<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Schedule 13D
Under the Securities Exchange Act of 1934
Telebanc Financial Corporation
- --------------------------------------------------------------------------------
(Name of Issuer)
Common Stock, $.01 Par Value
- --------------------------------------------------------------------------------
(Title of Class of Securities)
- --------------------------------------------------------------------------------
(CUSIP Number)
Thomas A. Bevilacqua
E*TRADE Group, Inc.
Four Embarcadero Place
2400 Geng Road
Palo Alto, CA 94303
(650) 842-2500
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
May 31, 1999
- --------------------------------------------------------------------------------
(Date of Event which Requires Filing
of this Statement)
If the filing person has previously filed a statement on Schedule 13G
to report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the following
box [_]
(Continued on following pages)
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- ----------------------- ---------------------
CUSIP NO. 13D
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
E*TRADE Group, Inc.
I.R.S. I.D. # -
- ------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [_]
(b) [_]
- ------------------------------------------------------------------------------
3 SEC USE ONLY
- ------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
00
- ------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e) [_]
- ------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
State of Delaware
- ------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES 3,369,881
BENEFICIALLY -----------------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH
REPORTING 2,681,639
PERSON -----------------------------------------------------------
WITH 9 SOLE DISPOSITIVE POWER
3,369,881
-----------------------------------------------------------
10 SHARED DISPOSITIVE POWER
-----
- ------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
6,051,520
- ------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES*
[_]
- ------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11
26.4%
- ------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT
<PAGE>
Neither the filing of this Schedule 13D nor any of its contents shall be deemed
to constitute an admission by E*TRADE Group, Inc. that it is the beneficial
owner of any of the Common Stock of Telebanc Financial Corporation referred to
herein for purposes of Section 13(d) of the Securities Exchange Act of 1934, as
amended (the "Act"), or for any other purpose, and such beneficial ownership is
expressly disclaimed.
<PAGE>
Item 1. Security and Issuer.
--------------------
This statement on Schedule 13D relates to the common stock, par value
$.01 per share (the "Issuer Common Stock"), of Telebanc Financial Corporation, a
Delaware corporation (the "Issuer"). The principal executive offices of the
Issuer are located at 1111 North Highland Street, Arlington, VA 22201-2807.
Item 2. Identity and Background.
------------------------
(a) The name of the person filing this statement is E*TRADE Group, Inc., a
Delaware corporation ("E*TRADE").
(b) The address of the principal office and principal business of E*TRADE
is Four Embarcadero Place, 2400 Geng Road, Palo Alto, CA 94303.
(c) E*TRADE, through its wholly-owned subsidiary, E*TRADE Securities,
Inc., is a leading provider of online investing services and has established a
popular, branded destination Web site for self-directed investors. E*TRADE
believes that its technology can be adapted to provide transaction-enabling
services related to other aspects of electronic commerce. Set forth in Schedule
A is the name and present principle occupation or employment and the name,
principal business and address of any corporation or other organization in which
such employment is conducted, of each of E*TRADE's directors and executive
officers, as of the date hereof.
(d) During the past five years, neither E*TRADE nor, to E*TRADE's
knowledge, any person named in Schedule A to this Statement, has been convicted
in a criminal proceeding (excluding traffic violations or similar misdemeanors).
(e) During the past five years, neither E*TRADE nor, to E*TRADE's
knowledge, any person named in Schedule A to this Statement, was a party to a
civil proceeding of a judicial or administrative body of competent jurisdiction
as a result of which such person was or is subject to a judgment, decree or
final order enjoining future violations of or prohibiting or mandating activity
subject to Federal or State securities laws or finding any violation with
respect to such laws.
(f) Not applicable.
Item 3. Source and Amount of Funds or Other Consideration.
--------------------------------------------------
Pursuant to an Agreement and Plan of Merger and Reorganization dated
as of May 31, 1999 (the "Reorganization Agreement"), by and among E*TRADE, Turbo
Acquisition Corp., a Delaware corporation and wholly owned subsidiary of E*TRADE
("Merger Sub"), and the Issuer, and subject to the conditions set forth therein,
Merger Sub will be merged with and into the Issuer (the "Merger"), with each
share of Issuer Common Stock being converted into the right to receive 2.1
shares of E*TRADE Common Stock (the "Exchange Ratio"). The Merger is subject to
the approval of the Reorganization Agreement by the stockholders of Issuer, the
approval of an increase in the authorized capital stock of E*TRADE by its
stockholders, the approval of the Merger by the Office of Thrift Supervision and
any other required regulatory
1
<PAGE>
approvals, and the satisfaction or waiver of certain other conditions as more
fully described in the Reorganization Agreement. The foregoing summary of the
Merger is qualified in its entirety by reference to the copy of the
Reorganization Agreement included as Exhibit 1 to this Schedule 13D and
incorporated herein in its entirety by reference.
Item 4. Purpose of Transaction.
-----------------------
(a) - (b) As described in Item 3 above, this statement relates to the
Merger of Merger Sub, a wholly owned subsidiary of E*TRADE, with and into Issuer
in a statutory merger pursuant to the Delaware General Corporation Law. At the
effective time of the Merger, the separate existence of Merger Sub will cease to
exist and Issuer will continue as the surviving corporation and as a wholly
owned subsidiary of E*TRADE (the "Surviving Corporation"). Holders of
outstanding Issuer Common Stock will receive, in exchange for each share of
Issuer Common Stock held by them immediately prior to the Merger, 2.1 shares of
E*TRADE Common Stock. E*TRADE will assume the Issuer's 1994 Stock Option Plan,
1997 Stock Option Plan and 1998 Stock Incentive Plan, each as amended, as well
as the outstanding options issued under such plans or certain other agreements.
As an inducement to E*TRADE to enter into the Reorganization
Agreement, certain stockholders (collectively, the "Stockholder Agreement
Stockholders") of Telebanc Financial Corporation have entered into a Stockholder
Agreement, dated as of May 31, 1999 (the "Stockholder Agreement"), with E*TRADE
and have, by executing the Stockholder Agreement, irrevocably appointed E*TRADE
(or any nominee of E*TRADE) as his, her or its lawful attorney and proxy. Such
proxy gives E*TRADE the limited right to vote each of the 2,681,639 shares of
Issuer Common Stock beneficially and collectively owned, including options and
warrants exercisable within 60 days as reported in Issuer's 1999 Definitive
Proxy Statement, by the Stockholder Agreement Stockholders in all matters
related to the Merger. The shared voting power with the Stockholder Agreement
Stockholders of Issuer relates to 2,681,639 shares (including options and
warrants exercisable within 60 days as reported in Issuer's 1999 Definitive
Proxy Statement) of Issuer Common Stock (the "Shares"). The Stockholder
Agreement Stockholders and the number of Shares beneficially owned by each of
them is set forth in Schedule B hereto which is hereby incorporated by this
reference. The foregoing summary of the Stockholder Agreement is qualified in
its entirety by reference to the copy of the form of Stockholder Agreement
included as Exhibit 2 to this Schedule 13D and incorporated herein in its
entirety by reference.
In exercising its right to vote the Shares as lawful attorney and
proxy of the Stockholder Agreement Stockholders, E*TRADE (or any nominee of
E*TRADE) will be limited, at every Issuer stockholders meeting and every written
consent in lieu of such meeting to vote the Shares in favor of approval of the
Merger and the Reorganization Agreement. The Stockholder Agreement Stockholders
may vote the Shares on all other matters. The Stockholder Agreement terminates
upon the earlier to occur of (i) such date and time as the Merger shall become
effective in accordance with the terms and provisions of the Reorganization
Agreement and (ii) the date of termination of the Reorganization Agreement.
In connection with the Reorganization Agreement, E*TRADE and Issuer
entered into a Stock Option Agreement, dated as of May 31, 1999 ("Option
Agreement"). The Option
2
<PAGE>
Agreement grants E*TRADE the right, under certain conditions, to purchase up to
3,369,881 shares of Issuer Common Stock at a price of $93.45 per share. Subject
to certain conditions, the Option Agreement may be exercised in whole or in part
by E*TRADE after the occurrence of any of the events described in Sections
7.3(b) of the Reorganization Agreement or if a Takeover Proposal or Trigger
Event is consummated as set forth in Section 7.3(c) of the Reorganization
Agreement. The foregoing summary of the Option Agreement is qualified in its
entirety by reference to the copy of the Option Agreement included as Exhibit 3
to this Schedule 13D and incorporated herein in its entirety by reference.
(c) Not applicable.
(d) Upon consummation of the Merger, the directors of the Surviving
Corporation shall be the directors of Merger Sub, until their respective
successors are duly elected or appointed and qualified. The officers of the
Surviving Corporation shall be the officers of Issuer, until their respective
successors are duly elected or appointed and qualified.
(e) Other than as a result of the Merger described in Item 3 above, not
applicable.
(f) Not applicable.
(g) Upon consummation of the Merger, the Certificate of Incorporation of
Merger Sub, as in effect immediately prior to the Merger, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by Delaware Law and such Certificate of Incorporation;
provided, however, that Article I of the Certificate of Incorporation of the
Surviving Corporation shall be amended to read as follows: "The name of the
corporation is Telebanc Financial Corporation." Upon consummation of the
Merger, the Bylaws of Merger Sub, as in effect immediately prior to the Merger,
shall be the Bylaws of the Surviving Corporation until thereafter amended.
(h) - (i) If the Merger is consummated as planned, the Issuer Common Stock
will be deregistered under the Act and delisted from The Nasdaq Stock Market's
National Market.
(j) Other than described above, E*TRADE currently has no plan or proposals
which relate to, or may result in, any of the matters listed in Items 4(a) - (j)
of Schedule 13D (although E*TRADE reserves the right to develop such plans).
Item 5. Interest in Securities of the Issuer.
-------------------------------------
(a) - (b) The number of Shares covered by the Option is 3,369,881 which
constitutes, based on the number of shares outstanding on May 28, 1999 as
represented by the Issuer in the Reorganization Agreement together with the
shares underlying options and warrants reported in this Schedule 13D,
approximately 14.7% of the Issuer Common Stock.
Prior to exercise of the Option, the Reporting Person (i) is not
entitled to any rights as a stockholder of Issuer as to the Shares covered by
the Option and (ii) disclaims any beneficial ownership of the shares of Issuer
Common Stock which are purchasable by the Reporting Person upon exercise of the
Option because the Option is exercisable only in the limited circumstances as
set forth in the Option Agreement, none of which has occurred as of the
3
<PAGE>
date hereof. If the Option were exercised, the Reporting Person would have the
sole right to vote and dispose of the shares of Issuer Common Stock issued as a
result of such exercise, subject to the terms and conditions of the Option
Agreement.
As a result of the Stockholder Agreement, E*TRADE may be deemed to be
the beneficial owner of at least 2,681,639 shares of Issuer Common Stock. Such
Issuer Common Stock constitutes, based on the number of shares outstanding on
May 28, 1999 as represented by the Issuer in the Reorganization Agreement
together with the shares underlying options and warrants reported in this
Schedule 13D, approximately 11.7% of the issued and outstanding shares of Issuer
Common Stock.
E*TRADE has shared power to vote all of the Shares for the limited
purposes described above in connection with the Stockholder Agreement. E*TRADE
does not have the sole power to vote or to direct the vote or to dispose or to
direct the disposition of any shares of Issuer Common Stock pursuant to the
Stockholder Agreement. However, the Reporting Person (i) is not entitled to any
rights as a stockholder of Issuer as to the Shares covered by the Stockholder
Agreement and (ii) disclaims any beneficial ownership of the shares of Issuer
Common stock which are covered by the Stockholder Agreement. To the best of
E*TRADE's knowledge, no shares of Issuer Common Stock are beneficially owned by
any of the persons named in Schedule A.
(c) Neither E*TRADE nor, to the knowledge of E*TRADE, any person named in
Schedule A, has effected any transaction in the Issuer Common Stock during the
past 60 days.
(d) Not applicable.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
---------------------------------------------------------------------
to Securities of the Issuer.
----------------------------
Other than the Reorganization Agreement, Stockholder Agreement and
Option Agreement, to the knowledge of E*TRADE, there are no contracts,
arrangements, understandings or relationships (legal or otherwise) among the
persons named in Item 2 and between such persons and any person with respect to
any securities of the Issuer, including but not limited to transfer or voting of
any of the securities, finder's fees, joint ventures, loan or option
arrangements, puts or calls, guarantees of profits, division of profits or loss,
or the giving or withholding of proxies.
Item 7. Materials to be Filed as Exhibits.
----------------------------------
The following documents are filed as exhibits:
1. Agreement and Plan of Merger and Reorganization, dated as of May
31, 1999, by and among E*TRADE Group, Inc., a Delaware
corporation, Turbo Acquisition Corp., a Delaware corporation and
wholly owned subsidiary of E*TRADE Group, Inc., and Telebanc
Financial Corporation, a Delaware corporation.
4
<PAGE>
2. Stockholder Agreement, dated as of May 31, 1999, by and among
E*TRADE Group, Inc., a Delaware corporation and certain
stockholders of Telebanc Financial Corporation, a Delaware
corporation.
3. Stock Option Agreement, dated as of May 31, 1999, by and between
E*TRADE Group, Inc., a Delaware corporation, and Telebanc
Financial Corporation, a Delaware corporation.
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.
Dated: June 9, 1999
E*TRADE GROUP, INC.
By: /s/ Thomas A. Bevilacqua
------------------------
Thomas A. Bevilacqua, Esq.
Executive Vice President
5
<PAGE>
Schedule A
----------
DIRECTORS AND EXECUTIVE OFFICERS OF
E*TRADE GROUP, INC.
<TABLE>
<CAPTION>
Present Principal
Occupation Including
Name and Title Name of Employer
-------------- ----------------
<S> <C>
Christos M. Cotsakos Chairman of the Board and Chief Executive of E*TRADE
Group, Inc.
William A. Porter Chairman Emeritus of E*TRADE Group, Inc.
Richard S. Braddock Chairman and Chief Executive Officer of priceline.com
Masayoshi Son President and Chief Executive Officer of SOFTBANK CORP.
William E. Ford Managing Member, General Atlantic Partners, LLC
George Hayter Partner, George Hayter Associates
Lewis E. Randall Private Investor
Lester C. Thurow Professor of Economics Massachusetts Institute of Technology
Kathy Levinson President and Chief Operating Officer of E*TRADE Group, Inc.
Leonard C. Purkis Chief Financial Officer and Executive Vice President, Finance
and Administration of E*TRADE Group, Inc.
Thomas A. Bevilacqua Executive Vice President, Corporate Development, General
Counsel and Secretary of E*TRADE Group, Inc.
Judy Balint President and Chief Operating Officer of E*TRADE International
Debra Chrapaty President and Chief Operating Officer of E*TRADE Technologies
Jerry D. Gramaglia Senior Vice President, Sales, Marketing and Communications
of E*TRADE Group, Inc.
Rebecca L. Patton Senior Vice President, Advanced Products Group of E*TRADE
Group, Inc.
Stephen C. Richards Senior Vice President, Corporate Development and New
Ventures of E*TRADE Group, Inc.
Connie M. Dotson Senior Vice President, Service Quality of E*TRADE Group, Inc.
</TABLE>
6
<PAGE>
Schedule B
----------
<TABLE>
<CAPTION>
Stockholder Shares Beneficially Owned
----------- -------------------------
<S> <C>
Mitchell H. Caplan 829,277
David A. Smilow and Carol Lynton 1,305,350
Aileen Lopez Pugh 116,961
Laurence P. Greenberg 87,907
Stephen G. Dervenis 5,700
David R. DeCamp 19,000
Dean C. Kehler 4,000
Marcia Myerberg -
Steven F. Piaker 4,000
Mark Rollinson 20,500
Michael M. Lynton 288,944
</TABLE>
7
<PAGE>
Exhibit 1
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
E*TRADE GROUP, INC.,
TURBO ACQUISITION CORP.
AND
TELEBANC FINANCIAL CORPORATION
May 31, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<C> <S> <C>
ARTICLE I THE MERGER........................................................... 2
1.1 The Merger.......................................................... 2
1.2 Closing; Effective Time............................................. 2
1.3 Effect of the Merger................................................ 2
1.4 Certificate of Incorporation; Bylaws................................ 2
1.5 Directors and Officers.............................................. 3
1.6 Effect on Capital Stock............................................. 3
1.7 Surrender of Certificates........................................... 4
1.8 No Further Ownership Rights in Company Capital Stock................ 6
1.9 Lost, Stolen or Destroyed Certificates.............................. 6
1.10 Tax and Accounting Consequences..................................... 6
1.11 Withholding Rights.................................................. 6
1.12 Taking of Necessary Action; Further Action.......................... 6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY........................... 7
2.1 Organization, Standing and Power.................................... 7
2.2 Capital Structure................................................... 7
2.3 Authority........................................................... 8
2.4 SEC Documents; Financial Statements................................. 9
2.5 Absence of Certain Changes.......................................... 10
2.6 Absence of Undisclosed Liabilities.................................. 11
2.7 Litigation.......................................................... 11
2.8 Restrictions on Business Activities................................. 11
2.9 Compliance With Laws................................................ 11
2.10 Title to Property................................................... 11
2.11 Intellectual Property............................................... 12
2.12 Environmental Matters............................................... 13
2.13 Taxes............................................................... 14
2.14 Employee Benefit Plans.............................................. 15
2.15 Employee Matters.................................................... 18
2.16 Interested Party Transactions....................................... 19
2.17 Insurance........................................................... 19
2.18 Regulatory Matters.................................................. 19
2.19 Material Contracts.................................................. 21
2.20 Banking Business.................................................... 22
2.21 Year 2000 Compliance................................................ 23
2.22 Opinion of Financial Advisor........................................ 23
2.23 Company Affiliates.................................................. 23
2.24 State Takeover Statutes; Charter Provisions......................... 23
2.25 Tax and Accounting Treatment........................................ 24
2.26 Brokers' and Finders' Fees.......................................... 24
2.27 Representations Complete............................................ 24
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT........................... 24
3.1 Organization, Standing and Power.................................... 24
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
3.2 Capital Structure................................................... 25
3.3 Authority........................................................... 25
3.4 SEC Documents; Financial Statements................................. 27
3.5 Absence of Undisclosed Liabilities.................................. 27
3.6 Litigation.......................................................... 27
3.7 Compliance With Laws................................................ 27
3.8 Year 2000 Compliance................................................ 28
3.9 Tax Treatment....................................................... 28
3.10 Broker's and Finders' Fees.......................................... 28
3.11 Representations Complete............................................ 28
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME................................. 28
4.1 Conduct of Business................................................. 28
4.2 Conduct of Business of Company...................................... 29
4.3 Conduct of Parent................................................... 32
4.4 No Solicitation..................................................... 32
ARTICLE V ADDITIONAL AGREEMENTS................................................ 33
5.1 Registration Statement; Proxy Statements............................ 33
5.2 Meeting of Stockholders............................................. 36
5.3 Access to Information............................................... 37
5.4 Confidentiality..................................................... 37
5.5 Public Disclosure................................................... 37
5.6 Consents; Cooperation............................................... 37
5.7 Reasonable Best Efforts and Further Assurances...................... 38
5.8 Blue Sky Laws....................................................... 38
5.9 Listing of Additional Shares; Nasdaq Quotation...................... 38
5.10 Pooling Accounting.................................................. 39
5.11 Affiliate Agreements................................................ 39
5.12 Tax Treatment....................................................... 39
5.13 Company Options..................................................... 39
5.14 Form S-8............................................................ 40
5.15 Employees; Employee Benefit Matters................................. 40
5.16 Director and Officer Indemnification................................ 41
5.17 Comfort Letters..................................................... 42
5.18 Stockholder Litigation.............................................. 42
5.19 Company Debt Securities............................................. 42
ARTICLE VI CONDITIONS TO THE MERGER............................................ 43
6.1 Conditions to Obligations of Each Party to Effect the Merger........ 43
6.2 Additional Conditions to Obligations of Company..................... 44
6.3 Additional Conditions to the Obligations of Parent and Merger Sub... 44
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER.................................. 46
7.1 Termination......................................................... 46
7.2 Effect of Termination............................................... 47
7.3 Expenses and Termination Fees....................................... 47
7.4 Amendment........................................................... 48
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
7.5 Extension; Waiver................................................... 48
ARTICLE VIII GENERAL PROVISIONS................................................ 49
8.1 Non-Survival at Effective Time...................................... 49
8.2 Notices............................................................. 49
8.3 Interpretation...................................................... 50
8.4 Counterparts........................................................ 50
8.5 Entire Agreement; Nonassignability; Parties in Interest............. 50
8.6 Severability........................................................ 51
8.7 Remedies Cumulative................................................. 51
8.8 Governing Law....................................................... 51
8.9 Rules of Construction............................................... 51
8.10 Definitions; Etc.................................................... 51
</TABLE>
3
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EXHIBITS
Exhibit A - Form of Certificate of Merger
Exhibit B - Form of Company Affiliate Agreement
Exhibit C - Form of Parent Affiliate Agreement
Exhibit D - Form of Management Continuity Agreement
4
<PAGE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
-----------------------------------------------
This AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the "Agreement")
is made and entered into as of May 31, 1999, by and among E*TRADE Group, Inc., a
Delaware corporation ("Parent"), Turbo Acquisition Corp., a Delaware corporation
and wholly owned subsidiary of Parent ("Merger Sub"), and Telebanc Financial
Corporation, a Delaware corporation ("Company").
RECITALS
A. The Board of Directors of Company has unanimously (i) determined
that it is advisable and fair to, and in the best interests of, Company and its
stockholders that, upon the terms and subject to the conditions of this
Agreement, Merger Sub merge with and into Company, with Company being the
surviving corporation (the "Merger"), (ii) approved this Agreement, the Merger
and the other transactions contemplated hereby and (iii) determined to recommend
the approval of this Agreement and the Merger by the stockholders of Company.
B. The Board of Directors of Parent has (i) determined that the
Merger is advisable and in the best interests of Parent and its stockholders and
(ii) approved this Agreement, the Merger and the other transactions contemplated
hereby.
C. Pursuant to the Merger, among other things, the outstanding shares
of Common Stock, par value $.01 per share ("Company Common Stock"), of Company
shall be converted into the right to receive the consideration set forth herein.
D. The parties intend, by executing this Agreement, to adopt a plan
of reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code"), and to cause the Merger to qualify as a
"reorganization" under the provisions of Sections 368(a)(1)(A) and 368(a)(2)(E)
of the Code, and as a pooling of interests for financial accounting purposes.
E. Concurrently with the execution of this Agreement and as an
inducement to Parent and Merger Sub to enter into this Agreement, (a) Company
and Parent have entered into a stock option agreement dated the date hereof (the
"Option Agreement") providing for the purchase by Parent of newly-issued shares
of Company Common Stock under certain circumstances, and (b) certain affiliates
of Company have on the date hereof entered into Stockholder Agreements the
("Stockholder Agreements") pursuant to which they have agreed among other
things, to vote the shares of Company Common Stock over which such persons have
voting power to approve this Agreement and the Merger;
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
<PAGE>
ARTICLE I
THE MERGER
----------
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
----------
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Delaware General Corporation Law ("Delaware Law"),
Merger Sub shall be merged with and into Company, the separate corporate
existence of Merger Sub shall cease and Company shall continue as the surviving
corporation. Company as the surviving corporation after the Merger is
hereinafter sometimes referred to as the "Surviving Corporation."
1.2 Closing; Effective Time. The consummation of the Merger (the
-----------------------
"Closing") shall take place as soon as practicable, and in any event not later
than two (2) business days, after the satisfaction or waiver of each of the
conditions set forth in Article VI hereof or at such other time as the parties
hereto may agree (the "Closing Date"). The Closing shall take place at the
offices of Brobeck, Phleger & Harrison LLP, Two Embarcadero Place, 2200 Geng
Road, Palo Alto, California 94303, or at such other location as the parties
hereto may agree in writing. The Merger shall become effective on the Closing
Date, as set forth in the Certificate of Merger in the form attached hereto as
Exhibit A (the "Certificate of Merger"), which shall be filed with the Secretary
- ---------
of State of the State of Delaware on the Closing Date. The term "Effective Time"
shall be the date and time when the Merger becomes effective on the Closing
Date, as set forth in the Certificate of Merger.
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of Delaware Law. At and after the Effective Time, the
Merger shall have the effects set forth in Sections 259 and 261 of the Delaware
Law. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time, all the property, rights, privileges, powers and franchises
of Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of Company and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
------------------------------------
(a) At the Effective Time, the Certificate of Incorporation of
Company, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation; provided, however,
that immediately after the Effective Time the Certificate of Incorporation of
the Surviving Corporation shall be amended and restated so as to read in its
entirety like the Certificate of Incorporation of Merger Sub with Article I of
the Certificate of Incorporation amended to read as follows: "The name of the
corporation is Telebanc Financial Corporation."
(b) The Bylaws of Company, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended; provided, however, that immediately after the Effective Time
-------- -------
the Bylaws of the Surviving Corporation shall be amended and restated so as to
read like the Bylaws of Merger Sub.
2
<PAGE>
1.5 Directors and Officers. At the Effective Time, the directors of
Merger Sub shall be the initial directors of the Surviving Corporation, until
their successors are duly elected or appointed and qualified. The officers of
Company at the Effective Time shall be the initial officers of Surviving
Corporation, until their respective successors are duly elected or appointed and
qualified.
1.6 Effect on Capital Stock. At the Effective Time, by virtue of the
-----------------------
Merger and without any action on the part of Parent, Merger Sub, Company or the
holders of any of the following securities:
(a) Conversion of Company Capital Stock. Each share of Company
-----------------------------------
Common Stock issued and outstanding immediately prior to the Effective Time
(other than any shares of Company Common Stock to be cancelled pursuant to
Section 1.6(b)) will be converted automatically into the right to receive 2.1
shares (the "Exchange Ratio") of Parent Common Stock, par value $.01 per share
("Parent Common Stock"), upon surrender of the certificate representing such
share of Company Common Stock in the manner provided in Section 1.7 (or, in the
case of a lost, stolen or destroyed certificate, upon delivery of an affidavit
and, if required, bond, in the manner provided in Section 1.9).
(b) Cancellation of Company Capital Stock Owned by Parent, Merger
-------------------------------------------------------------
Sub or Company. Each share of Company Common Stock that is owned by Company as
- --------------
treasury stock and each share of Company Common Stock owned by Parent or Merger
Sub or any direct or indirect wholly owned Subsidiary (as defined below) of
Parent, Merger Sub or Company immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof.
(c) Company Stock Option Plans. At the Effective Time, Company's
--------------------------
1994 Stock Option Plan, 1997 Stock Option Plan and 1998 Stock Incentive Plan, as
amended (collectively, the "Company Stock Option Plans"), and all options to
purchase Company Common Stock then outstanding under the Company Stock Option
Plans or pursuant to option agreements listed on Schedule 1.6(c) attached hereto
---------------
(collectively, "Company Options") shall be assumed by Parent in accordance with
Section 5.13.
(d) Unvested Company Common Stock. If any shares of Company Common
-----------------------------
Stock outstanding immediately prior to the Effective Time are unvested or are
subject to a repurchase option, risk of forfeiture or other condition under the
Company Employee Stock Ownership Plan, any applicable restricted stock purchase
agreement, or other agreement with Company or under which Company has any
rights, then (unless such condition terminates by virtue of the Merger pursuant
to the express term of such agreement) the shares of Parent Common Stock issued
in exchange for such shares of Parent Common Stock will also be unvested and
subject to the same repurchase option, risk of forfeiture or other condition,
and the certificates representing such shares of Parent Common Stock may
accordingly be marked with appropriate legends. Company shall take all action
that may be necessary to ensure that, from and after the Effective Time, Parent
is entitled to exercise any such repurchase option or other right set forth in
any such restricted stock purchase agreement or other agreement.
3
<PAGE>
(e) Capital Stock of Merger Sub. At the Effective Time, each share
---------------------------
of Common Stock, par value $.001 per share, of Merger Sub ("Merger Sub Common
Stock") issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock, par value $.001 per share, of the Surviving
Corporation, and the Surviving Corporation shall become a wholly owned
Subsidiary of Parent. Each stock certificate of Merger Sub evidencing ownership
of any such shares shall continue to evidence ownership of such shares of
capital stock of the Surviving Corporation.
(f) Adjustments to Exchange Ratio. The Exchange Ratio shall be
-----------------------------
appropriately adjusted to reflect the effect of any stock split, reverse split,
stock dividend (including any dividend or distribution of securities convertible
into Parent Common Stock or Company Common Stock), reorganization,
recapitalization or other like change with respect to Parent Common Stock or
Company Common Stock occurring after the date hereof and prior to the Effective
Time and of any increase in the number of shares of Company Common Stock
outstanding resulting from any failure of Section 2.2 to be correct on the date
hereof or by Company to comply with its covenants under Section 4.2 of this
Agreement, so as to provide Parent the same economic effect as contemplated by
this Agreement prior to such stock split, reverse split, stock dividend,
reorganization, recapitalization, like change or increase .
(g) Fractional Shares. No fraction of a share of Parent Common
Stock will be issued, but in lieu thereof each holder of shares of Company
Capital Stock who would otherwise be entitled to a fraction of a share of Parent
Common Stock (after aggregating all fractional shares of Parent Common Stock to
be received by such holder) shall receive from Parent an amount of cash (rounded
to the nearest whole cent) equal to the product of (i) such fraction, multiplied
by (ii) the average of the closing sale prices for a share of Parent Common
Stock as quoted on the Nasdaq National Market over the five (5) most recent
trading days that Parent Common Stock has traded ending on the last full trading
day prior to the date on which the Effective Time occurs.
1.7 Surrender of Certificates.
--------------------------
(a) Exchange Agent. Parent's transfer agent or another institution
--------------
selected by Parent and reasonably acceptable to Company shall act as exchange
agent (the "Exchange Agent") in the Merger.
(b) Parent to Provide Common Stock and Cash. Prior to the Effective
---------------------------------------
Time, Parent shall deposit with the Exchange Agent for exchange in accordance
with this Article I, through such reasonable procedures as Parent may adopt, (i)
the shares of Parent Common Stock issuable pursuant to Section 1.6(a) in
exchange for shares of Company Common Stock outstanding immediately prior to the
Effective Time and (ii) cash in an amount sufficient to permit payment of cash
in lieu of fractional shares pursuant to Section 1.6(g) and any dividend or
distribution to which holders of shares of Company Common Stock may be entitled
pursuant to Section 1.7(d).
(c) Exchange Procedures. Promptly after the Effective Time, Parent
-------------------
shall cause to be mailed to each holder of record of a certificate or
certificates (the "Certificates")
4
<PAGE>
which immediately prior to the Effective Time represented outstanding shares of
Company Common Stock, whose shares were converted into the right to receive
shares of Parent Common Stock (and cash in lieu of fractional shares) pursuant
to Section 1.6, (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon receipt of the Certificates by the Exchange Agent, and shall be in
such form and have such other provisions as Parent may reasonably specify) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Parent Common Stock (and cash
in lieu of fractional shares). Upon surrender of a Certificate for cancellation
to the Exchange Agent or to such other agent or agents as may be appointed by
Parent, together with such letter of transmittal, duly completed and validly
executed in accordance with the instructions thereto, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing the number of whole shares of Parent Common Stock and payment in
lieu of fractional shares which such holder has the right to receive pursuant to
Section 1.6 and any dividends or other distributions pursuant to Section 1.7(d),
and the Certificate so surrendered shall forthwith be canceled. Until so
surrendered, each outstanding Certificate that, prior to the Effective Time,
represented shares of Company Common Stock will be deemed from and after the
Effective Time, for all corporate purposes, other than the payment of dividends,
to evidence the ownership of the number of full shares of Parent Common Stock
into which such shares of Company Common Stock shall have been so converted and
the right to receive an amount in cash in lieu of the issuance of any fractional
shares in accordance with Section 1.6 and any dividends or other distributions
pursuant to Section 1.7(d).
(d) Distributions With Respect to Unexchanged Shares. No dividends
------------------------------------------------
or other distributions with respect to Parent Common Stock with a record date
after the Effective Time will be paid to the holder of any unsurrendered
Certificate with respect to the shares of Parent Common Stock represented
thereby until the holder of record of such Certificate shall surrender such
Certificate. Subject to applicable law, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of Parent Common Stock issued in exchange therefor,
without interest, at the time of such surrender, the amount of any such
dividends or other distributions with a record date after the Effective Time
theretofore payable (but for the provisions of this Section 1.7(d)) with respect
to such shares of Parent Common Stock.
(e) Transfers of Ownership. If any certificate for shares of Parent
----------------------
Common Stock is to be issued by the Exchange Agent in a name other than that in
which the Certificate surrendered in exchange therefor is registered, it will be
a condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Parent or any agent designated by it
any transfer or other taxes required by reason of the issuance of a check in any
name other than that of the registered holder of the Certificate surrendered, or
established to the satisfaction of Parent or any agent designated by it that
such tax has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in this
------------
Section 1.7, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to any person for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar law.
5
<PAGE>
1.8 No Further Ownership Rights in Company Capital Stock. All shares of
----------------------------------------------------
Parent Common Stock issued (and cash in lieu of fractional shares paid and any
dividends or other distributions pursuant to Section 1.7(d)) upon the surrender
for exchange of shares of Company Common Stock in accordance with the terms
hereof shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Company Common Stock, and there shall be no further
registration of transfers on the records of the Surviving Corporation of shares
of Company Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article I.
1.9 Lost, Stolen or Destroyed Certificates. In the event any
--------------------------------------
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares of Parent
Common Stock (and cash in lieu of fractional shares) as may be required pursuant
to Section 1.6; provided, however, that Parent may, in its discretion and as a
-------- -------
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Parent, the Surviving Corporation or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
1.10 Tax and Accounting Consequences. It is intended by the parties
-------------------------------
hereto that the Merger shall qualify as a reorganization under the provisions of
Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code and as a pooling of interests
for accounting purposes.
1.11 Withholding Rights. Parent and the Surviving Corporation shall be
------------------
entitled to deduct and withhold from the number of shares of Parent Common Stock
otherwise deliverable under this Agreement, and from any other payments made
pursuant to this Agreement, such amounts as Parent and the Surviving Corporation
are required to deduct and withhold with respect to such delivery and payment
under the Code or any provision of state, local, provincial or foreign tax law.
To the extent that amounts are so withheld, such withheld amounts shall be
treated for all purposes of this Agreement as having been delivered and paid to
the holder of shares of Company Common Stock in respect of which such deduction
and withholding was made by Parent and the Surviving Corporation.
1.12 Taking of Necessary Action; Further Action. If, at any time after
------------------------------------------
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Company and Merger Sub, the officers and directors of Company,
Parent and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action, so long as such action is not inconsistent with this Agreement.
6
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
-----------------------------------------
Except as disclosed in the document of even date herewith delivered by
Company to Parent prior to the execution and delivery of this Agreement and
referring to the representations and warranties in this Agreement (the "Company
Disclosure Schedule"), any exception so disclosed in the Company Disclosure
Schedule to specifically identify the Section of this Agreement to which such
exception relates, Company represents and warrants to Parent and Merger Sub as
follows:
2.1 Organization, Standing and Power. Each of Company and its
--------------------------------
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. Company is
registered as a savings and loan holding company in accordance with the Home
Owners' Loan Act. Each of Company and its Subsidiaries has the corporate power
to own its properties and to carry on its business as now being conducted and as
proposed to be conducted and is duly qualified to do business and is in good
standing in each jurisdiction in which the failure to be so qualified and in
good standing would have a Material Adverse Effect (as defined in Section 8.10)
on Company. Company has made available to Parent a true and correct copy of the
certificate or articles of incorporation, as amended, and bylaws, as amended,
and any other charter or organizational documents, each as amended, of Company
and each of its Subsidiaries. Neither Company nor any of its Subsidiaries is in
violation of any of the provisions of its certificate or articles of
incorporation or bylaws or other charter or organizational documents, each as
amended. All of the outstanding shares of capital stock and voting securities of
each of Company's Subsidiaries owned, directly or indirectly, by Company are
duly authorized, validly issued, fully paid and nonassessable, and those shares
of capital stock and voting securities of each of Company's Subsidiaries owned
by Company, directly or indirectly, are free and clear of all liens, charges,
claims or encumbrances or rights of others. Except as disclosed in the Company
SEC Documents (as defined below), there are no outstanding subscriptions,
options, warrants, puts, calls, rights, exchangeable or convertible securities
or other commitments or agreements of any character relating to the issued or
unissued capital stock or other securities of any such Subsidiary, or otherwise
obligating Company or any such Subsidiary to issue, transfer, sell, purchase,
redeem or otherwise acquire any such securities. TeleBank is a federal savings
association existing under the laws of the United States. The deposit accounts
in TeleBank are insured by the Federal Deposit Insurance Corporation (the
"FDIC") through the Savings Association Insurance Fund to the fullest extent
permitted by law, and all premiums and assessments required in connection
therewith have been paid by TeleBank.
2.2 Capital Structure. The authorized capital stock of Company
consists of 135,000,000 shares of Company Common Stock, and 500,000 shares of
Preferred Stock, par value $.01 per share ("Preferred Stock"), of which there
were issued and outstanding as of the close of business on May 28, 1999,
16,857,835 shares of Company Common Stock and no shares of Preferred Stock.
There are no other outstanding shares of capital stock or voting securities and
no outstanding commitments to issue any shares of capital stock or voting
securities after May 28, 1999 other than pursuant to the exercise of Company
Options outstanding as of such date. All outstanding shares of Company Common
Stock are duly authorized, validly issued, fully paid and non-assessable and are
free and clear of any liens or
7
<PAGE>
encumbrances other than any liens or encumbrances created by or imposed upon the
holders thereof, and are not subject to preemptive rights or rights of first
refusal created by the Amended and Restated Certificate of Incorporation or
Bylaws, each as amended, of Company or any agreement to which Company is a party
or by which it is bound. As of the close of business on May 28, 1999, Company
has reserved an aggregate of 4,773,019 shares of Common Stock for issuance to
employees, consultants and directors pursuant to the Company Stock Option Plans
and the Company Options, of which 218,092 shares have been issued pursuant to
option exercises or direct stock purchases or awards, 2,570,680 shares are
subject to outstanding, unexercised options, and no shares are subject to
outstanding stock purchase rights. Since May 28, 1999, Company has not issued or
granted additional options under the Company Stock Option Plans or otherwise.
Company has not issued or granted any stock appreciation rights or performance
units payable in stock of the Company that are currently outstanding. Except for
(i) the rights created pursuant to this Agreement, the Company Stock Option
Plans, the Company Options and the Option Agreement and (ii) Company's right to
repurchase any unvested shares under the Company Stock Option Plans, the Company
Options or the Company Employee Stock Ownership Plan, there are no other
options, warrants, calls, rights, commitments or agreements of any character to
which Company is a party or by which it is bound obligating Company to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of capital stock of Company or obligating
Company to grant, extend, accelerate the vesting of, change the price of, or
otherwise amend or enter into any such option, warrant, call, right, commitment
or agreement. Except for this Agreement and as provided by Section 5.11, there
are no contracts, commitments or agreements relating to voting, purchase or sale
of Company's capital stock between or among Company and any of its stockholders.
The terms of the Company Stock Option Plans permit the assumption of options to
purchase Company Common Stock as provided in this Agreement, without the consent
or approval of the holders of such securities or the Company stockholders. True
and complete copies of all material agreements and instruments, that are
currently in force or under which Company has any liability, relating to or
issued under the Company Stock Option Plans, the Company Options and the Company
Employee Stock Ownership Plan have been provided to Parent and such agreements
and instruments have not been amended, modified or supplemented, and there are
no agreements to amend, modify or supplement such agreements or instruments in
any case from the form provided to Parent. All outstanding shares of Company
Common Stock and all Company Options were issued in compliance with all
applicable federal and state securities laws.
2.3 Authority. Assuming the filings and approvals described in
clauses (i) through (iv) of the last sentence of this Section are made or
obtained (as the case may be) and the condition set forth in Section 6.1(a) is
satisfied, Company has all requisite corporate power and authority to enter into
this Agreement and the Option Agreement and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Option Agreement and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of Company, subject only, as of the date of this Agreement, to the
approval of the Merger by Company's stockholders as contemplated by Section
6.1(a). Each of this Agreement and the Option Agreement has been duly executed
and delivered by Company and constitutes the valid and binding obligation of
Company, enforceable against Company in accordance with its terms, except as
such enforcement may be limited by (i) the effect of bankruptcy, insolvency,
reorganization, receivership, conservatorship, arrangement, moratorium or other
laws affecting
8
<PAGE>
or relating to the rights of creditors generally, or (ii) the rules governing
the availability of specific performance, injunctive relief or other equitable
remedies and general principles of equity, regardless of whether considered in a
proceeding in equity or at law. Assuming the filings and approvals described in
clauses (i) through (iv) of the last sentence of this Section are made or
obtained (as the case may be) and the condition set forth in Section 6.1(a) is
satisfied, the execution and delivery of this Agreement and the Option Agreement
by Company does not, and the consummation of the transactions contemplated
hereby and thereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation or acceleration of any obligation or
loss of any benefit under, (i) any provision of the certificate or articles of
incorporation, bylaws, or other charter or organizational documents, each as
amended, of Company or any of its Subsidiaries or (ii) any material mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Company or any of its Subsidiaries or any of their
properties or assets, except for any conflicts, violations, defaults or other
occurrences that would not (A) individually or in the aggregate have a Material
Adverse Effect on Company or any of its Subsidiaries or (B) prevent or
materially impair or delay the consummation of the Merger. No consent, approval,
order or authorization of, or registration, declaration or filing with, any
court, administrative agency or commission, self-regulatory organization ("SRO")
or other foreign or domestic governmental or quasi-governmental authority or
instrumentality (each of the foregoing, a "Governmental Entity") is required by
or with respect to Company or any of its Subsidiaries in connection with the
execution and delivery of this Agreement or the Option Agreement, the
performance of Company's obligations hereunder or thereunder or the consummation
of the transactions contemplated hereby or thereby, except for (i) the filing of
the Certificate of Merger as provided in Section 1.2, (ii) the filing of
applications and notices with and the receipt of requisite approvals from the
Office of Thrift Supervision (the "OTS") with respect to the Merger, (iii) the
filing with, and clearance by, the SEC of the Proxy Statement (as defined in
Section 5.1) relating to the Company Stockholders Meeting (as defined in Section
5.1), (iv) such notices, applications, consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal or state securities laws or the securities laws of any
foreign country in connection with the Merger; and (v) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not have a Material Adverse Effect on Company and would not prevent,
or materially alter or delay, any of the transactions contemplated by this
Agreement or the Option Agreement. Company is not aware of any reason why the
approvals of all Governmental Entities necessary to permit consummation of the
Merger or the other transactions contemplated by this Agreement will not be
received without the imposition of a condition or requirement described in
Section 6.3(c).
2.4 SEC Documents; Financial Statements. Company has furnished or made
-----------------------------------
available (including via EDGAR) to Parent a true and complete copy of each
statement, report, registration statement (with the prospectus in the form filed
pursuant to Rule 424(b) of the Securities Act of 1933, as amended (the
"Securities Act")), definitive proxy statement and other filings (including
exhibits, supplements and schedules thereto) filed with the SEC by Company since
January 1, 1997, and, prior to the Effective Time, Company will have furnished
or made available (including via EDGAR) to Parent true and complete copies of
any additional documents filed with the SEC by Company prior to the Effective
Time (collectively, the
9
<PAGE>
"Company SEC Documents"). As of their respective filing dates, the Company SEC
Documents complied in all material respects with the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Securities Act, and none of the Company SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except to the extent
corrected by a subsequently filed Company SEC Document. The financial statements
of Company, including the notes thereto, included in the Company SEC Documents
(the "Company Financial Statements") were complete and correct in all material
respects as of their respective dates (except to the extent corrected by a
subsequently filed Company SEC Document), complied as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto as of their respective dates,
and have been prepared in accordance with generally accepted accounting
principles applied on a basis consistent throughout the periods indicated
(except as may be indicated in the notes thereto or, in the case of unaudited
statements included in Quarterly Reports on Form 10-Q, as permitted by Form 10-Q
of the SEC). The Company Financial Statements fairly present the consolidated
financial condition and operating results of Company and its Subsidiaries at the
dates and during the periods indicated therein (subject, in the case of
unaudited statements, to normal and recurring year-end adjustments).
2.5 Absence of Certain Changes. Since December 31, 1998 (the "Company
--------------------------
Balance Sheet Date"), except as set forth in any Company SEC Document (but only
to the extent set forth therein), Company has conducted its business in the
ordinary course consistent with past practice and there has not occurred: (i)
any change, event or condition (whether or not covered by insurance) that has
resulted in, or might reasonably be expected to result in, a Material Adverse
Effect on Company; (ii) any acquisition, sale or transfer of any material asset
of Company or any of its Subsidiaries other than in the ordinary course of
business and consistent with past practice; (iii) any material change in
accounting methods or practices (including any change in depreciation or
amortization policies or rates) by Company or any revaluation by Company of any
of its or any of its Subsidiaries' assets, except as set forth in any Company
SEC Document (but only to the extent set forth therein); (iv) any declaration,
setting aside, or payment of a dividend or other distribution with respect to
the shares of Company, or any direct or indirect redemption, purchase or other
acquisition by Company of any of its shares of capital stock; (v) any material
contract entered into by Company or any of its Subsidiaries, other than in the
ordinary course of business and as made available to Parent, or any material
amendment or termination of, or default under, any material contract to which
Company or any of its Subsidiaries is a party or by which it is bound; (vi) any
amendment or change to the Certificate of Incorporation or Bylaws of Company;
(vii) any material increase in or modification of the compensation or benefits
payable or to become payable by Company or any of its Subsidiaries to any of
their respective directors, officers or employees, other than (in the case of
non-executive officer employees) in the ordinary course of business consistent
with past practice; (viii) any material change in the interest rate risk
management and hedging policies, procedures or practices of Company or any of
its Subsidiaries, or any failure to comply with such policies, procedures and
practices; or (ix) any negotiation or agreement by Company or any of its
Subsidiaries to do any of the things described in the preceding clauses (i)
through (vii) (other than negotiations with Parent and its representatives
regarding the transactions contemplated by this Agreement).
10
<PAGE>
2.6 Absence of Undisclosed Liabilities. None of Company or any of its
Subsidiaries has any material obligations or liabilities of any nature (matured
or unmatured, fixed or contingent) other than (i) those set forth or adequately
provided for in the consolidated balance sheet (and the related notes thereto)
of Company and its Subsidiaries included in Company's Annual Report on Form 10-
K/A for the fiscal year ended December 31, 1998 (the "Company Balance Sheet"),
(ii) those incurred in the ordinary course of business consistent with past
practice since the Company Balance Sheet Date and which have not had and are not
reasonably likely to have a Material Adverse Effect on Company, and (iii) those
incurred in connection with the execution of this Agreement.
2.7 Litigation. There is no private or governmental action, suit,
----------
proceeding, claim, arbitration, inquiry, examination, inspection or, to the
knowledge of Company or any of its Subsidiaries, investigation pending by or
before any Governmental Entity, agency, court or tribunal, foreign or domestic
or, to the knowledge of Company or any of its Subsidiaries, threatened against
Company or any of its Subsidiaries or any of their respective properties or any
of their respective officers or directors (in their capacities as such) that,
individually or in the aggregate, could reasonably be expected to prevent,
enjoin, alter or materially delay any of the transactions contemplated hereby or
could reasonably be expected to have a Material Adverse Effect on Company. There
is no judgment, decree or order against Company or any of its Subsidiaries, or,
to the knowledge of Company and its Subsidiaries, any of their respective
directors or officers (in their capacities as such), that, individually or in
the aggregate, could reasonably be expected to prevent, enjoin, alter or
materially delay any of the transactions contemplated by this Agreement or could
reasonably be expected to have a Material Adverse Effect on Company.
2.8 Restrictions on Business Activities. There is no agreement,
-----------------------------------
judgment, injunction, order or decree binding upon Company or any of its
Subsidiaries which has or could reasonably be expected to have the effect of
prohibiting or materially impairing any current or currently proposed business
practice of Company or any of its Subsidiaries, any acquisition of property by
Company or any of its Subsidiaries or the conduct of business by Company or any
of its Subsidiaries as currently conducted or as described in any Company SEC
Document as proposed to be conducted by Company or any of its Subsidiaries.
2.9 Compliance With Laws. Each of Company and its Subsidiaries has
--------------------
complied in all material respects with all applicable federal, state, local,
self-regulatory and foreign laws, statutes, ordinances, rules and regulations,
and is not in violation in any material respect of, and has not received any
notices of material violation with respect to, its respective certificate or
articles of incorporation or bylaws or other charter or organizational
documents, or any federal, state, local, self-regulatory or foreign statute,
law, ordinance, rule or regulation applicable to the conduct of its business or
the ownership or operation of its business.
2.10 Title to Property. Company and its Subsidiaries have good, valid
-----------------
and marketable title to all of their respective properties, interests in
properties and assets, real and personal, reflected in the Company Balance Sheet
or acquired after the Company Balance Sheet Date (except properties, interests
in properties and assets sold or otherwise disposed of since the Company Balance
Sheet Date in the ordinary course of business and except for any real property
that Company or any of its Subsidiaries has acquired in the ordinary course of
business by
11
<PAGE>
foreclosure or by deed in lieu thereof), or in the case of leased properties and
assets, valid leasehold interests in the leased properties and assets, free and
clear of all mortgages, liens, pledges, charges or encumbrances of any kind or
character, except (i) the lien of current taxes not yet due and payable, (ii)
recorded easements, covenants, conditions and other restrictions of record as do
not and will not materially detract from or interfere with the use of the
properties subject thereto or affected thereby, or otherwise materially impair
business operations involving such properties and (iii) liens securing debt
which is reflected on the Company Balance Sheet. There are no defaults (or
events that, with notice or lapse of time or both, would constitute defaults) by
Company or its Subsidiaries with respect to the liens securing debt which is
reflected on the Company Balance Sheet. With respect to any properties or assets
leased by Company or any of its Subsidiaries, there are no defaults (or events
that, with notice or lapse of time or both, would constitute defaults) by
Company or its Subsidiaries, or to the knowledge of Company, any other party to
the leases of such properties or assets. There are no outstanding options,
rights of first refusal or similar rights to purchase the properties and/or
assets owned by Company or any of its Subsidiaries. All properties used in the
operations of Company and its Subsidiaries are reflected in the Company Balance
Sheet to the extent generally accepted accounting principles require the same to
be reflected. Schedule 2.10 identifies each parcel of real property owned or
-------------
leased by Company or any of its Subsidiaries.
2.11 Intellectual Property.
---------------------
(a) Company and its Subsidiaries own, or are licensed or otherwise
possess legally enforceable and unencumbered rights to use all patents,
trademarks, trade names, service marks, domain names, database rights,
copyrights, and any applications therefor, maskworks, net lists, technology,
know-how, trade secrets, inventory, ideas, algorithms, processes, computer
software programs or applications (in both source code and object code form),
and tangible or intangible proprietary information or material ("Intellectual
Property") that are used or currently proposed to be used by Company and its
Subsidiaries in their respective businesses as currently conducted or as
currently proposed to be conducted by Company and its Subsidiaries. Company has
not (i) licensed any of its Intellectual Property in source code form to any
party or (ii) entered into any exclusive agreements relating to its Intellectual
Property.
(b) Schedule 2.11 lists (i) all patents and patent applications and
-------------
all registered and unregistered trademarks, trade names and service marks,
registered and unregistered copyrights, and maskworks included in the
Intellectual Property, including the jurisdictions in which each such
Intellectual Property right has been issued or registered or in which any
application for such issuance and registration has been filed, (ii) all material
licenses, sublicenses and other agreements as to which Company is a party and
pursuant to which any person is authorized to use any Intellectual Property
(excluding commercially available, off-the-shelf software), and (iii) all
material licenses, sublicenses and other agreements as to which Company is a
party and pursuant to which Company is authorized to use any third-party
patents, trademarks or copyrights, including software ("Third Party Intellectual
Property Rights"), which are incorporated in, are, or form a part of any Company
product or service (excluding commercially available, off-the-shelf software).
No royalties or other continuing payment obligations are due in respect of Third
Party Intellectual Property Rights.
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(c) To the knowledge of Company, there is no unauthorized use,
disclosure, infringement or misappropriation of any material Intellectual
Property rights of Company or any of its Subsidiaries, or any Intellectual
Property right of any third party to the extent licensed by or through Company
or any of its Subsidiaries, by any third party, including any employee or former
employee of Company or any of its Subsidiaries. Neither Company nor any of its
Subsidiaries has entered into any agreement to indemnify any other person
against any charge of infringement of any Intellectual Property .
(d) None of Company or its Subsidiaries is, nor will any of them be
as a result of the execution and delivery of this Agreement or the performance
of its obligations under this Agreement, in material breach of any license,
sublicense or other agreement relating to any Intellectual Property or Third
Party Intellectual Property Rights.
(e) All patents, registered trademarks, service marks and
copyrights held by Company and its Subsidiaries are valid and subsisting.
Neither Company nor any of its Subsidiaries (i) has been sued in any suit,
action or proceeding which involves a claim of infringement of any patents,
trademarks, service marks, copyrights or violation of any trade secret or other
proprietary right of any third party or (ii) has brought any action, suit or
proceeding for infringement of Intellectual Property or breach of any license or
agreement involving Intellectual Property against any third party. The
marketing, licensing or sale of the products or services of Company and its
Subsidiaries does not infringe any patent, trademark, service mark, copyright,
trade secret or other proprietary right of any third party.
(f) Company has secured valid written assignments from all
consultants and employees who contributed to the creation or development of
Intellectual Property of the rights to such contributions that Company does not
already own by operation of law.
(g) Company has taken reasonable steps consistent with prevailing
industry practice to protect and preserve the confidentiality of all
Intellectual Property not otherwise protected by patents, patent applications or
copyright ("Confidential Information"). All use, disclosure or appropriation of
Confidential Information owned by Company or any of its Subsidiaries by or to a
third party has been pursuant to the terms of a written agreement between
Company and such third party. All use, disclosure or appropriation by Company
and its Subsidiaries of Confidential Information not owned by Company or any
such Subsidiary has been pursuant to the terms of a written agreement between
Company and the owner of such Confidential Information, or is otherwise lawful.
2.12 Environmental Matters.
---------------------
(a) The following terms shall be defined as follows:
(i) "Environmental and Safety Laws" shall mean any federal,
state or local laws, ordinances, codes, regulations, rules, policies and orders
that are intended to assure the protection of the environment, or that classify,
regulate, call for the remediation of, require reporting with respect to, or
list or define air, water, groundwater, solid waste, hazardous or toxic
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substances, materials, wastes, pollutants or contaminants, or which are intended
to assure the safety of employees, workers or other persons, including the
public.
(ii) "Hazardous Materials" shall mean any toxic or hazardous
substance, material or waste or any pollutant or contaminant, or infectious or
radioactive substance or material, including without limitation, those
substances, materials and wastes defined in or regulated under any Environmental
and Safety Laws .
(iii) "Property" shall mean all real property leased or owned by
Company or its Subsidiaries either currently or in the past.
(iv) "Facilities" shall mean all buildings and improvements on
the Property of Company or its Subsidiaries.
(b) Company represents and warrants as follows, in each case
(except clauses (iii) and (iv) below) to its knowledge or the knowledge of any
of its Subsidiaries: (i) no methylene chloride or asbestos is contained in or
has been used at or released from the Facilities; (ii) all Hazardous Materials
have been disposed of in accordance with all Environmental and Safety Laws;
(iii) Company and its Subsidiaries have received no notice (verbal or written)
of any noncompliance of the Facilities or its past or present operations with
Environmental and Safety Laws; (iv) no notices, administrative actions or suits
are pending or, to the knowledge of Company or any of its Subsidiaries,
threatened relating to a violation of any Environmental and Safety Laws; (v)
neither Company nor any of its Subsidiaries is liable as a responsible party
under the federal Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA), or state analog statute, arising out of events occurring
prior to the Effective Time; (vi) there have not been in the past, and are not
now, any Hazardous Materials on, under or migrating to or from the Facilities or
any Property; (vii) there have not been in the past, and are not now, any
underground tanks or underground improvements at, on or under any Property
including without limitation, treatment or storage tanks, sumps, or water, gas
or oil wells; (viii) there are no polychlorinated biphenyls (PCBs) deposited,
stored, disposed of or located on the Property or Facilities or any equipment on
the Property containing PCBs at levels in excess of 50 parts per million; (ix)
there is no formaldehyde on the Property or in the Facilities, nor any
insulating material containing urea formaldehyde in the Facilities; (x) the
Facilities and Company's and its Subsidiaries' uses and activities therein have
at all times complied with all Environmental and Safety Laws; and (xi) Company
and its Subsidiaries have all the permits and licenses required to be issued
under Environmental and Safety Laws and are in full compliance with the terms
and conditions of those permits.
2.13 Taxes. Company and each of its Subsidiaries, and any
-----
consolidated, combined, unitary or aggregate group for Tax (as defined below)
purposes of which Company or any of its Subsidiaries is or has been a member
have properly completed and timely filed all Tax Returns (as defined below)
required to be filed by them and have paid all Taxes shown thereon to be due,
other than any Taxes for which adequate reserves under generally accepted
accounting principles have been recorded in the Financial Statements. Company
has provided adequate accruals in accordance with generally accepted accounting
principles in its financial statements for any Taxes that have not been paid,
whether or not shown as being due on any Tax Returns. Company has no material
liability for unpaid Taxes accruing after the date of its latest Financial
14
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Statements other than Taxes arising in the ordinary course of its business.
Except as disclosed in the SEC Documents, there is (i) no material claim for
Taxes that is a lien against the property of Company or any of its Subsidiaries
or is being asserted against Company or any of its Subsidiaries other than liens
for Taxes not yet due and payable, (ii) Company has not been notified and has no
other knowledge that any audit of any Tax Return of Company or any of its
Subsidiaries is being conducted by a Tax authority, (iii) no extension of the
statute of limitations on the assessment of any Taxes granted by Company or any
of its Subsidiaries and currently in effect, and (iv) there is no agreement,
contract or arrangement to which Company or any of its Subsidiaries is a party
that may result in the payment of any amount that would not be deductible by
reason of Sections 280G or 404 of the Code. Company has not been and will not be
required to include any material adjustment in Taxable income for any Tax period
(or portion thereof) pursuant to Section 481 or 263A of the Code or any
comparable provision under state or foreign Tax la ws as a result of
transactions, events or accounting methods employed prior to the Merger (based
on facts known as of the date of this Agreement). Neither Company nor any of its
Subsidiaries has filed or will file any consent to have the provisions of
paragraph 341(f)(2) of the Code (or comparable provisions of any state Tax laws)
apply to Company or any of its Subsidiaries. Neither Company nor any of its
Subsidiaries is a party to any currently effective Tax sharing or Tax allocation
agreement. Neither Company nor any of its Subsidiaries owes any amount under any
Tax sharing or Tax allocation agreement. Neither Company nor any of its
Subsidiaries has filed any disclosures under Section 6662 or comparable
provisions of state, local or foreign law to prevent the imposition of penalties
with respect to any Tax reporting position taken on any Tax Return. Neither
Company nor any of its Subsidiaries has within the last six (6) years been a
member of a consolidated, combined or unitary group of which Company was not the
ultimate parent corporation. Company and each of its Subsidiaries have in their
possession receipts for any Taxes paid to foreign Tax authorities. For purposes
of this Agreement, the following terms have the following meanings: "Tax" (and,
with correlative meaning, "Taxes" and "Taxable") means (i) any net income,
alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or other like assessment or charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount imposed by any
Governmental Entity (a "Tax authority") responsible for the imposition of any
such tax (domestic or foreign), (ii) any liability for the payment of any
amounts of the type described in (i) as a result of being a member of an
affiliated, consolidated, combined or unitary group for any Taxable period and
(iii) any liability for the payment of any amounts of the type described in (i)
or (ii) as a result of any express or implied obligation to indemnify any other
person. As used herein, "Tax Return" shall mean any return, statement, report or
form (including, without limitation, estimated Tax returns and reports,
withholding Tax returns and reports and information reports and returns)
required to be filed with respect to Taxes.
2.14 Employee Benefit Plans.
-----------------------
(a) Schedule 2.14 lists, with respect to Company, any Subsidiary of
-------------
Company and any trade or business (whether or not incorporated) which is treated
as a single employer with Company (an "ERISA Affiliate") within the meaning of
Section 414(b), (c), (m) or (o) of the Code, (i) all material employee benefit
plans (as defined in Section 3(3) of the
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Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
maintained by Company or any ERISA Affiliate, (ii) any other material
supplemental retirement, severance, sabbatical, employee relocation, cafeteria
benefit (Code Section 125) or dependent care (Code Section 129), life insurance
or accident insurance plans, programs or arrangements maintained by Company or
any ERISA Affiliate, (iii) all other material bonus, pension, profit sharing,
savings, deferred compensation or incentive plans, programs or arrangements
maintained by Company or any ERISA Affiliate, (iv) other material fringe or
employee benefit plans, programs or arrangements maintained by Company or any
ERISA Affiliate that apply to senior management of Company and that do not
generally apply to all employees, and (v) any current or former employment or
executive compensation or severance agreements, written or otherwise, maintained
by Company or any ERISA Affiliate as to which unsatisfied obligations of Company
of greater than fifty thousand dollars ($50,000) remain for the benefit of, or
relating to, any present or former employee, consultant or director of Company
(together, the "Company Employee Plans").
(b) Company has made available to Parent a copy of each of the
Company Employee Plans and related plan documents (including trust documents,
insurance policies or contracts, employee booklets, summary plan descriptions
and other authorizing documents, and any material employee communications
relating thereto, if applicable) and has, with respect to each Company Employee
Plan which is subject to ERISA reporting requirements, provided copies of the
Form 5500 reports filed for the last three plan years. Any Company Employee Plan
intended to be qualified under Section 401(a) of the Code has either obtained
from the Internal Revenue Service a favorable determination letter as to its
qualified status under the Code, including all amendments to the Code effected
by the Tax Reform Act of 1986 and subsequent legislation, or has applied to the
Internal Revenue Service for such a determination letter prior to the expiration
of the requisite period under applicable Treasury Regulations or Internal
Revenue Service pronouncements in which to apply for such determination letter
and to make any amendments necessary to obtain a favorable determination.
Company has also furnished Parent with a copy of the most recent Internal
Revenue Service determination letter issued with respect to each such Company
Employee Plan, and nothing has occurred since the issuance of each such letter
which could reasonably be expected to cause the loss of the tax-qualified status
of any Company Employee Plan subject to Code Section 401(a). Company has also
furnished or made available to Parent copies of all registration statements and
prospectuses filed with the SEC, OTS or other governmental authority or
distributed to employees or their beneficiaries in connection with each Company
Employee Plan.
(c) (i) Except as required by law, none of the Company Employee
Plans promises or provides retiree medical or other retiree welfare benefits to
any person, other than a benefit that could be terminated without further
liability; (ii) there has been no "prohibited transaction," as such term is
defined in Section 406 of ERISA and Section 4975 of the Code, with respect to
any Company Employee Plan, which could reasonably be expected to have, in the
aggregate, a Material Adverse Effect; (iii) each Company Employee Plan has been
administered in accordance with its terms and in compliance with the
requirements prescribed by any and all statutes, rules and regulations
(including ERISA and the Code), except as would not have, in the aggregate, a
Material Adverse Effect, and Company and each Subsidiary or ERISA Affiliate have
performed all obligations required to be performed by them under, and are not in
any material respect in default under or violation of, any of the Company
Employee Plans; (iv)
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neither Company nor any ERISA Affiliate is subject to any material liability or
penalty under Sections 4976 through 4980 of the Code or Title I of ERISA with
respect to any of the Company Employee Plans; (v) all material contributions
required to be made by Company or any Subsidiary or ERISA Affiliate to any
Company Employee Plan have been made on or before their due dates and the
amounts accrued in the Company Financial Statements for contributions to each
Company Employee Plan for the current plan years have been determined in
accordance with generally accepted accounting principles consistently applied;
(vi) with respect to each Company Employee Plan, no "reportable event" within
the meaning of Section 4043 of ERISA (excluding any such event for which the
thirty (30) day notice requirement has been waived under the regulations to
Section 4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 of
ERISA has occurred; and (vii) each Company Employee Plan can be amended,
terminated or otherwise discontinued after the Effective Time in accordance with
its terms, without liability to Parent or Company in excess of the amount
accrued with respect to such plan on the Company Financial Statements (other
than ordinary administrative expenses typically incurred in a termination
event). With respect to each Company Employee Plan subject to ERISA as either an
employee pension plan within the meaning of Section 3(2) of ERISA or an employee
welfare benefit plan within the meaning of Section 3(1) of ERISA, Company has
prepared in good faith and timely filed all requisite governmental reports
(which were true and correct in all material respects as of the date filed) and
has properly and timely filed and distributed or posted all material notices and
reports to employees required to be filed, distributed or posted with respect to
each such Company Employee Plan. No suit, administrative proceeding, action or
other litigation has been brought, or to the best knowledge of Company is
threatened, against or with respect to any such Company Employee Plan, including
any audit or examination by the IRS or United States Department of Labor. No
payment or benefit which will or may be made by Company to any employee will be
characterized as an "excess parachute payment" within the meaning of Section
280G(b)(1) of the Code. Neither Company nor any ERISA Affiliate is a party to,
or has ever been a party to, or has made any contribution to or otherwise
incurred any obligation under, any "multiemployer plan" as defined in Section
3(37) of ERISA. Neither Company nor any Company Subsidiary or ERISA Affiliate
currently maintains, sponsors, participates in or contributes to, nor has it
within the last seven (7) years maintained, established, sponsored, participated
in, or contributed to, any pension plan (within the meaning of Section 3(2) of
ERISA) which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of
ERISA or Section 412 of the Code.
(d) With respect to each Company Employee Plan, Company and each of
its United States Subsidiaries have complied (except to the extent that any such
failure to comply would not, in the aggregate, have a Material Adverse Effect on
Company or any of its Subsidiaries) with (i) the applicable health care
continuation and notice provisions of Section 602 of ERISA and Section 4980B of
the Code ("COBRA") and the regulations thereunder, (ii) the applicable
requirements of the Family Medical and Leave Act of 1993 and the regulations
thereunder, and (iii) the applicable requirements of the Health Insurance
Portability and Accountability Act of 1996.
(e) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or other service
provider of Company, any Company Subsidiary or any other ERISA Affiliate to
severance benefits or any other payment, except as expressly provided in this
Agreement, or (ii) accelerate the time of
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payment or vesting, or increase the amount of compensation due any such employee
or service provider.
(f) There has been no amendment to, or written interpretation or
announcement (whether or not written) by Company or any ERISA Affiliate relating
to, or change in participation or coverage under, any Company Employee Plan
which would materially increase the expense of maintaining such Plan above the
level of expense incurred with respect to that Plan for the most recent fiscal
year included in Company's financial statements.
(g) No employee of Company or any of its Subsidiaries has elected
to defer (i) the receipt of any cash payable to such employee or (ii) the
issuance of any securities of Company to such employee, in either case under the
Company Stock Option Plans or the Company Options.
2.15 Employee Matters.
----------------
(a) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby or thereby will (i) result
in any payment (including, without limitation, severance, unemployment
compensation, golden parachute, bonus or otherwise) becoming due to any director
or employee of Company or any of its Subsidiaries, (ii) materially increase any
benefits otherwise payable by Company or (iii) result in the acceleration of the
time of payment or vesting of any such benefits.
(b) Company and each of its Subsidiaries are in compliance in all
material respects with all currently applicable laws and regulations respecting
employment, discrimination in employment, terms and conditions of employment,
wages, hours and occupational safety and health and employment practices, and is
not engaged in any unfair labor practice. Company and each of its Subsidiaries
has withheld all material amounts required by law or by agreement to be withheld
from the wages, salaries, and other payments to employees, and is not liable for
any material arrears of wages or any material taxes or any material penalty for
failure to comply with any of the foregoing. Company is not liable for any
material payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for employees (other than
routine payments to be made in the normal course of business and consistent with
past practice). To the knowledge of Company and its Subsidiaries, there are no
pending claims against Company or any of its Subsidiaries under any workers
compensation plan or policy or for long term disability other than routine
claims for benefits. There are no controversies pending or, to the knowledge of
Company or any of its Subsidiaries, threatened between Company or any of its
Subsidiaries, on the one hand, and any of their respective employees, on the
other hand, which controversies have or could reasonably be expected to result
in an action, suit, proceeding, claim, arbitration or investigation before any
agency, court or tribunal, foreign or domestic. Neither Company nor any of its
Subsidiaries is a party to any collective bargaining agreement or other labor
union contract; nor does Company know of any activities or proceedings of any
labor union to organize any such employees. To the best of Company's knowledge,
no employees of Company are in violation in any material respect of any term of
any employment contract, patent disclosure agreement, noncompetition agreement,
or any restrictive covenant to a former employer relating to the right of any
such employee to be
18
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employed by Company because of the nature of the business conduced or presently
proposed to be conducted by Company or to the use of trade secrets or
proprietary information of others. Except as disclosed in the Company SEC
Documents filed prior to the date of this Agreement, Company does not have any
employment agreement with any of its officers or other employees. As of the date
hereof, no employees (other than clerical or solely administrative employees) of
Company have given notice to Company, nor is Company otherwise aware, that any
such employee intends to terminate his or her employment with Company.
(c) All employees of Company or any of its Subsidiaries engaged in
the business of, acting as, or performing the duties of a registered
representative, registered principal or similar registered personnel or agent
(under the definition of such terms in the rules of the National Association of
Securities Dealers, Inc. (the "NASD")), any other SRO or any state which has
jurisdiction over Company or any of its Subsidiaries (if applicable) are
properly registered to act in the capacity of a registered representative,
registered principal or similar registered personnel or agent under the rules of
the NASD, any other SRO or any state which has jurisdiction over Company or any
of its Subsidiaries (if applicable).
2.16 Interested Party Transactions. Except as disclosed in the Company
-----------------------------
SEC Documents filed prior to the date of this Agreement, there have been no
transactions of the type required to be disclosed pursuant to Items 402 and 404
of Regulation S-K under the Securities Act and the Exchange Act.
2.17 Insurance. Company and each of its Subsidiaries have policies of
---------
insurance and bonds of the type and in amounts customarily carried by persons
conducting businesses or owning assets similar to those of Company and its
Subsidiaries. There is no material claim pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and Company and its Subsidiaries are
otherwise in compliance in all material respects with the terms of such policies
and bonds. Company has no knowledge of any threatened termination of, or
material premium increase with respect to, any of such policies.
2.18 Regulatory Matters.
------------------
(a) Company and each of its Subsidiaries have obtained all
authorizations, consents, licenses, permits (temporary or otherwise), orders,
approvals, waivers, franchises and other rights ("Governmental Permits") of
Governmental Entities (i) pursuant to which Company or any of its Subsidiaries
currently operates or holds any interest in any of its properties or (ii) that
is required for the operation of Company's or any of its Subsidiaries' business
or the holding of any such interest, and all of such Governmental Permits are in
full force and effect, except where the failure to obtain or have any such
Governmental Permits could not reasonably be expected to have a Material Adverse
Effect on Company. There are no circumstances of which Company is aware which
indicate that any such Governmental Permits may be revoked or not renewed or
withdrawn or amended, in whole or in part (except in each case to an immaterial
or beneficial extent). Schedule 2.18(a) sets forth a true and complete list of
----------------
all Governmental Permits held by Company or any of its Subsidiaries.
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(b) Company and its Subsidiaries have complied, and are in
compliance, in all material respects with all applicable federal, state, local
and self-regulatory laws, statutes, licensing requirements, rules, and
regulations. Each of Company and its Subsidiaries has, and is in compliance in
all material respects with, all Governmental Permits necessary to conduct their
businesses, including, but not limited to, Governmental Permits of the OTS, the
FDIC, the SEC, the NASD, the NASD Regulation, Inc., the Nasdaq Stock Market, or
any state or foreign securities or prosecutorial authority. Neither Company nor
any of its Subsidiaries has received any notice from any Governmental Entity (i)
asserting that Company or any of its Subsidiaries is not in compliance with any
of the statutes, regulations, or ordinances that such Governmental Entity
enforces or (ii) restricting or disqualifying their activities (except for
restrictions generally imposed by law, rule, regulation or administrative policy
on banking organizations generally). After giving effect to the Merger, all
Governmental Permits of the Surviving Corporation and its Subsidiaries shall
continue to be valid and in full force and effect to the same extent as they
presently are for Company and its Subsidiaries, except for any conditions or
restrictions imposed on Parent, Company or a Subsidiary in approvals issued by a
Governmental Entity in connection with the Merger. There is no order issued,
investigation or proceeding pending or (to Company's knowledge) threatened, or
notice served, with respect to any violation of any law, statute, ordinance,
order, writ, decree, rule, or regulation issued by any Governmental Entity
applicable to either Company or any of its Subsidiaries or any of their
respective directors, officers or employees.
(c) Neither Company nor any of its Subsidiaries is a party or
subject to, any agreement, consent decree or order, or other understanding or
arrangement with, or any directive of any Governmental Entity which imposes any
material restrictions on, or otherwise affects in any material respect, the
conduct of the business of Company or any of its Subsidiaries. Schedule 2.18(c)
----------------
sets forth all compliance or enforcement proceedings or, to the knowledge of
Company, investigations or inquiries convened, and all fines, sanctions and
other measures imposed by any Governmental Entity or body against, concerning or
relating to Company, any of its Subsidiaries, or any of their current respective
directors, officers or employees.
(d) Each of Company and its Subsidiaries, to the extent required to
so register (the "Broker-Dealers"), is duly registered as a broker-dealer with
the SEC and under all applicable state, federal, foreign or related laws and, to
the extent required, is a member of the NASD and a member of SIPC. None of the
Broker-Dealers has exceeded in any material respect the business activities
enumerated in any membership agreements or other limitations imposed in
connection with its registrations, forms (including Form BDs and reports filed
with the NASD or any other Governmental Entity. The information contained in
such registrations, forms and reports was true and complete in all material
respects as of the date of the filing thereof with the SEC. Each such
registration is in full force and effect on the date hereof.
(e) Each of Company and its Subsidiaries, to the extent required to
so register (the "Advisers"), is duly registered as an investment adviser under
the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and under
all state, federal and foreign investment adviser or related laws pursuant to
which it is required to be so registered. The information contained in forms and
reports filed by any Advisors (including Form ADVs) was or will be true and
complete in all material respects as of the time of the filing thereof with the
SEC. Each such registration is in full force and effect on the date hereof.
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2.19 Material Contracts.
------------------
(a) Except for the contracts described in or filed as an exhibit to
the Company SEC Documents, neither Company nor any of its Subsidiaries is a
party to or bound by any of the following (together with the foregoing contracts
described in or filed as an exhibit to the Company SEC Documents, collectively,
the "Material Contracts"):
(i) any contract of participation with any other bank in any
loan in excess of $500,000 or any sales of assets of Company or its Subsidiaries
with recourse of any kind to Company or any of its Subsidiaries except the sale
of mortgage loans, servicing rights, repurchase or reverse repurchase
agreements, securities or other financial transactions in the ordinary course of
business;
(ii) any agreement providing for the sale or servicing of any
loan or other asset which constitutes a "recourse arrangement" with respect to
credit quality under applicable regulation or policy promulgated by a
Governmental Entity (except for agreements for the sale of guaranteed portions
of loans guaranteed in part by the U.S. Small Business Administration and
related servicing agreements);
(iii) any contract or agreement for the acquisition of the
securities or any material portion of the assets of any other person or entity
in each case outside the ordinary course of business;
(iv) any contract or agreement for the purchase of materials,
supplies, equipment or services involving in the case of any such contract or
agreement more than one million dollars ($1,000,000) over the life of the
contract;
(v) any contract, agreement or instrument that expires or
may be renewed at the option of any person other than Company or its
Subsidiaries so as to expire more than one year after the date of this Agreement
that involve payment of more than one million dollars ($1,000,000) per year;
(vi) any material trust indenture, mortgage, promissory note,
loan agreement or other contract, agreement or instrument for the borrowing
of money, any currency exchange, commodities or other hedging arrangement
(other than deposit contracts, Federal Home Loan Bank advances and other
agreements entered into in the ordinary course of Company's business) or
any leasing transaction of the type required to be capitalized in
accordance with generally accepted accounting principles;
(vii) any contract or agreement for capital expenditures in
excess of one million dollars ($1,000,000) in the aggregate;
(viii) any contract or agreement limiting the freedom of
Company or any of its Subsidiaries to engage in any line of business or to
compete with any other Person as that term is defined in the Exchange Act, or
under the constitution, laws, rules or regulations of any SRO, or any
confidentiality, secrecy or non-disclosure contract or agreement;
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(ix) any contract or agreement involving payments during any
twelve-month period of one million dollars ($1,000,000) or more, pursuant to
which Company or any of its Subsidiaries is a lessor of any machinery,
equipment, motor vehicles, office furniture, fixtures or other personal
property;
(x) any contract or agreement with any person with whom
Company or any of its Subsidiaries does not deal at arm's length within the
meaning of the Code;
(xi) any agreement of guarantee, support, indemnification,
assumption or endorsement of, or any similar commitment with respect to, the
obligations, liabilities (whether accrued, absolute, contingent or otherwise) or
indebtedness of any other Person other than those entered into in the ordinary
course of operating a banking business; or
(xii) any material agreement which would be terminable other
than by Company or its Subsidiaries as a result of the consummation of the
transactions contemplated by this Agreement.
(b) Each of Company and its Subsidiaries has performed all of the
material obligations required to be performed by it and is entitled to all
accrued benefits under, and is not alleged to be in default in respect of, each
Material Contract to which it is a party or by which it is bound. Each of the
Material Contracts is in full force and effect, unamended, and there exists no
default or event of default or event, occurrence, condition or act, with respect
to Company or any of its Subsidiaries or, to Company's knowledge, with respect
to any other contracting party, which, with the giving of notice, the lapse of
the time or the happening of any other event or condition, would become a
default or event of default under any Material Contract. True, correct and
complete copies of all Material Contracts have been made available to Parent or
filed as an exhibit to the Company SEC Documents.
2.20 Banking Business.
----------------
(a) Schedule 2.20(a) lists all exchange traded on over-the-counter
----------------
equity, interest rate, foreign exchange or other swap, forward, future, option,
cap, floor or collar or any other contract that is not included on the balance
sheet and is a derivative contract (including various combinations thereof) to
which Company or any of its Subsidiaries is a party and has agreed to enter.
Further, with respect to Company, Schedule 2.20(a) lists all securities owned by
----------------
Company and its Subsidiaries that are referred to as "structured rates," "high
risk mortgage derivatives," "capped floating rate notes," or "capped floating
rate mortgage derivatives," or similar securities. All swaps, caps, floors,
option agreements, futures and forward contracts and other similar risk
management arrangements, whether entered into for Company's own account, or for
the account of one or more of Company's Subsidiaries or their customers, were
entered into (i) in accordance with all applicable laws, rules, regulations and
regulatory policies and (ii) with counterparties believed to be financially
responsible at the time; and each of them constitutes the valid and legally
binding obligation of Company or one of its Subsidiaries, enforceable in
accordance with its terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
similar laws of general applicability relating to or affecting creditors' rights
or by general equity
22
<PAGE>
principles), and are in full force and effect. Neither Company nor any of its
Subsidiaries, nor to Company's knowledge any other party thereto, is in breach
of any of its obligations under such agreement or arrangement.
(b) Schedule 2.20(b) lists each investment security held by Company
----------------
and any of its Subsidiaries on the date indicated thereon. Such Schedule sets
forth, with respect to each such investment security: (i) the issues thereof;
(ii) the outstanding balance, face amount or number of shares; (iii) the
maturity, if applicable; (iv) the title of the issue; and (v) the classification
under SFAS No. 115.
(c) Schedule 2.20(c) sets forth as of the date indicated thereon a
----------------
true and complete description of (i) by type and classification, if any, each
loan, lease, interest in a pool of loans, other extension of credit or
commitment to extend credit by Company or any of its Subsidiaries; (ii) by type
and classification, all loans, leases, interests in pools of loans, other
extensions of credit and commitments to extend credit of Company or its
Subsidiaries that have been classified by regulators or auditors (external or
internal) as "Watch List," "Specially Mentioned," "Substandard," "Doubtful,"
"Loss" or any comparable classification; and (iii) each asset of TeleBank that
as of March 31, 1999 was classified as "Other Real Estate Owned" and the book
value thereof.
(d) TeleBank has received a rating of "Satisfactory" in its most
recent Community Reinvestment Act examination. TeleBank has not been advised of
any supervisory concerns regarding its or Company's compliance with the
Community Reinvestment Act.
2.21 Year 2000 Compliance. Company and Company's Subsidiaries have
--------------------
taken reasonable steps necessary to address the software, accounting and record-
keeping issues raised in order to be Year 2000 compliant in all material
respects (within the meaning of SEC, OTS, Federal Financial Institution's
Examination Council and SRO requirements) on or before the end of 1999, and
Company does not expect the future cost of addressing such issues to be
material. Neither Company nor any of Company's Subsidiaries has received a
rating of less than satisfactory from any bank regulatory agency with respect to
Year 2000 compliance. Company and Company's Subsidiaries are in compliance with
all guidelines provided by the OTS and the Federal Financial Institution's
Examination Council regarding Year 2000 issues.
2.22 Opinion of Financial Advisor. Company has been advised in writing
----------------------------
by its financial advisor, Goldman, Sachs & Co., that in such advisor's opinion,
as of the date hereof, the Exchange Ratio is fair, from a financial point of
view, to the stockholders of Company.
2.23 Company Affiliates. Schedule 2.23 contains a true and complete
------------------
list of all persons who, to Company's knowledge, may be deemed to be an
Affiliate (as defined below) of Company. For purposes of this Agreement, persons
and/or entities deemed affiliates of an entity within the meaning of Rule 144 of
the Rules and Regulations of the SEC promulgated under the Securities Act for
purposes of Accounting Series, Releases 130 and 135, as amended, of the SEC are
referred to as "Affiliates."
2.24 State Takeover Statutes; Charter Provisions. The Board of
-------------------------------------------
Directors of Company has taken all actions so that neither (a) the restrictions
contained in Section 203 of the
23
<PAGE>
Delaware Law applicable to a "business combination" (as defined in such Section
203) nor (b) the restrictions contained in Article 11 of Company's Amended and
Restated Certificate of Incorporation applicable to a "business combination" (as
defined in such Article 11) will apply to the execution, delivery or performance
of this Agreement, the Stockholder Agreements or the Option Agreement or the
consummation of the Merger or the other transactions contemplated by this
Agreement, the Stockholder Agreements or the Option Agreement. No other state
takeover statute is applicable to the Merger, this Agreement, the Option
Agreement, the Stockholder Agreements or the transactions contemplated hereby or
thereby.
2.25 Tax and Accounting Treatment. Neither Company nor, to Company's
----------------------------
knowledge, any of its directors or officers has taken any action that would
interfere with Parent's or the Surviving Corporation's ability to account for
the Merger as a pooling of interests or would prevent the Merger from
constituting a transaction qualifying as a reorganization within the meaning of
Section 368(a) of the Code. Neither Company nor, to Company's knowledge, any of
its directors or officers has knowledge of any agreement, plan or other
circumstance relating to Company or any of its Affiliates that would interfere
with Parent's or the Surviving Corporation's ability to account for the Merger
as a pooling of interests or prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
2.26 Brokers' and Finders' Fees. Company has not incurred, nor will it
--------------------------
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby, other
than under its engagement letter with Goldman, Sachs & Co. (a true and complete
copy of which has been furnished to Parent).
2.27 Representations Complete. None of the representations or
------------------------
warranties made by Company herein or in any schedule hereto, including the
Company Disclosure Schedule, or certificate furnished by Company pursuant to
this Agreement, or the Company SEC Documents, when all such documents are read
together in their entirety, contains or will contain at the Effective Time any
untrue statement of a material fact, or omits or will omit at the Effective Time
to state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
----------------------------------------
Except as disclosed in the document of even date herewith delivered by
Parent to Company prior to the execution and delivery of this Agreement and
referring to the representations and warranties in this Agreement (the "Parent
Disclosure Schedule"), any exception so disclosed in the Parent Disclosure
Schedule to specifically identify the Section of this Agreement to which such
exception relates, Parent represents and warrants to Company as follows:
3.1 Organization, Standing and Power. Each of Parent and Merger Sub is
--------------------------------
a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization. Parent and Merger Sub have all
requisite corporate power
24
<PAGE>
and authority to enter into this Agreement and the Option Agreement and to
consummate the transactions contemplated hereby and thereby.
3.2 Capital Structure. The authorized capital stock of Parent consists
-----------------
of 300,000,000 shares of Parent Common Stock and 1,000,000 shares of Parent's
preferred stock, par value $.01 per share ("Parent Preferred Stock"), of which
there were issued and outstanding as of the close of business on May 20, 1999,
116,741,621 shares of Parent Common Stock (before giving effect to the 2-for-1
split of Parent Common Stock which became effective on May 21, 1999) and no
shares of Parent Preferred Stock. There are no other outstanding shares of
capital stock or voting securities and no outstanding commitments to issue any
shares of capital stock or voting securities after May 20, 1999, other than
shares issued pursuant to the Parent stock split described above and other than
pursuant to the exercise of options outstanding as of such date under Parent's
1993 Stock Option Plan and 1996 Stock Incentive Plan (collectively, the "Parent
Stock Option Plans"). All outstanding shares of Parent Common Stock are duly
authorized, validly issued, fully paid and non-assessable and are free and clear
of any liens or encumbrances other than any liens or encumbrances created by or
imposed upon the holders thereof, and are not subject to preemptive rights or
rights of first refusal created by statute, the Certificate of Incorporation or
Bylaws, each as amended, of Parent or any agreement to which Parent is a party
or by which it is bound. As of the close of business on May 20, 1999, Parent had
reserved an aggregate of 17,704,144 shares of Common Stock for issuance to
employees, consultants and directors pursuant to the Parent Stock Option Plans,
of which 15,096,000 shares are subject to outstanding, unexercised options, and
an aggregate of 675,000 shares are available for issuance under the Parent's
1996 Stock Purchase Plan. Parent has not issued or granted any stock
appreciation rights or performance units under the Parent Stock Option Plans or
otherwise. Except for (i) the rights created pursuant to this Agreement and the
Parent Stock Option Plans (including options thereunder) and (ii) Parent's right
to repurchase any unvested shares under the Parent Stock Option Plans, there are
no other options, warrants, calls, rights, commitments or agreements of any
character to which Parent is a party or by which it is bound obligating Parent
to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of capital stock of Parent or
obligating Parent to grant, extend, accelerate the vesting of, change the price
of, or otherwise amend or enter into any such option, warrant, call, right,
commitment or agreement. There are no contracts, commitments or agreements
relating to voting, purchase or sale of Parent's capital stock between or among
Parent and any of its stockholders. True and complete copies of all material
agreements and instruments relating to or issued under the Parent Stock Option
Plans have been provided or made available to Company and such agreements and
instruments have not been amended, modified or supplemented, and there are no
agreements to amend, modify or supplement such agreements or instruments in any
case from the form provided or made available to Company. All outstanding shares
of Parent Common Stock and all options to purchase Parent Common Stock were
issued in compliance with all applicable federal and state securities laws. The
shares of Parent Common Stock to be issued pursuant to Section 1.6 hereof, when
issued in accordance with this Agreement, will be duly authorized, validly
issued, fully paid and non-assessable, and free and clear of any liens or
encumbrances other than liens or encumbrances created by or imposed upon the
holders thereof.
3.3 Authority. Assuming the filings and approvals described in clauses
---------
(i) through (vii) of the last sentence of this Section are made or obtained (as
the case may be) and that the condition set forth in Section 6.1(a) is
satisfied, the execution and delivery of this
25
<PAGE>
Agreement and the Option Agreement and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of Parent and Merger Sub, as applicable. This
Agreement and the Option Agreement each has been duly executed and delivered by
Parent and Merger Sub, as applicable, and constitutes the valid and binding
obligations of Parent and Merger Sub, enforceable against them in accordance
with its terms, except as such enforcement may be limited by (i) the effect of
bankruptcy, insolvency, reorganization, receivership, conservatorship,
arrangement, moratorium or other laws affecting or relating to the rights of
creditors generally, or (ii) the rules governing the availability of specific
performance, injunctive relief or other equitable remedies and general
principles of equity, regardless of whether considered in a proceeding in equity
or at law. Assuming the filings and approvals described in clauses (i) through
(vii) of the last sentence of this Section are made or obtained (as the case may
be) and that the condition set for in Section 6.1(a) is satisfied, the execution
and delivery of this Agreement and the Option Agreement do not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a benefit under, (i) any provision of
the Certificate of Incorporation or Bylaws of Parent or Merger Sub, as amended,
or (ii) any material mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Parent or Merger Sub
or their respective properties or assets, except for any conflicts, violations,
defaults or other occurrences that would not (A) individually or in the
aggregate have a Material Adverse Effect on Parent or any of its Subsidiaries or
(B) prevent or materially impair or delay the consummation of the Merger. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity, is required by or with respect to Parent
or Merger Sub in connection with the execution and delivery of this Agreement or
the Option Agreement by Parent and Merger Sub or the consummation by Parent and
Merger Sub of the transactions contemplated hereby, except for (i) the filing of
the Certificate of Merger as provided in Section 1.2 hereof, (ii) the filing of
applications and notices with and the receipt of requisite approval from, as
applicable, the OTS and the FDIC with respect to the Merger, (iii) the filing
with, and declaration of effectiveness or clearance by, the SEC and the NASD of
the Registration Statement and, if applicable, a Proxy Statement relating to any
Parent Stockholder Approval, (iv) the filing of a Form 8-K with the SEC and the
NASD within 15 days after the Closing Date, (v) any filings or applications as
may be required under applicable federal, SRO or state securities laws or the
securities laws of any foreign country, (vi) the filing with the Nasdaq National
Market of a Notification Form for Listing of Additional Shares with respect to
the shares of Parent Common Stock issuable upon conversion of the Company Common
Stock in the Merger and upon exercise of the options under the Company Stock
Option Plans assumed by Parent, (vii) the filing of a registration statement on
Form S-8 with the SEC, or other applicable form covering the shares of Parent
Common Stock issuable pursuant to outstanding options under the Company Stock
Option Plans assumed by Parent, and (viii) such other consents, authorizations,
filings, approvals and registrations which, if not obtained or made, would not
have a Material Adverse Effect on Parent and would not prevent or materially
alter or delay any of the transactions contemplated by this Agreement. Parent is
not aware of any reason why the approvals of all Governmental Entities necessary
to permit consummation of the Merger or the other transactions contemplated
26
<PAGE>
by this Agreement will not be received without the imposition of a condition or
requirement described in Section 6.1(d).
3.4 SEC Documents; Financial Statements. Parent has made available
-----------------------------------
(including via EDGAR) to Company each statement, report, registration statement
(with the prospectus in the form filed pursuant to Rule 424(b) of the Securities
Act), definitive proxy statement, and other filings (including exhibits,
supplements and schedules thereto) filed with the SEC by Parent since December
31, 1996, (collectively, the "Parent SEC Documents"). As of their respective
filing dates, the Parent SEC Documents complied in all material respects with
the requirements of the Exchange Act and the Securities Act, and none of the
Parent SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances in which they
were made, not misleading, except to the extent corrected by a subsequently
filed Parent SEC Document. The financial statements of Parent, including the
notes thereto, included in the Parent SEC Documents (the "Parent Financial
Statements") were complete and correct in all material respects as of their
respective dates (except to the extent corrected by a subsequently filed Parent
SEC Document), complied as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto as of their respective dates, and have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent throughout the periods indicated (except as may be indicated in the
notes thereto or, in the case of unaudited statements included in Quarterly
Reports on Form 10-Q, as permitted by Form 10-Q of the SEC). The Parent
Financial Statements fairly present the consolidated financial condition and
operating results of Parent and its Subsidiaries at the dates and during the
periods indicated therein (subject, in the case of unaudited statements, to
normal and recurring year-end adjustments).
3.5 Absence of Undisclosed Liabilities. Parent has no material
----------------------------------
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the
consolidated balance sheet of Parent and its Subsidiaries or in the related
notes to the consolidated financial statements included in Parent's Annual
Report on Form 10-K for the period ended September 25, 1998 (the "Parent Balance
Sheet"), (ii) those disclosed in Parent SEC Documents filed subsequent to the
Parent Balance Sheet Date, and (iii) those incurred in the ordinary course of
business consistent with past practice since the Parent Balance Sheet Date and
which have not had and are not reasonably likely to have a Material Adverse
Effect on Parent .
3.6 Litigation. There is no judgment, decree or order against Parent
----------
or any of its Subsidiaries or, to the knowledge of Parent, any of their
respective directors or officers (in their capacities as such) that could
prevent, enjoin, alter or materially delay any of the transactions contemplated
by this Agreement.
3.7 Compliance With Laws. Each of Parent and its Subsidiaries has
--------------------
complied in all material respects with all applicable federal, state, local,
self-regulatory and foreign laws, statutes, ordinances, rules and regulations,
and is not in violation in any material respect of, and has not received any
notices of material violation with respect to, its respective certificate or
articles of incorporation or bylaws or other charter or organizational
documents, or any federal,
27
<PAGE>
state, local, self-regulatory or foreign statute, law, ordinance, rule or
regulation applicable to the conduct of its business or the ownership or
operation of its business.
3.8 Year 2000 Compliance. Parent and its Subsidiaries have taken
--------------------
reasonable steps necessary to address the software, accounting and record-
keeping issues raised in order to be Year 2000 compliant in all material
respects (within the meaning of SEC and any applicable SRO requirements) on or
before the end of 1999, and Parent does not expect the future cost of addressing
such issues to be material. Parent and its Subsidiaries are in compliance with
all guidelines provided by the SEC and any applicable SRO regarding Year 2000
issues.
3.9 Tax Treatment. Neither Parent nor any of its directors or officers
-------------
has taken any action that would prevent the Merger from constituting a
transaction qualifying as a reorganization within the meaning of Section 368(a)
of the Code. Neither Parent nor, to Parent's knowledge, any of its affiliates or
agents is aware of any agreement, plan or other circumstance that would prevent
the Merger from qualifying as a reorganization within the meaning of Section
368(a) of the Code.
3.10 Broker's and Finders' Fees. Parent has not incurred, nor will it
--------------------------
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby, other
than the fees and expenses of BancBoston Robertson Stephens Inc. (which will be
borne by Parent).
3.11 Representations Complete. None of the representations or
------------------------
warranties made by Parent and Merger Sub herein or in any Schedule hereto,
including the Parent Disclosure Schedule, or certificate furnished by Parent
pursuant to this Agreement, or the Parent SEC Documents, when all such documents
are read together in their entirety, contains or will contain at the Effective
Time any untrue statement of a material fact, or omits or will omit at the
Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
-----------------------------------
4.1 Conduct of Business. During the period from the date of this
-------------------
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, Company agrees (except to the extent expressly
contemplated by this Agreement or as consented to in writing by Parent), to
carry on its and its Subsidiaries' business in the ordinary course in
substantially the same manner as heretofore conducted, to pay and to cause its
Subsidiaries to pay debts and Taxes when due subject to good faith disputes over
such debts or Taxes, to pay or perform other obligations when due, and to use
all commercially reasonable best efforts consistent with past practice and
policies to preserve intact its and its Subsidiaries' present business
organizations, keep available the services of its and its Subsidiaries' present
executive officers and key employees and preserve its and its Subsidiaries'
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with it or its Subsidiaries, to the end that its
and its Subsidiaries' goodwill and ongoing businesses shall be
28
<PAGE>
unimpaired at the Effective Time. Each of Company and Parent agrees to promptly
notify the other of any event or occurrence not in the ordinary course of its or
its Subsidiaries' business, and of any event which could have a Material Adverse
Effect on it or any of its Subsidiaries.
4.2 Conduct of Business of Company. During the period from the date of
------------------------------
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, except as expressly contemplated by this
Agreement, Company shall not do, cause or permit any of the following, or allow,
cause or permit any of its Subsidiaries to do, cause or permit any of the
following, without the prior written consent of Parent:
(a) Charter Documents. Cause or permit any amendment,
-----------------
modification, alteration or rescission of its certificate or articles of
incorporation, bylaws or other charter or organizational documents;
(b) Dividends; Changes in Capital Stock. Declare or pay any
-----------------------------------
dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock (other than (i) the Stock
Split, as defined below, (ii) dividends or distributions by any wholly owned
Subsidiary of Company to Company or another wholly owned Subsidiary thereof and
(iii) any dividends or distributions by non-wholly owned Subsidiaries of Company
to the extent described in Section 4.2(b) of the Company Disclosure Schedule) or
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or repurchase or otherwise acquire, directly or
indirectly, any shares of its capital stock except from former employees,
directors and consultants in accordance with agreements providing for the
repurchase of shares in connection with any termination of service to it or its
Subsidiaries;
(c) Options. Grant any options, stock appreciation rights or other
-------
rights to acquire securities other than as permitted in clause (e) below or
accelerate, amend or change the period of exercisability or vesting of options
or other rights granted under its stock plans or authorize cash payments in
exchange for any options or other rights granted under any of such plans;
(d) Material Contracts. Enter into any contract or commitment, or
------------------
violate, amend or otherwise modify or waive any of the terms of any of its
contracts, other than in the ordinary course of business consistent with past
practice and in no event shall such contract, commitment, amendment,
modification or waiver involve payments by Company or any of its Subsidiaries of
amounts in excess of five hundred thousand dollars ($500,000);
(e) Issuance of Securities. Issue, deliver or sell or authorize or
----------------------
propose the issuance, delivery or sale of, or purchase or propose the purchase
of, any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities, other than (i) the issuance of shares of Company Common
Stock pursuant to the exercise of Company Options outstanding under the Company
Stock Option Plans as of the date of this Agreement and (ii) the issuance of
shares of Company Common Stock pursuant to the exercise of warrants outstanding
as of the date of this Agreement and disclosed in the Company SEC Documents;
29
<PAGE>
(f) Intellectual Property. Transfer to any person or entity any
---------------------
rights to its Intellectual Property other than the transfer of non-exclusive
rights to its Intellectual Property in the ordinary course of business
consistent with past practice;
(g) Exclusive Rights. Enter into or amend any agreements pursuant
----------------
to which any other party is granted exclusive marketing or other exclusive
rights of any type or scope with respect to any of its products or technology;
(h) Dispositions. Sell, lease, license or otherwise dispose of or
------------
encumber any of its properties or assets which are material, individually or in
the aggregate, to the business of Company and its Subsidiaries (taken as a
whole), except in the ordinary course of business consistent with past practice
and except for the sale of real estate owned in accordance with current policies
of Company with respect thereto;
(i) Indebtedness. Other than in the ordinary course of business
------------
(including creation of deposit liabilities, entry into repurchase agreements,
purchases or sales of federal funds, Federal Home Loan Bank advances, and sales
of certificates of deposit) consistent with past practice (A) incur any
indebtedness for borrowed money, (B) assume, guarantee, endorse or otherwise as
an accommodation become responsible for the obligations of any other Person or
(C) cancel, release, assign or modify any material amount of indebtedness of any
other person or entity;
(j) Leases. Enter into any operating lease in excess of five
------
hundred thousand dollars ($500,000) per year;
(k) Payment of Obligations. Pay, discharge or satisfy in an amount
----------------------
in excess of five hundred thousand dollars ($500,000) in any one case or one
million ($1,000,000) in the aggregate, any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise) arising
other than in the ordinary course of business, other than the payment, discharge
or satisfaction of liabilities reflected or reserved against in the Company
Financial Statements;
(l) Capital Expenditures. Make any capital expenditures, capital
--------------------
additions or capital improvements except (i) in the ordinary course of business
and consistent with past practice that do not exceed five hundred thousand
dollars ($500,000) in any one case or one million ($1,000,000) in the aggregate
and (ii) existing commitments under contracts or agreements disclosed on the
Company Disclosure Schedule with respect to Section 2.19;
(m) Insurance. Materially reduce the amount of any material
---------
insurance coverage provided by existing insurance policies;
(n) Employee Benefit Plans; New Hires; Pay Increases. (A) Adopt or
------------------------------------------------
amend any employee benefit or stock purchase or option plan (except as required
by law or as provided in Section 5.15(b)), or (B) hire any new director level or
executive officer level employee, pay any special bonus or special remuneration
to any employee or director, or, other than, with respect to non-executive
officer employees, in the ordinary course of business consistent with past
practice, increase the salaries or wage rates of its employees;
30
<PAGE>
(o) Severance Arrangements. Grant any severance or termination pay
----------------------
(i) to any director or officer or (ii) to any other employee except payments
made pursuant to written plans or agreements outstanding, or written Company
policies in effect, on the date hereof (in each case furnished to Parent prior
to the date of this Agreement);
(p) Lawsuits. Commence any action, suit or proceeding other than
--------
(i) in the ordinary course of business, (ii) in such cases where it in good
faith determines that failure to commence suit would result in the material
impairment of a valuable aspect of its business, provided that it consults with
Parent prior to the filing of such a suit, or (iii) in respect of a breach of
this Agreement;
(q) Acquisitions. Acquire or agree to acquire by merging or
------------
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquire or
agree to acquire any assets which are material, individually or in the
aggregate, to Company, or acquire or agree to acquire any equity securities of
any corporation, partnership, limited liability company, association or business
organization which securities acquired or agreed to be acquired would constitute
greater than five percent (5%) of the outstanding securities of such entity;
(r) Taxes. Other than in the ordinary course of business or as
-----
required by applicable law, rule or regulation, make or change any material
election in respect of Taxes, adopt or change any accounting method in respect
of Taxes, enter into any material closing agreement, settle any material claim
or assessment in respect of Taxes, or consent to any extension or waiver of the
limitation period applicable to any material claim or assessment in respect of
Taxes;
(s) Revaluation. Revalue any of its assets, including without
-----------
limitation writing down the value of inventory or writing off notes or accounts
receivable, other than in the ordinary course of business or as required by
applicable law, rule or regulation;
(t) Accounting Policies and Procedures. Make any material change
----------------------------------
to its accounting methods, principles, policies, procedures or practices, except
as may be required by GAAP, Regulation S-X promulgated by the SEC the OTS or the
FDIC;
(u) Year 2000 Compliance. Fail to carry forward in all material
--------------------
respects Company's Year 2000 assessment and compliance program, as made
available to Parent by Company;
(v) Risk Management. Except as required by applicable law or
---------------
regulation, or written rule, instruction or directive by a Governmental Entity
which is furnished to Parent promptly following receipt thereof: (i) make any
material change to its asset/liability management, loan, investment or other
material banking policies; (ii) implement or adopt any material change in its
interest rate risk management and hedging policies, procedures or practices;
(iii) fail to follow its existing policies or practices with respect to managing
its exposure to interest rate risk; or (iv) fail to use commercially reasonable
means to avoid any material increase in its aggregate exposure to interest rate
risk;
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(w) Loans. Make any loan or advance or purchase any whole loan or
-----
interest in an pool of loans other than in accordance with lending policies as
in effect on the date hereof;
(x) Affiliate Credit. Grant or commit to grant any extension of
----------------
credit or amend the terms of any such credit outstanding on the date hereof to
any executive officer, director or holder of 10% or more of the outstanding
capital stock of Company, or any Affiliate of such person, if such credit would
exceed $100,000;
(y) Domain Name. Change domain names or fail to renew existing
-----------
domain name registrations on a timely basis; or
(z) Other. Take or agree in writing or otherwise to take, any of
-----
the actions described in Sections 4.2(a) through (y) above, or (i) any action
which would make any of its representations or warranties contained in this
Agreement materially untrue or materially incorrect or prevent it from
performing or cause it not to perform its covenants hereunder in any material
respect, (ii) any action that will result in any of the conditions to the Merger
as set forth in Article VI not being satisfied or in violation of any provision
of this Agreement or the Option Agreement, except, in every case, as may be
required by applicable law, or (iii) any other action that would materially
adversely delay or materially adversely impair the ability of Company to
consummate the Merger.
4.3 Conduct of Parent. During the period from the date of this
-----------------
Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement or the Option Agreement or with
Company's prior written consent, Parent shall not: (a) take any action that will
result in any of the conditions to the Merger set forth in Article VI not being
satisfied or in a violation of any provision of this Agreement or the Option
Agreement, except, in every case, as may be required by applicable law; or (b)
take any other action that would materially adversely delay or materially
adversely impair the ability of Parent to consummate the Merger.
4.4 No Solicitation. Company and its Subsidiaries and the officers,
---------------
directors, employees, agents, representatives and advisors of Company and its
Subsidiaries (collectively, Company's "Representatives") will not, directly or
indirectly, (i) take any action to solicit, initiate, encourage (including by
way of furnishing non-public information or furnishing any information, other
than as required by applicable law, rules or regulations, in a manner which
could reasonably be expected to assist a third party in formulating a Takeover
Proposal), take any other action designed to facilitate or agree to any Takeover
Proposal (as defined in Section 7.3(f) hereof) or (ii) subject to the next
sentence, engage in negotiations with, or disclose any nonpublic information
relating to Company or any of its Subsidiaries to any person that has advised
Company that it may be considering making, or that has made, a Takeover
Proposal, or whose efforts to formulate a Takeover Proposal would be assisted
thereby; provided, nothing herein shall prohibit Company's Board of Directors
--------
from taking and disclosing to Company's stockholders a position with respect to
an unsolicited tender offer pursuant to Rules 14d-9 and 14e-2 promulgated under
the Exchange Act. Notwithstanding the immediately preceding sentence, if an
unsolicited written Takeover Proposal shall be received by the Board of
Directors of Company, then, to the extent the Board of Directors of Company
believes in good faith (after
32
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written advice from its financial advisor) that such Takeover Proposal would, if
consummated, result in a transaction more favorable to Company's stockholders
from a financial point of view than the transaction contemplated by this
Agreement (any such more favorable Takeover Proposal being referred to in this
Agreement as a "Superior Proposal") and the Board of Directors of Company
determines in good faith after advice from outside legal counsel that it is
necessary for the Board of Directors of Company to comply with its fiduciary
duties to stockholders under applicable law, Company and its Representatives may
furnish in connection therewith information to the party making such Superior
Proposal and engage in negotiations with such party, and such actions shall not
be considered a breach of this Section 4.4 or any other provisions of this
Agreement; provided that in each such event Company notifies Parent of such
--------
determination by the Company Board of Directors and provides Parent with a true
and complete copy of the Superior Proposal received from such third party, and
provides (or has provided) Parent with all documents containing or referring to
non-public information of Company that are supplied to such third party;
provided, further, that Company provides such non-public information pursuant to
- -------- -------
a non-disclosure agreement at least as restrictive on such third party as the
Confidentiality Agreement (as defined in Section 5.4) is on Parent; provided,
--------
further, however, that Company shall not, and shall not permit any of its
- -------
officers, directors, employees or other representatives to agree to or endorse
any Takeover Proposal or withdraw its recommendation of the Merger unless
Company has provided Parent at least five (5) days prior notice thereof. Company
will promptly (and in any event within 24 hours) notify Parent after receipt of
any Takeover Proposal or any notice that any person is considering making a
Takeover Proposal or any request for non-public information relating to Company
or any of its Subsidiaries or for access to the properties, books or records of
Company or any of its Subsidiaries by any person that has advised Company that
it may be considering making, or that has made, a Takeover Proposal, or whose
efforts to formulate a Takeover Proposal would be assisted thereby (such notice
to include the identity of such person or persons), and will keep Parent fully
informed of the status and details of any such Takeover Proposal notice, request
or any correspondence or communications related thereto and shall provide Parent
with a true and complete copy of such Takeover Proposal notice or request or
correspondence or communications related thereto, if it is in writing, or a
complete written summary thereof, if it is not in writing. Company shall
immediately cease and cause to be terminated all existing discussion or
negotiations with any persons conducted heretofore with respect to a Takeover
Proposal.
ARTICLE V
ADDITIONAL AGREEMENTS
---------------------
5.1 Registration Statement; Proxy Statements.
----------------------------------------
(a) As soon as practicable after the execution of this Agreement,
Company and Parent shall prepare, and Company shall file with the SEC
preliminary proxy materials relating to a meeting of Company's stockholders to
consider the Merger (the "Company Stockholders Meeting") and the vote of the
stockholders of Company with respect to the Merger. In the event that Parent
fails to obtain the Parent Stockholder Approval at the June 25 Meeting (as
defined in Section 5.7), Parent shall file with the SEC preliminary proxy
materials (which may be contained in a joint proxy statement/prospectus together
with the
33
<PAGE>
preliminary proxy materials relating to the Company Stockholders Meeting)
relating to the Parent Stockholders Meeting (as defined in Section 7.1(f)) and
the vote of the stockholders of Parent with respect to the proposed increase in
authorized capital stock of Parent described in Section 6.1(a). As soon as
practicable following receipt of SEC comments on the proxy statement/ prospectus
(or joint proxy statement/prospectus or proxy statement for the Parent
Stockholders Meeting, as the case may be) to be sent to the stockholders of
Company in connection with the Company Stockholders Meeting and, if applicable,
the Stockholders of Parent in connection with the Parent Stockholders Meeting
(such proxy statement/prospectus or joint proxy statement/prospectus (as the
case may be), together with any amendments thereof or supplements thereto, in
each case in the form or forms sent as aforesaid, the "Proxy Statement"; and,
together with any separate proxy statement relating to the Parent Stockholders
Meeting, the "Proxy Statements"), Company shall file with the SEC definitive
proxy materials relating to the Company Stockholders Meeting and Parent shall
file with the SEC a registration statement on Form S-4 (or such other successor
form as shall be appropriate) pursuant to which the shares of Parent Common
Stock to be issued in the Merger will be registered with the SEC (the
"Registration Statement"), which shall include the Proxy Statement as a
prospectus, in connection with the registration under the Securities Act of the
shares of Parent Common Stock to be distributed to holders of Company Common
Stock pursuant to the Merger; in the event that Parent fails to obtain the
Parent Stockholder Approval at the June 25 Meeting, Parent shall also file with
the SEC definitive proxy materials relating thereto and shall include the Proxy
Statements (in the case of a joint proxy statement/prospectus) in the
Registration Statement. Each of Parent and Company shall use its reasonable best
efforts to have or cause the Registration Statement to become effective
(including clearing the Proxy Statement or Proxy Statements, as the case may be,
with the SEC) as promptly as practicable, and shall take any and all actions
required under any applicable federal or state securities laws or blue sky laws
in connection with the issuance of Parent Common Stock pursuant to the Merger.
Without limiting the generality of the foregoing, on the one hand, each of
Parent and Company shall (i) notify the other as promptly as practicable after
the receipt by it of any written or oral comments of the SEC on, or of any
written or oral request by the SEC or any other governmental official for
amendments or supplements to, or any other filing or supplemental or additional
information relating to, the Proxy Statement (or Proxy Statements, as the case
may be) or the Registration Statement, and shall promptly supply the other with
copies of all correspondence between it or any of its representatives, on the
one hand, and the SEC or any other governmental official, on the other hand,
with respect to any of the foregoing filings, and (ii) use all reasonable
efforts, after consultation with the other such party, to respond promptly to
any comments made by the SEC with respect to the Proxy Statement or Proxy
Statements, as the case may be (including each preliminary version thereof), and
the Registration Statement (including each amendment thereof and supplement
thereto). As promptly as practicable after the Registration Statement shall have
become effective, each of Company and Parent shall mail or cause to be mailed
its Proxy Statement (if any, in the case of Parent) to its stockholders.
(b) Parent and Company shall each cause the Registration Statement
and the Proxy Statement (or Proxy Statements, as the case may be) to comply in
all material respects with the Securities Act, the Exchange Act and all other
applicable federal and state securities law requirements. Each of Parent and
Company shall, and shall cause its respective representatives to, fully
cooperate with the other such party and its respective representatives in the
preparation of the Proxy Statement (or Proxy Statements, as the case may be) and
the
34
<PAGE>
Registration Statement, and shall provide promptly to the other such information
concerning it and its affiliates, directors, officers and stockholders as the
other may reasonably request in connection with the preparation of the Proxy
Statement or Proxy Statements, as the case may be, and the Registration
Statement. If at any time prior to the Effective Time Company or Parent shall
become aware of any fact, event or circumstance that is required to be set forth
in an amendment to the Registration Statement or a supplement to the Proxy
Statement (or Proxy Statements, as the case may be), Company or Parent, as the
case may be, shall promptly notify the other of such fact, event or circumstance
and the parties shall cooperate with each other in filing with the SEC or any
other governmental official, and (in the case of a supplement to the Proxy
Statement or Proxy Statements, as the case may be) mailing to stockholders of
Company, such amendment or supplement.
(c) The Proxy Statement (or Proxy Statements, as the case may be)
shall contain the unanimous recommendation of the Board of Directors of Company
that the Company stockholders approve this Agreement and the Merger and the
conclusion of the Board of Directors that the terms and conditions of the Merger
are advisable and fair to, and in the best interests of, the stockholders of
Company; provided that no such recommendation need be included, and any such
--------
recommendation may be withdrawn if previously included, if a Superior Proposal
has been made and Company and Company's Board of Directors withdraw or modify
such recommendation in compliance with, and otherwise have complied in all
respects with, Section 4.4. Notwithstanding anything to the contrary contained
herein, Company shall not include in the Proxy Statement any information with
respect to Parent or its affiliates or associates, the form and content of which
information shall not have been approved by Parent prior to such inclusion
(which consent will not be unreasonably withheld or delayed).
(d) In the event that a Proxy Statement relating to the Parent
Stockholders Meeting is required hereunder, such Proxy Statement shall contain
the unanimous recommendation of the Board of Directors of Parent that the Parent
stockholders approve the increase in authorized capital stock described in
Section 6.1(a); provided that such recommendation may be withdrawn upon a notice
--------
of termination of this Agreement pursuant hereto.
(e) Company agrees that: (i) the information supplied by Company
for inclusion in the registration statement shall not at the time the
Registration Statement (including any amendments or supplements thereto) is
declared effective by the SEC or at the Effective Time contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, (ii) the
information supplied by Company for inclusion in the Proxy Statement relating to
the Company Stockholders Meeting shall not, on the date the Proxy Statement
relating to the Company Stockholders Meeting is first mailed to the stockholders
of Company or at the time of the Company Stockholders Meeting, contain any
statement which, at such time, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they are
made, not false or misleading, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Company Stockholders Meeting which has become
false or misleading; and (iii) if at any time prior to the Effective Time any
event or information should be
35
<PAGE>
discovered by Company which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement, Company shall
promptly inform Parent of such event or information. Notwithstanding the
foregoing, Company makes no representation, warranty or covenant with respect to
any information supplied by Parent or Merger Sub which is contained in any of
the foregoing documents.
(f) Parent agrees that: (i) the information supplied by Parent for
inclusion in the Registration Statement shall not at the time the Registration
Statement (including any amendments or supplements thereto) is declared
effective by the SEC or at the Effective Time contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; (ii) the information
supplied by Parent for inclusion in the Proxy Statement relating to the Company
Stockholders Meeting shall not, on the date such Proxy Statement is first mailed
to Company's stockholders or at the time of the Company Stockholders Meeting,
contain any statement which, at such time, is false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements therein, in light of the circumstances under which it is
made, not false or misleading, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Company Stockholders Meeting which has become
false or misleading and (iii) if at any time prior to the Effective Time any
event or information should be discovered by Parent which should be set forth in
an amendment to the Registration Statement or in a supplement to such Proxy
Statement, Parent will promptly inform Company of such event or information.
Notwithstanding the foregoing, neither Parent nor Merger Sub makes any
representation, warranty or covenant with respect to any information supplied by
or on behalf of Company or any of its affiliates which is contained in any of
the foregoing documents.
5.2 Meeting of Stockholders. Company (and, if a Parent Stockholders
-----------------------
Meeting is required to be held hereunder, Parent) shall promptly after the date
hereof take all action necessary in accordance with Delaware Law and its
certificate of incorporation and bylaws, each as amended, to convene the Company
Stockholders Meeting (or Parent Stockholders Meeting, as the case may be) within
forty-five (45) days of the Registration Statement being declared effective by
the SEC (or, as applicable, the Proxy Statement relating to the Parent
Stockholders Meeting is cleared by the SEC). Company and Parent shall consult
with each other regarding the date of the Company Stockholders Meeting and any
Parent Stockholders Meeting. Company shall use its commercially reasonable
efforts to solicit from stockholders of Company proxies in favor of the Merger
and shall take all other action necessary or advisable to secure the vote or
consent of stockholders required to effect the Merger, provided that such
--------
solicitation efforts need not be made (although all efforts required to hold the
Company Stockholders Meeting will continue to be required), if a Superior
Proposal has been made and Company and Company's Board of Directors withdraw or
modify such recommendation in compliance with, and otherwise have complied in
all respects with, Section 4.4. In the event that Parent is required to seek the
Parent Stockholders Approval at the Parent Stockholders Meeting pursuant to
Section 7.1(f), Parent shall use commercially reasonable efforts to solicit from
stockholders of Parent proxies in favor of the increase in authorized capital
stock described in Section 6.1(a), provided that such solicitation efforts need
--------
not be made, and the Parent
36
<PAGE>
Stockholders Meeting need not be held, if there is a notice of termination of
this Agreement pursuant hereto.
5.3 Access to Information.
---------------------
(a) At all times prior to the Effective Time, subject to
applicable law and the Confidentiality Agreement (as defined below), Company
shall afford Parent and its accountants, counsel and other representatives,
reasonable access during normal business hours to (i) all of Company's and its
Subsidiaries' properties, books, contracts, commitments and records, (ii) all
Tax Returns and work papers and all other information relating to Taxes of
Company and its Subsidiaries, and (iii) all other information concerning the
business, properties and personnel of Company and its Subsidiaries as Parent may
reasonably request. Company agrees to provide to Parent and its accountants,
counsel and other representatives copies of internal financial statements,
budgets, operating plans and projections promptly upon request.
(b) Subject to compliance with applicable law, from the date hereof
until the Effective Time, each of Parent and Company shall confer on a regular
and frequent basis with one or more representatives of the other party to report
material operational matters and the general status of ongoing operations.
(c) No information or knowledge obtained in any investigation
pursuant to this Section 5.3 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
5.4 Confidentiality. The parties acknowledge that each of Parent and
---------------
Company have previously executed a non-disclosure agreement dated May 26, 1999
(the "Confidentiality Agreement"), which Confidentiality Agreement shall
continue in full force and effect in accordance with its terms, except to the
extent necessary to comply with the terms of this Agreement.
5.5 Public Disclosure. Unless otherwise permitted by this Agreement,
-----------------
Parent and Company shall consult with each other before issuing any press
release or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement or any of the transactions contemplated
hereby, and neither shall issue any such press release or make any such
statement or disclosure without the prior approval of the other (which approval
shall not be unreasonably withheld or delayed), except as may be required by law
or by obligations pursuant to any listing agreement with any national securities
exchange or with the NASD, in which case the party proposing to issue such press
release or make such public statement or disclosure shall use commercially
reasonable efforts to consult with the other party before issuing such press
release or making such public statement or disclosure.
5.6 Consents; Cooperation. Each of Parent, Merger Sub and Company
---------------------
will, and will cause their respective Subsidiaries to, take all reasonable
actions necessary to comply promptly with all legal requirements which may be
imposed on them with respect to the consummation of the transactions
contemplated by this Agreement and will promptly cooperate with and furnish
information to any party hereto necessary in connection with any such
37
<PAGE>
requirements imposed upon such other party in connection with the consummation
of the transactions contemplated by this Agreement and will take all reasonable
actions necessary to obtain (and will cooperate with the other parties hereto in
obtaining) any consent, approval, order or authorization of, or any
registration, declaration or filing with, any Governmental Entity or other
person, required to be obtained or made in connection with the taking of any
action contemplated by this Agreement. Parent and Company shall have the right
to review in advance, and to the extent practicable each will consult the other
as to, in each case subject to applicable laws relating to the exchange of
information, all of the information which will appear in any filing made with,
or written materials submitted to, any third party or Governmental Entity in
connection with the transactions contemplated by this Agreement. In the event an
injunction or other order shall have been issued which prevents, alters or
delays the Merger or any other transaction contemplated hereby, each party
agrees to use its reasonable best efforts to have such injunction or other order
lifted. Parent and Company and their respective Subsidiaries shall cooperate and
use their respective reasonable best efforts to prepare all documentation, to
effect all filings and to obtain all permits, consents, approvals and
authorizations of all third parties and Governmental Entities necessary to
consummate the transactions contemplated by this Agreement, including without
limitation the OTS, the NASD (the "NASD Approval") and any applicable state
approval ("State Approval") and to consult with the other party with respect to
obtaining such permits, consents, approvals and authorizations. Each of Parent
and Company agrees, upon request, to furnish the other party with all
information concerning itself, its Subsidiaries, directors, officers and
shareholders and such other matters as may be reasonably necessary or advisable
in connection with any filing, notice or application made by or on behalf of
such other party or any of its Subsidiaries to any third party or Governmental
Entity.
5.7 Reasonable Best Efforts and Further Assurances. Each of the
----------------------------------------------
parties to this Agreement shall use its reasonable best efforts to effect the
transactions contemplated hereby and to fulfill and cause to be fulfilled the
conditions to Closing under this Agreement including, without limitation, Parent
using reasonable best efforts to obtain the Parent Stockholder Approval at the
meeting of Parent's stockholders scheduled to be held on June 25, 1999 or at any
adjournment or postponement thereof (the "June 25 Meeting"). Each party hereto,
at the reasonable request of another party hereto, shall execute and deliver
such other instruments and do and perform such other acts and things as may be
necessary or desirable for effecting completely the consummation of this
Agreement and the transactions contemplated hereby.
5.8 Blue Sky Laws. Parent shall take such steps as may be necessary
-------------
to comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the shares of Parent Common Stock in connection
with the Merger. Company shall use its best efforts to assist Parent as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable in connection with the issuance of the shares of Parent
Common Stock in connection with the Merger.
5.9 Listing of Additional Shares; Nasdaq Quotation. Prior to the
----------------------------------------------
Effective Time, Parent shall file with the Nasdaq National Market a Notification
Form for Listing of Additional Shares with respect to the shares of Parent
Common Stock issuable upon conversion of the Company Common Stock in the Merger.
Company and Parent agree to continue the quotation of Company Common Stock and
Parent Common Stock, respectively, on the Nasdaq
38
<PAGE>
National Market during the term of the Agreement so that, to the extent
necessary, appraisal rights will not be available to stockholders of Company
under Section 262 of the Delaware Law.
5.10 Pooling Accounting. Parent and Company shall each use its
------------------
reasonable best efforts to cause the business combination to be effected by the
Merger to be accounted for as a pooling of interests under generally accepted
accounting principles and applicable SEC rules and regulations. Each of Parent
and Company shall use its reasonable best efforts to cause its Affiliates not to
take any action that would adversely affect the ability of Parent or the
Surviving Corporation to account for the business combination to be effected by
the Merger as a pooling of interests.
5.11 Affiliate Agreements.
--------------------
(a) Schedule 2.23 sets forth those persons who may be deemed
-------------
Affiliates of Company. Company shall provide Parent with such information and
documents as Parent shall reasonably request for purposes of reviewing such
list. Prior to the Effective Time, Company shall use its reasonable best efforts
to obtain and deliver or cause to be delivered to Parent a duly executed Company
Affiliate Agreement in the form attached hereto as Exhibit B (a "Company
---------
Affiliate Agreement") from the persons identified in Schedule 2.23 as soon as
practicable (and in any event within three business days) after the execution
hereof (to the extent not executed heretofore) and from any other person as soon
as practicable after the date on which such person becomes an Affiliate of
Company. Parent and Merger Sub shall be entitled to place appropriate legends on
the certificates evidencing shares of Parent Common Stock to be received by such
Affiliates of Company pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for Parent Common
Stock, in each of the foregoing cases in accordance with the terms of such
Company Affiliate Agreement.
(b) Schedule 5.11(b) sets forth those persons who may be deemed
----------------
Affiliates of Parent. Parent shall provide Company with such information and
documents as Company shall reasonably request for purposes of reviewing such
list. Parent shall use its reasonable best efforts to deliver or cause to be
delivered to Company a duly executed Parent Affiliate Agreement in the form of
Exhibit C attached hereto (the "Parent Affiliate Agreements") from the persons
- ---------
identified in Schedule 5.11(b) as soon as practicable (and in any event within
three business days) after the execution hereof (to the extent not executed
heretofore) and from any other person as soon as practicable after the date on
which such person becomes an Affiliate of Parent.
5.12 Tax Treatment. The parties shall use their reasonable best
--------------
efforts to cause the Merger to qualify as a "reorganization" within the meaning
of Section 368(a) of the Code.
5.13 Company Options.
---------------
(a) At the Effective Time, the Company Stock Option Plans, the
Company Options and each outstanding option to purchase shares of Company Common
Stock under the Company Stock Option Plans, whether vested or unvested, will be
assumed by Parent. Company represents and warrants to Parent that Schedule 5.13
-------------
hereto sets forth a true and complete list as of the date hereof of all holders
of outstanding options under the Company Stock
39
<PAGE>
Option Plans and all other Company Options, including the number of shares of
Company capital stock subject to each such option, the exercise or vesting
schedule, the exercise price per share and the term of each such option. On the
Closing Date, Company shall deliver to Parent an updated Schedule 5.13 hereto
-------------
current as of such date. Each such option so assumed by Parent under this
Agreement shall continue to have, and be subject to, the same terms and
conditions set forth in the Company Stock Option Plans, the Company Options and
the applicable stock option agreements, immediately prior to the Effective Time,
except that (i) such option will be exercisable for that number of whole shares
of Parent Common Stock equal to the product of the number of shares of Company
Common Stock that were issuable upon exercise of such option immediately prior
to the Effective Time multiplied by the Exchange Ratio and rounded down to the
nearest whole number of shares of Parent Common Stock, and (ii) the per share
exercise price for the shares of Parent Common Stock issuable upon exercise of
such assumed option will be equal to the quotient determined by dividing the
exercise price per share of Company Common Stock at which such option was
exercisable immediately prior to the Effective Time by the Exchange Ratio,
rounded up to the nearest whole cent, subject to any adjustments necessary to
protect the status of any option as an incentive stock option as defined in
Section 422 of the Code. It is the intention of the parties that the options so
assumed by Parent qualify, to the maximum extent permissible following the
Effective Time as incentive stock options as defined in Section 422 of the Code
to the extent such options qualified as incentive stock options prior to the
Effective Time. As soon as practicable (and in any event within thirty (30)
business days after the Effective Time, Parent will issue to each person who,
immediately prior to the Effective Time was a holder of an outstanding option
under the Company Stock Option Plans or a Company Option a document, in form and
substance submitted to Company at least ten (10) days before the Closing Date
and reasonably satisfactory to Company, evidencing the foregoing assumption of
such option by Parent. All Company Options assumed by Parent hereunder will be
exercisable in accordance with their terms without regard to whether such
document has been delivered to the holder thereof.
(b) All outstanding rights of Company which it may hold immediately
prior to the Effective Time to repurchase unvested shares of Company Common
Stock (the "Repurchase Options") shall be assigned to Parent in the Merger and
shall thereafter be exercisable by Parent upon the same terms and conditions in
effect immediately prior to the Effective Time, except that the shares
purchasable pursuant to the Repurchase Options and the purchase price per shall
be adjusted to reflect the Exchange Ratio.
5.14 Form S-8. Parent agrees to use its reasonable best efforts to
--------
file as soon as practicable after the Effective Time (and in any event no later
than twenty (20) business days after the Effective Time), a registration
statement on Form S-8 covering the shares of Parent Common Stock issuable
pursuant to outstanding options under the Company Stock Option Plans assumed by
Parent. Company shall cooperate with and assist Parent in the preparation of
such registration statement.
5.15 Employees; Employee Benefit Matters.
-----------------------------------
(a) Concurrently with the execution of this Agreement, each of
the individuals set forth on Schedule 5.15(a) shall have delivered to Parent an
----------------
executed Management Continuity Agreement in the form of Exhibit D attached
---------
hereto.
40
<PAGE>
(b) If required by Parent in writing delivered to Company not
less than five (5) business days before Closing, Company shall, on or before the
day immediately prior to the Closing Date, terminate the Company 401(k) Plan
(the "Plan") and no further contributions shall be made to the Plan. Company
shall provide to Parent (i) certified copies of resolutions adopted by the Board
of Directors of Company authorizing the termination and (ii) an executed
amendment to the Plan in form and substance reasonably satisfactory to Parent to
conform the plan document for the Plan with all applicable requirements of the
Code and regulations thereunder relating to the tax-qualified status of the
Plan.
(c) To the extent permissible under the applicable provisions of
the Code and ERISA and the terms of any employee benefit plans sponsored or
maintained by Parent or its Subsidiaries, (i) for purposes of crediting periods
of service for eligibility to participate and vesting, employees of Company and
its Subsidiaries shall receive full credit for purposes of eligibility and
vesting, and periods of service with Company and any Subsidiary before the
Effective Time shall be treated as if such service had been with Parent and (ii)
individuals who are employees of Company or any of its Subsidiaries at the
Effective Time and who become employees of Parent or any Subsidiary thereof
shall be eligible to participate in any employee benefit plan (within the
meaning of ERISA Section 3(3)) (except for the Parent 401(k) Plan and Parent
Stock Option Plans) maintained by Parent or any Subsidiary thereof on the same
terms and conditions as apply generally to other employees of Parent or any of
its Subsidiaries.
(d) Parent will or will cause the Surviving Corporation or
Telebank to offer a position of at-will employment on Parent's customary
employment terms (except to the extent Management Continuity Agreements in the
form of Exhibit D are in effect) to each of Company's and its Subsidiaries'
personnel as of the Effective Time at their existing employment location as of
the Effective Time.
(e) Company agrees to use commercially reasonable efforts to
cause each of its employees and officers to enter into proprietary information
agreements, in substantially the form previously provided by Parent to Company,
as soon as practicable.
5.16 Director and Officer Indemnification.
------------------------------------
(a) Parent agrees not to cause or allow the Surviving Corporation
to modify, and to cause the Surviving Corporation to honor, any rights to
indemnification or exculpation from liabilities for acts or omissions occurring
at or prior to the Effective Time now existing in favor of the officers and
directors of Company and its Subsidiaries as provided in their respective
certificates of incorporation or by-laws (or comparable organizational
documents) and any indemnification agreements of Company.
(b) For four years after the Effective Time, Parent will cause
the Surviving Corporation to use commercially reasonable efforts to provide
officers' and directors' liability insurance in respect of acts or omissions
occurring at or prior to the Effective Time covering each such person currently
covered by Company's officers' and directors' liability insurance policy on
terms reasonably comparable to those of such policy in effect on the date
hereof, provided that in satisfying its obligation under this paragraph, Parent
shall not be obligated to cause the Surviving Corporation to pay premiums in
excess of 150% of the amount
41
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per annum Company paid in its last full fiscal year, which amount has been
disclosed in writing to Parent, and if the Surviving Corporation is unable to
obtain the insurance required by this paragraph, it shall obtain as much
comparable insurance as possible for an annual premium equal to such maximum
amount.
(c) Parent will not permit the Surviving Corporation to merge or
consolidate with any other person unless the Surviving Corporation will ensure
that the surviving or resulting entity assumes the obligations imposed by this
Section 5.16.
5.17 Comfort Letters.
---------------
(a) Parent shall use its reasonable best efforts to cause to be
delivered to Company a procedures letter of Parent's independent auditors, dated
a date within two (2) business days before the date on which the Registration
Statement shall become effective and addressed to Parent and Company, in form
reasonably satisfactory to Company and customary in scope and substance for
letters delivered by independent public accountants in accordance with Opinion
16 of the Accounting Principles Board and Statement of Accounting Standards No.
72 in connection with registration statements similar to the Registration
Statement.
(b) Company shall use its reasonable best efforts to cause to be
delivered to Parent a procedures letter of Company's independent auditors, dated
a date within two (2) business days before the date on which the Registration
Statement shall become effective and addressed to Parent and Company, in form
reasonably satisfactory to Parent and customary in scope and substance for
letters delivered by independent public accountants in accordance with Opinion
16 of the Accounting Principles Board and Statement of Accounting Standards No.
72 in connection with registration statements similar to the Registration
Statement.
5.18 Stockholder Litigation. Unless and until Company has withdrawn
----------------------
its recommendation of the Merger in compliance with Section 4.4, Company shall
give Parent the opportunity to participate in or, in the event Parent is named
in any such litigation, to lead, in each case at its own expense, the defense of
any stockholder litigation against Company and/or its directors relating to the
transactions contemplated by this Agreement and the Option Agreement. In the
event Parent is leading any such stockholder litigation, Company shall be given
the opportunity to participate at its own expense in the defense of such
stockholder litigation.
5.19 Company Debt Securities. As required by all contracts and
-----------------------
agreements relating to Company's outstanding 11-1/2% Subordinated Notes due
2004, 11.00% Junior Subordinated Deferrable Interest Debentures, 9.0% Junior
Subordinated Deferrable Interest Debentures (Series A), and 9.5% Senior
Subordinated Notes due March 31, 2004, Parent shall: (a) expressly assume, by
supplemental indenture or as otherwise required by such contracts and
agreements, all obligations under such contracts and agreements and the
performance of the covenants and conditions of Company to be performed and
observed therein; (b) maintain compliance with all applicable capital
requirements, financial tests and other financial ratios contained therein; and
(c) deliver all such certificates and opinions as required therein.
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ARTICLE VI
CONDITIONS TO THE MERGER
------------------------
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
------------------------------------------------------------
respective obligations of each party to this Agreement to consummate and effect
the Merger shall be subject to the satisfaction at or prior to the Effective
Time of each of the following conditions, any of which may be waived, in
writing, by agreement of all the parties hereto:
(a) Stockholder Approvals. This Agreement and the Merger shall
---------------------
have been approved and adopted by the holders of two-thirds (2/3) of the shares
of Company Common Stock outstanding as of the record date set for the Company
Stockholders Meeting, and an increase in the number of authorized shares of
Parent Common Stock sufficient to allow consummation of the Merger and the
transactions contemplated hereby shall have been approved and adopted by the
holders of a majority of the shares of Parent Common Stock outstanding as of the
record date set for a meeting to be held for such purpose (the "Parent
Stockholder Approval").
(b) Registration Statement Effective. The SEC shall have declared
--------------------------------
the Registration Statement effective. No stop order suspending the effectiveness
of the Registration Statement or any part thereof shall have been issued, and no
proceeding for that purpose, and no similar proceeding shall have been initiated
by the SEC in respect of the Proxy Statement; and all requests for additional
information on the part of the SEC shall have been complied with to the
reasonable satisfaction of the parties hereto.
(c) No Injunctions or Restraints; Illegality. No temporary
-----------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect, nor
shall any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which prevents or prohibits the consummation of the Merger. In the event
an injunction or other order shall have been issued, each party agrees to use
its commercially reasonable efforts to have such injunction or other order
lifted.
(d) Listing of Additional Shares. The filing with the Nasdaq
----------------------------
National Market of a Notification Form for Listing of Additional Shares with
respect to the shares of Parent Common Stock issuable upon conversion of the
Company Common Stock in the Merger and upon exercise of the options under the
Company Stock Option Plans assumed by Parent, shall have been made.
(e) Pooling Letters. Parent shall have received letters, each
---------------
dated the Closing Date, from Deloitte & Touche, L.L.P., Parent's independent
auditors, and Arthur Andersen LLP, Company's independent auditors, to the effect
that the Merger qualifies for pooling of interests accounting treatment if
consummated in accordance with this Agreement.
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6.2 Additional Conditions to Obligations of Company. The obligations
-----------------------------------------------
of Company to consummate and effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by Company:
(a) Representations, Warranties and Covenants. (i) The
-----------------------------------------
representations and warranties of Parent in this Agreement shall be true and
correct in all respects (ignoring for this purpose all materiality or Material
Adverse Effect qualifications in such representations and warranties) when made
and as of the Effective Time as though such representations and warranties were
made on and as of such time (other than (A) representations and warranties
expressly made as of an earlier date, which shall have been true and correct as
of such earlier date, and (B) failures to be true and correct that do not, in
the aggregate, constitute a Material Adverse Effect on Parent) and (ii) Parent
and Merger Sub shall have performed and complied in all material respects with
all covenants, obligations and conditions of this Agreement required to be
performed and complied with by them at or prior to the Effective Time.
(b) Certificate of Parent. Company shall have been provided with
---------------------
a certificate executed on behalf of Parent by its President and its Chief
Financial Officer certifying that the condition set forth in Section 6.2(a) has
been fulfilled.
(c) Governmental Approval. Parent, Company and Merger Sub and
---------------------
their respective Subsidiaries shall have timely obtained from each Governmental
Entity all approvals, waivers and consents, if any, necessary for consummation
of or in connection with the Merger and the other transactions contemplated
hereby, including such approvals, waivers and consents as may be required under
the Home Owners Loan Act, the Securities Act, the Exchange Act, any SRO
constitution or rules or any state Blue Sky laws.
(d) Tax Opinion. Company shall have received a written opinion of
-----------
Hogan & Hartson L.L.P. (or if such firm is unable to, or fails to timely
deliver, such opinion, Brobeck, Phleger & Harrison LLP) dated as of the Closing
Date to the effect that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code, and such opinion shall not have been
withdrawn. In rendering such opinion, counsel shall be entitled to rely upon,
among other things, reasonable assumptions as well as representations of Parent,
Merger Sub and Company.
6.3 Additional Conditions to the Obligations of Parent and Merger Sub.
-----------------------------------------------------------------
The obligations of Parent and Merger Sub to consummate and effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of each
of the following conditions, any of which may be waived, in writing, by Parent:
(a) Representations, Warranties and Covenants. (i) The
-----------------------------------------
representations and warranties of Company in this Agreement shall be true and
correct in all respects (ignoring for this purpose all materiality or Material
Adverse Effect qualifications in such representations and warranties) when made
and as of the Effective Time as though such representations and warranties were
made on and as of such time (other than (A) representations and warranties
expressly made as of an earlier date and (B) failures to be true and correct
that do
44
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not, in the aggregate, constitute a Material Adverse Effect on Company) and (ii)
Company shall have performed and complied in all material respects with all
covenants, obligations and conditions of this Agreement required to be performed
and complied with by it at or prior to the Effective Time.
(b) Certificate of Company. Parent shall have been provided with
----------------------
a certificate executed on behalf of Company by its President and Chief Financial
Officer certifying that the condition set forth in Section 6.3(a) has been
fulfilled.
(c) Governmental Approval. Parent, Company and Merger Sub and
---------------------
their respective Subsidiaries shall have timely obtained from each Governmental
Entity all approvals, waivers and consents, if any, necessary for consummation
of or in connection with the Merger and the other transactions contemplated
hereby, including such approvals, waivers and consents as may be required under
the Home Owners Loan Act, the Securities Act, the Exchange Act, any SRO
constitution or rules, or any state Blue Sky laws; provided, however, that none
-------- -------
of the preceding shall be deemed obtained or made if it shall impose a non-
customary condition or restriction that Parent reasonably determines in good
faith could reasonably be expected to result in a Material Adverse Effect on
Parent or the Surviving Corporation.
(d) Third Party Consents. Parent shall have been furnished with
--------------------
evidence satisfactory to it of the consent or approval of those persons whose
consent or approval shall be required in connection with the Merger under any
Material Contract of Company or any of its Subsidiaries or otherwise, the
failure of which to obtain could reasonably be expected to have a Material
Adverse Effect on Parent or the Surviving Corporation.
(e) Injunctions or Restraints on Conduct of Business. No
------------------------------------------------
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Parent's conduct or operation of the
business of Company and its Subsidiaries, following the Merger shall be in
effect, nor shall any proceeding brought by an administrative agency or
commission, SRO or other Governmental Entity, domestic or foreign, seeking the
foregoing be pending.
(f) No Material Adverse Effect. There shall not have occurred
--------------------------
since the date hereof any Material Adverse Effect on Company.
(g) Tax Opinion. Parent shall have received a written opinion of
-----------
Brobeck, Phleger & Harrison LLP (or if such firm is unable to, or fails to
timely deliver, such opinion, Hogan & Hartson L.L.P.) dated as of the Closing
Date to the effect that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code, and such opinion shall not have been
withdrawn. In rendering such opinion, counsel shall be entitled to rely upon,
among other things, reasonable assumptions as well as representations of Parent,
Merger Sub and Company.
45
<PAGE>
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
7.1 Termination. At any time prior to the Effective Time, whether
-----------
before or after approval of the matters presented in connection with the Merger
by the stockholders of Company, this Agreement may be terminated:
(a) by mutual consent of Parent and Company;
(b) by either Parent or Company, if, the Closing shall not have
occurred on or before December 31, 1999 (provided that the right to terminate
this Agreement under this Section 7.1(b) shall not be available to any party
whose action or failure to act has been the cause of or resulted in the failure
of the Merger to occur on or before such date and such action or failure to act
constitutes a breach of this Agreement);
(c) by Parent, if (i) Company shall breach any of its
representations, warranties or obligations hereunder to an extent that would
cause the condition set forth in Section 6.3(a) not to be satisfied and such
breach shall not have been cured within ten (10) business days of receipt by
Company of written notice of such breach (provided that the right to terminate
this Agreement by Parent shall not be available to Parent if Parent is at that
time in material breach of this Agreement), (ii) the Board of Directors of
Company shall have withdrawn or modified its recommendation of this Agreement or
the Merger or any transaction contemplated hereby in a manner adverse to Parent
or shall have resolved to do any of the foregoing, (iii) Company shall have
failed to comply with the Option Agreement or with Section 4.4 or Section 5.2 of
this Agreement, or (iv) the Board of Directors of Company shall have
recommended, endorsed, accepted or agreed to a Takeover Proposal or shall have
resolved to do so;
(d) by Company, if Parent shall breach any of its
representations, warranties or obligations hereunder to an extent that would
cause the condition set forth in Section 6.2(a) not to be satisfied and such
breach shall not have been cured within ten (10) business days following receipt
by Parent of written notice of such breach (provided that the right to terminate
this Agreement by Company shall not be available to Company where Company is at
that time in material breach of this Agreement);
(e) by Parent if a Trigger Event (as defined in Section 7.3(e))
or Takeover Proposal shall have occurred and the Board of Directors of
Company, in connection therewith, does not within five (5) business days of
such occurrence (i) reconfirm its approval and recommendation of this
Agreement and the transactions contemplated hereby and (ii) reject such
Takeover Proposal or Trigger Event; or
(f) by either Parent or Company if (i) any permanent injunction
or other order of a court or other competent authority preventing the
consummation of the Merger shall have become final and nonappealable, (ii) if
any required approval of the stockholders of Company shall not have been
obtained by reason of the failure to obtain the required vote upon a vote held
at a duly held meeting of stockholders of Company or at any adjournment thereof
or (iii) if the Parent Stockholder Approval shall not have been obtained at the
June 25 Meeting and
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<PAGE>
the Parent Stockholder Approval is not obtained at a meeting of Parent's
stockholders, or any postponement or adjournment thereof, to be held on or about
the day of the Company Stockholders Meeting (the "Parent Stockholders Meeting").
7.2 Effect of Termination. In the event of termination of this
---------------------
Agreement as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Parent, Merger Sub
or Company or their respective officers, directors, stockholders or affiliates,
except to the extent that such termination results from the breach by a party
hereto of any of its representations, warranties or covenants set forth in this
Agreement; provided that (a) the provisions of Section 5.4 (Confidentiality),
Section 7.3 (Expenses and Termination Fees), Section 8.8 (Governing Law) and
this Section 7.2 shall remain in full force and effect and survive any
termination of this Agreement and (b) nothing herein shall relieve any party
from liability for fraud or willful breach in connection with this Agreement or
the transactions contemplated hereby.
7.3 Expenses and Termination Fees.
-----------------------------
(a) Subject to subsections (b), (c), (d), (e) and (f) of this
Section 7.3, whether or not the Merger is consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby (including, without limitation, the fees and expenses of its advisers,
brokers, finders, agents, accountants and legal counsel) shall be paid by the
party incurring such expense, it being understood and agreed that expenses
incurred in connection with printing the Proxy Materials and the Registration
Statement, and registration and filing fees incurred in connection with the
Registration Statement, the Proxy Materials and the listing of additional shares
pursuant to Section 6.1(d) and filing fees associated with compliance with
applicable OTS requirements in connection with the Merger shall be deemed to be
incurred equally by Company and Parent.
(b) In the event that (i) Parent shall terminate this Agreement
pursuant to Section 7.1(e), (ii) Parent shall terminate this Agreement pursuant
to Section 7.1(c)(ii), (iii) or (iv), (iii) either Parent or Company shall
terminate this Agreement pursuant to Section 7.1(f)(ii) following a failure of
the stockholders of Company to approve this Agreement and, prior to the time of
the Company Stockholders Meeting, there shall have been a Trigger Event or a
Takeover Proposal with respect to Company, then in the case of each of (i)
through (iii) Company shall reimburse Parent for all of the out-of-pocket costs
and expenses incurred by Parent in connection with this Agreement and the
transactions contemplated hereby (including, without limitation, the reasonable
fees and expenses of its advisors, accountants and legal counsel), and, in
addition to any other remedies Parent may have, Company shall promptly pay to
Parent cash in an amount equal to fifty-four million dollars ($54,000,000) (the
"Termination Fee").
(c) In the event that (i) Parent or Company shall terminate this
Agreement pursuant to Section 7.1(b) and, prior to the time of such termination,
there shall have been a Trigger Event or a Takeover Proposal with respect to
Company or (ii) Parent shall terminate this Agreement pursuant to Section
7.1(c)(i), Company shall promptly reimburse Parent for all of the reasonable
out-of-pocket costs and expenses incurred by Parent in connection with this
Agreement and the transactions contemplated hereby (including, without
47
<PAGE>
limitation, the fees and expenses of its advisors, accountants and legal
counsel), and, in the event a definite agreement or letter of intent is entered
by Company with respect to a Takeover Proposal, a Takeover Proposal is
consummated or a Trigger Event results in a Person or group of Persons within
the meaning of Section 13(d) of the Exchange Act and the regulations thereunder
beneficially owning forty percent (40%), or results in a Person together with
any other Persons acting in concert within the meaning of Part 574 of the OTS
rules and regulations beneficially owning forty percent (40%), or more of the
voting power of Company within nine (9) months of the later of (x) such
termination of this Agreement and (y) the payment of the above-described
expenses, Company shall also promptly pay to Parent the Termination Fee.
(d) In the event that Parent or Company shall terminate this
Agreement pursuant to Section 7.1(f)(iii), then Parent shall promptly reimburse
Company for all of the reasonable out-of-pocket costs and expenses incurred by
Company in connection with this Agreement and the transactions contemplated
hereby (including, without limitation, the fees and expenses of its advisors,
accountants and legal counsel).
(e) As used herein, a "Trigger Event" shall occur if any Person
(as that term is defined in Section 13(d) of the Exchange Act and the
regulations promulgated thereunder) acquires securities representing twenty
percent (20%) or more, or commences a tender or exchange offer, open market
purchase program or other publicly announced initiative following the successful
consummation of which the offeror and its affiliate would beneficially own
securities representing twenty percent (20%) or more, of the voting power of
Company.
(f) For purposes of this Agreement, "Takeover Proposal" means any
offer or proposal for, or any indication of interest in, a merger or other
business combination involving Company or any of its Subsidiaries or the
acquisition of twenty percent (20%) or more of the outstanding shares of capital
stock, or a significant portion of the assets of, Company or any of its
Subsidiaries, other than the transactions contemplated by this Agreement.
7.4 Amendment. The boards of directors of the parties hereto may
---------
cause this Agreement to be amended at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto; provided that an
--------
amendment made subsequent to adoption of the Agreement by the stockholders of
Company or Merger Sub shall not (i) alter or change the amount or kind of
consideration to be received on conversion of the Company Common Stock, or (ii)
alter or change any of the terms and conditions of the Agreement if such
alteration or change would materially adversely affect the holders of Company
Common Stock or Merger Sub Common Stock.
7.5 Extension; Waiver. At any time prior to the Effective Time any
-----------------
party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
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ARTICLE VIII
GENERAL PROVISIONS
------------------
8.1 Non-Survival at Effective Time. The representations, warranties
------------------------------
and agreements set forth in this Agreement shall terminate at the Effective
Time, except that the agreements set forth in Article I, Section 5.4
(Confidentiality), 5.14 (Form S-8), 5.16 (Director and Officer Indemnification),
5.7 (Reasonable Best Efforts and Further Assurances), 7.3 (Expenses and
Termination Fees) and this Article VIII shall survive the Effective Time.
8.2 Notices. All notices and other communications hereunder shall be
-------
in writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following address (or at such other address for a party as shall be
specified by like notice):
(a) if to Parent or Merger Sub, to:
E*TRADE Group, Inc.
Four Embarcadero Place
2400 Geng Road
Palo Alto, CA 94303
Attention: Thomas A. Bevilacqua, Esq.
Facsimile No.: (650) 842-8781
Telephone No.: (650) 842-2475
with a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attention: Curtis L. Mo, Esq.
Facsimile No.: (650) 496-2885
Telephone No.: (650) 424-0160
and
Brobeck, Phleger & Harrison LLP
Spear Street Tower
One Market
San Francisco, CA 94105
Attention: J. Michael Shepherd, Esq.
Steve L. Camahort, Esq.
Facsimile No.: (415) 442-1010
Telephone No.: (415) 442-0900
49
<PAGE>
(b) if to Company, to:
Telebanc Financial Corporation
1111 North Highland Street
Arlington, VA 22201-2807
Attention: President
Facsimile No.: (703) 524-0556
Telephone No.: (703) 247-3700
with a copy to:
Hogan & Hartson L.L.P.
Columbia Square
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Attention: Stuart G. Stein, Esq.
Steven Museles, Esq.
Facsimile No.: (202) 637-5910
Telephone No.: (202) 637-5600
8.3 Interpretation. When a reference is made in this Agreement to
--------------
Exhibits or Schedules, such reference shall be to an Exhibit or Schedule to this
Agreement unless otherwise indicated. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be followed by the
words "without limitation." The phrase "made available" in this Agreement shall
mean that the information referred to has been made available if requested by
the party to whom such information is to be made available. The phrases "the
date of this Agreement", "the date hereof", and terms of similar import, unless
the context otherwise requires, shall be deemed to refer to the date set forth
in the first paragraph of this Agreement. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
8.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
8.5 Entire Agreement; Nonassignability; Parties in Interest. This
-------------------------------------------------------
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Schedules, including the Company Disclosure Schedule and the Parent Disclosure
Schedule, (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, except for the Confidentiality Agreement, which shall continue in full
force and effect, and shall survive any termination of this Agreement or the
Closing, in accordance with its terms; (b) are not intended to confer upon any
other person any rights or remedies hereunder, except as set forth in Sections
1.6(a)-(c)-(d)-(f)-(g) (Effect on Capital Stock), 1.7 (Surrender of
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Certificates) and 5.16 (Director and Officer Indemnification); and (c) shall not
be assigned by operation of law or otherwise except as otherwise specifically
provided.
8.6 Severability. In the event that any provision of this Agreement,
------------
or the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void, invalid or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further agree
to replace such illegal, void, invalid or unenforceable provision of this
Agreement with a legal, valid and enforceable provision that will achieve, to
the extent possible, the economic, business and other purposes of such illegal,
void, invalid or unenforceable provision.
8.7 Remedies Cumulative. Except as otherwise provided herein, any and
-------------------
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or equity
upon such party, and the exercise by a party of any one remedy will not preclude
the exercise of any other remedy.
8.8 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware without reference to such
state's principles of conflicts of law. Each of the parties hereto irrevocably
consents to the exclusive jurisdiction of any court located within the State of
Delaware in connection with any matter based upon or arising out of this
Agreement or the matters contemplated herein, agrees that process may be served
upon them in any manner authorized by the laws of the State of Delaware for such
persons and waives and covenants not to assert or plead any objection which they
might otherwise have to such jurisdiction and such process.
8.9 Rules of Construction. The parties hereto agree that they have
---------------------
been represented by counsel during the negotiation, preparation and execution of
this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
8.10 Definitions; Etc.
----------------
(a) For purposes of this Agreement, (i) "Material Adverse Effect"
means, with respect to any person or entity, any event, change, condition or
effect that is, or could be reasonably expected to be, materially adverse to the
condition (financial or otherwise), properties, assets (including, without
limitation, intangible assets), liabilities, business, operations or results of
operations of such person or entity and its Subsidiaries, taken as a whole;
provided, however, that in no event shall a decrease in such person's or
entity's stock price in and of itself be considered a "Material Adverse Effect",
(ii) "Subsidiary" means, with respect to any party, any corporation, partnership
or other organization or entity, whether incorporated or unincorporated, in
which such party has, directly or indirectly, a fifty percent (50%) or greater
interest, and (iii) any reference to a party's "knowledge" means the actual
knowledge of such party's executive officers and directors.
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(b) The parties acknowledge that, insofar as Company's Board of
Directors has declared and approved a 2-for-1 split of Company Common Stock
payable to its stockholders of record as of the close of business on May 28,
1999 (the "Stock Split"), the Exchange Ratio and all share numbers herein
representing numbers of shares of Company Common Stock do not give effect to the
Stock Split and shall be deemed to be proportionally adjusted for the Stock
Split upon the effectiveness thereof. Notwithstanding anything herein to the
contrary, consummation of the Stock Split shall not be deemed a breach of this
Agreement.
52
<PAGE>
IN WITNESS WHEREOF, Company, Parent and Merger Sub have caused this
Agreement to be executed and delivered by their respective officers thereunto
duly authorized, all as of the date first written above.
TELEBANC FINANCIAL CORPORATION
By: /s/ Mitchell H. Caplan
_______________________________
Name: Mitchell H. Caplan
_____________________________
Title: President and Chief
Executive Officer
____________________________
E*TRADE GROUP, INC.
By: /s/ Christos M. Cotsakos
_______________________________
Name: Christos M. Cotsakos
_____________________________
Title: Chief Executive Officer
____________________________
TURBO ACQUISITION CORP.
By: /s/ Christos M. Cotsakos
_______________________________
Name: Christos M. Cotsakos
_____________________________
Title: President
____________________________
<PAGE>
Exhibit 2
STOCKHOLDER AGREEMENT
This STOCKHOLDER AGREEMENT (this "Agreement") is made and entered into
as of May 31, 1999 between E*TRADE Group, Inc., a Delaware corporation
("Parent"), and the undersigned stockholder ("Stockholder") of Telebanc
Financial Corporation, a Delaware corporation ("Company"). Capitalized terms
used and not otherwise defined herein shall have the respective meanings set
forth in the Reorganization Agreement described below.
RECITALS
WHEREAS, pursuant to an Agreement and Plan of Merger and
Reorganization dated as of May 31, 1999 by and among Parent, Turbo Acquisition
Corp., a Delaware corporation and a wholly owned subsidiary of Parent ("Merger
Sub") and Company (such agreement as it may be amended is hereinafter referred
to as the "Reorganization Agreement"). Parent has agreed to acquire the
outstanding securities of Company pursuant to a statutory merger of Merger Sub
with and into Company (the "Merger") in which each outstanding share of capital
stock of Company (the "Company Capital Stock") will be converted into shares of
common stock of Parent (the "Parent Shares") at the exchange rate set forth in
the Reorganization Agreement (the "Transaction");
WHEREAS, in order to induce Parent to enter into the Reorganization
Agreement and consummate the Transaction, Company has agreed to use its
reasonable best efforts to cause each stockholder of Company who is an affiliate
of Company to execute and deliver to Parent a Stockholder Agreement upon the
terms set forth herein; and
WHEREAS, Stockholder is the registered and beneficial owner of such
number of shares of the outstanding capital stock of Company as is indicated on
the signature page of this Agreement (the "Shares").
NOW, THEREFORE, the parties agree as follows:
1. Agreement to Retain Shares.
--------------------------
1.1 Transfer and Encumbrance.
------------------------
(a) Stockholder is the beneficial owner of the Shares. The Shares
constitute Stockholder's entire interest in the outstanding capital stock and
voting securities of Company. The Shares are, and will be at all times up until
the Expiration Date, free and clear of any liens, claims, options, charges or
other encumbrances. Stockholder's principal residence or place of business is
accurately set forth on the signature page hereto.
(b) Stockholder agrees not to transfer (except as may be
specifically required by court order or by operation of law, in which case any
such transferee shall agree to be bound hereby), sell, exchange, pledge or
otherwise dispose of or encumber any Shares or any New Shares (as defined
below), or to make any offer or agreement relating thereto, at any time prior to
the Expiration Date. As used herein, the term "Expiration Date" shall mean the
earlier to
<PAGE>
occur of (i) the Effective Time or (ii) termination of the Reorganization
Agreement in accordance with the terms thereof.
1.2 New Shares. Stockholder agrees that any shares of capital
----------
stock or voting securities of Company that Stockholder purchases or with respect
to which Stockholder otherwise acquires beneficial ownership after the date of
this Agreement and prior to the Expiration Date ("New Shares") shall be subject
to the terms and conditions of this Agreement to the same extent as if they
constituted Shares.
2. Agreement to Vote Shares. Prior to the Expiration Date, at
------------------------
every meeting of the stockholders of Company at which any of the following is
considered or voted upon, and at every adjournment thereof, and on every action
or approval by written resolution of the stockholders of Company with respect to
any of the following, Stockholder shall vote the Shares and any New Shares in
favor of approval and adoption of the Reorganization Agreement and of the
Transaction. Notwithstanding the foregoing, nothing in this Agreement shall
limit or restrict Stockholder from acting in his capacity as a director or
officer of Company, to the extent applicable, it being understood that this
Agreement shall apply to Stockholder solely in his capacity as a stockholder of
Company.
3. Irrevocable Proxy. Stockholder hereby agrees to timely deliver
-----------------
to Parent a duly executed proxy in the form attached hereto as Annex A (the
-------
"Proxy"), such Proxy to cover the Shares and all New Shares in respect of which
Stockholder is entitled to vote at each meeting of the stockholders of Company
(including, without limitation, each written consent in lieu of a meeting). In
the event that Stockholder is unable to provide any such Proxy in a timely
manner, Stockholder hereby grants Parent a power of attorney to execute and
deliver such Proxy for and on behalf of Stockholder, such power of attorney,
which being coupled with an interest, shall survive any death, disability,
bankruptcy, or any other such impediment of Stockholder. Upon the execution of
this Agreement by Stockholder, Stockholder hereby revokes any and all prior
proxies or powers of attorney given by Stockholder with respect to the Shares
and agrees not to grant any subsequent proxies or powers of attorney with
respect to the Shares until after the Expiration Date.
4. Representations, Warranties and Covenants of Stockholder.
--------------------------------------------------------
Stockholder hereby represents, warrants and covenants to Parent as follows:
(a) Stockholder has full power and legal capacity to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Stockholder and constitutes the valid and binding
obligation of Stockholder, enforceable against Stockholder in accordance with
its terms. Except as may be limited by (i) the effect of bankruptcy,
insolvency, conservatorship, arrangement, moratorium or other laws affecting or
relating to the rights of creditors generally, or (ii) the rules governing the
availability of specific performance, injunctive relief or other equitable
remedies and general principles of equity, regardless of whether considered in a
proceeding in equity or at law, the execution and delivery of this Agreement by
Stockholder does not, and the performance of Stockholder's obligations hereunder
will not, result in any breach of or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or give to others
any right to terminate,
<PAGE>
amend, accelerate or cancel any right or obligation under, or result in the
creation of any lien or encumbrance on any Shares or New Shares pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Stockholder is a party or
by which Stockholder or the Shares or New Shares are or will be bound or
affected.
(b) Except to the same extent Company is permitted to do so pursuant
to Section 4.4 of the Reorganization Agreement, until the Expiration Date,
Stockholder will not (and will use Stockholder's reasonable best efforts to
cause Company, its affiliates, officers, directors and employees and any
investment banker, attorney, accountant or other agent retained by Stockholder,
Company or any of the same, not to, except to the extent otherwise permitted
under Section 4.3 of the Reorganization Agreement): (i) initiate or solicit,
directly or indirectly, any proposal, plan or offer to acquire all or any
material part of the business or properties or capital stock of Company, whether
by merger, purchase of assets, tender offer or otherwise, or to liquidate
Company or otherwise distribute to the stockholders of Company all or any
substantial part of the business, properties or capital stock of Company (each,
an "Acquisition Proposal"); (ii) initiate, directly or indirectly, any contact
with any person in an effort to or with a view towards soliciting any
Acquisition Proposal; (iii) furnish information concerning Company's business,
properties or assets to any corporation, partnership, person or other entity or
group (other than Parent, or any associate, agent or representative of Parent)
under any circumstances that could reasonably be expected to relate to an actual
or potential Acquisition Proposal; or (iv) negotiate or enter into discussions
or an agreement, directly or indirectly, with any entity or group with respect
of any potential Acquisition Proposal. In the event Stockholder shall receive
or become aware of any Acquisition Proposal subsequent to the date hereof,
Stockholder shall promptly inform Parent as to any such matter and the details
thereof to the extent possible without breaching any other agreement to which
such Stockholder is a party or violating its fiduciary duties.
(c) Stockholder understands and agrees that if Stockholder attempts
to transfer, vote or provide any other person with the authority to vote any of
the Shares other than in compliance with this Agreement, Company shall not, and
Stockholder hereby unconditionally and irrevocably instructs Company to not,
permit any such transfer on its books and records, issue a new certificate
representing any of the Shares or record such vote unless and until Stockholder
shall have complied with the terms of this Agreement. Stockholder further
understands and agrees that Parent may elect to not permit the transfer of
shares of Parent Common Stock or the issuance of a new certificate representing
such shares unless and until such a transfer can be made without adversely
affecting the ability of Parent or the Surviving Corporation to account for the
business combination to be effected by the Merger as a pooling of interests.
<PAGE>
5. Additional Documents. Stockholder hereby covenants and agrees to
--------------------
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Parent, to carry out the purpose and intent of this
Agreement.
6. Consent and Waiver. Stockholder hereby gives any consents or
------------------
waivers that are reasonably required for the consummation of the Transaction
under the terms of any agreement to which Stockholder is a party or pursuant to
any rights Stockholder may have.
7. Termination. This Agreement and the Proxy delivered in
-----------
connection herewith shall terminate and shall have no further force or effect as
of the Expiration Date.
8. Confidentiality. Stockholder agrees (i) to hold any information
---------------
regarding this Agreement and the Transaction in strict confidence, and (ii) not
to divulge any such information to any third person, except to the extent any of
the same is hereafter publicly disclosed by Parent.
9. Miscellaneous.
9.1 Severability. If any term, provision, covenant or restriction
------------
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, then the remainder of the terms, provisions, covenants
and restrictions of this Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
9.2 Binding Effect and Assignment. This Agreement and all of the
-----------------------------
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by either
of the parties without the prior written consent of the other. This Agreement
is intended to bind Stockholder solely as a securityholder of Company only with
respect to the specific matters set forth herein.
9.3 Amendment and Modification. This Agreement may not be
--------------------------
modified, amended, altered or supplemented except by the execution and delivery
of a written agreement executed by the parties hereto.
9.4 Specific Performance; Injunctive Relief. The parties hereto
---------------------------------------
acknowledge that Parent will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreements of
Stockholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to Parent upon any such violation, Parent
shall have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to Parent at law
or in equity and Stockholder hereby waives any and all defenses which could
exist in its favor in connection with such enforcement and waives any
requirement for the security or posting of any bond in connection with such
enforcement.
9.5 Notices. All notices, requests, demands or other
-------
communications that are required or may be given pursuant to the terms of this
Agreement shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed by registered or certified mail, postage prepaid, or
sent by facsimile transmission, as follows:
<PAGE>
(a) If to Stockholder, at the address set forth below Stockholder's
signature at the end hereof.
(b) if to Parent, to:
E*TRADE Group, Inc.
Four Embarcadero Place
2400 Geng Road
Palo Alto, CA 94303
Attention: Thomas A. Bevilacqua, Esq.
Facsimile No: (650) 842-8781
Telephone No: (650) 842-2500
with a copy to:
Brobeck, Phleger & Harrison LLP
2200 Geng Road
Two Embarcadero Place
Palo Alto, CA 94303
Attention: Curtis L. Mo, Esq.
Facsimile No.: (650) 496-2885
Telephone No.: (650) 424-0160
and
Brobeck, Phleger & Harrison LLP
Spear Street Tower
One Market
San Francisco, CA 94105
Attention: J. Michael Shepherd, Esq.
Steve L. Camahort, Esq.
Facsimile No.: (415) 442-1010
Telephone No.: (415) 442-0900
or to such other address as any party hereto or any Indemnified Person may
designate for itself by notice given as herein provided.
9.6 Governing Law. This Agreement shall be governed by, construed
-------------
and enforced in accordance with the internal laws of the State of Delaware
without giving effect to the principles of conflicts of law thereof.
9.7 Entire Agreement. This Agreement and the Proxy contain the
----------------
entire understanding of the parties in respect of the subject matter hereof, and
supersede all prior negotiations and understandings between the parties with
respect to such subject matter.
<PAGE>
9.8 Counterpart. This Agreement may be executed in several
-----------
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
9.9 Effect of Headings. The section headings herein are for
------------------
convenience only and shall not affect the construction or interpretation of this
Agreement.
(Signature Page Follows)
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Company Agreement to
be executed as of the date first above written.
E*TRADE GROUP, INC. STOCKHOLDER
By:________________________ ________________________________________
Name:______________________ (Signature)
Title:_____________________
________________________________________
(Signature of Spouse)
________________________________________
(Print Name of Stockholder)
________________________________________
(Print Street Address)
________________________________________
(Print City, State and Zip)
________________________________________
(Print Telephone Number)
________________________________________
(Social Security or Tax I.D. Number)
Total Number of Shares of Company Common Stock owned on the date hereof:
Common Stock: __________________________
State of Residence: __________________________
SIGNATURE PAGE TO STOCKHOLDER AGREEMENT
<PAGE>
ANNEX A
-------
IRREVOCABLE PROXY
TO VOTE STOCK OF
TELEBANC FINANCIAL CORPORATION
The undersigned stockholder of Telebanc Financial Corporation, a
Delaware corporation ("Company"), hereby irrevocably (to the full extent
permitted by the Delaware General Corporation Law) appoints the members of the
Board of Directors of E*TRADE Group, Inc., a Delaware corporation ("Parent"),
and each of them, or any other designee of Parent, as the sole and exclusive
attorneys and proxies of the undersigned, with full power of substitution and
resubstitution, to vote and exercise all voting and related rights (to the full
extent that the undersigned is entitled to do so) with respect to all of the
shares of capital stock of Company that now are or hereafter may be beneficially
owned by the undersigned, and any and all other shares or securities of Company
issued or issuable in respect thereof on or after the date hereof (collectively,
the "Shares") in accordance with the terms of this Irrevocable Proxy. The
Shares beneficially owned by the undersigned stockholder of Company as of the
date of this Irrevocable Proxy are listed on the final page of this Irrevocable
Proxy. Upon the undersigned's execution of this Irrevocable Proxy, any and all
prior proxies given by the undersigned with respect to any Shares are hereby
revoked and the undersigned agrees not to grant any subsequent proxies with
respect to the Shares until after the Expiration Date (as defined below).
This Irrevocable Proxy is irrevocable (to the extent provided in the
Delaware General Corporation Law), is coupled with an interest, including, but
not limited to, that certain Company Affiliate Agreement dated as of even date
herewith by and among Parent, and the undersigned, and is granted in
consideration of Parent entering into that certain Agreement and Plan of Merger
and Reorganization (the "Reorganization Agreement") by and among Parent and
Turbo Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of
Parent ("Merger Sub"), and Company which Reorganization agreement provides for
the merger of Merger Sub with and into Company (the "Merger"). As used herein,
the term "Expiration Date" shall mean the earlier to occur of (i) such date and
time as the Merger shall become effective in accordance with the terms and
provisions of the Reorganization Agreement, and (ii) the date of termination of
the Reorganization Agreement.
The attorneys and proxies named above, and each of them are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting and other rights of the undersigned with respect to the
Shares (including, without limitation, the power to execute and deliver written
consents pursuant to the Delaware General Corporation Law), at every annual,
special or adjourned meeting of the stockholders of Company and in every written
consent in lieu of such meeting:
<PAGE>
in favor of approval and adoption of the Reorganization Agreement and
of the transactions contemplated thereby.
The attorneys and proxies named above may not exercise this
Irrevocable Proxy on any other matter except as provided above. The undersigned
stockholder may vote the Shares on all other matters.
All authority herein conferred shall survive the death or incapacity
of the undersigned and any obligation of the undersigned hereunder shall be
binding upon the heirs, personal representatives, successors and assigns of the
undersigned.
This Irrevocable Proxy is coupled with an interest as aforesaid and is
irrevocable.
Dated: May ____, 1999
_____________________________________
(Signature of Stockholder)
_____________________________________
(Print Name of Stockholder)
Shares beneficially owned:
_______________________ shares of
Company Common Stock
<PAGE>
Exhibit 3
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (the "Agreement"), dated as of May 31, 1999, by
and between, E*TRADE Group, Inc., a Delaware corporation ("Parent"), and
Telebanc Financial Corporation, a Delaware corporation ("Company"). Capitalized
terms used herein but not defined herein shall have the meanings set forth in
the Reorganization Agreement referred to below.
WHEREAS, concurrently with the execution and delivery of this
Agreement, Company, Parent and Turbo Acquisition Corp., a Delaware corporation
and wholly-owned subsidiary of Parent ("Merger Sub"), are entering into an
Agreement and Plan of Merger and Reorganization, dated as of the date hereof
(the "Reorganization Agreement"), pursuant to which, among other things, upon
the terms and subject to the conditions thereof, Merger Sub will be merged with
and into Company (the "Merger"), with Company continuing as the surviving
corporation; and
WHEREAS, as a condition and inducement to Parent's willingness to
enter into the Reorganization Agreement, Parent has required that Company agree,
and Company has agreed, to grant to Parent an option to purchase certain newly
issued shares of Company's Common Stock, par value $.01 per share ("Company
Common Stock"), upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein and in the Reorganization Agreement,
the parties hereto agree as follows:
1. Grant of Option. Company hereby grants to Parent an irrevocable
---------------
option (the "Company Option") to purchase up to 3,369,881 shares (the "Company
Shares") of Company Common Stock" in the manner set forth below at a price
(the "Exercise Price") of $93.45 per Company Share, payable in cash.
2. Exercise of Option. (a) The Company Option may be exercised by
------------------
Parent, in whole or in part at any time or from time to time after (i) the
occurrence of any of the events described in Section 7.3(b) of the
Reorganization Agreement or (ii) immediately prior to the occurrence of any of
the events which obligate Company to pay Parent the Termination Fee pursuant
to section 7.3(c) of the Reorganization Agreement. In the event Parent wishes
to exercise the Company Option, Parent shall deliver to Company a written
notice (an "Exercise Notice") specifying the total number of Company Shares it
wishes to purchase; provided that, if prior notification to or approval of the
--------
Office of Thrift Supervision (the "OTS") or any other regulatory or antitrust
agency is required in connection with such purchase, Parent shall promptly
file the required notice or application for approval, shall promptly notify
Company of such filing, and shall expeditiously process the same and the
period of time that otherwise would run pursuant to this sentence shall run
instead from the date on which any required notification periods have expired
or been terminated or such approvals have been obtained and any requisite
waiting period or periods shall have passed. Each closing of a purchase of
Company Shares (an
<PAGE>
"Option Closing") shall occur at a place, on a date and at a time designated
by Parent in an Exercise Notice delivered at least two business days prior to
the date of the Option Closing. The Company Option shall terminate upon the
earlier of: (w) the Effective Time; (x) the termination of the Reorganization
Agreement pursuant to Section 7.1 thereof (other than a termination in
connection with which Parent is entitled to any payments as specified in
Sections 7.3(b) or (c) thereof); (y) 180 days following any termination of the
Reorganization Agreement in connection with which Parent is entitled to a
payment as specified in Section 7.3(b) thereof (or if, at the expiration of
such 180 day period, the Company Option cannot be exercised by reason of any
applicable judgment, decree, order, law or regulation, twenty (20) business
days after such impediment to exercise shall have been removed or shall have
become final and not subject to appeal); or (z) 180 days following the
occurrence of any event in connection with which Parent has become entitled to
payment of the Termination Fee pursuant to Section 7.3(c) of the
Reorganization Agreement (or if, at the expiration of such 180 day period, the
Company Option cannot be exercised by reason of any applicable judgment,
decree, order, law or regulation, twenty (20) business days after such
impediment to exercise shall have been removed or shall have become final and
not subject to appeal).
(b) Notwithstanding any other provision of this Agreement or the
Reorganization Agreement, in no event shall Parent's Total Profit (as
hereinafter defined) exceed in the aggregate $90,000,000 and, if it otherwise
would exceed such amount Parent, in its sole discretion, shall either (i) reduce
the number of Company Shares subject to the Company Option, (ii) pay cash to
Company, (iii) receive a smaller Termination Fee (as defined in Section 7.3(b)
of the Reorganization Agreement) or (iv) any combination thereof, so that
Parent's actually realized Total Profit shall not exceed in the aggregate
$90,000,000 after taking into account the foregoing actions.
(c) As used herein, the term "Total Profit" shall mean the sum of (i) (x)
the amount (before taxes but net of reasonable and customary commissions paid or
payable in connection with such transaction) received by parent pursuant to the
sale of Company Shares less (y) Parent's purchase price for such Company Shares,
(ii) any amounts (before taxes but net of reasonable and customary commissions
paid or payable in connection with such transaction) received by parent on the
transfer of the Company Option (or any portion thereof) to any unaffiliated
Person(s) (if permitted hereunder) or to Company and (iii) the amount received
by Parent pursuant to Section 7.3(b) or Section 7.3(c) of the Reorganization
Agreement.
3. Conditions to Closing. The obligation of Company to issue the
---------------------
Company Shares to Parent hereunder is subject to the conditions that (i) all
consents, approvals, orders or authorizations of, or registrations,
declarations or filings with, any Governmental Entity or Regulatory Entity if
any, required in connection with the issuance of the Company Shares hereunder
shall have been obtained or made, as the case may be; and (ii) no preliminary
or permanent injunction or other order by any court of competent jurisdiction
prohibiting or otherwise restraining such issuance shall be in effect.
4. Closing. At each Option Closing, (a) Company will deliver to
-------
Parent a certificate or certificates in definitive form representing the
number of Company Shares
2
<PAGE>
designated by Parent in its Exercise Notice, such certificate or certificates
to be registered in the name of Parent or its designee and to bear the legend
set forth in Section 10, and (b) Parent will deliver to Company the aggregate
Exercise Price for the Company Shares so designated by wire transfer of
immediately available funds or certified check or bank check. At any Option
Closing at which Parent is exercising the Company Option in part, Parent shall
present and surrender this Agreement to Company, and Company shall deliver to
Parent an executed new agreement with the same terms as this Agreement
evidencing the right to purchase the remaining balance of the shares of
Company Common Stock purchasable hereunder.
5. Representations and Warranties of Company. Company represents
-----------------------------------------
and warrants to Parent that (a) Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the corporate power and authority to enter into this Agreement and to
carry out its obligations hereunder, (b) the execution and delivery of this
Agreement by Company and the consummation by Company of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Company and no other corporate proceedings on the part
of Company are necessary to authorize this Agreement or any of the
transactions contemplated hereby, (c) this Agreement has been duly executed
and delivered by Company and constitutes a valid and binding obligation of
Company, enforceable against Company in accordance with its terms, except as
such enforceability may be limited by bankruptcy and other laws affecting the
rights and remedies of creditors generally and general principles of equity,
(d) Company has taken all action necessary to authorize and reserve for
issuance and to permit it to issue, upon exercise of the Company Option, and
at all times from the date hereof through the expiration of the Company Option
will have reserved, that number of unissued Company Shares that are subject to
the Company Option, all of which, upon their issuance and delivery in
accordance with the terms of this Agreement, will be validly issued, fully
paid and nonassessable, (e) upon delivery of the Company Shares to Parent upon
the exercise of the Company Option, Parent will acquire the Company Shares
free and clear of all liens, claims, charges, encumbrances and security
interests of any nature whatsoever except those imposed by Parent, (f)
assuming that the consents approvals, authorizations, permits, filings and
notifications referred to in subsection (g) are obtained or made, as
applicable, the execution and delivery of this Agreement by Company does not,
and the performance of this Agreement by Company will not, conflict with, or
result in any violation of, or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or the loss of a benefit under, or the creation
of a lien, pledge, security interest or other encumbrance on assets pursuant
to (any such conflict, violation, default, right of termination, cancellation
or acceleration, loss or creation, a "Violation"), (A) any provision of the
Amended and Restated Certificate of Incorporation or By-laws, each as amended,
of Company or (B) any provisions of any material mortgage, indenture, lease,
contract or other agreement, instrument, permit, concession, franchise, or
license or (C) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Company or its properties or assets, except in the
case of clauses (B) and (C) immediately above, for violations which would not,
individually or in the aggregate, have a Material Adverse Effect on Company
and (g) except as described in Section 2.3 of the Reorganization Agreement,
the execution and delivery of this Agreement by Company does not, and the
performance of this Agreement by Company will not, require any
3
<PAGE>
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Entity or Regulatory Entity.
6. Representations and Warranties of Parent. Parent represents and
----------------------------------------
warrants to Company that (a) Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the corporate power and authority to enter into this Agreement and to carry
out its obligations hereunder, (b) the execution and delivery of this
Agreement by Parent and the consummation by Parent of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Parent and no other corporate proceedings on the part of
Parent are necessary to authorize this Agreement or any of the transactions
contemplated hereby, (c) this Agreement has been duly executed and delivered
by Parent and constitutes a valid and binding obligation of Parent,
enforceable against Parent in accordance with its terms, except as such
enforceability may be limited by bankruptcy and other laws affecting the
rights and remedies of creditors generally and general principles of equity,
(d) assuming that the consents, approvals, authorizations, permits, filings
and notifications referred to in subsection (e) are obtained or made, as
applicable, the execution and delivery of this Agreement by Parent does not,
and the performance of this Agreement by Parent will not, result in any
Violation pursuant to, (A) any provision of the Certificate of Incorporation
or By-laws, each as amended, of Parent, (B) any provisions of any material
mortgage, indenture, lease, contract or other agreement, instrument, permit,
concession, franchise, or license or (C) any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Parent or its properties or
assets, except in the case of each of clauses (B) and (C) immediately, above,
for Violations which would not, individually or in the aggregate, have a
Material Adverse Effect on Parent, (e) except as described in Section 3.3 of
the Reorganization Agreement and Section 3(a) of this Agreement, and except as
may be required under the Exchange Act, the execution and delivery of this
Agreement by Parent does not, and the performance of this Agreement by Parent
will not, require any consent, approval, authorization or permit of, or filing
with or notification to, any Governmental Entity or Regulatory Entity and (f)
any Company Shares acquired upon exercise of the Company Option will not be,
and the Company Option is not being, acquired by Parent with a view to the
public distribution thereof and Parent will not sell or otherwise dispose of
such shares in violation of applicable law or this Agreement.
7. Registration Rights.
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(a) Following any exercise of the Company Option, Parent may by
written notice (the "Registration Notice") to Company request Company to
register under the Securities Act all or any part of the shares of Company
Common Stock acquired pursuant to this Agreement, including any voting
securities issued by way of dividend, distribution or otherwise in respect
thereof (the "Restricted Shares"), beneficially owned by Parent (the
"Registrable Securities") in order to permit the sale or other distribution of
such Registrable Securities, including pursuant to a firm commitment
underwritten public offering; provided, however, that any such Registration
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Notice must relate to a number of shares equal to at least 2% of the
outstanding shares of Company Common Stock and that any rights to require
registration hereunder shall terminate with respect to any Shares that may
be sold in any 90-day period pursuant to Rule 144 under the Securities Act.
The Registration Notice shall include a certificate executed by Parent and
its proposed managing underwriter, which underwriter shall be an
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investment banking firm of nationally recognized standing and reasonably
acceptable to the Company (the "Manager"), stating that Manager in good faith
believes that, based on the then prevailing market conditions, it will be able
to sell the Registrable Securities at a per share price equal to at least 90%
of the Fair Market Value of such shares. For purposes of this Section 8, the
term "Fair Market Value" shall mean the per share average of the closing sale
prices of Company's Common Stock on the Nasdaq National Market for the twenty
(20) trading days immediately preceding the date of the Registration Notice.
(b) Company shall use commercially reasonable efforts to effect,
as promptly as practicable, the registration under the Securities Act of the
unpurchased Registrable Securities; provided, however, that (i) Parent shall
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not be entitled to more than two effective registration statements hereunder
and (ii) Company will not be required to file any such registration statement
during any period of time (not to exceed 40 days after such request in the
case of clause (A) below or 90 days in the case of clauses (B) and (C) below)
when (A) Company is in possession of material non-public information which it
reasonably believes would be detrimental to be disclosed at such time and,
based on consultation with counsel to Company, such information would have to
be disclosed if a registration statement were filed at that time; (B) Company
is required under the Securities Act to include audited financial statements
for any period in such registration statement and such financial statements
are not yet available for inclusion in such registration statement; or (C)
Company determines, in its reasonable good faith, judgment, that such
registration would interfere with any financing, acquisition or other material
transaction involving Company or any of its affiliates. If consummation of the
sale of any Registrable Securities pursuant to a registration hereunder does
not occur within 180 days after the filing with the SEC of the initial
registration statement, then such registration shall not be taken into account
as an effective registration for purposes of clause (i) above. Company shall
use commercially reasonable efforts to cause any Registrable Securities
registered pursuant to this Section 8 to be qualified for sale under the
securities or Blue Sky laws of such jurisdictions as Parent may reasonably
request and shall continue such registration or qualification in effect in
such jurisdiction; provided, however, that Company shall not be required to
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qualify to do business in, or consent to general service of process in, any
jurisdiction by reason of this provision.
(c) The registration rights set forth in this Section 8 are
subject to the condition that Parent shall provide Company with such
information with respect to Parent's Registrable Securities, the plans for the
distribution thereof, and such other information with respect to Parent as, in
the reasonable judgment of counsel for Company, is necessary to enable Company
to include in such registration statement all material facts required to be
disclosed with respect to a registration thereunder.
(d) If Company securities of the same type as the Registrable
Securities are then authorized for quotation or trading or listing on the New
York Stock Exchange, the Nasdaq National Market, or any other securities
exchange or automated quotations system, Company, upon the request of Parent,
shall promptly file an application, if required, to authorize for quotation,
trading or listing the shares of Registrable Securities on such exchange or
system and will use its reasonable best efforts to obtain approval, if
required, of such quotation, trading or listing as soon as practicable.
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(e) A registration effected under this Section 7 shall be
effected at Company's expense, except for underwriting discounts and
commissions and fees and expenses of counsel to Parent, and Company shall
provide to the underwriters such documentation (including certificates,
opinions of counsel and "comfort" letters from auditors) as are customary in
connection with underwritten public offerings as such underwriters may
reasonably require. In connection with any such registration, the parties
agree (i) to indemnify each other and the underwriters in the customary manner
and (ii) to enter into an underwriting agreement in form and substance
customary for transactions of the type contemplated hereby with the Manager
and the other underwriters participating in such offering.
8. Adjustment Upon Changes in Capitalization.
-----------------------------------------
(a) In the event of any change in Company Common Stock by reason
of stock dividends, splits, mergers (other than the Merger),
recapitalizations, combinations, exchange of shares or the like, the type and
number of shares or securities subject to the Company Option, and the Exercise
Price per share, shall be adjusted appropriately, and proper provision shall
be made in the agreements governing such transaction so that Parent shall
receive, upon exercise of the Company Option, the number and class of shares
or other securities or property that Parent would have received in respect of
the Company Common Stock if the Company Option had been exercised immediately
prior to such event or the record date therefor, as applicable.
(b) In the event that Company shall enter in an agreement: (i)
to consolidate with or merge into any person, other than Parent or any of its
Subsidiaries, and shall not be the continuing or surviving corporation of such
consolidation or merger; (ii) to permit any person, other than Parent or one
of its subsidiaries, to merge into Company and Company shall be the continuing
or surviving corporation, but, in connection with such merger, the then-
outstanding shares of Company Common Stock shall be changed into or exchanged
for stock or other securities of Company or any other person or cash or any
other property or the outstanding shares of Company Common Stock immediately
prior to such merger shall after such merger represent less than 50% of the
outstanding shares and share equivalents of the merged company; or (iii) to
sell or otherwise transfer all or substantially all of its assets to any
person, other than Parent or any of its Subsidiaries, then, and in each such
case, the agreement governing such transaction shall make proper provision so
that upon the consummation of any such transaction and upon the terms and
conditions set forth herein, Parent shall receive for each Company Share with
respect to which the Company Option has not been exercised an amount of
consideration in the form of and equal to the per share amount of
consideration that would be received by the holder of one share of Company
Common Stock less the Exercise Price (and, in the event of an election or
similar arrangement with respect to the type of consideration to be received
by the holders of Company Common Stock, subject to the foregoing, proper
provision shall be made so that the holder of the Company Option would have
the same election or similar rights as would the holder of the number of
shares of Company Common Stock for which the Company Option is then
exercisable).
9. Certain Agreements of Company. Company agrees: (1) that it will
-----------------------------
not, by charter amendment or through reorganization, consolidation, merger,
dissolution or sale of
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assets, or by any other voluntary act, avoid or seek to avoid the observance
or performance of any of the covenants, stipulations or conditions to be
observed or performed hereunder by Company and (2) promptly to take all action
as may from time to time be required (including (x) complying with all
applicable premerger notification, reporting and waiting period requirements
specified in 15 U.S.C. Section 18a and regulations promulgated thereunder and
(y) in the event that, under the Home Owners' Loan Act, as amended, or any
state or other federal banking law, prior approval of or notice to the OTS or
to any state or other federal regulatory authority is necessary before the
Option may be exercised, cooperating fully with Parent in preparing such
applications or notices and providing such information to the OTS or such
state or other federal regulatory authority as they may require) in order to
permit Parent to exercise the Option and Company duly and effectively to issue
shares of Company Common Stock pursuant hereto.
10. Restrictive Legends. Each certificate representing shares of
-------------------
Company Common Stock issued to Parent hereunder shall, to the extent
applicable, include a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR
SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT, DATED AS OF MAY 31, 1999, A
COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER.
11. Binding Effect; No Assignment. This Agreement shall be binding
-----------------------------
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Neither this Agreement nor the rights or the
obligations of either party hereto are assignable, except by operation of law,
or with the written consent of the other party. Nothing contained in this
Agreement, express or implied, is intended to confer upon any person other
than the parties hereto and their respective permitted assigns any rights or
remedies of any nature whatsoever by reason of this Agreement. Any Restricted
Shares sold by Parent in compliance with the provisions of Section 7 shall,
upon consummation of such sale, be free of the restrictions imposed with
respect to such shares by this Agreement, unless and until Parent shall
repurchase or otherwise become the beneficial owner of such shares, and any
transferee of such shares shall not be entitled to the rights of Parent.
Certificates representing shares sold in a registered public offering pursuant
to Section 7 shall not be required to bear the legend set forth in Section 10.
12. Specific Performance. The parties recognize and agree that if
--------------------
for any reason any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached, immediate and
irreparable harm or injury would be caused for which money damages would not
be an adequate remedy. Accordingly, each party agrees that, in addition to
other remedies, the other party shall be entitled to an injunction restraining
any violation or threatened violation of the provisions of this Agreement. In
the event that any action should be brought in equity to enforce the
provisions of this Agreement, neither party will allege, and each party hereby
waives the defense, that there is an adequate remedy at law.
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13. Entire Agreement. This Agreement and the Reorganization
----------------
Agreement (including the Company Disclosure Schedule and the Parent Disclosure
Schedule relating thereto) constitute the entire agreement among the parties
with respect to the subject matter hereof and supersede all other prior
agreements and understandings, both written and oral, among the parties or any
of them with respect to the subject matter hereof.
14. Further Assurance. Each party will execute and deliver all such
-----------------
further documents and instruments and take all such further action as may be
necessary in order to consummate the transactions contemplated hereby.
15. Validity. The invalidity or unenforceability of any provision of
--------
this Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect. In
the event any court or other competent authority holds any provision of this
Agreement to be null, void or unenforceable, the parties hereto shall
negotiate in good faith the execution and delivery of an amendment to this
Agreement in order, as nearly as possible, to effectuate, to the extent
permitted by law, the intent of the parties hereto with respect to such
provision. Each party agrees that, should any court or other competent
authority hold any provision of this Agreement or part hereof to be null, void
or unenforceable, or order any party to take any action inconsistent herewith,
or not take any action required herein, the other party shall not be entitled
to specific performance of such provision or part hereof or to any other
remedy, including but not limited to money damages, for breach hereof or of
any other provision of this Agreement or part hereof as the result of such
holding or order.
16. Notices. Any notice or communication required or permitted
-------
hereunder shall be in writing and either delivered personally, telegraphed or
telecopied or sent by certified or registered mail, postage prepaid, and shall
be deemed to be given, dated and received when so delivered personally,
telegraphed or telecopied or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address
or addresses as such person may subsequently designate by notice given
hereunder.
(a) if to Parent or Merger Sub, to:
E*TRADE Group, Inc.
Four Embarcadero Place
2400 Geng Road
Palo Alto, CA 94303
Attention: Thomas A. Bevilacqua, Esq.
Facsimile No.: (650) 842-8781
Telephone No.: (650) 842-2475
with a copy to:
Brobeck, Phleger & Harrison LLP
2200 Geng Road
Two Embarcadero Place
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Palo Alto, CA 94303
Attention: Curtis L. Mo, Esq.
Facsimile No.: (650) 496-2885
and
Brobeck, Phleger & Harrison LLP
Spear Street Tower
One Market
San Francisco, CA 94105
Attention: J. Michael Shepherd, Esq.
Steve L. Camahort, Esq.
Facsimile No.: (415) 442-1010
(b) if to Company, to:
Telebanc Financial Corporation
1111 North Highland Street
Arlington, VA 22201-2807
Attention: President
Facsimile No.: (703) 524-0556
with a copy to:
Hogan & Hartson LLP
Columbia Square
555 Thirteenth Street, N.W.
Washington D.C. 20204
Attention: Steven Museles, Esq.
Stuart Stein, Esq.
Facsimile No.: (202) 637-5600
17. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware applicable to agreements
made and to be performed entirely within such State without regard to any
applicable conflicts of law rules.
18. Descriptive Headings. The descriptive headings herein are
--------------------
inserted for convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
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19. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed to be an original, but all of which, taken
together, shall constitute one and the same instrument.
20. Expenses. Except as otherwise expressly provided herein or in
--------
the Reorganization Agreement, all costs and expenses incurred in connection
with the transactions contemplated by this Agreement shall be paid by the
party incurring such expenses.
21. Amendments; Waiver. This Agreement may be amended by the parties
------------------
hereto and the terms and conditions hereof may be waived only by an instrument
in writing signed on behalf of each of the parties hereto, or, in the case of
a waiver, by an instrument signed on behalf of the party waiving compliance.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the date first
above written.
E*TRADE Group, Inc.
By: /s/ Christos M. Cotsakos
---------------------------------------
Name: Christos M. Cotsakos
Title: Chief Executive Officer
Telebanc Financial Corporation
By: /s/ Mitchell H. Caplan
---------------------------------------
Name: Mitchell H. Caplan
Title: President and Chief Executive Officer
SIGNATURE PAGE TO STOCK OPTION AGREEMENT
