereof to the
Effective Time, unless Parent shall otherwise agree in writing, the businesses
of the Company and its subsidiaries shall be conducted only in, and the Company
and its subsidiaries shall not take any action except in, the ordinary course of
business and in a manner consistent with past practice; and the Company and its
subsidiaries shall each use its commercially reasonable efforts to preserve
substantially intact the business organization of the Company and its
subsidiaries, to keep available the services of the present officers, employees
and consultants of the Company and its subsidiaries and to preserve the present
relationships of the Company and its subsidiaries with customers, suppliers and
other persons with which the Company or any of its subsidiaries has significant
business relations. By way of amplification and not limitation, except as set
forth in Section 5.1 of the Company Disclosure Schedule, neither the Company nor
any of its subsidiaries shall, between the date of this Agreement and the
Effective Time, directly or indirectly do, or commit to do, any of the following
without the prior written consent of Parent:
(a) amend or otherwise change its Articles of Organization or by-laws
or equivalent organizational documents;
<PAGE> 29
25
(b) issue, deliver, sell, pledge, dispose of or encumber, or authorize
or commit to the issuance, sale, pledge, disposition or encumbrance of, (i)
any shares of capital stock of any class, or any options, warrants,
convertible securities or other rights of any kind to acquire any shares of
capital stock, or any other ownership interest (including but not limited
to stock appreciation rights or phantom stock), of the Company or any of
its subsidiaries (except for the issuance of up to 913,720 shares of
Company Common Stock required to be issued pursuant to the terms of Options
outstanding as of September 22, 1999 or (ii) any assets of the Company or
any of its subsidiaries, except in the ordinary course of business and in a
manner consistent with past practice;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock;
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof; (ii) incur any indebtedness for borrowed money or issue
any debt securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any person, or
make any loans, advances or capital contributions to, or investments in,
any other person (other than in the ordinary course of business consistent
with past practice and other than existing committed facilities); (iii)
enter into any contract or agreement other than in the ordinary course of
business consistent with past practice; or (iv) authorize capital
expenditures (during any three month period) which are, in the aggregate,
in excess of $25,000 for the Company and its subsidiaries taken as a whole;
(f) except to the extent required under existing employee and director
benefit plans, agreements or arrangements as in effect on the date of this
Agreement or as provided under Section 2.7, increase the compensation or
fringe benefits of any of its directors, officers or employees, except for
increases in salary or wages of employees of the Company or its
subsidiaries who are not officers of the Company in the ordinary course of
business in accordance with past practice, or grant any severance or
termination pay not currently required to be paid under existing severance
plans to or enter into any employment, consulting or severance agreement or
arrangement with any present or former director, officer or other employee
of the Company or any of its subsidiaries, or establish, adopt, enter into
or amend or terminate any collective bargaining agreement or Company Plan,
including, but not limited to, bonus, profit sharing, thrift, compensation,
stock option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund,
policy or arrangement for the benefit of any directors, officers or
employees;
(g) except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
practices or principles used by it, other than discontinuance of the gain
on sale method;
<PAGE> 30
26
(h) make any material Tax election, change any annual Tax accounting
period, change any method of Tax accounting, file any amended Tax Return or
settle or compromise any material federal, state, local or foreign Tax
liability;
(i) settle or compromise any pending or threatened suit, action or
claim which is material or which relates to the transactions contemplated
hereby;
(j) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any of its subsidiaries not constituting
an inactive subsidiary (other than the Merger);
(k) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction (i) in the ordinary course of
business and consistent with past practice of liabilities reflected or
reserved against in the financial statements of the Company or incurred in
the ordinary course of business and consistent with past practice and (ii)
of liabilities required to be paid, discharged or satisfied pursuant to the
terms of any contract in existence on the date hereof;
(l)(i) make or commit to make any financial services Loan;
(ii) make or commit to make any other Loan except as specifically
provided in clauses (iii) through (ix) of this paragraph (l);
(iii) purchase or commit to purchase consumer land Loans from a single
dealer exceeding an aggregate amount of (y) $1,000,000 in the case of a dealer
that is an approved dealer as of the date of this Agreement or (z) $2,500,000 in
the case of a dealer that becomes an approved dealer on or after the date of
this agreement;
(iv) purchase or commit to purchase consumer timeshare Loans from a
single seller exceeding an aggregate amount of (y) $500,000 in the case of a
seller that is an approved seller as of the date of this Agreement or (z)
$1,000,000 in the case of a seller that becomes an approved seller on or after
the date of this Agreement;
(v) make or commit to make Loans for the acquisition and/or
construction of timeshare units that exceed (y) $2,500,000 in the case of a new
Loan to an approved borrower (or group of affiliated borrowers) as of the date
of this Agreement; provided however, that any increase in an existing commitment
shall not exceed $1,000,000, and provided, further, that any additional Loans or
increases as described in this clause (y) shall not cause the aggregate
commitments to such borrower to exceed $2,500,000 or (z) $2,000,000 in the case
of a borrower (or group of affiliated borrowers) which becomes an approved
borrower on or after the date of this Agreement;
(vi) make or commit to make Loans for the acquisition and/or
development of landlots that exceed (y) $500,000 in the case of a new Loan to an
approved borrower (or group of
<PAGE> 31
27
affiliated borrowers) as of the date of this Agreement; provided however, that
any increase in an existing commitment shall not exceed $100,000, and provided,
further, that any additional Loans or increases as described in this clause (y)
shall not cause the aggregate commitments to such borrower to exceed $1,500,000
or (z) $1,000,000 in the case of a borrower (or group of affiliated borrowers)
which becomes an approved borrower on or after the date of this Agreement;
(vii) make or commit to make Loans for the finance or purchase of land
(not including consumer Loans as provided in clause (iii) of Section 5.1(l)
above) that exceed (y) $1,000,000 in the case of a new Loan to an approved
borrower (or group of affiliated borrowers) as of the date of this Agreement;
provided however, that any increase in an existing commitment shall not exceed
$250,000, and provided, further, that any additional Loans or increases as
described in this clause (y) shall not cause the aggregate commitments to such
borrower to exceed $2,500,000 or (z) $500,000 in the case of a borrower (or
group of affiliated borrowers) which becomes an approved borrower on or after
the date of this Agreement;
(viii) make or commit to make Loans for the finance or purchase of
timeshare units (not including consumer Loans as provided in clause (iv) of
Section 5.1(l) above) that exceed (y) $5,000,000 in the case of a new Loan to an
approved borrower (or group of affiliated borrowers) as of the date of this
Agreement; provided however, that any increase in an existing commitment shall
not exceed $2,500,000, and provided, further, that any additional Loans or
increases as described in this clause (y) shall not cause the aggregate
commitments to such borrower to exceed $5,000,000 or (z) $5,000,000 in the case
of a borrower (or group of affiliated borrowers) which becomes an approved
borrower on or after the date of this Agreement; or
(ix) purchase or commit to purchase any tax lien certificate greater
than $500,000;
provided, that nothing in this Section 5.1(l) shall prohibit the Company from
honoring any contractual obligation in existence on the date of this Agreement.
(m) refinance or restructure any existing Loan, except in the ordinary
course of business consistent with past practice and prudent lending
practices;
(n) make any material changes in its polices or practices concerning
Loan underwriting and credit scoring, or which persons may approve Loans or
credit scoring;
(o) except in the ordinary course of business consistent with past
practice and prudent business practices, enter into any securities
transaction for its own account or purchase or otherwise acquire any
investment security for its own account other than (A) securities backed by
the full faith and credit of the United States or an agency thereof and (B)
other readily marketable securities not in excess of $100,000.
(p) foreclose upon or otherwise take title to or possession or control
of any real property (other than residential property) without first
obtaining a phase one environmental report thereon;
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(q) enter into any new, or modify, amend or extend the terms of any
existing, contracts relating to the purchase or sale of financial or other
futures, or any put or call option relating to cash, securities or
commodities or any interest rate swap agreements or other agreements
relating to the hedging of interest rate risk, except in the ordinary
course of business consistent with past practices and prudent business
practices; or
(r) take, or offer or propose to take, or agree to take in writing or
otherwise, any of the actions described in Sections 5.1(a) through 5.1(q) or any
action which would make any of the representations or warranties of the Company
contained in this Agreement untrue and incorrect as of the date when made if
such action had then been taken, or would result in any of the conditions set
forth in Annex A not being satisfied.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Stockholders Meeting. (a) If adoption of this Agreement is
required by applicable law, the Company, acting through its Board of Directors,
shall in accordance with and subject to applicable law and the Company's
Articles of Organization and By-Laws, (i) duly call, give notice of, convene and
hold a meeting of its stockholders as soon as practicable following consummation
of the Offer for the purpose of adopting this Agreement and the transactions
contemplated hereby (the "Stockholders Meeting") and except if the Board of
Directors by majority vote determines in good faith, based on the advice of
outside legal counsel to the Company that to do so would constitute a breach of
fiduciary duty under applicable law, (A) include in the Proxy Statement the
unanimous recommendation of the Board of Directors that the stockholders of the
Company vote in favor of the adoption of this Agreement and the approval of the
transactions contemplated hereby and the written opinion of the Financial
Adviser that the consideration to be received by the stockholders of the Company
pursuant to the Offer and the Merger is fair to such stockholders and (B) use
its reasonable best efforts to obtain the necessary adoption of this Agreement
and the approval of the transactions contemplated hereby by its stockholders. At
the Stockholders Meeting, Parent and Purchaser shall cause all Shares then owned
by them and their subsidiaries to be voted in favor of adoption of this
Agreement and the approval of the transactions contemplated hereby.
(b) Notwithstanding the foregoing, in the event that Purchaser shall
acquire at least 90% of the outstanding Shares, the Company agrees, at the
request of Purchaser, subject to Article VII, to take all necessary and
appropriate action to cause the Merger to become effective as soon as reasonably
practicable after such acquisition, without a meeting of the Company's
stockholders, in accordance with Section 82 of the MBCL.
SECTION 6.2 Proxy Statement. If required by applicable law, as soon as
practicable following Parent's request, the Company shall file with the SEC
under the Exchange Act and the rules and regulations promulgated thereunder, and
shall use its reasonable best
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29
efforts to have cleared by the SEC, the Proxy Statement with respect to the
Stockholders Meeting. Parent, Purchaser and the Company will cooperate with each
other in the preparation of the Proxy Statement; without limiting the generality
of the foregoing, each of Parent and Purchaser will furnish to the Company the
information relating to it required by the Exchange Act and the rules and
regulations promulgated thereunder to be set forth in the Proxy Statement. The
Company agrees to use its reasonable best efforts, after consultation with the
other parties hereto, to respond promptly to any comments made by the SEC with
respect to the Proxy Statement and any preliminary version thereof filed by it
and cause such Proxy Statement to be mailed to the Company's stockholders at the
earliest practicable time.
SECTION 6.3 Company Board Representation; Section 14(f). (a) Promptly
upon the purchase by Purchaser of Shares pursuant to the Offer, and from time to
time thereafter, Purchaser shall be entitled to designate up to such number of
directors, rounded up to the next whole number, on the Board of Directors of the
Company as shall give Purchaser representation on the Board of Directors equal
to the product of the total number of directors on such Board (giving effect to
the directors elected pursuant to this sentence and including any vacancies or
unfilled newly-created directorships) multiplied by the percentage that the
aggregate number of Shares beneficially owned by Purchaser or any affiliate of
Purchaser bears to the total number of Shares then outstanding, and the Company
shall amend, or cause to be amended, its by-laws to provide for each of the
matters set forth in this Section 6.3 and shall, at such time, promptly take all
action necessary to cause Purchaser's designees to be so elected, including
either increasing the size of the Board of Directors or securing the
resignations of incumbent directors or both. At such times, the Company will use
its reasonable best efforts to cause persons designated by Purchaser to
constitute the same percentage as is on the board of (i) each committee of the
Board of Directors, (ii) each board of directors of each subsidiary of the
Company and (iii) each committee of each such board, in each case only to the
extent permitted by law. Until Purchaser acquires 662/3% of the outstanding
Shares on a fully diluted basis, the Company shall use its commercially
reasonable efforts to ensure that all the members of the Board of Directors and
such boards and committees as of the date hereof who are not employees of the
Company shall remain members of the Board of Directors and such boards and
committees.
(b) The Company's obligations to appoint designees to its Board of
Directors shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder. The Company shall promptly take all actions required
pursuant to Section 14(f) and Rule 14f-1 in order to fulfill its obligations
under this Section 6.3 and shall include in the Schedule 14D-9 or a separate
Rule 14f-1 information statement provided to stockholders such information with
respect to the Company and its officers and directors as is required under
Section 14(f) and Rule 14f-1 to fulfill its obligations under this Section 6.3.
Parent or Purchaser will supply to the Company and be solely responsible for any
information with respect to either of them and their nominees, officers,
directors and affiliates required by Section 14(f) and Rule 14f-1.
(c) Following the election or appointment of Purchaser's designees
pursuant to this Section 6.3 and prior to the Effective Time, any amendment, or
waiver of any term or condition of this Agreement or the Articles of
Organization or By-Laws of the Company, any termination of this Agreement by the
Company, any extension by the Company of the time for
<PAGE> 34
30
the performance of any of the obligations or other acts of Purchaser or waiver
or assertion of any of the Company's rights hereunder, and any other consent or
action by the Board of Directors with respect to this Agreement, will require
only the concurrence of a majority of the directors of the Company then in
office who are neither designated by Purchaser nor are employees of the Company
(the "Disinterested Directors") and such concurrence shall constitute the
authorization of the Board of Directors of the Company and no other action by
the Company, including any action by any other director of the Company, shall be
required for purposes of this Agreement. Notwithstanding the foregoing, the
number of Disinterested Directors shall be not less than two.
SECTION 6.4 Access to Information; Confidentiality. (a) From the date
hereof to the Effective Time, the Company shall, and shall cause its
subsidiaries, officers, directors, employees, auditors and other agents to,
afford the officers, employees, auditors and other agents of Parent, and
financing sources who shall agree to be bound by the provisions of this Section
6.4 as though a party hereto, complete access, consistent with applicable law,
at all reasonable times to its officers, employees, agents, properties, offices,
plants and other facilities and to all books and records, and shall furnish
Parent and such financing sources with all financial, operating and other data
and information as Parent, through its officers, employees or agents, or such
financing sources may from time to time reasonably request. Parent, Purchaser
and their respective officers, employees, agents and financing sources shall
exercise such right of access in a manner which does not unduly interfere with
the conduct by the Company of its business.
(b) Each of Parent and Purchaser will hold and will cause its
officers, employees, auditors and other agents to hold in confidence all
documents and information concerning the Company and its subsidiaries furnished
to Parent or Purchaser in connection with the transactions contemplated in this
Agreement pursuant to the terms and provisions of that Confidentiality Agreement
dated July 20, 1999 between Parent and the Company (the "Confidentiality
Agreement").
(c) No investigation or information provided pursuant to this Section
6.4 shall affect any representations or warranties of the parties herein or the
conditions to the obligations of the parties hereto.
SECTION 6.5 No Solicitation of Transactions. The Company, its
affiliates and their respective officers, directors, employees, representatives
and agents shall immediately cease any existing discussions or negotiations, if
any, with any parties conducted heretofore with respect to any acquisition or
exchange of all or any material portion of the assets of, or any equity interest
in, the Company or any of its subsidiaries or any business combination with or
involving the Company or any of its subsidiaries. At any time prior to
consummation of the Offer, the Company may, directly or indirectly, furnish
information and access, in each case only in response to a request for such
information or access to any person made after the date hereof which was not
encouraged, solicited or initiated by the Company or any of its affiliates or
any of its or their respective officers, directors, employees, representatives
or agents after the date hereof, pursuant to appropriate confidentiality
agreements, and may participate in discussions and negotiate with such person
concerning any merger, sale of assets, sale of shares of capital stock or
similar transaction (including an exchange of stock or assets) involving the
Company or any
<PAGE> 35
31
subsidiary or division of the Company, in each case (whether furnishing
information and access or participating in discussions and negotiations) only if
such person has submitted a written proposal to the Board of Directors of the
Company relating to any such transaction and the Board by majority vote
determines in good faith, based upon the advice of outside counsel to the
Company, that failing to take such action would constitute a breach of the
Board's fiduciary duty under applicable law. The Board shall provide a copy of
any such written proposal to Parent immediately after receipt thereof, shall
notify Parent immediately if any proposal (oral or written) is made and shall in
such notice, indicate in reasonable detail the identity of the offeror and the
terms and conditions of any proposal and shall keep Parent promptly advised of
all developments which could reasonably be expected to culminate in the Board of
Directors withdrawing, modifying or amending its recommendation of the Offer,
the Merger and the other transactions contemplated by this Agreement. Except as
set forth in this Section 6.5, neither the Company or any of its affiliates, nor
any of its or their respective officers, directors, employees, representatives
or agents, shall, directly or indirectly, encourage, solicit, participate in or
initiate discussions or negotiations with, or provide any information to, any
corporation, partnership, person or other entity or group (other than Parent and
Purchaser, any affiliate or associate of Parent and Purchaser or any designees
of Parent or Purchaser) concerning any merger, sale of any material portion or
assets, sale of any of the shares of capital stock or similar transactions
(including an exchange of stock or assets) involving the Company or any
subsidiary or division of the Company; provided, however, that nothing herein
shall prevent the Board from taking, and disclosing to the Company's
stockholders, a position contemplated by Rules 14d-9 and 14e-2 promulgated under
the Exchange Act with regard to any tender offer; provided, further, that the
Board shall not recommend that the stockholders of the Company tender their
Shares in connection with any such tender offer unless the Board by majority
vote shall have determined in good faith, based upon the advice of outside
counsel to the Company, that failing to take such action would constitute a
breach of the Board's fiduciary duty under applicable law. The Company agrees
not to release any third party from, or waive any provisions of, any
confidentiality or standstill agreement to which the Company is a party, unless
the Board by majority vote shall have determined in good faith, based upon the
advice of outside counsel to the Company, that failing to release such third
party or waive such provisions would constitute a breach of the fiduciary duties
of the Board of Directors under applicable law.
SECTION 6.6 Employee Benefits Matters. (a) Subject to paragraphs (b)
and (d) below, on and after the Effective Time, Parent shall cause the Surviving
Corporation and its subsidiaries to promptly pay or provide when due all
compensation and benefits earned through or prior to the Effective Time as
provided pursuant to the terms of any compensation arrangements, employment
agreements and employee or director benefit plans, programs and policies in
existence as of the date hereof for all employees (and former employees) and
directors (and former directors) of the Company and its subsidiaries (unless
superseded by an employment agreement between such employee and the Parent or
Purchaser). Parent and the Company agree that the Surviving Corporation and its
subsidiaries shall pay promptly or provide when due all compensation and
benefits required to be paid pursuant to the terms of any individual agreement
with any employee, former employee, director or former director in effect as of
the date hereof and disclosed in Section 3.10(a) of the Company Disclosure
Schedule.
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(b) Parent shall cause the Surviving Corporation, for the period
commencing at the Effective Time and ending on the first anniversary thereof, to
provide employee benefits under plans, programs and arrangements which, in the
aggregate, will provide benefits to the employees of the Surviving Corporation
and its subsidiaries (other than employees covered by a collective bargaining
agreement) which are no less favorable in the aggregate than those provided to
Parent's similarly situated employees pursuant to the plans, programs and
arrangements (other than those related to the equity securities of the Company)
of the Parent and its subsidiaries in effect on the date hereof and employees
covered by collective bargaining agreements shall be provided with such benefits
as shall be required under the terms of any applicable collective bargaining
agreement; provided, however, that nothing herein shall prevent the amendment or
termination of any specific plan, program or arrangement, require that the
Surviving Corporation provide or permit investment in the securities of Parent,
the Company or the Surviving Corporation or interfere with the Surviving
Corporation's right or obligation to make such changes as are necessary to
conform with applicable law. Employees of the Surviving Corporation shall be
given credit for all service with the Company and its subsidiaries, to the same
extent as such service was credited for such purpose by the Company, under each
employee benefit plan, program, or arrangement of the Parent in which such
employees are eligible to participate for purposes of eligibility and vesting;
provided, however, that in no event shall the employees be entitled to any
credit to the extent that it would result in a duplication of benefits with
respect to the same period of service.
(c) If employees of the Surviving Corporation and its subsidiaries
become eligible to participate in a medical, dental or health plan of Parent or
its subsidiaries, Parent shall cause such plan to (i) waive any preexisting
condition limitations for conditions covered under the applicable medical,
health or dental plans of the Company and its subsidiaries and (ii) honor any
deductible and out of pocket expenses incurred by the employees and their
beneficiaries under such plans during the portion of the calendar year prior to
such participation.
(d) Nothing in this Section 6.6 shall require the continued employment
of any person or, with respect to clauses (a), (b) and (c) hereof, prevent the
Company and/or the Surviving Corporation and their subsidiaries from taking any
action or refraining from taking any action which the Company and its
subsidiaries prior to the Effective Time, could have taken or refrained from
taking.
SECTION 6.7 Directors' and Officers' Indemnification and Insurance.
(a) The Articles of Organization and By-Laws of the Surviving Corporation shall
contain provisions no less favorable with respect to indemnification than are
set forth in the Articles of Organization and By-laws of the Company, which
provisions shall not be amended, repealed or otherwise modified for a period of
six years from the Effective Time in any manner that would adversely affect the
rights thereunder of individuals who at the Effective Time were directors,
officers or employees of the Company.
(b) Parent shall use its reasonable best efforts to cause to be
maintained in effect for six years from the Effective Time the current policies
of the directors' and officers' liability insurance maintained by the Company
(provided that Parent may substitute therefor policies of at
<PAGE> 37
33
least the same coverage containing terms and conditions which are not materially
less advantageous) with respect to matters occurring prior to the Effective Time
to the extent available; provided, however, that in no event shall Parent or the
Company be required to expend more than an amount per year equal to 150% of
current annual premiums paid by the Company (which the Company represents and
warrants to be not more than $46,000) to maintain or procure insurance coverage
pursuant hereto.
(c) For six years after the Effective Time, Parent agrees that it will
or will cause the Surviving Corporation to indemnify and hold harmless each
present and former director and officer of the Company, determined as of the
Effective Time and their heirs and representatives (the "Indemnified Parties"),
against any costs or expenses (including reasonable attorneys' fees), judgments,
fines, losses, claims, damages or liabilities (collectively, "Costs") (but only
to the extent such Costs are not otherwise covered by insurance and paid)
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative
(collectively, "Claims"), arising out of or pertaining to matters existing or
occurring at or prior to the Effective Time, whether asserted or claimed prior
to, at or after the Effective Time, to the fullest extent permitted under
applicable law (and Parent shall ,or shall cause the Surviving Corporation to,
also advance expenses as incurred to the fullest extent permitted under
applicable law provided the person to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined that such
person is not entitled to indemnification).
(d) Any Indemnified Party wishing to claim indemnification under
paragraph (c) of this Section 6.7, upon learning of any such Claim, shall
promptly notify Parent thereof, but the failure to so notify shall not relieve
Parent of any liability it may have to such Indemnified Party if such failure
does not materially prejudice Parent. In the event of any such Claim (whether
arising before or after the Effective Time), (i) Parent or the Surviving
Corporation shall have the right to assume the defense thereof and Parent shall
not be liable to such Indemnified Parties for any legal expenses of other
counsel or any other expenses subsequently incurred by such Indemnified Parties
in connection with the defense thereof, except that if Parent or the Surviving
Corporation elects not to assume such defense, or counsel for the Indemnified
Parties advises that there are issues that raise conflicts of interest between
Parent or the Surviving Corporation and the Indemnified Parties, the Indemnified
Parties may retain counsel satisfactory to them, and Parent or the Surviving
Corporation shall pay all reasonable fees and expenses of such counsel for the
Indemnified Parties promptly as statements therefor are received; provided,
however, that Parent shall be obligated pursuant to this paragraph (d) to pay
for only one firm of counsel for all Indemnified Parties in any jurisdiction
unless the use of one counsel for such Indemnified Parties would present such
counsel with a conflict of interest, (ii) the Indemnified Parties will cooperate
in the defense of any such matter and (iii) Parent shall not be liable for any
settlement effected without its prior written consent, which consent shall not
be unreasonably withheld; and provided, further, that Parent shall not have any
obligation hereunder to any Indemnified Party when and if a court of competent
jurisdiction shall ultimately determine, and such determination shall have
become final, that the indemnification of such Indemnified Party in the manner
contemplated hereby is prohibited by applicable law.
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SECTION 6.8 Intentionally Omitted.
SECTION 6.9 Notification of Certain Matters. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would, if such representation or warranty were required
to be made at such time, be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
and (ii) any failure of the Company, Parent or Purchaser, as the case may be, to
comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 6.8 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
SECTION 6.10 Further Action; Commercially Reasonable Efforts. (a) Upon
the terms and subject to the conditions hereof, each of the parties hereto shall
use commercially reasonable efforts to take, or cause to be taken, all
appropriate action, and to do or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement as soon as
practicable, including but not limited to (i) cooperation in the preparation and
filing of the Offer Documents, the Schedule 14D-9, the Proxy Statement, any
required filings under the HSR Act and any amendments to any thereof and (ii)
using commercially reasonable efforts to promptly make all required regulatory
filings and applications including, without limitation, responding promptly to
requests for further information and to obtain all licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental authorities
and parties to contracts with the Company and its subsidiaries and Parent and
its subsidiaries as are necessary for the consummation of the transactions
contemplated by this Agreement and to fulfill the conditions to the Offer and
the Merger, including, without limitation, those listed in Section 3.16 of the
Company Disclosure Schedule. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each party to this Agreement
shall use commercially reasonable efforts to take all such necessary action.
(b) The Company and Parent each shall keep the other apprised of the
status of matters relating to completion of the transactions contemplated
hereby, including promptly furnishing the other with copies of notices or other
communications received by Parent or the Company, as the case may be, or any of
their subsidiaries, from any Governmental Authority with respect to the Offer or
the Merger or any of the other transactions contemplated by this Agreement. The
parties hereto will consult and cooperate with one another, and consider in good
faith the views of one another in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party hereto in connection with proceedings
under or relating to the HSR Act or any other antitrust law.
(c) Each party shall timely and promptly make all filings which are
required under the HSR Act. Each party will furnish to the other such necessary
information and
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35
reasonable assistance as it may request in connection with its preparation of
such filings. Each party will supply the other with copies of all
correspondence, filings or communications between such party or its
representatives and the Federal Trade Commission, the Antitrust Division of the
United States Department of Justice or any other governmental agency or
authority or members of their respective staffs with respect to this Agreement
or the transactions contemplated hereby.
SECTION 6.11 Public Announcements. Parent and the Company shall
consult with each other before issuing any press release or otherwise making any
public statements with respect to the Offer or the Merger and shall not issue
any such press release or make any such public statement prior to such
consultation and without the consent of the other party, except as may be
required by law or any listing agreement with its securities exchange.
SECTION 6.12 Disposition of Litigation. (a) The Company agrees that it
will not settle any litigation currently pending, or commenced after the date
hereof, against the Company or any of its directors by any stockholder of the
Company relating to the Offer or this Agreement, without the prior written
consent of Parent (which shall not be unreasonably withheld).
(b) The Company will not voluntarily cooperate with any third party
which has sought or may hereafter seek to restrain or prohibit or otherwise
oppose the Offer or the Merger and will cooperate with Parent and Purchaser to
resist any such effort to restrain or prohibit or otherwise oppose the Offer or
the Merger.
ARTICLE VII
CONDITIONS OF MERGER
SECTION 7.1 Conditions to Obligation of Each Party to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) If required by the MBCL, this Agreement shall have been adopted by
the affirmative vote of the stockholders of the Company by the requisite
vote in accordance with the Company's Articles of Organization and the
MBCL.
(b) No statute, rule, regulation, executive order, decree, ruling,
injunction or other order (whether temporary, preliminary or permanent)
shall have been enacted, entered, promulgated or enforced by any United
States, foreign, federal or state court or governmental authority which
prohibits, restrains, enjoins or restricts the consummation of the Merger;
provided, however, that prior to invoking this condition the invoking party
shall have complied with Section 6.10.
(c) Purchaser shall have purchased Shares pursuant to the Offer.
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(d) Any waiting period applicable to the Merger under the HSR Act
shall have terminated or expired.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination. This Agreement may be terminated and the
Merger contemplated hereby may be abandoned at any time prior to the Effective
Time, notwithstanding approval thereof by the stockholders of the Company:
(a) By mutual written consent of Parent, Purchaser and the Company;
(b) By Parent or the Company if any court of competent jurisdiction or
other governmental body located or having jurisdiction within the United
States shall have issued a final order, injunction, decree, judgment or
ruling or taken any other final action restraining, enjoining or otherwise
prohibiting the Offer or the Merger and such order, injunction, decree,
judgment, ruling or other action is or shall have become final and
nonappealable; provided, however, that prior to invoking this right of
termination the invoking party shall have complied with Section 6.10;
(c) By Parent if due to an occurrence or circumstance which resulted
in a failure to satisfy any of the Offer Conditions, Purchaser shall have
(i) terminated the Offer or (ii) failed to pay for Shares pursuant to the
Offer on or prior to the Outside Date (as defined below);
(d) By the Company (only following the Outside Date, in the case of
clause (ii)(B) below) if (i) there shall have been a material breach of any
covenant or agreement on the part of Parent or the Purchaser contained in
this Agreement which materially adversely affects Parent's or Purchaser's
ability to consummate (or materially delays commencement or consummation
of) the Offer, and which shall not have been cured prior to the earlier of
(A) 10 business days following notice of such breach and (B) two business
days prior to the date on which the Offer expires, (ii) Purchaser shall
have (A) terminated the Offer or (B) failed to pay for Shares pursuant to
the Offer on or prior to the Outside Date (unless such termination or
failure is caused by or results from the failure of any representation or
warranty of the Company to be true and correct in any material respect or
the failure of the Company to perform in any material respect any of its
covenants or agreements contained in this Agreement) or (iii) prior to the
purchase of Shares pursuant to the Offer, any person shall have made a bona
fide offer to acquire the Company (A) that the Board of Directors of the
Company by majority vote determines in its good faith judgment is more
favorable to the Company and the Company's stockholders than the Offer and
the Merger and (B) as a result of which the Board of Directors by majority
vote determines in good faith, based upon the advice of outside counsel to
the Company, that it is obligated by its fiduciary obligations under
applicable
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law to terminate this Agreement, provided that such termination under this
clause (iii) shall not be effective until the Company has made payment of
the full fee and expense reimbursement required by Section 8.3; or
(e) By Parent prior to the purchase of Shares pursuant to the Offer,
if (i) there shall have been a breach of any representation, warranty,
covenant or agreement on the part of the Company contained in this
Agreement which is reasonably likely to have a Material Adverse Effect on
the Company or which materially adversely affects (or materially delays)
the consummation of the Offer, which shall not have been cured prior to the
earlier of (A) 10 business days following notice of such breach and (B) two
business days prior to the date on which the Offer expires, (ii) the Board
shall have withdrawn or modified (including by amendment of the Schedule
14D-9) in a manner adverse to Purchaser its approval or recommendation of
the Offer, this Agreement or the Merger or shall have recommended another
offer or transaction, or shall have resolved to effect any of the
foregoing, or (iii) the Minimum Condition shall not have been satisfied by
the expiration date of the Offer as it may have been extended pursuant
hereto and on or prior to such date (A) any person (including the Company
but not including Parent or Purchaser) shall have made a public
announcement, disclosure or communication to the Company with respect to a
Third Party Acquisition or (B) any person (including the Company or any of
its affiliates or subsidiaries), other than Parent or any of its affiliates
shall have become (and remain at the time of termination) the beneficial
owner of 20% or more of the Shares (unless such person shall have tendered
and not withdrawn such person's Shares pursuant to the Offer). As used
herein, the "Outside Date" shall mean the latest to occur (but in no event
later than 90 days following the date hereof) of (i) the date that is 60
days following the date hereof and (ii) provided that the Minimum Condition
has been satisfied within 60 days following the date hereof, the date on
which either (x) the applicable waiting period under the HSR Act shall have
expired or been terminated or (y) the final terms of a consent decree
between Parent and the appropriate governmental authority with respect to
the Offer and the Merger shall have been agreed to.
SECTION 8.2 Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 8.1, this Agreement shall forthwith become
void and there shall be no liability on the part of any party hereto except as
set forth in Section 8.3 and Section 9.1; provided, however, that nothing herein
shall relieve any party from liability for any wilful breach hereof.
SECTION 8.3 Fees and Expenses.
(a) If:
(i) (x) Parent terminates this Agreement pursuant to Section
8.1(e)(i) hereof and (y) prior to such termination a proposal or offer with
respect to a Third Party Acquisition shall have been made to the Company
and (z) within 12 months after such termination, the Company enters into an
agreement with respect to a Third Party Acquisition, or a Third Party
Acquisition occurs; or
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(ii) (x) the Company terminates this Agreement pursuant to
8.1(d)(iii) or (y) the Company terminates this Agreement pursuant to
Section 8.1(d)(ii)(B) hereof and at such time Parent would have been
permitted to terminate this Agreement under Section 8.1(e)(ii) or (iii)
hereof or (z) Parent terminates this Agreement pursuant to Section
8.1(e)(ii) or (iii) hereof;
then the Company shall pay to Parent and Purchaser, within three business days
following the execution and delivery of such agreement or such occurrence, as
the case may be, or simultaneously with any termination contemplated by Section
8.3(a)(ii) above, a fee, in cash, of $5.5 million (less any amounts previously
paid pursuant to Section 8.3(b)), provided, however, that the Company in no
event shall be obligated to pay more than one such fee with respect to all such
agreements and occurrences and such termination.
"Third Party Acquisition" means the occurrence of any of the following
events: (i) the acquisition of the Company by merger or similar business
combination by any person other than Parent, Purchaser or any affiliate thereof
(a "Third Party"); (ii) the acquisition by a Third Party of 20% or more of the
book or fair market value of the consolidated assets of the Company and its
subsidiaries, taken as a whole; or (iii) the acquisition by a Third Party of 20%
or more of the outstanding Shares.
(b) Upon the termination of this Agreement (i) under circumstances in
which Parent shall have been entitled to terminate this Agreement pursuant to
Section 8.1(e)(i) hereof (whether or not expressly terminated on such basis) or
(ii) if any of the representations and warranties of the Company contained in
this Agreement were untrue or incorrect in any material respect when made and at
the time of termination remained untrue or incorrect in any material respect and
such misrepresentation materially adversely affected the consummation (or
materially delayed commencement or consummation) of the Offer, then the Company
shall reimburse Parent, Purchaser and their affiliates (not later than three
business days after submission of statements therefor) for all actual documented
out-of-pocket fees and expenses actually incurred by any of them or on their
behalf in connection with the Offer and the Merger and the consummation of all
transactions contemplated by this Agreement (including, without limitation, fees
and disbursements payable to financing sources, investment bankers, counsel to
Purchaser or Parent or any of the foregoing, and accountants) up to a maximum
amount of $1,000,000. Unless required to be paid earlier pursuant to Section
8.1(d), the Company shall in any event pay the amount requested within three
business days of such request, subject to the Company's right to demand a return
of any portion as to which invoices are not received in due course after request
by the Company.
(c) Except as otherwise specifically provided herein, each party shall
bear its own expenses in connection with this Agreement and the transactions
contemplated hereby.
SECTION 8.4 Amendment. Subject to Section 6.3, this Agreement may be
amended by the parties hereto by action taken by or on behalf of their
respective Boards of Directors at any time prior to the Effective Time;
provided, however, that, after approval of the Merger by the stockholders of the
Company, no amendment may be made which would reduce
<PAGE> 43
39
the amount or change the type of consideration into which each Share shall be
converted upon consummation of the Merger. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.
SECTION 8.5 Waiver. Subject to Section 6.3, at any time prior to the
Effective Time, any party hereto may (a) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions contained herein. Any such extension or waiver shall be
valid only if set forth in an instrument in writing signed by the party or
parties to be bound thereby.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 8.1, as the case may be, except that the agreements set
forth in Article II, Section 6.6, Section 6.7 and Article IX shall survive the
Effective Time and those set forth in Section 6.4, Section 8.3 and Article IX
shall survive termination of this Agreement.
SECTION 9.2 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telecopy, telegram or telex or by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
if to Parent or Purchaser:
Textron Financial Corporation
40 Westminster Street
P.O. Box 6687
Providence, RI 02940-6687
Attention: David Wisen
with an additional copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attention: Mario A. Ponce, Esq.
<PAGE> 44
40
if to the Company:
Litchfield Financial Corporation
430 Main Street
Williamstown, MA 02167
Attention: Richard A. Stratton
with a copy to:
Hutchins, Wheeler & Dittmar,
A Professional Corporation
101 Federal Street
Boston, MA, 02110
Attention: James Westra, Esq.
SECTION 9.3 Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliate" of a person means a person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, the first mentioned person;
(b) "beneficial owner" with respect to any Shares means a person who
shall be deemed to be the beneficial owner of such Shares (i) which such
person or any of its affiliates or associates beneficially owns, directly
or indirectly, (ii) which such person or any of its affiliates or
associates (as such term is defined in Rule 12b-2 of the Exchange Act) has,
directly or indirectly, (A) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time), pursuant
to any agreement, arrangement or understanding or upon the exercise of
consideration rights, exchange rights, warrants or options, or otherwise,
or (B) the right to vote pursuant to any agreement, arrangement or
understanding or (iii) which are beneficially owned, directly or
indirectly, by any other persons with whom such person or any of its
affiliates or person with whom such person or any of its affiliates or
associates has any agreement, arrangement or understanding for the purpose
of acquiring, holding, voting or disposing of any shares; provided,
however, that no person nor any affiliate or associate of such person shall
be deemed to be the beneficial owner of any securities by reason of a
revocable proxy granted for a particular meeting of stockholders, pursuant
to a public solicitation of proxies for such meeting, and with respect to
which shares neither such person nor any such affiliate or associate is
otherwise deemed the beneficial owner;
(c) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the
management policies of a person, whether through the ownership of stock, as
trustee or executor, by contract or credit arrangement or otherwise;
<PAGE> 45
41
(d) "generally accepted accounting principles" shall mean the
generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession in the United States, in each case applied on a basis consistent
with the manner in which the audited financial statements for the fiscal
year of the Company ended December 31, 1998 were prepared;
(e) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d)(3) of the Exchange Act); and
(f) "subsidiary" or "subsidiaries" of the Company, the Surviving
Corporation, Parent or any other person means any corporation, partnership,
joint venture or other legal entity of which the Company, the Surviving
Corporation, Parent or such other person, as the case may be (either alone
or through or together with any other subsidiary), owns, directly or
indirectly, 50% or more of the stock or other equity interests the holder
of which is generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal
entity.
SECTION 9.4 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the fullest extent
possible.
SECTION 9.5 Entire Agreement; Assignment. This Agreement, together
with the Confidentiality Agreement, constitutes the entire agreement among the
parties with respect to the subject matter hereof and supersedes all prior
agreements and undertakings, both written and oral, among the parties, or any of
them, with respect to the subject matter hereof. This Agreement shall not be
assigned by operation of law or otherwise, except that Parent and Purchaser may
assign all or any of their respective rights and obligations hereunder to any
direct or indirect wholly owned subsidiary or subsidiaries of Parent, provided
that no such assignment shall relieve the assigning party of its obligations
hereunder if such assignee does not perform such obligations.
SECTION 9.6 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, except for the provisions of Section 6.7, is
intended to or shall confer upon any other
<PAGE> 46
42
person any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement.
SECTION 9.7 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Massachusetts,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof.
SECTION 9.8 Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 9.9 Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
SECTION 9.10 Specific Performance. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States located in the Commonwealth of Massachusetts or in any court of
the Commonwealth of Massachusetts, this being in addition to any other remedy to
which such party is entitled at law or in equity. In addition, each of the
parties hereto (i) consents to submit itself to the personal jurisdiction of any
Federal court located in the Commonwealth of Massachusetts or any court of the
Commonwealth of Massachusetts in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement, (ii) agrees
that it will not attempt to deny or defeat such personal jurisdiction by motion
or other request for leave from any such court, (iii) agrees that it will not
bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a Federal or state court
sitting in the Commonwealth of Massachusetts, and (iv) consents to service being
made through the notice procedures set forth in Section 9.2.
<PAGE> 47
43
IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
TEXTRON FINANCIAL CORPORATION
By:
-----------------------------------------
Name:
Title:
LIGHTHOUSE ACQUISITION CORP.
By:
-----------------------------------------
Name:
Title: President
By:
-----------------------------------------
Name:
Title: Treasurer
LITCHFIELD FINANCIAL CORPORATION
By:
-----------------------------------------
Name:
Title:
By:
-----------------------------------------
Name:
Title: Treasurer
<PAGE> 48
ANNEX A
Offer Conditions
The capitalized terms used in this Annex A have the meanings set forth
in the attached Agreement.
Notwithstanding any other provision of the Offer, but subject to the
terms and conditions of the Merger Agreement, Purchaser shall not be required to
accept for payment or, subject to any applicable rules and regulations of the
SEC, including Rule 14e-1(c) under the Exchange Act (relating to Purchaser's
obligation to pay for or return tendered Shares promptly after termination or
withdrawal of the Offer), pay for any Shares tendered pursuant to the Offer, and
may postpone the acceptance for payment or, subject to the restriction referred
to above, payment for any Shares tendered pursuant to the Offer, and may amend
or terminate the Offer (whether or not any Shares have theretofore been
purchased or paid for) to the extent permitted by the Merger Agreement if, (i)
at the expiration of the Offer, a number of shares of Company Common Stock
which, together with any Shares owned by Parent or Purchaser, constitutes more
than 66-% of the voting power (determined on a fully-diluted basis), on the date
of purchase, of all the securities of the Company entitled to vote generally in
the election of directors or in a merger shall not have been validly tendered
and not properly withdrawn prior to the expiration of the Offer, the ("Minimum
Condition") or (ii) at any time on or after the date of this Agreement and prior
to the acceptance for payment of Shares, any of the following conditions occurs
or has occurred:
(a) there shall have been entered any order, preliminary or permanent
injunction, decree, judgment or ruling in any action or proceeding before
any court or governmental, administrative or regulatory authority or
agency, or any statute, rule or regulation enacted, entered, enforced,
promulgated, amended or issued that is applicable to Parent, Purchaser, the
Company or any subsidiary or affiliate of Purchaser or the Company or the
Offer or the Merger, by any legislative body, court, government or
governmental, administrative or regulatory authority or agency that is
reasonably likely to have the effect of: (i) making illegal or otherwise
directly or indirectly restraining or prohibiting the making of the Offer
in accordance with the terms of the Merger Agreement, the acceptance for
payment of, or payment for, some of or all the Shares by Purchaser or any
of its affiliates or the consummation of the Merger; (ii) prohibits the
ownership or operation by the Company or any of its subsidiaries, or Parent
or any of its subsidiaries, of all or any material portion of the business
or assets of the Company or any of its subsidiaries, taken as a whole, or
Parent or its subsidiaries, taken as a whole, or (iii) materially limits
the ownership or operation by the Company or any of its subsidiaries, or
Parent or any of its subsidiaries, of all or any material portion of the
business or assets of the Company or any of its subsidiaries, taken as a
whole, or Parent or its subsidiaries, taken as a whole (other than, in
either case, assets or businesses of the Company or its subsidiaries that
are not material (measured in relation to the combined assets or revenues
of the Company and its subsidiaries, taken as a whole)) or compels Parent
or any of its subsidiaries to dispose of or hold separate all or any
portion of the businesses or assets of the Company or any of its
subsidiaries or Parent or any of its subsidiaries (other than, in either
case, assets or
A-1
<PAGE> 49
businesses of the Company or its subsidiaries that are not material
(measured in relation to the combined assets or revenues of the Company
and its subsidiaries, taken as a whole)), as a result of the transactions
contemplated by the Offer or the Merger Agreement; (iv) imposes
limitations on the ability of Parent, Purchaser or any of Parent's
affiliates effectively to acquire or hold or to exercise full rights of
ownership of the Shares, including without limitation the right to vote
any Shares acquired or owned by Parent or Purchaser or any of its
affiliates on all matters properly presented to the stockholders of the
Company, including without limitation the adoption and approval of the
Merger Agreement and the Merger or the right to vote any shares of capital
stock of any subsidiary directly or indirectly owned by the Company; or
(v) requires divestiture by Parent or Purchaser or any of their affiliates
of any Shares;
(b) since the date hereof, there shall have occurred any event, other
than events arising out of the announcement of the Offer and the
transactions contemplated hereby, that is reasonably likely to have a
Material Adverse Effect;
(c) there shall have occurred (i) any general suspension of trading
in, or limitation on prices (other than suspensions or limitations
triggered on the New York Stock Exchange by price fluctuations on a trading
day) for, securities on any national securities exchange or in the
over-the-counter market in the United States, (ii) a declaration of a
banking moratorium or any suspension of payments in respect of banks in the
United States, (iii) any material limitation (whether or not mandatory) by
any government or governmental, administrative or regulatory authority or
agency in the United States on the extension of credit by banks or other
lending institutions, (iv) a commencement of a war directly involving the
United States and materially adversely affecting (or materially delaying)
the consummation of the Offer or (v) in the case of any of the foregoing
existing at the time of commencement of the Offer, a material acceleration
or worsening thereof;
(d) (i) it shall have been publicly disclosed or Purchaser shall have
otherwise learned that beneficial ownership (determined for the purposes of
this paragraph as set forth in Rule 13d-3 promulgated under the Exchange
Act) of more than 20% of the outstanding Shares has been acquired by any
corporation (including the Company or any of its subsidiaries or
affiliates), partnership, person or other entity or group (as defined in
Section 13(d)(3) of the Exchange Act), other than Parent or any of its
affiliates or (ii) (A) the Board of Directors of the Company or any
committee thereof shall have withdrawn or modified in a manner adverse to
Parent or Purchaser the approval or recommendation of the Offer, the Merger
or the Merger Agreement, or approved or recommended any takeover proposal
or any other acquisition of Shares other than the Offer and the Merger, (B)
any such corporation, partnership, person or other entity or group shall
have entered into a definitive agreement or an agreement in principle with
the Company with respect to a tender offer or exchange offer for any Shares
or a merger, consolidation or other business combination with or involving
the Company or any of its subsidiaries, or (C) the Board of Directors of
the Company or any committee thereof shall have resolved to do any of the
foregoing;
A-2
<PAGE> 50
(e) any of the representations and warranties of the Company set forth
in the Merger Agreement that are qualified by reference to materiality or a
Material Adverse Effect shall not be true and correct, or any such
representations and warranties that are not so qualified shall not be true
and correct in all material respects, in each case as if such
representations and warranties were made at the time of such determination;
(f) the Company shall have failed to perform in any material respect
any material obligation or to comply in any material respect with any
material agreement or material covenant of the Company to be performed or
complied with by it under the Merger Agreement;
(g) the Merger Agreement shall have been terminated in accordance with
its terms or the Offer shall have been terminated with the consent of the
Company; or
(h) any waiting periods under the HSR Act applicable to the purchase
of Shares pursuant to the Offer or the Merger, and any applicable waiting
periods under any foreign statutes or regulations, shall not have expired
or been terminated;
(i) the Company shall have terminated the employment agreement of
Richard A. Stratton without the prior written consent of the Purchaser; and
(k) the Company shall not have obtained the consent of each member of
the Board of Directors of the Company to the cancellation of all Options
held by such Directors as contemplated by Section 2.7 of the Merger
Agreement.
which, in the reasonable judgment of Purchaser with respect to each and every
matter referred to above and regardless of the circumstances (except for any
action or inaction by Purchaser or any of its affiliates constituting a breach
of the Merger Agreement) giving rise to any such condition, makes it inadvisable
to proceed with the Offer or with such acceptance for payment of or payment for
Shares or to proceed with the Merger.
The foregoing conditions are for the sole benefit of Purchaser and may
be asserted by Purchaser regardless of the circumstances giving rise to any such
condition (except for any action or inaction by Purchaser or any of its
affiliates constituting a breach of the Merger Agreement) or (other than the
Minimum Condition) may be waived by Purchaser in whole or in part at any time
and from time to time in its sole discretion (subject to the terms of the Merger
Agreement). The failure by Purchaser at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right, the waiver of
any such right with respect to particular facts and other circumstances shall
not be deemed a waiver with respect to any other facts and circumstances, and
each such right shall be deemed an ongoing right that may be asserted at any
time and from time to time.
A-3
<PAGE> 1
Exhibit 2
FORM OF SEVERANCE AGREEMENT
This AGREEMENT dated as of [ ], is made by and between
Litchfield Financial Corporation, a Massachusetts corporation ("Litchfield") and
[ ](the "Executive").
WHEREAS, Litchfield considers it essential to the best interests of
Litchfield and its current stockholders (hereinafter known as "Shareholders",
which term shall include Affiliates of the current stockholders to foster the
continuous employment of key management personnel; and
WHEREAS, Litchfield recognizes that, as is the case with many
corporations, the possibility of undertaking a Transaction (as defined in the
last Section hereof) with respect to Litchfield exists and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of Litchfield and the Shareholders; and
WHEREAS, Litchfield has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of Litchfield's management, including the Executive, to their assigned
duties with Litchfield, without distraction in the face of circumstances arising
from the possibility of a Transaction;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and for other valuable consideration, Litchfield and
the Executive hereby agree as follows:
1. DEFINED TERMS. The definitions of capitalized terms used in this
Agreement are provided in the last Section hereof.
2. TERM OF AGREEMENT. This Agreement shall commence on the date hereof
and shall continue in effect through December 31, 1999, provided that commencing
on January 1, 2000, and each January 1 thereafter, the term of this Agreement
shall automatically be extended for one additional year unless, not later than
October 31 of the previous year, either Litchfield or the Executive shall have
given notice to the other not to extend this Agreement. Notwithstanding the
foregoing, if a Transaction shall have occurred during the term of this
Agreement, this Agreement shall continue in effect for a period of one (1) year
beyond the date on which the closing for such Transaction occurred, provided,
however, that if a notice not to extend this Agreement was given before closing
of the Transaction, this Agreement shall not continue unless the Executive
consents in writing.
3. LITCHFIELD'S COVENANTS SUMMARIZED. In order to induce the Executive
to remain in the employ of Litchfield and in consideration of the Executive's
covenants set forth in Sections 4 hereof, Litchfield agrees, under the
conditions described herein, to pay the Executive the Severance Payments
described in Section 6 hereof and the other payments and benefits described in
Section 5 hereof in the event (i) that during the term of this Agreement
following a Transaction either (x) the employment of the Executive is terminated
by Litchfield for reasons other than Cause, death or disability, or (y) the
Executive terminates his employment by Litchfield for Good Reason, and (ii) the
Executive has fulfilled his covenants set forth in Section 4. No amount or
benefit shall be payable under this Agreement unless there shall have been a
<PAGE> 2
termination of the Executive's employment by Litchfield for reasons other than
Cause or the death or disability of the Executive or by the Executive for Good
Reason within one year following a Transaction. This Agreement shall not be
construed as creating an express or implied contract of employment, and except
as otherwise agreed in writing between the Executive and Litchfield, the
Executive shall not have any right to be retained in the employ of Litchfield.
No benefits shall be payable hereunder in the event of termination of
Executive's employment prior to a Potential Transaction.
4. EXECUTIVE'S COVENANTS. The Executive agrees that, subject to the
terms and conditions of this Agreement, in the event of a Potential Transaction
during the term of this Agreement, the Executive will in good faith use all
reasonable efforts, consistent with his duties and authority as an employee of
Litchfield to consummate a Transaction which has been approved by the Board of
Directors of Litchfield. Notwithstanding the foregoing, the Executive shall in
all events be entitled to terminate his employment with or without Good Reason,
and shall have no liability to Litchfield as a result of such termination.
5. COMPENSATION OTHER THAN SEVERANCE PAYMENTS.
5.1 PAYMENT OF SALARY UPON TERMINATION. If the Executive's
employment shall be terminated for any reason following a Transaction and during
the term of this Agreement, Litchfield shall pay the Executive's full salary to
the Executive through the Date of Termination at the rate in effect at the time
the Notice of Termination is given.
5.2 PAYMENT OF BENEFITS UPON TERMINATION. If the Executive's
employment shall be terminated for any reason following a Transaction during the
term of this Agreement, Litchfield shall pay or make available to the Executive
any rights, compensation, and benefits which are vested in the Executive or
which the Executive has or is otherwise entitled to receive under any plan or
program of Litchfield, as such rights, compensation or benefits become due. Such
rights, compensation and benefits shall be determined under, and paid or made
available in accordance with, Litchfield's applicable insurance and other
compensation or benefit plans, programs and arrangements, and shall include all
amounts by which the Executive's contractual entitlement to salary and bonus in
any prior years exceeded the Executive's actual salary and bonus paid in such
years.
6. SEVERANCE PAYMENTS.
6.1 DETERMINATION OF SEVERANCE PAYMENTS. In addition to the payments
and benefits under Section 5, Litchfield shall pay the Executive the payments
described in this Section 6.1 (the "Severance Payments") upon the termination of
the Executive's employment, during the term of this Agreement, following a
Transaction in the event (i) the employment of the Executive is terminated by
Litchfield for reasons other than Cause, death or disability or the Executive
terminates his employment by Litchfield for Good Reason, and (ii) the Executive
has fulfilled his covenants set forth in Section 4. In lieu of any further
salary payments to the Executive for periods subsequent to the Date of
Termination and in lieu of any severance benefits otherwise payable to the
Executive under any then existing broad-based employee severance plan,
Litchfield shall pay to the Executive a lump-sum severance payment, in cash,
equal to the higher of (i) the Executive's total salary and bonus for the most
recently completed
-2-
<PAGE> 3
fiscal year, and (ii) the Executive's total annualized salary and bonus, based
on the partial fiscal year in which the Date of Termination occurs. In addition
to such lump-sum severance payment, the Executive shall (i) be entitled to
participate in the Company's medical insurance plan for a period of twelve
months following the Termination Date at the Company's expense, after which the
Executive will have COBRA rights as provided by law and (ii) for a period of
twelve months, be permitted to participate in any of the Company's other benefit
plans in which the Executive is participating as of the Termination Date
pursuant to Company policy.
6.2 GROSS-UP PAYMENT. In the event that the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or
any penalty or excise tax subsequently imposed by law applies to any payment or
benefit received or to be received by the Executive in connection with a
Transaction or the termination of the Executive's employment (whether pursuant
to the terms of this Agreement or any other plan, arrangement, or agreement with
Litchfield, any Person whose actions result in the Transaction or any Person
affiliated with Litchfield or such Person) (all such payments and benefits,
including the Severance Payments, being hereinafter called "Total Payments"), an
additional amount shall be paid by Litchfield to the Executive such that the
aggregate after-tax amount that he shall receive with respect to the Total
Payments, including this Section, shall have a present value equal to the
aggregate after-tax amount that he would have received and retained had such
excise or penalty tax (and any interest or penalties in respect thereof) not
applied to him. For this purpose, the Executive shall be assumed to be subject
to tax in each year relevant to the computation at the then maximum applicable
combined Federal and Massachusetts income tax rate, and the present value of
payments to him shall be made consistent with the principles of Section 280G of
the Code.
6.3 TIMING OF PAYMENTS. The payments provided for in Section 6.1
hereof shall be made not later than the tenth business day following the Date of
Termination. The payment provided for by Section 6.2 shall be paid not later
than the tenth business day following the date the gross-up amount is computed,
but in no event later than the date any excise tax is due and payable.
7. TERMINATION PROCEDURES.
7.1 NOTICE OF TERMINATION. After a Transaction and during the term
of this Agreement, any purported termination of the Executive's employment
(other than by reason of death) shall be communicated by written Notice of
Termination from one party hereto to the other party hereto in accordance will
Section 10 hereof. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail the facts
and circumstances, if any, claimed to provide a basis for termination of the
Executive's employment under the provision so indicated.
7.2 DATE OF TERMINATION. "Date of Termination," with respect to any
purported termination of the Executive's employment after a Transaction and
during the term of this Agreement, shall mean the date specified in the Notice
of Termination (which, in the case of a termination by Litchfield, shall not be
less than thirty (30) days (except in the case of a termination for Cause) and,
in the case of a termination by the Executive, shall not be less than
-3-
<PAGE> 4
fifteen (15) days or more than sixty (60) days, respectively, from the date such
Notice of Termination is given).
8. NO MITIGATION. If the Executive's employment by Litchfield is
terminated during the term of this Agreement, the Executive is not required to
seek other employment or to attempt in any way to reduce any amounts payable to
the Executive by Litchfield pursuant to Section 6 hereof. Further, the amount of
any payment or benefit provided for in Section 6 hereof shall not be reduced by
any compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to Litchfield, or otherwise.
9. SUCCESSORS; BINDING AGREEMENT.
9.1 SUCCESSORS OF LITCHFIELD. The provisions of this Agreement shall
be binding upon, and shall inure to the benefit of the successors and assigns of
Litchfield.
9.2 SUCCESSORS OF THE EXECUTIVE. This Agreement shall inure to the
benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees, and legatees. If the Executive shall die while any amount would still
be payable to the Executive hereunder (other than amounts which, by their terms,
terminate upon the death of the Executive) if the Executive had continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the executors, personal
representatives, or administrators of the Executive's estate.
10. NOTICES. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth below, or to such other address
as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
actual receipt:
To Litchfield: To the Executive:
-------------- -----------------
Litchfield Financial Corporation ________________
430 Main Street ________________
Williamstown, MA 01267 ________________
Attn: _______________
11. MISCELLANEOUS. No provision of this Agreement may be modified,
waived, or discharged unless such waiver, modification, or discharge is agreed
to in writing and signed by the Executive and by Litchfield. Except as expressly
provided herein, no waiver by either party hereto at any time of any breach by
the other party hereto of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this
-4-
<PAGE> 5
Agreement. The validity, interpretation, construction, and performance of this
Agreement shall be governed by the laws of the Commonwealth of Massachusetts,
and this Agreement shall be an instrument under seal. All references to sections
of the Code shall be deemed also to refer to any successor provisions to such
sections. Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state, or local law and any
additional withholding to which the Executive has agreed. The obligations of
Litchfield and the Executive under Sections 6, 7, 8, and 14 hereof shall survive
the expiration of the term of this Agreement.
12. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same instrument.
14. SETTLEMENT OF DISPUTES; ARBITRATION. All claims by the Executive
for benefits under this Agreement shall be in writing. Any denial by the
Litchfield of a claim for benefits under this Agreement shall be delivered to
the Executive in writing and shall set forth the specific reasons for the denial
and the specific provisions of this Agreement relied upon. Any further dispute
or controversy arising under or in connection with this Agreement shall be
settled exclusively by arbitration in Boston, Massachusetts, in accordance with
the rules of the American Arbitration Association then in effect. Judgment may
be entered on the arbitrator's award in any court having jurisdiction. The
Executive shall, however, be entitled to seek specific performance of the
Executive's right to be paid until the Date of Termination during the pendency
of any dispute or controversy arising under or in connection with this
Agreement.
15. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the meanings indicated below:
(A) "Affiliate" with respect to any Person shall mean one who
controls, is controlled by, or is under common control with,
such Person.
(B) "Cause" for termination by Litchfield of the Executive's
employment, after any Transaction, shall mean (i) the
willful and continued failure by the Executive to
substantially perform the Executive's duties with Litchfield
(other than any such failure resulting from the Executive's
incapacity due to physical or mental illness) after a
written demand for substantial performance is delivered to
the Executive by Litchfield, which demand identifies with
reasonable specificity the manner in which Litchfield
believes that the Executive has not substantially performed
the Executive's duties, or (ii) the willful engaging by the
Executive in misconduct which is materially and adversely
injurious to Litchfield or its parent company or any
subsidiaries or affiliates thereof, monetarily or otherwise,
or (iii) the conviction of the Executive of, or the plea by
the Executive of guilty or NOLO CONTENDERE to, a felony;
provided, however,
-5-
<PAGE> 6
that "Cause" shall not exist under clauses (i) and (ii)
unless Litchfield has complied with the following terms and
conditions:
(A) the Executive is provided with written notice of the
proposed termination;
(B) the Executive is given the opportunity to appear
with his counsel, and to present evidence and a
defense to the alleged acts or omissions
constituting "Cause", at a duly called and held
meeting of the Board of Directors of Litchfield, the
purpose of which shall be to determine whether
"Cause" exists under clause (i) or (ii) and the
Executive should be terminated; and
(C) if the Executive avails himself of the opportunity
set forth in clause (B), following such meeting not
less than two-thirds of the members of the Board of
Directors determine that "Cause" exists under clause
(i) or (ii) and the Executive should be terminated.
For purposes of clauses (i) and (ii) of this
definition, no act, or failure to act, on the
Executive's part shall be deemed "willful" unless
done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the
Executive's act, or failure to act, was in the best
interest of Litchfield.
(C) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(D) "Date of Termination" shall have the meaning stated in
Section 7.2 hereof.
(E) "Litchfield" shall mean Litchfield Financial Corporation and
any successor to its business and/or assets. Payments or
benefits from Litchfield shall include those from any of its
stockholders.
(F) "Good Reason" shall mean termination by the Executive of his
employment following a Transaction for any one or more of
the following reasons: (i) the responsibility and authority
of the Executive shall be materially altered following the
Transaction; (ii) the compensation of the Executive (taking
into account base salary, bonus and benefits) shall be
diminished following the Transaction; or (iii) following a
Transaction Litchfield shall require the Executive to
relocate to a location more than 25 miles distant.
(G) "Notice of Termination" shall have the meaning stated in
Section 7.1 hereof.
-6-
<PAGE> 7
(H) "Person" shall mean an individual, partnership, corporation,
trust or other business entity; however, a Person shall not
include current stockholders and/or directors of Litchfield
or any company owned, directly or indirectly, by any
shareholder.
(I) "Potential Transaction" shall be deemed to have occurred if
the conditions set forth in any one of the following
paragraphs shall have been satisfied:
(i) Litchfield enters into an agreement, the consummation
of which would result in the occurrence of a
Transaction; or
(ii) Litchfield or any Person (with the approval of
Litchfield) publicly announces an intention to take or
to consider taking actions which, if consummated, would
constitute a Transaction.
(J) "Severance Payments" shall mean those payments described in
Section 6.1 hereof.
(K) "Total Payments" shall mean those payments described in
Section 6.2 hereof.
(L) A "Transaction" shall be deemed to have occurred upon (i) a
sale, conveyance, lease or other transfer of all or
substantially all of the assets of Litchfield, (ii) a
consolidation or merger of Litchfield with or into another
corporation in which Litchfield is not the surviving or
resulting corporation or after which more than 50% of the
issued and outstanding shares of voting capital stock of the
surviving or resulting corporation is thereafter owned of
record or beneficially by any single Person or Group of
affiliated Persons, (iii) a sale or transfer in a single
transaction of shares of the voting capital stock of
Litchfield, which results in more than 50% of the issued and
outstanding shares of the voting capital stock of Litchfield
being thereafter owned of record or beneficially by any
single Person or Group of affiliated Persons, (iv) any other
transaction or series of transactions involving the
issuance, sale or transfer of shares of the capital stock of
Litchfield, which results in more than fifty percent (50%)
of the issued and outstanding shares of the voting capital
stock of Litchfield being thereafter owned of record or
beneficially by any single Person or Group of affiliated
Persons, or (v) a majority of the Board of Directors of
Litchfield ceasing to consist of individuals (A) who are
currently members of the Board or (B) for whose nomination
for such membership a majority of such current members voted
in favor.
(M) "Group of affiliated Persons" shall mean a group of two (2)
or more Persons (i) in which one (1) or more of such Persons
controls, is controlled by, or is under common control with,
another of such Persons, or (ii)
-7-
<PAGE> 8
which is associated by agreement for the purpose of
controlling Litchfield or any successor corporation thereof.
Executed as of the date first above written.
LITCHFIELD FINANCIAL CORPORATION
By:
-------------------------------
Name:
Title:
----------------------------------
(Executive)
-8-
<PAGE> 1
EXHIBIT 3
CIBC CIBC World Markets Corp.
World Markets One World Financial Center
200 Liberty Street
New York, NY 10281
Tel: 212-667-7000
CONFIDENTIAL
July 19, 1999
Mr. David Wisen
Textron Financial Corporation
40 Westminster Street
Providence, RI 02903
Dear Mr. Wisen:
CONFIDENTIALITY AGREEMENT
1. You have requested, or may request in the future, certain information from
Litchfield Financial Corporation (the "Company") or CIBC World Markets Corp.
("CIBC World Markets") (collectively, the "Disclosing Parties"), the Company's
financial advisor, regarding the Company's business, operations and financial
condition (the "Information") for the sole purpose of determining whether you
wish to pursue a transaction involving the Company (a "Transaction"). You
hereby agree, subject to the further provisions hereof, for a period of two
years from the date of this letter to treat confidentially the Information the
Disclosing Parties furnishes to you or your officers, directors, agents,
representatives (including, without limitation, attorneys, accountants, experts,
consultants, financial advisors and persons contemplating providing financing
for any Transaction) or employees (collectively, "Representatives").
2. The term "Information" shall include any and all reports, analyses,
compilations, studies and information developed or prepared by the Disclosing
Parties (including the Confidential Memorandum), or by or for you that include,
incorporate, refer to, reflect or are based (in whole or in part) upon the
Information, but shall not include information, if any, that (a) becomes
generally available to the public in a manner other than as a result of a
disclosure by you or your Representatives; (b) was available to you on a
non-confidential basis prior to its disclosure to you by the Disclosing Parties;
or (c) becomes available to you on a non-confidential basis from a source other
than the Disclosing Parties if you have no reason to believe such source is
bound by or subject to a confidentiality agreement with the Company, or is
otherwise prohibited from transmitting the information to you.
<PAGE> 2
CIBC World Markets Corp.
3. You agree that the Information supplied by the Disclosing Paries will not be
used by you or your Representatives in any way directly or indirectly except to
evaluate or implement a Transaction, that the Information supplied by the
Disclosing Parties shall be kept strictly confidential for the term set forth
above by you and your Representatives and that the information shall not be used
in any manner that is detrimental or adverse to the Company; provided, however,
that (a) any of the Information supplied by the Disclosing Parties may be
disclosed to such of your Representatives who need to know the Information for
the purpose of evaluating or implementing a Transaction, who shall be informed
by you of the confidential and proprietary nature of the Information and who
shall agree to be bound by the confidentiality provisions of this letter, and
(b) any disclosure of the Information may be made upon the prior written consent
of the Company. You further agree to be fully responsible for any breach of this
letter by your Representatives.
4. If you or anyone to whom you transmit the Information pursuant to this letter
becomes compelled by applicable law or securities exchange regulation to
disclose any of the Information, you will provide the Company with prompt notice
of such requirement so that the Company may seek a protective order or other
appropriate remedy or waive compliance with the provisions of this letter. In
the event that such protective order or other remedy is not obtained, or that
the Company waives compliance with the provisions of this letter, you will
furnish only that portion of the Information that you are advised by written
opinion of legal counsel at the Disclosing Parties' sole cost is required by
applicable law or securities exchange regulation, and such disclosure will not
result in any liability hereunder unless such disclosure was caused by or
resulted from a previous disclosure by you or by your Representatives that was
not permitted by this letter. Additionally, you will exercise your best efforts
to obtain a protective order or other reliable assurance that confidential
treatment will be accorded any such Information that is disclosed.
5. Until the earlier of (i) the consummation by you of a Transaction, or (ii)
one year from the date of this letter, those to whom you have furnished
Information agree not to initiate or maintain contact (except for those contacts
made in the ordinary course of business or during course of agreed upon "due
diligence") with any officer, director, or employee of the Company regarding the
business, operations, prospects or finances of the Company or solicit (apart
from a general solicitation undertaken in the ordinary course of business) the
employment of any officer or director, except with the express permission of the
Company. CIBC World Markets will be informed of all communications with the
Company regarding any possible Transaction.
6. In consideration of your being furnished the Information and in view of the
fact that the Information consists and will consist of confidential, non-public
and proprietary information, you agree that for a period of two (2) years from
the date of this agreement, that, without the prior written consent of the
Company, you will not, directly or indirectly, (unless following an attempted
solicitation by unrelated third parties to purchase assets or securities of the
Company) (i) purchase, offer or agree to purchase, or announce an intention to
purchase any securities or assets of the Company or any subsidiary or rights or
options to acquire the same (excluding any purchase in the
<PAGE> 3
CIBC WORLD MARKETS CORP.
ordinary course of business by your pension plan or funds held by your pension
plan); (ii) make, or in any way participate in any "solicitation" of "proxies"
to vote or "consents" (as such terms are used in the rules and regulations of
the Securities and Exchange Commission), or seek to advise or influence any
person with respect to the voting of any voting securities of the Company; (iii)
initiate or support any stockholder proposal with respect to the Company; (iv)
make any public statements and/or announcement with respect to, or submit a
proposal for, or offer of (with or without conditions) any extraordinary
transaction involving the Company or its securities, assets or business or any
subsidiary or division thereof, or of any successor thereto or any controlling
person thereof; (v) seek or propose to influence or control the Company's
management, board of directors, policies or affairs; (vi) disclose any
intention, plan or arrangement inconsistent with the foregoing; (vii) form, join
or in any way participate in a "group" as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934 (the "Exchange Act") in connection with any of
the foregoing; (viii) take any action that, is the sole judgement of the
Company, may require the Company to make a public announcement concerning any of
the foregoing, or (ix) encourage any of the foregoing.
7. If you determine that you do not wish to proceed with the Transaction, you
will promptly advise us of that decision. In that case or in the event that the
Transaction is not consummated by you or upon the request of the Disclosing
Parties, all of the Information will immediately be destroyed or returned to
CIBC World Markets, and no copies shall be retained by you or your
Representatives; provided, however, that, notwithstanding the foregoing, any
portion of the Information that consists of reports, analyses, compilations,
studies or information developed or prepared by or for you or your
Representatives that include, incorporate, refer to, reflect or are based upon
(in whole or in part) the information will be destroyed immediately.
8. You agree and will cause your Representatives not to disclose to any person
either the fact that discussions or negotiations are taking place concerning a
possible Transaction between the Company and you, or any of the terms,
conditions or other facts with respect to any such possible Transaction,
including the status thereof and the fact that the Information has been made
available to you; provided, however, that you may make such a disclosure upon
written notice to the Company, if it is advised by written opinion of legal
counsel that you are required to make such a disclosure by applicable law or
securities exchange regulation.
9. You understand that the Disclosing Parties make no representation or
warranty as to the accuracy or completeness of any information furnished by the
Disclosing Parties to you or your Representatives. You agree that the
Disclosing Parties shall not have any liability to you or any of your
Representatives resulting from the use of the Information by you or by them.
Solely for the purposes of this paragraph, the term "information" is deemed to
include all information furnished by the Disclosing Parties to you or your
Representatives, regardless of whether such information is or continues to be
subject to the confidentiality provisions hereof.
10. This letter sets forth the entire understanding and agreement of the
parties hereto and supersedes
<PAGE> 4
all previous communications, negotiations and agreements, whether oral or
written, with respect to the subject matter hereof. The parties hereto further
agree that unless and until a definitive agreement containing mutually
satisfactory provisions has been executed and delivered, neither the Company nor
you have any legal obligation of any kind whatsoever with respect to any such
Transaction by virtue of this letter or any other written or oral expression
with respect to such Transaction, except, in the case of this letter, for the
matters specifically agreed to herein. For purposes of this paragraph, the term
"definitive agreement" does not include an executed letter of intent or any
other preliminary written agreement, nor does it include any written or oral
acceptance of an offer or bid by any party hereto.
11. You acknowledge that the Company would not have an adequate remedy at law
for money damages if any of the covenants in this letter were not performed in
accordance with its terms and therefore agree that the Company may be entitled
to specific enforcement of such covenants in addition to any other remedy to
which it may be entitled, at law or in equity. The Company shall not be
required to post a bond or other security in connection therewith.
12. You understand and agree that no failure or delay by the Disclosing
Parties in exercising any right, power or privilege hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any right, power or
privilege hereunder.
13. This agreement shall be governed by and construed in accordance with the
laws of the State of New York, without giving effect to principles of
conflicts-of-law.
14. This agreement represents the entire understanding and agreement of the
parties hereto and may be modified or waived only by a separate letter
executed by the Company and you expressly so modifying or waiving such
agreement.
<PAGE> 5
CIBC World Markets Corp.
If you are in agreement with the foregoing, please so indicate by signing,
dating and returning one copy of this letter to CIBC World Markets (World
Financial Center, New York, NY 10281, Attn: Christopher DeWinter, Telephone:
(212) 667-7978, Facsimile: (212) 571-4663), which will constitute our agreement
with respect to the matters set forth herein.
Very truly yours,
By: /s/ Michael R. McClintock
-------------------------
Michael R. McClintock
Managing Director
Agreed to and Accepted by:
TEXTRON FINANCIAL CORPORATION
By: /s/ David Wisen
-------------------
Date: 7/20/99
<PAGE> 1
Exhibit 4
156B:86. SECTIONS APPLICABLE TO APPRAISAL; PREREQUISITES.
Section 86. If a corporation proposes to take a corporate action as to which
any section of this chapter provides that a stockholder who objects to such
action shall have the right to demand payment for his shares and an appraisal
thereof, sections eighty-seven to ninety-eight, inclusive, shall apply except
as otherwise specifically provided in any section of this chapter. Except as
provided in sections eighty-two and eighty-three, no stockholder shall have
such right unless (1) he files with the corporation before the taking of the
vote of the shareholders on such corporate action, written objection to the
proposed action stating that he intends to demand payment for his shares if the
action is taken and (2) his shares are not voted in favor of the proposed
action.
156B:87. STATEMENT OF RIGHTS OF OBJECTING STOCKHOLDERS IN NOTICE OF MEETING;
FORM.
Section 87. The notice of the meeting of stockholders at which the approval
of such proposed action is to be considered shall contain a statement of the
rights of objecting stockholders. The giving of such notice shall not be deemed
to create any rights in any stockholder receiving the same to demand payment
for his stock, and the directors may authorize the inclusion in any such notice
of a statement of opinion by the management as to the existence or
non-existence of the right of the stockholders to demand payment for their
stock on account of the proposed corporate action. The notice may be in such
form as the directors or officers calling the meeting deem advisable, but the
following form of notice shall be sufficient to comply with this section:
<PAGE> 2
"If the action proposed is approved by the stockholders at the meeting and
effected by the corporation, any stockholder (1) who files with the corporation
before the taking of the vote on the approval of such action, written objection
to the proposed action stating that he intends to demand payment for his shares
if the action is taken and (2) whose shares are not voted in favor of such
action has or may have the right to demand in writing from the corporation (or,
in the case of a consolidation or merger, the name of the resulting or
surviving corporation shall be inserted), within twenty days after the date of
mailing to him of notice in writing that the corporate action has become
effective, payment for his shares and an appraisal of the value thereof. Such
corporation and any such stockholder shall in such cases have the rights and
duties and shall follow the procedure set forth in sections 88 to 98,
inclusive, of chapter 156B of the General Laws of Massachusetts."
156B:88. NOTICE OF EFFECTIVENESS OF ACTION OBJECTED TO.
Section 88. The corporation taking such action, or in the case of a
merger or consolidation the surviving or resulting corporation, shall, within
ten days after the date on which such corporate action became effective, notify
each stockholder who filed a written objection meeting the requirements of
section eighty-six and whose shares were not voted in favor of the approval of
such action, that the action approved at the meeting of the corporation of
which he is a stockholder has become effective. The giving of such notice shall
not be deemed to create any rights in any stockholder receiving the same to
demand payment for his stock. The notice shall be sent by registered or
certified mail, addressed to the stockholder at his last known address as it
appears in the records of the corporation.
156B:89. DEMAND FOR PAYMENT; TIME FOR PAYMENT.
Section 89. If within twenty days after the date of mailing of a notice
under subsection (c) of section eighty-two, subsection (f) of section
eighty-three, or section eighty-eight, any stockholder to whom the corporation
was required to give such notice shall demand in writing from the corporation
taking such action, or in the case of a consolidation or merger from the
resulting or surviving corporation, payment for his stock, the corporation upon
which such demand is made shall pay to him the fair value of his stock within
thirty days after the expiration of the period during which such demand may be
made.
156B:90. DEMAND FOR DETERMINATION OF VALUE; BILL IN EQUITY; VENUE.
Section 90. If during period of thirty days provided for in section
eighty-nine the corporation upon which such demand is made and any such
objecting stockholder fail to agree as to the value of such stock,
<PAGE> 3
such corporation or any such stockholder may within four months after the
expiration of such thirty-day period demand a determination of the value of the
stock of all such objecting stockholders by a bill in equity filed in the
superior court in the county where the corporation in which such objecting
stockholder held stock had or has its principal office in the commonwealth.
156B:91. PARTIES TO SUIT TO DETERMINE VALUE; SERVICE.
Section 91. If the bill is filed by the corporation, it shall name as
parties respondent all stockholders who have demanded payment for their shares
and with whom the corporation has not reached agreement as to the value thereof.
If the bill is filed by a stockholder, he shall bring the bill in his own behalf
and in behalf of all other stockholders who have demanded payment for their
shares and with whom the corporation has not reached agreement as to the value
thereof and service of the bill shall be made upon the corporation by subpoena
with a copy of the bill annexed. The corporation shall file with its answer a
duly verified list of all such other stockholders, and such stockholders shall
thereupon be deemed to have been added as parties to the bill. The corporation
shall give notice in such form and returnable on such date as the court shall
order to each stockholder party to the bill by registered or certified mail,
addressed to the last known address of such stockholder as shown in the records
of the corporation, and the court may order such additional notice by
publication or otherwise as it deems advisable. Each stockholder who makes
demand as provided in section eighty-nine shall be deemed to have consented to
the provisions of this section relating to notice, and the giving of notice by
the corporation to any such stockholder in compliance with the order of the
court shall be a sufficient service of process on him. Failure to give notice to
any stockholder making demand shall not invalidate the proceedings as to other
stockholders to whom notice was properly given, and the court may at any time
before the entry of a final decree make supplementary orders of notice.
156B:92. DECREE DETERMINING VALUE AND ORDERING PAYMENT; VALUATION DATE.
Section 92. After hearing the court shall enter a decree determining the
fair value of the stock of those stockholders who have become entitled to the
valuation of and payment for their shares, and shall order the corporation to
make payment of such value, together with interest, if any, as hereinafter
provided, to the stockholders entitled thereto upon the transfer by them to the
corporation of the certificates representing such stock if certificated or, if
uncertificated, upon receipt of an instruction transferring such stock to the
corporation. For this purpose, the value of the shares shall be determined as
of the day preceding the date of the vote approving the proposed corporate
action and shall be exclu-
<PAGE> 4
sive of any element of value arising from the expectation or accomplishment of
the proposed corporate action.
156B:93. REFERENCE TO SPECIAL MASTER.
Section 93. the court in its discretion may refer the bill or any question
arising thereunder to a special master to hear the parties, make findings and
report the same to the court, all in accordance with the usual practice in
suits in equity in the superior court.
156B:94. NOTATION ON STOCK CERTIFICATES OF PENDENCY OF BILL.
Section 94. On motion the court may order stockholder parties to the bill to
submit their certificates of stock to the corporation for the notation thereon
of the pendency of the bill and may order the corporation to note such pendency
in its records with respect to any uncertificated shares held by such
stockholder parties, and may on motion dismiss the bill as to any stockholder
who fails to comply with such order.
156B:95. COSTS; INTEREST.
Section 95. The costs of the bill, including the reasonable compensation and
expenses of any mater appointed by the court, but exclusive of fees of counsel
or of experts retained by any party, shall be determined by the court and taxed
upon the parties to the bill, or any of them, in such manner as appears to be
equitable, except that all costs of giving notice to stockholders as provided
in this chapter shall be paid by the corporation. interest shall be paid upon
any award from the date of the vote approving the proposed corporate action,
and the court may on application of any interested party determine the amount
of interest to be paid in the case of any stockholder.
156B:96. DIVIDENDS AND VOTING RIGHTS AFTER DEMAND FOR PAYMENT.
Section 96. Any stockholder who has demanded payment for his stock as
provided in this chapter shall not thereafter be entitled to notice of any
meeting of stockholders or to vote such stock for any purpose and shall not be
entitled to the payment of dividends or other distribution on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the date of the vote approving the proposed corporate
action) unless:
(1) A bill shall not be filed within the time provided in section ninety;
(2) A bill, if filed, shall be dismissed as to such stockholder; or
(3) Such stockholder shall with the written approval of the corporation, or
in the case of a consolidation or merger, the resulting or surviving
corporation, deliver to it a written withdrawal of his objections to and an
acceptance of such corporate action.
<PAGE> 5
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter:
156B:97. STATUS OF SHARES PAID FOR.
Section 97. The shares of the corporation paid for by the corporation
pursuant to the provisions of this chapter shall have the status of treasury
stock, or in the case of a consolidation or merger the shares or the securities
of the resulting or surviving corporation into which the shares of such
objecting stockholder would have been converted had he not objected to such
consolidation or merger shall have the status of treasury stock or securities.
156B:98. EXCLUSIVE REMEDY; EXCEPTION.
Section 98. The enforcement by a stockholder of his right to receive payment
for his shares in the manner provided in this chapter shall be an exclusive
remedy except that this chapter shall not exclude the right of such
stockholder to bring or maintain an appropriate proceeding to obtain relief on
the ground that such corporate action will be or is illegal or fraudulent as to
him.
<PAGE> 1
EXHIBIT 5
[LETTERHEAD OF CIBC WORLD MARKETS]
SEPTEMBER 22, 1999
CONFIDENTIAL
The Board of Directors
Litchfield Financial Corporation
430 Main Street
Williamstown, MA 01267
Members of the Board:
You have asked CIBC World Markets Corp. ("CIBC World Markets") to render a
written opinion (the "Opinion") to the Board of Directors (the "Board of
Directors") of Litchfield Financial Corporation ("Litchfield" or the "Company")
as to the fairness to the holders of the common stock of Litchfield other than
Textron Inc. ("Textron") and its affiliates, from a financial point of view, of
the consideration to be received pursuant to an Agreement and Plan of Merger
(the "Merger Agreement") to be entered into among Textron, Textron Financial
Corp. ("Merger Sub") and Litchfield. The Merger Agreement provides for, among
other things, an offer to purchase any and all outstanding shares of common
stock other than those owned by Textron or its affiliates (the "Common Stock")
of Litchfield by Merger Sub at $24.50 per share, to be followed by the merger of
Merger Sub with and into the Company (the "Merger") pursuant to which each
outstanding share of Common Stock not owned by Textron or its affiliates will be
converted into the right to receive $24.50 per share. The cash consideration to
be paid to the holders of Common Stock in the offer to purchase and the Merger
is referred to as the "Consideration".
In arriving at our Opinion, we:
(a) reviewed a draft of the Merger Agreement dated September 22, 1999
and certain related documents;
(b) reviewed Litchfield's audited financial statements for the fiscal
years ended December 31, 1996 through December 31, 1998;
(c) reviewed the unaudited financial statements of Litchfield for the
six months ended June 30, 1999 and the unaudited financial statements for
the months of July and August 1999;
(d) reviewed the financial projections of Litchfield prepared by the
management of Litchfield; and held discussions with the senior management
of Litchfield with respect to the business, capital requirements and
prospects for future growth of Litchfield;
(e) reviewed certain publicly available information concerning
Litchfield including the historical market prices and trading volumes for
the Common Stock;
(f) reviewed and analyzed certain publicly available financial data
for certain companies we deemed comparable to Litchfield;
(g) reviewed and analyzed certain publicly available information for
transactions that we deemed comparable to the Merger;
(h) performed a discounted cash flow analysis of Litchfield using
certain assumptions of future performance provided to and discussed with us
by the management of Litchfield;
Ex-5-1
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The Board of Directors of the Board of Directors
Litchfield Corporation CIBC WORLD MARKETS CORP.
September 22, 1999
Page 2
(i) at the request of the Board of Directors, approached and held
discussions with certain third parties to solicit indications of interest
in the possible acquisition of Litchfield; and
(j) performed such other analyses and reviewed such other information
as we deemed appropriate.
In rendering our Opinion, we relied upon and assumed, without independent
verification or investigation, the accuracy and completeness of all of the
financial and other information provided to or discussed with us by Litchfield
and its employees, representatives and affiliates. With respect to forecasts of
future financial condition and operating results of Litchfield provided to or
discussed with us, we assumed, at the direction of Litchfield's management,
without independent verification or investigation, that such forecasts were
reasonably prepared on bases reflecting the best available information,
estimates and judgments of Litchfield's management. We also have assumed, at the
direction of the Board of Directors of Litchfield, that the final terms of the
Merger will not vary materially from those set forth in the draft of the Merger
Agreement reviewed by us. We have neither made nor obtained any independent
evaluations or appraisals of the assets or the liabilities of Litchfield,
contingent or otherwise. We are not expressing any opinion as to the underlying
valuation, future performance or long-term viability of Litchfield. Our Opinion
is necessarily based on the information available to us and general economic,
financial and stock market conditions and circumstances as they exist and can be
evaluated by us on the date hereof. It should be understood that, although
subsequent developments may affect this Opinion, we do not have any obligation
to update, revise or reaffirm the Opinion. Our Opinion does not address the
relative merits of the Merger and the other business strategies being considered
by the Board of Directors, nor does it address the Board of Directors' decision
to proceed with the Merger.
As part of our investment banking business, we are regularly engaged in
valuations of businesses and securities in connection with acquisitions and
mergers, underwritings, secondary distributions of securities, private
placements and valuations for other purposes.
We have acted as financial advisor to the Board of Directors in connection
with the Merger in rendering this Opinion and will receive a fee for our
services, a significant portion of which is contingent upon consummation of the
Merger. We have in the past provided financial services to Litchfield unrelated
to the proposed Merger, for which services we have received customary
compensation. In the ordinary course of business, CIBC World Markets and its
affiliates may actively trade securities of Litchfield and its affiliates for
their own account and for the accounts of customers and, accordingly, may at any
time hold a long or short position in such securities.
Based upon and subject to the foregoing, and such other factors as we
deemed relevant, it is our opinion that, as of the date hereof, the
Consideration to be received by the holders of Common Stock (other than Textron
and its affiliates) in the offer to purchase and the Merger is fair to such
holders from a financial point of view. This Opinion is for the use of the Board
of Directors of Litchfield in its evaluation of the Merger, and does not
constitute a recommendation to any shareholders as to whether or not such
shareholder should vote on any matters related to the Merger. This Opinion may
be included in its entirety in proxy/registration statements with respect to the
Merger, but it may not be summarized, excerpted or otherwise publicly referred
to without the prior written consent of CIBC World Markets.
Very truly yours,
/s/ CIBC World Markets
CIBC WORLD MARKETS CORP.
Ex-5-2
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Exhibit 6
TEXTRON FINANCIAL CORPORATION AGREES TO ACQUIRE LITCHFIELD
FINANCIAL CORPORATION
Specialized Commercial Finance Company to Significantly Enhance
Textron Financial's Resort and Recreation Portfolio
PROVIDENCE, R.I., and WILLIAMSTOWN, Mass., Sept. 23/PRNewswire/--Textron
Financial Corporation (NYSE: TXT) and Litchfield Financial Corporation (Nasdaq:
LTCH) today announced the signing of a definitive merger agreement whereby
Textron Financial Corporation will acquire the entire outstanding capital stock
of Litchfield for $24.50 per share in a cash transaction valued at
approximately $183 million. The Boards of Directors of both companies have
approved the agreement.
Litchfield is a commercial finance company specializing in receivables-based
finance agreements for the vacation ownership (timeshare) industry and other
commercial finance niches. With over $550 million in managed finance
receivables, Litchfield has a ten-year track record of over 20% annual earnings
growth.
"Litchfield bolsters Textron Financial Corporation's competitive position in
one of our fastest-growing core niches -- resort and recreation finance. It
also complements our existing portfolio by adding other niches consistent with
TFC's strategy. We have known Litchfield management for a long time. Their
track record and culture mirror our own, and we are eager to have this highly
successful organization join our family of businesses," remarked Stephen A.
Giliotti, Textron Financial Corporation Chairman, President and CFO.
Richard A. Stratton, President and CEO of Litchfield commented, "This is a
great combination of skills, culture and resources. Our timeshare and factoring
lending groups will complement Textron Financial's resort and recreation
finance and factoring businesses, which focus on complementary market segments.
Our land receivables, tax lien and financial services businesses will provide
Textron Financial new opportunities in growing markets. And by improving our
access to lower cost capital, the combination will enable us to expand the
growth of our core businesses." Mr. Stratton will remain President of
Litchfield and
<PAGE> 2
will also become Senior Vice President - Operations of Textron Financial
Corporation.
The agreement provides for an all-cash tender offer by Textron Financial for
all of Litchfield's outstanding shares of common stock, commencing within five
business days. The tender is expected to close by late October, 1999, unless
extended, and is subject to the valid tender of at least 66.66% of the
outstanding Litchfield shares on a fully diluted basis, and to customary
government filings and other customary conditions. Litchfield management and
directors intend to tender their shares in response to the offer.
The tender offer for shares of Litchfield common stock will be made only
through definitive tender offer documents, which will be filed with the
Securities and Exchange Commission and mailed to the shareholders of
Litchfield. Following completion of the tender offer, it is contemplated that
the holders of any then-outstanding shares of common stock will receive, in a
second-step merger, the same $24.50 per share cash consideration as holders
will receive in the tender offer.
With 140 employees, Litchfield has offices in Williamstown, Mass.; Atlanta;
Denver; and Scottsdale, Ariz. The company's customers consist of developers of
vacation ownership (timeshare) properties and rural land, small finance
companies, and municipalities selling real estate tax liens.
With over $5 billion in managed receivables and a twenty-year history of record
earnings, Textron Financial Corporation is a diversified commercial finance
company with three groups of products and services: term financing for
Aircraft, Equipment and Golf (including the financing of Textron products);
revolving credit arrangements; and specialty finance. Other services include
syndications, asset management, portfolio servicing and insurance brokerage.
Textron Financial Corporation is a subsidiary of Textron Inc. (NYSE: TXT), a
$10 billion, global, multi-industry company with market-leading operations in
Aircraft, Automotive, Industrial and Finance. Textron has a workforce of over
64,000 employees and major manufacturing facilities in 23 countries. Textron is
among Fortune magazine's "America's Most Admired Companies."
SOURCE: Litchfield Financial Corporation
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: Statements in this press release regarding Litchfield Financial Corp.'s
business which are not historical facts are "forward-looking statements" that
involve risks and uncertainties. For a discussion of such risks and
uncertainties, which could cause actual results to differ from those contained
in the forward-looking statements, see "Risk Factors" in the Company's Annual
Report or Form 10-K for the most recently ended fiscal year.
<PAGE> 1
[Litchfield LOGO]
September 29, 1999
To Our Stockholders:
On behalf of the Board of Directors of Litchfield Financial Corporation
(the "Company"), we are pleased to inform you that, on September 22, 1999, the
Company entered into an Agreement and Plan of Merger (the "Merger Agreement")
with Textron Financial Corporation and its wholly-owned subsidiary, Lighthouse
Acquisition Corp., pursuant to which Lighthouse Acquisition Corp. has today
commenced a cash tender offer (the "Offer") to purchase all of the outstanding
shares (the "Shares") of the Company's Common Stock at $24.50 per Share. Under
the Merger Agreement, the Offer will be followed by a merger (the "Merger") in
which any remaining Shares will be converted into the right to receive $24.50
per Share in cash, without interest thereon.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE OFFER AND THE MERGER ARE
FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS STOCKHOLDERS, HAS
APPROVED THE OFFER AND THE MERGER, AND RECOMMENDS THAT THE COMPANY'S
STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors described in the attached Schedule 14D-9
that is being filed today with the Securities and Exchange Commission,
including, among other things, the terms and conditions of the Merger Agreement
and the fairness opinion of CIBC World Markets Corp. ("CIBC World Markets"), the
Company's financial advisor, to the effect that, as of the date of such opinion
and based upon the assumptions and other matters set forth therein, the
consideration to be received by holders of Shares in the Offer and the Merger is
fair to such holders from a financial point of view. The full text of the
opinion is attached as an exhibit to the Schedule 14D-9. Stockholders are urged
to read the opinion carefully and in its entirety.
In addition to the attached Schedule 14D-9 relating to the Offer, also
enclosed is the Offer to Purchase, dated September 29, 1999, of Lighthouse
Acquisition Corp., together with related materials, including a Letter of
Transmittal, to be used for tendering your Shares. These documents set forth the
terms and conditions of the Offer and the Merger and provide instructions as to
how to tender your Shares. We urge you to read the enclosed materials carefully
in making your decision with respect to tendering your Shares pursuant to the
Offer.
On behalf of the Board of Directors,
/s/ Richard A. Stratton
--------------------------------------
Richard A. Stratton
President, Chief Executive Officer and
Director
