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Sample Business ContractsHome: Sample Business Contracts:
AGREEMENT AND PLAN OF MERGER
AMONG
TRAVELERS GROUP INC.
DIAMONDS ACQUISITION CORP.
AND
SALOMON INC
DATED AS OF SEPTEMBER 24, 1997
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TABLE OF CONTENTS
PAGE
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ARTICLE I
THE MERGER
SECTION 1.1 The Merger . . . . . . . . . . . . . . . . 2
SECTION 1.2 Closing . . . . . . . . . . . . . . . . . 2
SECTION 1.3 Effective Time . . . . . . . . . . . . . . 2
SECTION 1.4 Effects of the Merger . . . . . . . . . . 3
SECTION 1.5 Certificate of Incorporation and By-laws
of the Surviving Corporation . . . . . . . 3
SECTION 1.6 Directors and Officers . . . . . . . . . . 3
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
SECTION 2.1 Effect on Capital Stock . . . . . . . . . 4
(a) Cancellation of Treasury Stock . . . 4
(b) Conversion of Company Common Stock . 4
(c) Conversion of Company Preferred
Stock . . . . . . . . . . . . . . . . 5
(d) Conversion of Common Stock of Sub . . 7
(e) Assumption of Obligations under
Deposit Agreements . . . . . . . . . 7
SECTION 2.2 Exchange of Certificates . . . . . . . . . 7
(a) Exchange Agent . . . . . . . . . . . 7
(b) Exchange Procedures . . . . . . . . . 8
(c) Distributions with Respect to
Unexchanged Shares . . . . . . . . . 9
(d) No Further Ownership Rights in
Company Common Stock . . . . . . . . 10
(e) No Fractional Shares . . . . . . . . 10
(f) Termination of Exchange Fund . . . . 12
(g) No Liability . . . . . . . . . . . . 13
(h) Investment of Exchange Fund . . . . . 13
(i) Lost Certificates . . . . . . . . . . 13
SECTION 2.3 Certain Adjustments . . . . . . . . . . . 13
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TABLE OF CONTENTS
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Disclosure Schedules . . . . . . . . . . . 14
SECTION 3.2 Standard . . . . . . . . . . . . . . . . . 14
SECTION 3.3 Representations and Warranties of the
Company . . . . . . . . . . . . . . . . . 15
(a) Organization, Standing and Corporate
Power . . . . . . . . . . . . . . . . 15
(b) Subsidiaries . . . . . . . . . . . . 16
(c) Capital Structure . . . . . . . . . . 16
(d) Authority; Noncontravention . . . . . 19
(e) SEC Documents; Undisclosed
Liabilities . . . . . . . . . . . . . 20
(f) Information Supplied . . . . . . . . 21
(g) Absence of Certain Changes or
Events . . . . . . . . . . . . . . . 22
(h) Compliance with Applicable Laws;
Litigation . . . . . . . . . . . . . 23
(i) Absence of Changes in Benefit Plans . 24
(j) ERISA Compliance . . . . . . . . . . 25
(k) Taxes . . . . . . . . . . . . . . . . 27
(l) Voting Requirements . . . . . . . . . 28
(m) State Takeover Statutes . . . . . . . 28
(n) Accounting Matters . . . . . . . . . 28
(o) Brokers . . . . . . . . . . . . . . . 28
(p) Ownership of Parent Capital Stock . . 29
(q) Intellectual Property . . . . . . . . 29
(r) Certain Contracts . . . . . . . . . . 29
(s) Rights Agreement . . . . . . . . . . 30
(t) Environmental Liability . . . . . . . 30
(u) Derivative Transactions . . . . . . . 31
(v) Investment Securities and
Commodities . . . . . . . . . . . . . 32
(w) Ineligible Persons . . . . . . . . . 32
SECTION 3.4 Representations and Warranties of Parent . 33
(a) Organization, Standing and Corporate
Power . . . . . . . . . . . . . . . . 33
(b) Subsidiaries . . . . . . . . . . . . 34
(c) Capital Structure . . . . . . . . . . 34
(d) Authority; Noncontravention . . . . . 37
(e) SEC Documents; Undisclosed
Liabilities . . . . . . . . . . . . . 38
(f) Information Supplied . . . . . . . . 39
(g) Absence of Certain Changes or Events 40
(h) Compliance with Applicable Laws;
Litigation . . . . . . . . . . . . . 41
(i) Absence of Changes in Benefit Plans . 41
(j) ERISA Compliance . . . . . . . . . . 42
(k) Taxes . . . . . . . . . . . . . . . . 44
(l) Accounting Matters . . . . . . . . . 44
(m) Brokers . . . . . . . . . . . . . . . 45
(n) Ownership of Company Capital Stock . 45
(o) Voting Requirements . . . . . . . . . 45
(p) Environmental Liability . . . . . . . 45
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ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1 Conduct of Business . . . . . . . . . . . 46
(a) Conduct of Business by the Company . 46
(b) Conduct of Business by Parent . . . . 50
(c) Compensation Matters . . . . . . . . 51
(d) Coordination of Dividends . . . . . . 53
(e) Other Actions . . . . . . . . . . . . 53
(f) Advice of Changes . . . . . . . . . . 54
SECTION 4.2 No Solicitation by the Company . . . . . . 54
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 Preparation of the Form S-4 and the Proxy
Statement; Stockholders Meetings . . . . . 57
SECTION 5.2 Letters of the Company's Accountants . . . 58
SECTION 5.3 Letters of Parent's Accountants . . . . . 59
SECTION 5.4 Access to Information; Confidentiality . . 59
SECTION 5.5 Best Efforts . . . . . . . . . . . . . . . 60
SECTION 5.6 Employee Stock Options, Incentive and Benefit
Plans . . . . . . . . . . . . . . . . . . 62
SECTION 5.7 Indemnification, Exculpation and Insurance 64
SECTION 5.8 Fees and Expenses . . . . . . . . . . . . 66
SECTION 5.9 Public Announcements . . . . . . . . . . . 67
SECTION 5.10 Affiliates . . . . . . . . . . . . . . . . 68
SECTION 5.11 Stock Exchange Listing . . . . . . . . . . 69
SECTION 5.12 Stockholder Litigation . . . . . . . . . . 69
SECTION 5.13 Tax Treatment . . . . . . . . . . . . . . 69
SECTION 5.14 Pooling of Interests . . . . . . . . . . . 70
SECTION 5.15 Standstill Agreements; Confidentiality
Agreements . . . . . . . . . . . . . . . . 70
SECTION 5.16 Conveyance Taxes . . . . . . . . . . . . . 70
SECTION 5.17 Company Convertible Notes; Company Series F
Preferred Stock . . . . . . . . . . . . . 71
SECTION 5.18 Compliance with 1940 Act Section 15 . . . 71
SECTION 5.19 Certain Contracts . . . . . . . . . . . . 72
SECTION 5.20 Investment Advisory Agreements. . . . . . 73
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 Conditions to Each Party's Obligation to
Effect the Merger . . . . . . . . . . . . 73
(a) Stockholder Approval . . . . . . . . 73
(b) HSR Act . . . . . . . . . . . . . . . 73
(c) Governmental and Regulatory
Approvals . . . . . . . . . . . . . . 73
(d) No Injunctions or Restraints . . . . 74
(e) Form S-4 . . . . . . . . . . . . . . 74
(f) NYSE Listing . . . . . . . . . . . . 74
SECTION 6.2 Conditions to Obligations of Parent . . . 74
(a) Representations and Warranties . . . 75
(b) Performance of Obligations of the
Company . . . . . . . . . . . . . . . 75
(c) Tax Opinion . . . . . . . . . . . . . 75
SECTION 6.3 Conditions to Obligations of the Company . 75
(a) Representations and Warranties . . . 75
(b) Performance of Obligations of Parent 76
(c) Tax Opinions . . . . . . . . . . . . 76
SECTION 6.4 Frustration of Closing Conditions . . . . 76
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ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 Termination . . . . . . . . . . . . . . . 76
SECTION 7.2 Effect of Termination . . . . . . . . . . 78
SECTION 7.3 Amendment . . . . . . . . . . . . . . . . 78
SECTION 7.4 Extension; Waiver . . . . . . . . . . . . 78
SECTION 7.5 Procedure for Termination, Amendment,
Extension or Waiver . . . . . . . . . . . 79
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 Nonsurvival of Representations and
Warranties . . . . . . . . . . . . . . . . 79
SECTION 8.2 Notices . . . . . . . . . . . . . . . . . 79
SECTION 8.3 Definitions . . . . . . . . . . . . . . . 80
SECTION 8.4 Interpretation . . . . . . . . . . . . . . 82
SECTION 8.5 Counterparts . . . . . . . . . . . . . . . 83
SECTION 8.6 Entire Agreement; No Third-Party
Beneficiaries . . . . . . . . . . . . . . 83
SECTION 8.7 Governing Law . . . . . . . . . . . . . . 83
SECTION 8.8 Assignment . . . . . . . . . . . . . . . . 83
SECTION 8.9 Consent to Jurisdiction . . . . . . . . . 83
SECTION 8.10 Headings . . . . . . . . . . . . . . . . . 84
SECTION 8.11 Severability . . . . . . . . . . . . . . . 84
<PAGE>
AGREEMENT AND PLAN OF MERGER dated as of September 24, 1997, by and
among TRAVELERS GROUP INC., a Delaware corporation ("Parent"), DIAMONDS
ACQUISITION CORP., a Delaware corporation ("Sub"), and SALOMON INC, a Delaware
corporation (the "Company").
WHEREAS, the respective Boards of Directors of Parent, Sub and the
Company have each approved the merger of Sub with and into the Company (the
"Merger"), upon the terms and subject to the conditions set forth in this
Agreement, whereby (a) each issued and outstanding share of common stock, par
value $1.00 per share, of the Company ("Company Common Stock"), other than
shares owned by the Company, will be converted into the right to receive the
Merger Consideration (as defined in Section 2.1(b)) and (b) each issued and
outstanding share of Company Preferred Stock (as defined in Section 2.1(c)),
other than shares owned by the Company, will be converted into the right to
receive one share of a corresponding series of preferred stock of Parent
pursuant to Article II;
WHEREAS, the respective Boards of Directors of Parent, Sub and the
Company have each determined that the Merger and the other transactions
contemplated hereby are consistent with, and in furtherance of, their respective
business strategies and goals and are in the best interests of their respective
stockholders;
WHEREAS, the parties desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger;
WHEREAS, for federal income tax purposes, it is intended that the
Merger will qualify as a reorganization under the provisions of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, for financial accounting purposes, it is intended that the
Merger will be accounted for as a pooling of interests transaction under United
States generally accepted accounting principles ("GAAP"); and
WHEREAS, concurrently with the execution of this Agreement, and as an
inducement to Parent and Sub to enter into this Agreement, a stockholder of the
Company has entered into a Voting Agreement, dated as of the date hereof (the
"Voting Agreement"), between Parent and the stockholder providing, among other
things, that such stockholder will vote, or cause to be voted, at the Company
Stockholders Meeting (as defined in Section 5.1(b)) all of the Company's voting
securities owned at the time of such meeting by such stockholder and its
subsidiaries in favor of the Merger and will grant or cause to be granted
proxies to Parent for that purpose.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
<PAGE>
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the Delaware General
Corporation Law (the "DGCL"), Sub shall be merged with and into the Company at
the Effective Time (as defined in Section 1.3). Following the Effective Time,
the Company shall be the surviving corporation (the "Surviving Corporation") and
become a wholly owned subsidiary of Parent and shall succeed to and assume all
the rights and obligations of Sub in accordance with the DGCL.
SECTION 1.2 Closing. Subject to the satisfaction or waiver of all the
conditions to closing contained in Article VI hereof, the closing of the Merger
(the "Closing") will take place at 10:00 a.m. on a date to be specified by the
parties (the "Closing Date"), which shall be no later than the second day after
satisfaction or waiver of the conditions set forth in Article VI, unless another
time or date is agreed to by the parties hereto; provided that in no event shall
the Closing Date be other than a Friday, Saturday or Sunday. The Closing will be
held at such location in the City of New York as is agreed to by the parties
hereto.
SECTION 1.3 Effective Time. Subject to the provisions of this
Agreement, as soon as practicable on the Closing Date, the parties shall cause
the Merger to be consummated by filing a certificate of merger or other
appropriate documents (in any such case, the "Certificate of Merger") executed
in accordance with the relevant provisions of the DGCL and shall make all other
filings or recordings required under the DGCL. The Merger shall become effective
at such time as the Certificate of Merger is duly filed with the Secretary of
State of Delaware, or at such subsequent date or time as Sub and the Company
shall agree and specify in the Certificate of Merger (the time the Merger
becomes effective being hereinafter referred to as the "Effective Time").
2
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SECTION 1.4 Effects of the Merger. The Merger shall have the effects
set forth in Section 259 of the DGCL.
SECTION 1.5 Certificate of Incorporation and By-laws of the Surviving
Corporation. The certificate of incorporation of the Company shall be amended as
of the Effective Time to read in its entirety like the certificate of
incorporation of Sub except that Article First of such certificate of
incorporation shall read in its entirety as follows: "The name of the
Corporation is Salomon Smith Barney Holdings Inc." and, as amended, such
certificate of incorporation shall be the certificate of incorporation of the
Surviving Corporation until thereafter changed or amended as provided therein or
by applicable law. The by-laws of Sub, as in effect immediately prior to the
Effective Time, shall become the by-laws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
SECTION 1.6 Directors and Officers. The directors identified in
Section 1.6 of the Parent Disclosure Schedule (as defined in Section 3.1) and
the officers of Sub shall, from and after the Effective Time, become the
directors and officers, respectively, of the Surviving Corporation until their
successors shall have been duly elected or appointed or qualified or until their
earlier death, resignation or removal in accordance with the certificate of
incorporation and the by-laws of the Surviving Corporation.
3
<PAGE>
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
SECTION 2.1 Effect on Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of Company Common Stock or Company Preferred Stock
(together, "Company Capital Stock"):
(a) Cancellation of Treasury Stock. Each share of Company Common Stock
and Company Preferred Stock that is owned directly by the Company shall
automatically be cancelled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor; provided, however, that
any shares of Company Common Stock or Company Preferred Stock (i) held by the
Company in connection with any market-making or proprietary trading activity or
for the account of another person, (ii) as to which the Company is or may be
required to act as a fiduciary or in a similar capacity or (iii) the
cancellation of which would violate any legal duties or obligations of the
Company shall not be cancelled but, instead, shall be treated as set forth in
Section 2.1(b) (in the case of Company Common Stock) or 2.1(c) (in the case of
Company Preferred Stock).
(b) Conversion of Company Common Stock. Subject to Section 2.2(e),
each issued and outstanding share of Company Common Stock (other than shares to
be cancelled in accordance with Section 2.1(a)), together with the rights (the
"Company Rights") attached thereto to purchase the Company's Series B Junior
Participating Preferred Stock ("Company Junior Preferred Stock") issued pursuant
to the Rights Agreement, dated as of February 8, 1988, as amended, between the
Company and First Chicago Trust Company of New York, as successor to Morgan
Shareholder Services Trust Company, as Rights Agent (the "Rights Agreement"),
shall be converted into the right to receive 1.13 (the "Exchange Ratio") validly
issued, fully paid and nonassessable shares of common stock, par value $.01 per
share ("Parent Common Stock"), of Parent. The consideration to be issued to
holders of Company Common Stock is referred to herein as the "Merger
Consideration." As of the Effective Time, all such shares of Company Common
Stock shall no longer be outstanding and shall automatically be cancelled and
retired and shall cease to exist, and each holder of a certificate representing
any such shares of Company Common Stock shall cease to have any rights with
respect thereto, except the right to receive the Merger Consideration and any
cash in lieu of fractional shares of Parent Common Stock to be issued or paid in
consideration therefor upon surrender of such certificate in accordance with
Section 2.2 and any dividends or distributions to which such holder is entitled
pursuant to Section 2.2(c), in each case without interest.
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(c) Conversion of Company Preferred Stock. (i) Each issued and
outstanding share of Series A Cumulative Convertible Preferred Stock of the
Company ("Company Series A Convertible Preferred Stock), other than shares to be
cancelled in accordance with Section 2.1(a), together with the Rights attached
thereto, shall be converted into the right to receive one validly issued, fully
paid and nonassessable share of Series I Cumulative Convertible Preferred Stock
of Parent ("Parent Convertible Preferred Stock"). Each share of Parent
Convertible Preferred Stock shall have terms that are substantially identical to
the terms of Company Series A Convertible Preferred Stock, provided that (A) as
a result of the Merger the issuer thereof shall be Parent rather than the
Company, (B) the number of shares of Parent Common Stock into which each share
of Parent Convertible Preferred Stock shall be convertible (at the same times
and subject to the same terms and conditions under which Company Series A
Convertible Preferred Stock is convertible into shares of Company Common Stock
immediately prior to the Effective Time) shall equal 26.31579 (which number
shall be subject to adjustment under the same circumstances, in the same manner
and to the same extent as set forth in the existing Certificate of Designation
relating to the Company Series A Convertible Preferred Stock) times the Exchange
Ratio and (C) each share of Parent Convertible Preferred Stock, when voting
together with the Parent Common Stock (and any other shares of capital stock of
Parent at the time entitled to vote) as a single class, shall be entitled to a
number of votes equal to the number of shares of Parent Common Stock into which
one share of Parent Convertible Preferred Stock will be convertible immediately
following the Merger.
5
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(ii) Each issued and outstanding share of 8.08% Cumulative
Preferred Stock, Series D, of the Company ("Company 8.08% Preferred
Stock"), other than shares to be cancelled in accordance with Section
2.1(a), shall be converted into the right to receive one validly issued,
fully paid and nonassessable share of 8.08% Cumulative Preferred Stock,
Series J, of Parent ("Parent 8.08% Preferred Stock"). Each share of Parent
8.08% Preferred Stock shall have terms that are substantially identical to
Company 8.08% Preferred Stock, provided that (A) as a result of the Merger
the issuer thereof shall be Parent rather than the Company and (B) each
share of Parent 8.08% Preferred Stock shall be entitled to three votes per
share, voting together as a class with the Parent Common Stock (and any
other shares of capital stock of Parent at the time entitled to vote), on
all matters submitted to a vote of stockholders of Parent, and shall be
entitled to one vote per share on all matters on which the Company 8.08%
Preferred Stock is entitled to vote, voting together as a class with any
other shares of preferred stock of Parent at the time entitled to vote.
(iii) Each issued and outstanding share of 8.40% Cumulative
Preferred Stock, Series E, of the Company ("Company 8.40% Preferred Stock,"
and together with Company Series A Convertible Preferred Stock and Company
8.08% Preferred Stock, "Company Preferred Stock"), other than shares to be
cancelled in accordance with Section 2.1(a), shall be converted into the
right to receive one validly issued, fully paid and nonassessable share of
8.40% Cumulative Preferred Stock, Series K, of Parent ("Parent 8.40%
Preferred Stock," and together with Parent Convertible Preferred Stock and
Parent 8.08% Preferred Stock, "Parent New Preferred Stock"). Each share of
Parent 8.40% Preferred Stock shall have terms that are substantially
identical to Company 8.40% Preferred Stock, provided that (A) as a result
of the Merger the issuer thereof shall be Parent rather than the Company
and (B) each share of Parent 8.40% Preferred Stock shall be entitled to
three votes per share, voting together as a class with the Parent Common
Stock (and any other shares of capital stock of Parent at the time entitled
to vote), on all matters submitted to a vote of stockholders of Parent, and
shall be entitled to one vote per share on all matters on which the Company
8.40% Preferred Stock is entitled to vote, voting together as a class with
any other shares of preferred stock of Parent at the time entitled to vote.
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(d) Conversion of Common Stock of Sub. Each issued and outstanding
share of common stock, par value $.01 per share, of Sub shall be converted into
one validly issued, fully paid and nonassessable share of common stock of the
Surviving Corporation.
(e) Assumption of Obligations under Deposit Agreements. At the
Effective Time, Parent shall assume the obligations of the Company under the
Deposit Agreement, dated as of February 23, 1993, among the Company, First
Chicago Trust Company of New York, as Depositary, and the depositary receipt
holders (with respect to Company 8.08% Preferred Stock), and the Deposit
Agreement, dated as of February 13, 1996, among the Company, First Chicago Trust
Company of New York, as Depositary, and the depositary receipt holders (with
respect to Company 8.40% Preferred Stock). Parent shall instruct the depositary
to treat the shares of Parent 8.08% Preferred Stock and the shares of Parent
8.40% Preferred Stock received by such depositary in exchange for and upon
conversion of the shares of Company 8.08% Preferred Stock and Company 8.40%
Preferred Stock, respectively, as new deposited securities under the applicable
deposit agreement. In accordance with the terms of the relevant deposit
agreement, the depositary receipts then outstanding shall thereafter represent
the shares of Parent 8.08% Preferred Stock and Parent 8.40% Preferred Stock so
received upon conversion and exchange for the shares of Company 8.08% Preferred
Stock and Company 8.40% Preferred Stock, respectively. Promptly following the
Effective Time, Parent shall request that the depositary call for the surrender
of all outstanding receipts to be exchanged for new receipts specifically
describing the relevant series of Parent New Preferred Stock.
SECTION 2.2 Exchange of Certificates. (a) Exchange Agent. As of the
Effective Time, Parent shall enter into an agreement with such bank or trust
company as may be designated by Parent and reasonably satisfactory to the
Company (the "Exchange Agent"), which shall provide that Parent shall deposit
with the Exchange Agent as of the Effective Time, for the benefit of the holders
of shares of Company Common Stock and Company Preferred Stock, for exchange in
accordance with this Article II, through the Exchange Agent, certificates
representing the shares of Parent Common Stock and Parent New Preferred Stock
(such shares of Parent Common Stock and Parent New Preferred Stock, together
with any dividends or distributions with respect thereto with a record date
after the Effective Time, any Excess Shares (as defined in Section 2.2(e)) and
any cash (including cash proceeds from the sale of the Excess Shares) payable in
lieu of any fractional shares of Parent Common Stock being hereinafter referred
to as the "Exchange Fund") issuable pursuant to Section 2.1 in exchange for
outstanding shares of Company Common Stock and Company Preferred Stock.
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(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock or Company Preferred
Stock (the "Certificates") whose shares were converted into the right to receive
the Merger Consideration or shares of Parent New Preferred Stock, as applicable,
pursuant to Section 2.1, (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 delivery of the Certificates to the Exchange Agent and shall be
in such form and have such other provisions as the Company and Parent may
reasonably specify) and (ii) instructions for use in surrendering the
Certificates in exchange for the Merger Consideration or shares of Parent New
Preferred Stock, as applicable. Upon surrender of a Certificate for cancellation
to the Exchange Agent, together with such letter of transmittal, duly executed,
and such other documents as may reasonably be required by the Exchange Agent,
the holder of such Certificate shall be entitled to receive in exchange therefor
a certificate representing that number of whole shares of Parent Common Stock or
Parent New Preferred Stock which such holder has the right to receive pursuant
to the provisions of this Article II, certain dividends or other distributions
in accordance with Section 2.2(c) and cash in lieu of any fractional share of
Parent Common Stock in accordance with Section 2.2(e), and the Certificate so
surrendered shall forthwith be cancelled. In the event of a surrender of a
Certificate representing shares of Company Common Stock or Company Preferred
Stock which are not registered in the transfer records of the Company under the
name of the person surrendering such Certificate, a certificate representing the
proper number of shares of Parent Common Stock or Parent New Preferred Stock may
be issued to a person other than the person in whose name the Certificate so
surrendered is registered if such Certificate shall be properly endorsed or
otherwise be in proper form for transfer and the person requesting such issuance
shall pay any transfer or other taxes required by reason of the issuance of
shares of Parent Common Stock or Parent New Preferred Stock to a person other
than the registered holder of such Certificate or establish to the satisfaction
of Parent that such tax has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.2, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender the Merger Consideration or shares of Parent New Preferred Stock, as
applicable, which the holder thereof has the right to receive in respect of such
Certificate pursuant to the provisions of this Article II, certain dividends or
other distributions in accordance with Section 2.2(c) and cash in lieu of any
fractional share of Parent Common Stock in accordance with Section 2.2(e). No
interest shall be paid or will accrue on any cash payable to holders of
Certificates pursuant to the provisions of this Article II.
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(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to Parent Common Stock or Parent New Preferred
Stock with a record date after the Effective Time shall be paid to the holder of
any unsurrendered Certificate with respect to the shares of Parent Common Stock
or Parent New Preferred Stock issuable hereunder in respect thereof, and, in the
case of Certificates representing Company Common Stock, no cash payment in lieu
of fractional shares shall be paid to any such holder pursuant to Section
2.2(e), and all such dividends, other distributions and cash in lieu of
fractional shares of Parent Common Stock shall be paid by Parent to the Exchange
Agent and shall be included in the Exchange Fund, in each case until the
surrender of such Certificate in accordance with this Article II, subject to
Section 2.2(f). Subject to the effect of applicable escheat or similar laws,
following surrender of any such Certificate there shall be paid to the holder of
the certificate representing whole shares of Parent Common Stock or Parent New
Preferred Stock issued in exchange therefor, without interest, (i) at the time
of such surrender, the amount of dividends or other distributions with a record
date after the Effective Time theretofore paid with respect to such whole shares
of Parent Common Stock or Parent New Preferred Stock and, in the case of
Certificates representing Company Common Stock, the amount of any cash payable
in lieu of a fractional share of Parent Common Stock to which such holder is
entitled pursuant to Section 2.2(e) and (ii) at the appropriate payment date,
the amount of dividends or other distributions with a record date after the
Effective Time and with a payment date subsequent to such surrender payable with
respect to such whole shares of Parent Common Stock or Parent New Preferred
Stock.
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(d) No Further Ownership Rights in Company Common Stock. All shares of
Parent Common Stock or Parent New Preferred Stock issued upon the surrender for
exchange of Certificates in accordance with the terms of this Article II
(including any cash paid pursuant to this Article II) shall be deemed to have
been issued (and paid) in full satisfaction of all rights pertaining to the
shares of Company Common Stock or Company Preferred Stock, as applicable,
theretofore represented by such Certificates, subject, however, to the Surviving
Corporation's obligation to pay any dividends or make any other distributions
with a record date prior to the Effective Time which may have been declared or
made by the Company on such shares of Company Common Stock or Company Preferred
Stock which remain unpaid at the Effective Time, and there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Common Stock or Company Preferred Stock
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation or the
Exchange Agent for any reason, they shall be cancelled and exchanged as provided
in this Article II, except as otherwise provided by law.
(e) No Fractional Shares. (i) No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of Certificates, no dividend or distribution of Parent shall relate to
such fractional share interests and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a stockholder of Parent.
(ii) As promptly as practicable following the Effective Time, the
Exchange Agent shall determine the excess of (A) the number of whole shares
of Parent Common Stock delivered to the Exchange Agent by Parent pursuant
to Section 2.2(a) over (B) the aggregate number of whole shares of Parent
Common Stock to be distributed to former holders of Company Common Stock
pursuant to Section 2.2(b) (such excess being herein called the "Excess
Shares"). Following the Effective Time, the Exchange Agent shall, on behalf
of the former stockholders of the Company, sell the Excess Shares at
then-prevailing prices on the New York Stock Exchange, Inc. ("NYSE"), all
in the manner provided in Section 2.2(e)(iii).
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(iii) The sale of the Excess Shares by the Exchange Agent shall
be executed on the NYSE through one or more member firms of the NYSE and
shall be executed in round lots to the extent practicable. The Exchange
Agent shall use reasonable efforts to complete the sale of the Excess
Shares as promptly following the Effective Time as, in the Exchange Agent's
sole judgment, is practicable consistent with obtaining the best execution
of such sales in light of prevailing market conditions. Until the net
proceeds of such sale or sales have been distributed to the holders of
Certificates formerly representing Company Common Stock, the Exchange Agent
shall hold such proceeds in trust for such holders (the "Common Shares
Trust"). The Surviving Corporation shall pay all commissions, transfer
taxes and other out-of-pocket transaction costs, including the expenses and
compensation of the Exchange Agent incurred in connection with such sale of
the Excess Shares. The Exchange Agent shall determine the portion of the
Common Shares Trust to which each former holder of Company Common Stock is
entitled, if any, by multiplying the amount of the aggregate net proceeds
comprising the Common Shares Trust by a fraction, the numerator of which is
the amount of the fractional share interest to which such former holder of
Company Common Stock is entitled (after taking into account all shares of
Company Common Stock held of record at the Effective Time by such holder)
and the denominator of which is the aggregate amount of fractional share
interests to which all former holders of Company Common Stock are entitled.
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(iv) Notwithstanding the provisions of Section 2.2(e)(ii) and
(iii), the Surviving Corporation may elect at its option, exercised prior
to the Effective Time, in lieu of the issuance and sale of Excess Shares
and the making of the payments hereinabove contemplated, to pay each former
holder of Company Common Stock an amount in cash equal to the product
obtained by multiplying (A) the fractional share interest to which such
former holder (after taking into account all shares of Company Common Stock
held of record at the Effective Time by such holder) would otherwise be
entitled by (B) the closing price of the Parent Common Stock as reported on
the NYSE Composite Transaction Tape (as reported in The Wall Street
Journal, or, if not reported therein, any other authoritative source) on
the Closing Date, and, in such case, all references herein to the cash
proceeds of the sale of the Excess Shares and similar references shall be
deemed to mean and refer to the payments calculated as set forth in this
Section 2.2(e)(iv).
(v) As soon as practicable after the determination of the amount
of cash, if any, to be paid to holders of Certificates formerly
representing Company Common Stock with respect to any fractional share
interests, the Exchange Agent shall make available such amounts to such
holders of Certificates formerly representing Company Common Stock subject
to and in accordance with the terms of Section 2.2(c).
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the holders of the Certificates for six months
after the Effective Time shall be delivered to Parent, upon demand, and any
holders of the Certificates who have not theretofore complied with this Article
II shall thereafter look only to Parent for payment of their claim for Merger
Consideration or shares of Parent New Preferred Stock, any dividends or
distributions with respect to Parent Common Stock or Parent New Preferred Stock,
as applicable, and any cash in lieu of fractional shares of Parent Common Stock.
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(g) No Liability. None of Parent, Sub, the Company, the Surviving
Corporation or the Exchange Agent shall be liable to any person in respect of
any shares of Parent Common Stock or Parent New Preferred Stock, any dividends
or distributions with respect thereto, any cash in lieu of fractional shares of
Parent Common Stock or any cash from the Exchange Fund, in each case delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar law.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any
cash included in the Exchange Fund, as directed by Parent (provided that such
cash shall be invested only in high quality short-term instruments with low risk
of loss of principal), on a daily basis. Any interest and other income resulting
from such investments shall be paid to Parent.
(i) Lost Certificates. If any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent shall issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration or shares of Parent New Preferred Stock
and, if applicable, any unpaid dividends and distributions on shares of Parent
Common Stock or Parent New Preferred Stock deliverable in respect thereof and
any cash in lieu of fractional shares of Parent Common Stock, in each case
pursuant to this Agreement.
SECTION 2.3 Certain Adjustments. If after the date hereof and on or
prior to the Closing Date the outstanding shares of Parent Common Stock shall be
changed into a different number of shares by reason of any reclassification,
recapitalization, split-up, combination or exchange of shares, or any dividend
payable in stock or other securities shall be declared thereon with a record
date within such period, or any similar event shall occur (any such action, an
"Adjustment Event"), the Exchange Ratio shall be adjusted accordingly to provide
to the holders of Company Common Stock and Company Series A Convertible
Preferred Stock the same economic effect as contemplated by this Agreement prior
to such reclassification, recapitalization, split-up, combination, exchange or
dividend or similar event.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Disclosure Schedules. Prior to the execution of this
Agreement, the Company has delivered to Parent a schedule (the "Company
Disclosure Schedule") and Parent has delivered to the Company a schedule (the
"Parent Disclosure Schedule" and, together, the "Disclosure Schedules") each
setting forth, among other things, items the disclosure of which is necessary or
appropriate in relation to any or all of their respective representations and
warranties in accordance with the standard established by Section 3.2; provided,
however, that notwithstanding anything in this Agreement to the contrary, the
mere inclusion of an item in a Disclosure Schedule shall not be deemed an
admission by the disclosing party that such item represents a material exception
or fact, event or circumstance or that such item constitutes or is reasonably
likely to result in a material adverse effect or material adverse change (each
as defined in Section 8.3).
SECTION 3.2 Standard. No representation or warranty of the Company or
Parent contained in Sections 3.3 and 3.4, respectively, other than Sections
3.3(a), 3.3(b), 3.3(c), 3.3(d), 3.3(e), 3.3(f), 3.3(g)(i), (ii) and (iii),
3.3(l), 3.3(m), 3.3(n), 3.3(o), 3.3(s) or 3.3(w) or Sections 3.4(a), 3.4(b),
3.4(c), 3.4(d), 3.4(e), 3.4(f), 3.4(g)(i), (ii) and (iii), 3.4(l) or 3.4(m)
(collectively, the "Other Paragraphs"), shall be deemed untrue or incorrect, and
no party hereto shall be deemed to have breached a representation or warranty,
as a consequence of the existence of any fact, circumstance or event unless such
fact, circumstance or event, individually or taken together with all other
facts, circumstances or events inconsistent with any paragraph of Section 3.3 or
3.4, as the case may be, other than the Other Paragraphs, has had or is
reasonably likely to have a material adverse effect.
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SECTION 3.3 Representations and Warranties of the Company. Subject to
Sections 3.1 and 3.2 and except as disclosed in Company Filed SEC Documents (as
defined in Section 3.3(g)) or as set forth on the Company Disclosure Schedule
and making reference to the particular subsection of this Agreement to which
exception is being taken (regardless of whether such subsection refers to the
Company Disclosure Schedule), the Company represents and warrants to Parent as
follows:
(a) Organization, Standing and Corporate Power. (i) Each of the
Company and its subsidiaries (as defined in Section 8.3) is a corporation or
other legal entity duly organized, validly existing and in good standing (with
respect to jurisdictions which recognize such concept) under the laws of the
jurisdiction in which it is organized and has the requisite corporate or other
power, as the case may be, and authority to carry on its business as now being
conducted, except, as to subsidiaries, for those jurisdictions where the failure
to be duly organized, validly existing and in good standing individually or in
the aggregate would not have a material adverse effect (as defined in Section
8.3) on the Company. Each of the Company and its subsidiaries is duly qualified
or licensed to do business and is in good standing (with respect to
jurisdictions which recognize such concept) in each jurisdiction in which the
nature of its business or the ownership, leasing or operation of its properties
makes such qualification or licensing necessary, except for those jurisdictions
where the failure to be so qualified or licensed or to be in good standing
individually or in the aggregate would not have a material adverse effect on the
Company.
(ii) The Company has delivered to Parent prior to the execution
of this Agreement complete and correct copies of its certificate of
incorporation and by-laws, as amended to date.
(iii) In all material respects, the minute books of the Company
contain accurate records of all meetings and accurately reflect all other
actions taken by the stockholders, the Board of Directors and all
committees of the Board of Directors of the Company since January 1, 1994.
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(b) Subsidiaries. Exhibit 21 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996 includes all the subsidiaries
of the Company which as of the date of this Agreement are Significant
Subsidiaries (as defined in Rule 1-02 of Regulation S-X of the Securities and
Exchange Commission (the "SEC")). All the outstanding shares of capital stock
of, or other equity interests in, each such Significant Subsidiary have been
validly issued and are fully paid and nonassessable; are owned directly or
indirectly by the Company, free and clear of all pledges, claims, liens,
charges, encumbrances and security interests securing indebtedness or similar
obligations (collectively, "Liens"); and are free of any other restriction on
the right to vote, sell or otherwise dispose of such capital stock or other
ownership interests that would prevent the operation by the Surviving
Corporation of such Significant Subsidiary's business as currently conducted.
(c) Capital Structure. The authorized capital stock of the Company
consists of 250,000,000 shares of Company Common Stock and 5,000,000 shares of
preferred stock, without par value, of the Company ("Company Authorized
Preferred Stock"), of which 700,000 shares have been designated as Company
Series A Convertible Preferred Stock, 2,500,000 shares have been designated as
Series B Junior Participating Preferred Stock, 244,375 shares have been
designated as 9.50% Cumulative Preferred Stock, Series C ("Company Series C
Preferred Stock"), 400,000 shares have been designated as Company 8.08%
Preferred Stock, 500,000 shares have been designated as Company 8.40% Preferred
Stock, 690,000 shares have been designated as 9.50% Cumulative Preferred Stock,
Series F, of the Company ("Company Series F Preferred Stock") and 893,000 shares
have been designated as $4.25 Convertible Preferred Stock ("Company $4.25
Preferred Stock"). At the close of business on September 19, 1997: (i)
107,460,248 shares of Company Common Stock were issued and outstanding; (ii)
51,891,428 shares of Company Common Stock were held by the Company in its
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treasury; (iii) 2,500,000 shares of Company Junior Preferred Stock were reserved
for issuance pursuant to the Rights Agreement; (iv) 420,000 shares of Company
Series A Convertible Preferred Stock were issued and outstanding; (v) no shares
of Company Series C Preferred Stock were issued and outstanding; (vi) 400,000
shares of Company 8.08% Preferred Stock were issued and outstanding (evidenced
by 8,000,000 depositary shares, each of which represents a one-twentieth
interest in a share of Company 8.08% Preferred Stock); (vii) 500,000 shares of
Company 8.40% Preferred Stock were issued and outstanding (evidenced by
10,000,000 depositary shares, each of which represents a one-twentieth interest
in a share of Company 8.40% Preferred Stock); (viii) 690,000 shares of Company
Series F Preferred Stock were reserved for issuance upon exercise of purchase
contracts comprising a part of the 13,800,000 9-1/2% Trust Preferred Stock
(TRUPS) Units of SI Financing Trust I; (ix) no shares of Company $4.25 Preferred
Stock were issued and outstanding; (x) except as set forth on the Company
Disclosure Schedule, no shares of Company Preferred Stock were held by the
Company in its treasury, other than shares held for purposes of market making,
proprietary trading or otherwise on behalf of customers; (xi) 4,741,602 shares
of Company Common Stock were reserved for issuance pursuant to the Company
Non-Qualified Stock Option Plan of 1984, the Company Stock Incentive Plan and
the Company Employee Stock Purchase Plan (such plans, collectively, the "Company
Stock Plans"), of which 1,660,100 shares are subject to outstanding employee
stock options or other rights to purchase or receive Company Common Stock
granted under the Company Stock Plans (collectively, "Company Employee Stock
Options"); (xii) 14,736,843 shares of Company Common Stock were reserved for
issuance upon conversion of Company Series A Convertible Preferred Stock; (xiii)
394,429 shares of Company Common Stock were reserved for issuance upon
conversion of the Company's Amended and Restated 5.5% Restricted Convertible
Subordinated Note Due 1997 and the Company's Amended and Restated 1.25%
Restricted Convertible Subordinated Note Due 2000 (collectively with Company
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Series A Convertible Preferred Stock, "Company Convertible Securities"); and
(xiv) other than as set forth above, no other shares of Company Authorized
Preferred Stock have been designated or issued. All outstanding shares of
capital stock of the Company are, and all shares thereof which may be issued
will be, when issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. Except as set forth in this
Section 3.3(c) and except for changes since September 19, 1997 resulting from
the issuance of shares of Company Common Stock pursuant to Company Employee
Stock Options, Company Convertible Securities and other rights referred to above
in this Section 3.3(c) or as permitted by Section 4.1(a)(ii), (x) there are not
issued, reserved for issuance or outstanding (A) any shares of capital stock or
other voting securities of the Company, (B) any securities of the Company or any
Company subsidiary convertible into or exchangeable or exercisable for shares of
capital stock or voting securities of the Company, (C) any warrants, calls,
options or other rights to acquire from the Company or any Company subsidiary,
and any obligation of the Company or any Company subsidiary to issue, any
capital stock, voting securities or securities convertible into or exchangeable
or exercisable for capital stock or voting securities of the Company, and (y)
there are no outstanding obligations of the Company or any Company subsidiary to
repurchase, redeem or otherwise acquire any such securities or to issue, deliver
or sell, or cause to be issued, delivered or sold, any such securities. There
are no outstanding (A) securities of the Company or any Company subsidiary
convertible into or exchangeable or exercisable for shares of capital stock or
other voting securities in any Company subsidiary, (B) warrants, calls, options
or other rights to acquire from the Company or any Company subsidiary, and any
obligation of the Company or any Company subsidiary to issue, any capital stock,
voting securities or other ownership interests in, or any securities convertible
into or exchangeable or exercisable for any capital stock, voting securities or
ownership interests in, any Company subsidiary or (C) obligations of the Company
or any Company subsidiary to repurchase, redeem or otherwise acquire any such
outstanding securities of Company subsidiaries or to issue, deliver or sell, or
cause to be issued, delivered or sold, any such securities. To the Company's
knowledge, neither the Company nor any Company subsidiary is a party to any
agreement restricting the transfer of, relating to the voting of, requiring
registration of, or granting any preemptive or, except as provided by the terms
of Company Employee Stock Options and Company Convertible Securities,
antidilutive rights with respect to, any securities of the type referred to in
the two preceding sentences. The Company has delivered to Parent prior to the
execution of this Agreement a complete and correct copy of the Rights Agreement.
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(d) Authority; Noncontravention. The Company has all requisite
corporate power and authority to enter into this Agreement and, subject, in the
case of the Merger, to the Company Stockholder Approval (as defined in Section
3.3(1)) to consummate the transactions contemplated by this Agreement. The
execution and delivery of this Agreement by the Company and the consummation by
the Company of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action on the part of the Company,
subject, in the case of the Merger, to the Company Stockholder Approval. This
Agreement has been duly executed and delivered by the Company and, assuming the
due authorization, execution and delivery by Parent and Sub, constitutes the
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms. Except as set forth in Section 3.3(d) of
the Company Disclosure Schedule, the execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated by this Agreement and
compliance with the provisions of this Agreement 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 loss of a benefit under, or result in the
creation of any Lien upon any of the properties or assets of the Company or any
of its subsidiaries under, (i) the certificate of incorporation or by-laws of
the Company or the comparable organizational documents of any of its Significant
Subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise,
license or similar authorization applicable to the Company or any of its
subsidiaries or their respective properties or assets or (iii) subject to the
governmental filings and other matters referred to in the following sentence,
any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any of its subsidiaries or their respective
properties or assets, other than, in the case of clauses (ii) and (iii), any
such conflicts, violations, defaults, rights, losses or Liens that individually
or in the aggregate would not (x) have a material adverse effect on the Company
or (y) reasonably be expected to impair the ability of the Company to perform
its obligations under this Agreement. No consent, approval, order or
authorization of, action by or in respect of, or registration, declaration or
filing with, any federal, state, local or foreign government, any court,
administrative, regulatory or other governmental agency, commission or authority
or any nongovernmental self-regulatory agency, commission or authority (a
"Governmental Entity") is required by or with respect to the Company or any of
its subsidiaries in connection with the execution and delivery of this Agreement
by the Company or the consummation by the Company of the transactions
contemplated by this Agreement, except for (1) the filing of a pre-merger
notification and report form by the Company under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"); (2) the filing
with the SEC of (A) a proxy statement relating to the Company Stockholders
Meeting (as defined in Section 5.1(b)) (such proxy statement, as amended or
supplemented from time to time, the "Proxy Statement"), and (B) such reports
under Section 13(a), 13(d), 15(d) or 16(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as may be required in connection with
this Agreement and the transactions contemplated by this Agreement; (3) the
filing of the Certificate of Merger with the Secretary of State of Delaware and
such filings with Governmental Entities to satisfy the applicable requirements
of the laws of states in which the Company and its subsidiaries are qualified or
licensed to do business or state securities or "blue sky" laws; (4) the
consents, approvals and notices required under the Investment Company Act of
1940, as amended (the "Investment Company Act"), and the Investment Advisers Act
of 1940, as amended (the "Investment Advisers Act"); (5) filings in respect of,
and approvals and authorizations of, any Governmental Entity having jurisdiction
over the securities, commodities, banking, insurance, or other financial
services businesses; and (6) such consents, approvals, orders or authorizations
the failure of which to be made or obtained individually or in the aggregate
would not (x) have a material adverse effect on the Company or (y) reasonably be
expected to impair the ability of the Company to perform its obligations under
this Agreement.
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(e) SEC Documents; Undisclosed Liabilities. Since January 1, 1995, the
Company has filed all required reports, schedules, forms, statements and other
documents (including exhibits and all other information incorporated therein)
with the SEC ("Company SEC Documents"). As of their respective dates, the
Company SEC Documents complied in all material respects with the requirements of
the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange
Act, as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such Company SEC Documents, and no Company SEC Document
when filed (as amended and restated and as supplemented by subsequently filed
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 in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in Company SEC Documents complied as to form, as of their respective dates of
filing with the SEC, in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with GAAP (except, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly present the consolidated financial position of the
Company and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except (i) as reflected in such financial statements or in the
notes thereto or (ii) for liabilities incurred in connection with this Agreement
or the transactions contemplated hereby, neither the Company nor any of its
subsidiaries has any liabilities or obligations of any nature which,
individually or in the aggregate, would have a material adverse effect on the
Company.
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(f) Information Supplied. None of the information supplied or to be
supplied by the Company specifically for inclusion or incorporation by reference
in (i) the registration statement on Form S-4 to be filed with the SEC by Parent
in connection with the issuance of Parent Common Stock and Parent New Preferred
Stock in the Merger (the "Form S-4") will, at the time the Form S-4 becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or (ii) the Proxy
Statement will, at the date it is first mailed to the Company's stockholders or
at the time of the Company Stockholders Meeting, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy Statement
will comply as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations thereunder, except that no
representation or warranty is made by the Company with respect to statements
made or incorporated by reference therein based on information supplied by
Parent specifically for inclusion or incorporation by reference in the Proxy
Statement.
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(g) Absence of Certain Changes or Events. Except for liabilities
incurred in connection with this Agreement or the transactions contemplated
hereby and except as permitted by Section 4.1(a), since January 1, 1997, the
Company and its subsidiaries have conducted their business only in the ordinary
course or as disclosed in any Company SEC Document filed since such date and
prior to the date hereof (as amended to the date hereof, "Company Filed SEC
Documents"), and there has not been (i) any material adverse change in the
Company, including, but not limited to, any material adverse change arising from
or relating to fraudulent or unauthorized activity, (ii) any declaration,
setting aside or payment of any dividend or other distribution (whether in cash,
stock or property) with respect to any of the Company's capital stock, other
than regular quarterly cash dividends on the Company Common Stock and dividends
payable on the Company Preferred Stock in accordance with their terms, (iii) any
split, combination or reclassification of any of the Company's capital stock or
any issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of the Company's capital
stock, except for issuances of Company Common Stock upon conversion of Company
Convertible Securities or upon the exercise of Company Employee Stock Options,
in each case awarded prior to the date hereof in accordance with their present
terms, (iv) prior to the date hereof (A) any granting by the Company or any of
its subsidiaries to any current or former director, executive officer or other
key employee of the Company or its subsidiaries of any increase in compensation,
bonus or other benefits, except for increases in the ordinary course of
business, (B) any granting by the Company or any of its subsidiaries to any such
current or former director, executive officer or key employee of any increase in
severance or termination pay, or (C) any entry by the Company or any of its
subsidiaries into, or any amendment of, any employment, deferred compensation,
consulting, severance, termination or indemnification agreement with any such
current or former director, executive officer or key employee, (v) except
insofar as may have been disclosed in Company Filed SEC Documents or required by
a change in GAAP, any change in accounting methods, principles or practices by
the Company affecting its assets, liabilities or business, or (vi) except
insofar as may have been disclosed in Company Filed SEC Documents, any tax
election by the Company or its subsidiaries or any settlement or compromise of
any income tax liability by the Company or its subsidiaries.
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(h) Compliance with Applicable Laws; Litigation. (i) The Company, its
subsidiaries and employees hold all permits, licenses, variances, exemptions,
orders, registrations and approvals of all Governmental Entities which are
required for the operation of the businesses of the Company and its subsidiaries
(the "Company Permits"). The Company and its subsidiaries are in compliance with
the terms of the Company Permits and all applicable statutes, laws, ordinances,
rules and regulations. As of the date of this Agreement, except as disclosed in
the Company SEC Documents or set forth in Section 3.3(h) of the Company
Disclosure Schedule, no action, demand, requirement or investigation by any
Governmental Entity and no suit, action or proceeding by any person, in each
case with respect to the Company or any of its subsidiaries or any of their
respective properties is pending or, to the knowledge (as defined in Section
8.3) of the Company, threatened, other than, in each case, those the outcome of
which individually or in the aggregate would not reasonably be expected to
impair the ability of the Company to perform its obligations under this
Agreement or prevent or materially delay the consummation of any of the
transactions contemplated by this Agreement.
(ii) Neither the Company nor any of its subsidiaries is subject
to any outstanding order, injunction or decree or is a party to any written
agreement, consent agreement or memorandum of understanding with, or is a
party to any commitment letter or similar undertaking to, or is subject to
any order or directive by, or is a recipient of any supervisory letter from
or has adopted any resolutions at the request of any Governmental Entity
that restricts the conduct of its business or that in any manner relates to
its capital adequacy, its credit policies, its management or its business
(each, a "Regulatory Agreement"), nor has the Company or any of its
subsidiaries or affiliates (as defined in Section 8.3) (A) been advised
since January 1, 1996 by any Governmental Entity that it is considering
issuing or requesting any such Regulatory Agreement or (B) have knowledge
of any pending or threatened regulatory investigation. After the date of
this Agreement, no matters referred to in this Section 3.3(h) shall have
arisen.
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(i) Absence of Changes in Benefit Plans. The Company has provided to
Parent a true and complete list of (i) all severance and employment agreements
of the Company with directors or executive officers or key employees, (ii) all
severance programs, policies and practices of each of the Company and each of
its Significant Subsidiaries, and (iii) all plans or arrangements of the Company
and each of its Significant Subsidiaries relating to its current or former
employees, officers or directors which contain change in control provisions.
Since January 1, 1997 there has not been any adoption or amendment in any
respect by the Company or any of its subsidiaries of any equity-based Company
Benefit Plan. For purposes of this Agreement, "Company Benefit Plan" shall mean
collective bargaining agreement, employment agreement, consulting agreement,
severance agreement or any material bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, medical or other plan, arrangement or understanding
providing benefits to any current or former employee, officer or director of the
Company or any of its wholly owned subsidiaries. Since January 1, 1997, there
has not been any change in any actuarial or other assumptions used to calculate
funding obligations with respect to any Company pension plans or post-retirement
benefit plans, or any change in the manner in which contributions to any Company
pension plans or post-retirement benefit plans are made or the basis on which
such contributions are determined which, individually or in the aggregate, would
result in an increase of the Company's or its subsidiaries' liabilities
thereunder.
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(j) ERISA Compliance. (i) With respect to Company Benefit Plans, no
event has occurred and, to the knowledge of the Company, there exists no
condition or set of circumstances, in connection with which the Company or any
of its subsidiaries could be subject to any liability that individually or in
the aggregate would have an adverse effect on the Company under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), the Code or any
other applicable law.
(ii) Each Company Benefit Plan has been administered in
accordance with its terms. The Company, its subsidiaries and all the
Company Benefit Plans have been operated, and are in compliance with the
applicable provisions of ERISA, the Code and all other applicable laws and
the terms of all applicable collective bargaining agreements.
(iii) Neither the Company nor any trade or business, whether or
not incorporated (an "ERISA Affiliate"), which together with the Company
would be deemed a "single employer" within the meaning of Section 4001(b)
of ERISA, has incurred any unsatisfied liability under Title IV of ERISA in
connection with any Company Benefit Plan and no condition exists that
presents a risk to the Company or any ERISA Affiliate of incurring any such
liability (other than liability for premiums to the Pension Benefit
Guaranty Corporation arising in the ordinary course). No Company Benefit
Plan has incurred an "accumulated funding deficiency" (within the meaning
of Section 302 of ERISA or Section 412 of the Code) whether or not waived.
(iv) No Company Benefit Plan is subject to Title IV of ERISA. No
Company Benefit Plan is a "multiemployer plan" within the meaning of
Section 3(37) of ERISA.
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(v) Except as set forth in Section 3.3(j) of the Company
Disclosure Schedule and except for the Company's Post-Retirement Medical
Benefit Plan, no Company Benefit Plan provides medical benefits (whether or
not insured), with respect to current or former employees after retirement
or other termination of service (other than coverage mandated by applicable
law or benefits, the full cost of which is borne by the current or former
employee).
(vi) Except for the Company's Post-Retirement Medical Benefit
Plan, each Company Benefit Plan which is a welfare benefit plan as defined
in Section 3(1) of ERISA (including any such plan covering former employees
of the Company or any subsidiary of the Company) may be amended or
terminated by the Company and Parent on or at any time after the Closing
Date.
(vii) As of the date of this Agreement, neither the Company nor
any of its subsidiaries is a party to any collective bargaining or other
labor union contract applicable to persons employed by the Company or any
of its subsidiaries and no collective bargaining agreement is being
negotiated by the Company or any of its subsidiaries. As of the date of
this Agreement, there is no labor dispute, strike or work stoppage against
the Company or any of its subsidiaries pending or, to the knowledge of the
Company, threatened which may interfere with the respective business
activities of the Company or any of its subsidiaries.
(viii) No amounts payable under Company Benefit Plans will fail
to be deductible for federal income tax purposes by virtue of section 280G
of the Code. The consummation of the transactions contemplated by this
Agreement will not, either alone or in combination with another event
undertaken by the Company or any of its subsidiaries prior to the date
hereof, (A) entitle any current or former employee or officer of the
Company or any ERISA Affiliate to severance pay, unemployment compensation
or any other payment, except as expressly provided in this Agreement, (B)
accelerate the time of payment or vesting, or increase the amount of
compensation due any such employee or officer or (C) constitute a "change
in control" under any Company Benefit Plan, and the Company and its board
of directors have taken all required actions to effect the foregoing.
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(k) Taxes. (i) Each of the Company and its subsidiaries has filed all
tax returns and reports required to be filed by it and all such returns and
reports are complete and correct in all respects, or requests for extensions to
file such returns or reports have been timely filed, granted and have not
expired. The Company and each of its subsidiaries has paid (or the Company has
paid on its behalf) all taxes (as defined herein) shown as due on such returns,
and the most recent financial statements contained in Company Filed SEC
Documents reflect an adequate reserve in accordance with GAAP for all taxes
payable by the Company and its subsidiaries for all taxable periods and portions
thereof accrued through the date of such financial statements.
(ii) No deficiencies for any taxes have been proposed, asserted
or assessed against the Company or any of its subsidiaries that are not
adequately reserved for. The federal income tax returns of the Company and
each of its subsidiaries consolidated in such returns for tax years through
1986 have closed by virtue of the applicable statute of limitations.
(iii) Neither the Company nor any of its subsidiaries has taken
any action or knows of any fact, agreement, plan or other circumstance that
is reasonably likely to prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
(iv) As used in this Agreement, "taxes" shall include all (x)
federal, state, local or foreign income, property, sales, excise and other
taxes or similar governmental charges, including any interest, penalties or
additions with respect thereto, (y) liability for the payment of any
amounts of the type described in (x) as a result of being a member of an
affiliated, consolidated, combined or unitary group, and (z) liability for
the payment of any amounts as a result of being party to any tax sharing
agreement or as a result of any express or implied obligation to indemnify
any other person with respect to the payment of any amounts of the type
described in clause (x) or (y).
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(l) Voting Requirements. The affirmative vote at the Company
Stockholders Meeting (the "Company Stockholder Approval") of a (i) majority of
the voting power of all outstanding shares of Company Common Stock and Company
Series A Convertible Preferred Stock, voting together as a single class, and
(ii) two-thirds of the number of outstanding shares of Company Preferred Stock
(with all series voting together as a single class) to adopt this Agreement are
the only votes of the holders of any class or series of the Company's capital
stock necessary to approve and adopt this Agreement and the transactions
contemplated hereby, including the Merger.
(m) State Takeover Statutes. The Board of Directors of the Company has
approved this Agreement and the Voting Agreement and the transactions
contemplated hereby and thereby and, assuming the accuracy of Parent's
representation and warranty contained in Section 3.4(n), such approval
constitutes approval of the Merger and the Voting Agreement and the other
transactions contemplated hereby and thereby by the Company Board of Directors
under the provisions of Section 203 of the DGCL such that Section 203 of the
DGCL does not apply to this Agreement and the Voting Agreement and the
transactions contemplated hereby and thereby. To the knowledge of the Company,
no other state takeover statute is applicable to the Merger or the Voting
Agreement or the other transactions contemplated hereby or thereby.
(n) Accounting Matters. The Company has disclosed to its independent
public accountants all actions taken by it or its subsidiaries that would impact
the accounting of the business combination to be effected by the Merger as a
pooling of interests. As of the date hereof, the Company, based on advice from
its independent public accountants, believes that the Merger will qualify for
"pooling of interests" accounting. In connection with the foregoing, the Company
has received a letter from the Company's independent accountants stating that
accounting for the Merger as a pooling of interests under Opinion 16 of the
Accounting Principles Board and applicable SEC rules and regulations is
appropriate if the Merger is closed and consummated as contemplated by this
Agreement.
(o) Brokers. No broker, investment banker, financial advisor or other
person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of the Company.
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(p) Ownership of Parent Capital Stock. Except for shares owned by
Company Benefit Plans or shares held or managed for the account of another
person or as to which the Company is required to act as a fiduciary or in a
similar capacity or as otherwise disclosed in the Company SEC Documents, as of
the date hereof, neither the Company nor, to its knowledge without independent
investigation, any of its affiliates, (i) beneficially owns (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, or (ii) except as set
forth in Section 3.3(p) of the Company Disclosure Schedule, is party to any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of, in each case, shares of capital stock of Parent, other,
in each case, than the shares of Parent capital stock held, directly or
indirectly, in trust accounts, managed accounts or the like or held for the
account of another person.
(q) Intellectual Property. (i) The Company and its subsidiaries own or
have a valid license to use all trademarks, service marks and trade names
(including any registrations or applications for registration of any of the
foregoing) (collectively, the "Company Intellectual Property") necessary to
carry on its business substantially as currently conducted and the consummation
of the Merger and the other transactions contemplated hereby will not result in
the loss of any such rights.
(ii) The consummation of the Merger and the other transactions
contemplated hereby will not result in the loss of any rights to use
computer and telecommunication software including source and object code
and documentation and any other media (including, without limitation,
manuals, journals and reference books) necessary to carry on its business
substantially as currently conducted.
(r) Certain Contracts. Except as set forth in the Company SEC
Documents filed prior to the date hereof or as permitted pursuant to Section
4.1(a), neither the Company nor any of its subsidiaries is a party to or bound
by (i) any agreement relating to the incurring of indebtedness (including sale
and leaseback and capitalized lease transactions and other similar financing
transactions) providing for payment or repayment in excess of $1 billion, other
than such agreements relating to indebtedness incurred in the ordinary course of
business of the Company's subsidiaries to finance their securities and commodity
portfolio positions, (ii) any "material contract" (as such term is defined in
Item 601(b)(10) of Regulation S-K of the SEC), or (iii) any non-competition
agreement or any other agreement or obligation which purports to limit in any
respect the manner in which, or the localities in which, all or any substantial
portion of the business of the Company and its subsidiaries, taken as a whole,
is or would be conducted (the agreements, contracts and obligations specified in
clauses (ii) and (iii) above, collectively the "Company Material Contracts").
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(s) Rights Agreement. The Company has taken all action (including, if
required, amending or terminating the Rights Agreement) so that the entering
into of this Agreement and the Voting Agreement and the consummation of the
transactions contemplated hereby and thereby do not and will not enable or
require the Company Rights to be exercised or distributed.
(t) Environmental Liability. Except as set forth in the Company SEC
Documents or the Company Disclosure Schedule, there are no legal,
administrative, arbitral or other proceedings, claims, actions, causes of
action, private environmental investigations or remediation activities or
governmental investigations of any nature seeking to impose on the Company or
any of its subsidiaries, or that reasonably could be excepted to result in the
imposition on the Company or any of its subsidiaries of, any liability or
obligation arising under applicable common law standards relating to pollution
or protection of the environment, human health or safety, or under any local,
state or federal environmental statute, regulation, ordinance, decree, judgment
or order relating to pollution or protection of the environment including,
without limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended (collectively, the "Environmental Laws"),
pending or, to the knowledge of the Company, threatened, against the Company or
any of its subsidiaries. To the knowledge of the Company, each of the Company
and each of its subsidiaries is, and each former subsidiary of the Company was,
for so long as such subsidiary was a subsidiary of the Company, in compliance
with all Environmental Laws and has or at such time had all permits required
under Environmental Laws and there is no reasonable basis for any proceeding,
claim, action or governmental investigation under any Environmental Law that
would impose any liability or obligation on the Company or its subsidiaries
based on any failure to have, obtain or comply with such permits. Except as set
forth in the Company SEC Documents or the Company Disclosure Schedule, neither
the Company nor any of its subsidiaries is subject to any agreement (including
any indemnification agreement), order, judgment, decree, letter or memorandum by
or with any court, governmental authority, regulatory agency or third party
imposing any material liability or obligation pursuant to or under any
Environmental Law.
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(u) Derivative Transactions. (i) All Derivative Transactions (as
defined below) entered into by the Company or any of its subsidiaries were
entered into in accordance with applicable rules, regulations and policies of
any regulatory authority, and in accordance with the Policies, Practices and
Procedures (as defined in Section 3.3(v)), and were entered into with
counterparties believed at the time to be financially responsible and able to
understand (either alone or in consultation with their advisers) and to bear the
risks of such Derivative Transactions.
(ii) For purposes of this Section 3.3(u), "Derivative
Transactions" means any swap transaction, option, warrant, forward purchase
or sale transaction, futures transaction, cap transaction, floor
transaction or collar transaction relating to one or more currencies,
commodities, bonds, equity securities, loans, interest rates,
credit-related events or conditions or any indexes, or any other similar
transaction (including any option with respect to any of these
transactions) or combination of any of these transactions, including
collateralized mortgage obligations or other similar instruments or any
debt or equity instruments evidencing or embedding any such types of
transactions, and any related credit support, collateral or other similar
arrangements related to such transactions.
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(v) Investment Securities and Commodities. (i) Each of the Company and
its subsidiaries has good title to all securities and commodities owned by it
(except those sold under repurchase agreements or held in any fiduciary or
agency capacity), free and clear of any Lien, except to the extent such
securities or commodities are pledged in the ordinary course of business to
secure obligations of the Company or its subsidiaries. Such securities and
commodities are valued on the books of the Company in accordance with GAAP.
(ii) The Company and its subsidiaries and their respective
businesses employ investment, securities, commodities, risk management and
other policies, practices and procedures (the "Policies, Practices and
Procedures") which the Company believes are prudent and reasonable in the
context of such businesses. Prior to the date hereof, the Company has
identified to Parent in writing, in the form previously agreed between the
parties, those material Policies, Practices and Procedures which are
capable of identification as of the date hereof and, as soon as reasonably
practicable after the date hereof, the Company and its subsidiaries will
have disclosed to Parent or its representatives those material Policies,
Practices and Procedures with respect to which Parent or its
representatives reasonably request disclosure, including the
previously-agreed information, that are not capable of identification as of
the date hereof, it being understood by Parent that many of the Policies,
Practices and Procedures are not in writing and that such disclosure of
such requested non-written Policies, Practices and Procedures will be made
orally and reduced to writing. Parent agrees to keep all such disclosure
confidential in accordance with the terms of the Confidentiality Agreements
(as defined in Section 5.4).
(w) Ineligible Persons. Neither the Company, nor, to the knowledge of
the Company, any "affiliated person" (as defined in the Investment Company Act)
of the Company, is ineligible pursuant to Section 9(a) or 9(b) of the Investment
Company Act to serve as an investment advisor (or in any other capacity
contemplated by the Investment Company Act) to a registered investment company.
Neither the Company nor, to the knowledge of the Company, any "person associated
with an investment adviser" (as defined in the Investment Advisers Act) of the
Company, is ineligible pursuant to Section 203 of the Investment Advisers Act to
serve as an investment advisor or as an associated person to a registered
investment adviser. To the knowledge of the Company, neither the Company nor any
"associated person of a broker or dealer" (as defined in the Exchange Act) of
the Company, is ineligible pursuant to Section 15(b) of the Exchange Act to
serve as a broker-dealer or as an associated person to a registered
broker-dealer.
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SECTION 3.4 Representations and Warranties of Parent. Subject to
Sections 3.1 and 3.2 and except as disclosed in the Parent Filed SEC Documents
(as defined in Section 3.4(g)) or as set forth on the Parent Disclosure Schedule
and making reference to the particular subsection of this Agreement to which
exception is being taken (regardless of whether such subsection refers to the
Parent Disclosure Schedule), Parent represents and warrants to the Company as
follows:
(a) Organization, Standing and Corporate Power. (i) Each of Parent and
its subsidiaries (including Sub) is a corporation or other legal entity duly
organized, validly existing and in good standing (with respect to jurisdictions
which recognize such concept) under the laws of the jurisdiction in which it is
organized and has the requisite corporate or other power, as the case may be,
and authority to carry on its business as now being conducted, except, as to
subsidiaries, for those jurisdictions where the failure to be duly organized,
validly existing and in good standing individually or in the aggregate would not
have a material adverse effect on Parent. Each of Parent and its subsidiaries is
duly qualified or licensed to do business and is in good standing (with respect
to jurisdictions which recognize such concept) in each jurisdiction in which the
nature of its business or the ownership, leasing or operation of its properties
makes such qualification or licensing necessary, except for those jurisdictions
where the failure to be so qualified or licensed or to be in good standing
individually or in the aggregate would not have a material adverse effect on
Parent.
(ii) Parent has delivered to the Company prior to the execution
of this Agreement complete and correct copies of its certificate of
incorporation and by-laws, as amended to date.
(iii) In all material respects, the minute books of Parent
contain accurate records of all meetings and accurately reflect all other
actions taken by the stockholders, the Board of Directors and all
committees of the Board of Directors of Parent since January 1, 1994.
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<PAGE>
(b) Subsidiaries. Exhibit 21 to Parent's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 includes all the Significant
Subsidiaries of Parent as of the date of this Agreement. Except as set forth in
Section 3.4(b) of the Parent Disclosure Schedule, all the outstanding shares of
capital stock of, or other equity interests in, each such Significant Subsidiary
have been validly issued and are fully paid and nonassessable; are owned
directly or indirectly by Parent, free and clear of all Liens; and are free of
any other restriction on the right to vote, sell or otherwise dispose of such
capital stock or other ownership interests that would prevent the operation by
the Surviving Corporation of such Significant Subsidiary's business as currently
conducted.
(c) Capital Structure. The authorized capital stock of Parent consists
of 1,500,000,000 shares of Parent Common Stock and 30,000,000 shares of
preferred stock, par value $1.00 per share, of Parent ("Parent Authorized
Preferred Stock"), of which 1,200,000 shares have been designated as 8.125%
Cumulative Preferred Stock, Series A ("Parent Series A Preferred Stock"),
2,500,000 shares have been designated as 5.50% Convertible Preferred Stock,
Series B ("Parent Series B Preferred Stock"), 8,000,000 shares have been
designated as $4.53 ESOP Convertible Preferred Stock, Series C ("Parent Series C
Preferred Stock"), 7,500,000 shares have been designated as 9.25% Preferred
Stock, Series D ("Parent Series D Preferred Stock"), 1,600,000 shares have been
designated as 6.365% Cumulative Preferred Stock, Series F ("Parent Series F
Preferred Stock"), 800,000 shares have been designated as 6.213% Cumulative
Preferred Stock, Series G ("Parent Series G Preferred Stock"), 800,000 shares
have been designated as 6.231% Cumulative Preferred Stock, Series H ("Parent
Series H Preferred Stock"), 5,000 shares have been designated as Cumulative
Adjustable Rate Preferred Stock, Series Y ("Parent Series Y Preferred Stock")
and 4,444 shares have been designated as $45,000 Cumulative Redeemable Preferred
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<PAGE>
Stock, Series Z ("Parent Series Z Preferred Stock"). At the close of business on
August 31, 1997: (i) 640,258,150 shares of Parent Common Stock were issued and
outstanding; (ii) 111,848,134 shares of Parent Common Stock were held by Parent
in its treasury or by subsidiaries of Parent; (iii) no shares of Parent Series A
Preferred Stock were issued and outstanding; (iv) no shares of Parent Series B
Preferred Stock were issued and outstanding; (v) 2,925,921 shares of Parent
Series C Preferred Stock were issued and outstanding; (vi) no shares of Parent
Series D Preferred Stock were issued and outstanding; (vii) 1,600,000 shares of
Parent Series F Preferred Stock were issued and outstanding (evidenced by
8,000,000 depositary shares, each of which represents a one-fifth interest in a
share of Parent Series F Preferred Stock); (viii) 800,000 shares of Parent
Series G Preferred Stock were issued and outstanding (evidenced by 4,000,000
depositary shares, each of which represents a one-fifth interest in a share of
Parent Series G Preferred Stock); (ix) 800,000 shares of Parent Series H
Preferred Stock were issued and outstanding (evidenced by 4,000,000 depositary
shares, each of which represents a one-fifth interest in a share of Parent
Series H Preferred Stock); (x) 2,262 shares of Parent Series Y Preferred Stock
were issued and outstanding; (xi) no shares of Parent Series Z Preferred Stock
were issued and outstanding; (xii) 6,959,368 shares of Parent Common Stock were
reserved for issuance pursuant to outstanding warrants to purchase shares of
Parent Common Stock at an exercise price of $19.50 per share, which warrants are
exercisable until July 31, 1998 (collectively with the Parent Series C Preferred
Stock, the "Parent Convertible Securities"); (xiii) 4,724,222 shares were
reserved for issuance upon conversion of the Parent Series C Preferred Stock;
(xiv) shares of Parent Common Stock reserved for issuance pursuant to the
stock-based plans identified in Section 3.4(c) of the Parent Disclosure Schedule
(such plans, collectively, the "Parent Stock Plans"), of which 42,057,074 shares
are subject to outstanding employee stock options or other rights to purchase or
receive Parent Common Stock granted under the Parent Stock Plans (collectively,
"Parent Employee Stock Options"); and (xv) other than as set forth above, no
other shares of Parent Authorized Preferred Stock have been designated or
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<PAGE>
issued. All outstanding shares of capital stock of Parent are, and all shares
thereof which may be issued pursuant to this Agreement or otherwise will be,
when issued, duly authorized, validly issued, fully paid and nonassessable and
not subject to preemptive rights. Except as set forth in this Section 3.4(c) and
except for changes since August 31, 1997 resulting from the issuance of shares
of Parent Common Stock pursuant to the Parent Stock Plans, Parent Employee Stock
Options or Parent Convertible Securities and other rights referred to in this
Section 3.4(c), as of the date hereof, (x) there are not issued, reserved for
issuance or outstanding (A) any shares of capital stock or other voting
securities of Parent, (B) any securities of Parent or any Parent subsidiary
convertible into or exchangeable or exercisable for shares of capital stock or
voting securities of Parent, (C) any warrants, calls, options or other rights to
acquire from Parent or any Parent subsidiary, and any obligation of Parent or
any Parent subsidiary to issue, any capital stock, voting securities or
securities convertible into or exchangeable or exercisable for capital stock or
voting securities of Parent, and (y) there are no outstanding obligations of
Parent or any Parent subsidiary to repurchase, redeem or otherwise acquire any
such securities or to issue, deliver or sell, or cause to be issued, delivered
or sold, any such securities. As of the date hereof, except with respect to
Travelers Property Casualty Corp., there are no outstanding (A) securities of
Parent or any Parent subsidiary convertible into or exchangeable or exercisable
for shares of capital stock or other voting securities in any Parent subsidiary,
(B) warrants, calls, options or other rights to acquire from Parent or any
Parent subsidiary, and any obligation of Parent or any Parent subsidiary to
issue, any capital stock, voting securities or other ownership interests in, or
any securities convertible into or exchangeable or exercisable for any capital
stock, voting securities or ownership interests in, any Parent subsidiary or (C)
obligations of Parent or any Parent subsidiary to repurchase, redeem or
otherwise acquire any such outstanding securities of Parent subsidiaries or to
issue, deliver or sell, or cause to be issued, delivered or sold, any such
securities. To Parent's knowledge, except as set forth in Section 3.4(c) of the
Parent Disclosure Schedule, neither Parent nor any Parent subsidiary is a party
to any agreement restricting the transfer of, relating to the voting of,
requiring registration of, or granting any preemptive or, except as provided by
the terms of Parent Stock Plans, Parent Employee Stock Options and Parent
Convertible Securities, antidilutive rights with respect to, any securities of
the type referred to in the two preceding sentences.
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(d) Authority; Noncontravention. Parent and Sub each has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement by each of Parent and Sub and the consummation by each of Parent and
Sub of the transactions contemplated by this Agreement have been duly authorized
by all necessary corporate action on the part of Parent and Sub. This Agreement
has been duly executed and delivered by each of Parent and Sub and, assuming the
due authorization, execution and delivery by the Company, constitutes the legal,
valid and binding obligation of each of Parent and Sub, enforceable against each
of Parent and Sub in accordance with its terms. The execution and delivery of
this Agreement does not, and the consummation of the transactions contemplated
by this Agreement and compliance with the provisions of this Agreement 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 loss of a benefit under, or
result in the creation of any Lien upon any of the properties or assets of
Parent or any of its subsidiaries (including Sub) under, (i) the certificate of
incorporation or by-laws of Parent or the comparable organizational documents of
any of its Significant Subsidiaries (including Sub), (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise, license or similar authorization
applicable to Parent or any of its subsidiaries (including Sub) or their
respective properties or assets or (iii) subject to the governmental filings and
other matters referred to in the following sentence, any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Parent or any
of its subsidiaries (including Sub) or their respective properties or assets,
other than, in the case of clauses (ii) and (iii), any such conflicts,
violations, defaults, rights, losses or Liens that individually or in the
aggregate would not (x) have a material adverse effect on Parent or (y)
reasonably be expected to impair the ability of Parent to perform its
obligations under this Agreement. No consent, approval, order or authorization
of, action by, or in respect of, or registration, declaration or filing with,
any Governmental Entity is required by or with respect to Parent or any of its
subsidiaries (including Sub) in connection with the execution and delivery of
this Agreement by each of Parent or Sub or the consummation by Parent and Sub of
the transactions contemplated by this Agreement, except for (1) the filing of a
pre-merger notification and report form by Parent under the HSR Act; (2) the
filing with the SEC of (A) the Form S-4 and (B) such reports under Section
13(a), 13(d), 15(d) or 16(a) of the Exchange Act as may be required in
connection with this Agreement and the transactions contemplated by this
Agreement; (3) the filing of the Certificate of Merger with the Secretary of
State of Delaware and such filings with Governmental Entities to satisfy the
applicable requirements of the laws of states in which Parent and its
subsidiaries are qualified or licensed to do business or state securities or
"blue sky" laws; (4) such filings with and approvals of the NYSE and the Pacific
Stock Exchange (the "PSE") to permit the shares of Parent Common Stock to be
issued in the Merger and under the Company Stock Plans to be listed on the NYSE
and the PSE and to permit the depositary shares representing the Parent New
Preferred Stock that are to be issued in the Merger to be listed on the NYSE (to
the extent the corresponding depositary shares representing Company Preferred
Stock were listed on the NYSE immediately prior to the Effective Time); (5)
filings in respect of, and approvals and authorizations of, any Governmental
Entity having jurisdiction over the securities, commodities, banking, insurance,
or other financial services businesses; and (6) such consents, approvals, orders
or authorizations the failure of which to be made or obtained individually or in
the aggregate would not (x) have a material adverse effect on Parent or (y)
reasonably be expected to impair the ability of Parent to perform its
obligations under this Agreement.
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(e) SEC Documents; Undisclosed Liabilities. Since January 1, 1995,
Parent has filed all required reports, schedules, forms, statements and other
documents (including exhibits and all other information incorporated therein)
with the SEC (the "Parent SEC Documents"). As of their respective dates, the
Parent SEC Documents complied in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Parent SEC
Documents, and none of the Parent SEC Documents when filed (as amended and
restated and as supplemented by subsequently filed 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 in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of Parent included in the Parent SEC
Documents complied as to form, as of their respective dates of filing with the
SEC, in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP (except, in the case of unaudited statements,
as permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of Parent and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Except (i) as
reflected in such financial statements or in the notes thereto or (ii) for
liabilities incurred in connection with this Agreement or the transactions
contemplated hereby, neither Parent nor any of its subsidiaries has any
liabilities or obligations of any nature which, individually or in the
aggregate, would have a material adverse effect on Parent.
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(f) Information Supplied. None of the information supplied or to be
supplied by Parent specifically for inclusion or incorporation by reference in
(i) the Form S-4 will, at the time the Form S-4 becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading or (ii) the Proxy Statement will, at the date
it is first mailed to the Company's stockholders or at the time of the Company
Stockholders Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. The Form S-4 and the Proxy Statement will comply as to
form in all material respects with the requirements of the Securities Act and
the Exchange Act and the rules and regulations thereunder, except that no
representation or warranty is made by Parent with respect to statements made or
incorporated by reference therein based on information supplied by the Company
specifically for inclusion or incorporation by reference in the Form S-4 or the
Proxy Statement.
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(g) Absence of Certain Changes or Events. Except for liabilities
incurred in connection with this Agreement or the transactions contemplated
hereby, and except as permitted by Section 4.1(b), since January 1, 1997, Parent
and its subsidiaries have conducted their business only in the ordinary course
or as disclosed in any Parent SEC Document filed since such date and prior to
the date hereof (as amended to the date hereof, the "Parent Filed SEC
Documents"), and there has not been (i) any material adverse change in Parent,
including, but not limited to, any material adverse change arising from or
relating to fraudulent or unauthorized activity, (ii) any declaration, setting
aside or payment of any dividend or other distribution (whether in cash, stock
or property) with respect to any of Parent's capital stock, other than regular
quarterly cash dividends on the Parent Common Stock and dividends payable on
Parent's preferred stock in accordance with their terms, (iii) any split,
combination or reclassification of any of Parent's capital stock or any issuance
or the authorization of any issuance of any other securities in respect of, in
lieu of or in substitution for shares of Parent's capital stock, except for
issuances of Parent Common Stock upon exercise of Parent Employee Stock Options,
upon conversion of Parent Convertible Securities or in accordance with the terms
of the Parent Stock Plans, (iv) except insofar as may have been disclosed in
Parent Filed SEC Documents or required by a change in GAAP, any change in
accounting methods, principles or practices by Parent affecting its assets,
liabilities or business or (v) except insofar as may have been disclosed in the
Parent Filed SEC Documents, any tax election by Parent or its subsidiaries or
any settlement or compromise of any income tax liability by Parent or its
subsidiaries.
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(h) Compliance with Applicable Laws; Litigation. (i) Parent, its
subsidiaries and employees hold all permits, licenses, variances, exemptions,
orders, registrations and approvals of all Governmental Entities which are
required for the operation of the businesses of Parent and its subsidiaries (the
"Parent Permits"). Parent and its subsidiaries are in compliance with the terms
of the Parent Permits and all applicable statutes, laws, ordinances, rules and
regulations. As of the date of this Agreement, except as disclosed in Parent SEC
Documents or set forth in Section 3.4(h) of the Parent Disclosure Schedule, no
action, demand, requirement or investigation by any Governmental Entity and no
suit, action or proceeding by any person, in each case with respect to Parent or
any of its subsidiaries or any of their respective properties, is pending or, to
the knowledge of Parent, threatened, other than, in each case, those the outcome
of which individually or in the aggregate would not reasonably be expected to
impair the ability of Parent to perform its obligations under this Agreement or
prevent or materially delay the consummation of any of the transactions
contemplated by this Agreement.
(ii) Neither Parent nor any of its subsidiaries is subject to any
outstanding order, injunction or decree or is a party to any Regulatory
Agreement, nor has Parent or any of its subsidiaries or affiliates (A) been
advised since January 1, 1996 by any Governmental Entity that it is
considering issuing or requesting any such Regulatory Agreement or (B) have
knowledge of any pending or threatened regulatory investigation. After the
date of this Agreement, no matters referred to in this Section 3.4(h) shall
have arisen.
(i) Absence of Changes in Benefit Plans. Except as set forth in
Section 3.4(i) of the Parent Disclosure Schedule, since January 1, 1997 there
has not been any adoption or amendment in any respect by Parent or any of its
subsidiaries of any equity-based Parent Benefit Plan. For purposes of this
Agreement, "Parent Benefit Plan" shall mean collective bargaining agreement,
employment agreement, consulting agreement, severance agreement or any material
bonus, pension, profit sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization, medical or
other plan, arrangement or understanding providing benefits to any current or
former employee, officer or director of the Parent or any of its wholly owned
subsidiaries. Since January 1, 1997, there has not been any change in any
actuarial or other assumptions used to calculate funding obligations with
respect to any Parent pension plans or post-retirement benefit plans, or any
change in the manner in which contributions to any Parent pension plans or
post-retirement benefit plans are made or the basis on which such contributions
are determined which, individually or in the aggregate, would result in an
increase of the Parent's or its subsidiaries' liabilities thereunder.
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(j) ERISA Compliance. (i) With respect to Parent Benefit Plans, no
event has occurred and, to the knowledge of Parent, there exists no condition or
set of circumstances, in connection with which Parent or any of its subsidiaries
could be subject to any liability that individually or in the aggregate would
have an adverse effect on Parent under ERISA, the Code or any other applicable
law.
(ii) Each Parent Benefit Plan has been administered in accordance
with its terms. Parent, its subsidiaries and all the Parent Benefit Plans
have been operated, and are in compliance with the applicable provisions of
ERISA, the Code and all other applicable laws and the terms of all
applicable collective bargaining agreements.
(iii) Neither Parent nor any trade or business, whether or not
incorporated (an "ERISA Affiliate"), which together with Parent would be
deemed a "single employer" within the meaning of Section 4001(b) of ERISA,
has incurred any unsatisfied liability under Title IV of ERISA in
connection with any Parent Benefit Plan and no condition exists that
presents a risk to Parent or any ERISA Affiliate of incurring any such
liability (other than liability for premiums to the Pension Benefit
Guaranty Corporation arising in the ordinary course). No Parent Benefit
Plan has incurred an "accumulated funding deficiency" (within the meaning
of Section 302 of ERISA or Section 412 of the Code) whether or not waived.
(iv) Except as set forth in Section 3.4(j) of the Parent
Disclosure Schedule, no Parent Benefit Plan is subject to Title IV of
ERISA. No Parent Benefit Plan is a "multiemployer plan" within the meaning
of Section 3(37) of ERISA.
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(v) Except as set forth in Section 3.4(j) of the Parent
Disclosure Schedule, no Parent Benefit Plan provides medical benefits
(whether or not insured), with respect to current or former employees after
retirement or other termination of service (other than coverage mandated by
applicable law or benefits, the full cost of which is borne by the current
or former employee).
(vi) Each Parent Benefit Plan which is a welfare benefit plan as
defined in Section 3(1) of ERISA (including any such plan covering former
employees of Parent or any subsidiary of the Parent) may be amended or
terminated by Parent or any subsidiary of Parent on or at any time after
the Closing Date.
(vii) As of the date of this Agreement, neither Parent nor any of
its subsidiaries is a party to any collective bargaining or other labor
union contract applicable to persons employed by Parent or any of its
subsidiaries and no collective bargaining agreement is being negotiated by
Parent or any of its subsidiaries. As of the date of this Agreement, there
is no labor dispute, strike or work stoppage against Parent or any of its
subsidiaries pending or, to the knowledge of Parent, threatened which may
interfere with the respective business activities of Parent or any of its
subsidiaries.
(viii) No amounts payable under Parent Benefit Plans will fail to
be deductible for federal income tax purposes by virtue of section 280G of
the Code. The consummation of the transactions contemplated by this
Agreement will not, either alone or in combination with another event, (A)
entitle any current or former employee or officer of Parent or any ERISA
Affiliate to severance pay, unemployment compensation or any other payment,
except as expressly provided in this Agreement, (B) accelerate the time of
payment or vesting, or increase the amount of compensation due any such
employee or officer or (C) constitute a "change in control" under any
Parent Benefit Plan, and Parent and its board of directors have taken all
required actions to effect the foregoing.
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(k) Taxes. (i) Each of Parent and its subsidiaries has filed all tax
returns and reports required to be filed by it and all such returns and reports
are complete and correct in all respects, or requests for extensions to file
such returns or reports have been timely filed, granted and have not expired.
Parent and each of its subsidiaries has paid (or Parent has paid on its behalf)
all taxes shown as due on such returns, and the most recent financial statements
contained in the Parent Filed SEC Documents reflect an adequate reserve in
accordance with GAAP for all taxes payable by Parent and its subsidiaries for
all taxable periods and portions thereof accrued through the date of such
financial statements.
(ii) No deficiencies for any taxes have been proposed, asserted
or assessed against Parent or any of its subsidiaries that are not
adequately reserved for. The federal income tax returns of Parent and each
of its subsidiaries consolidated in such returns for tax years through 1988
have closed by virtue of the applicable statute of limitations, except as
set forth on Schedule 3.4(k).
(iii) Neither Parent nor any of its subsidiaries has taken any
action or knows of any fact, agreement, plan or other circumstance that is
reasonably likely to prevent the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Code.
(l) Accounting Matters. Parent has disclosed to its independent public
accountants all actions taken by it or its subsidiaries that would impact the
accounting of the business combination to be effected by the Merger as a pooling
of interests. Parent, based on advice from its independent public accountants,
believes that the Merger will qualify for "pooling of interest" accounting. In
connection with the foregoing, Parent has received a letter from Parent's
independent accountants stating that accounting for the Merger as a pooling of
interests under Opinion 16 of the Accounting Principles Board and applicable SEC
rules and regulations is appropriate if the Merger is closed and consummated as
contemplated by this Agreement.
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(m) Brokers. No broker, investment banker, financial advisor or other
person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Parent.
(n) Ownership of Company Capital Stock. Except for shares owned by
Parent Benefit Plans or shares held or managed for the account of another person
or as to which Parent is required to act as a fiduciary or in a similar capacity
or as otherwise disclosed in the Parent SEC Documents, as of the date hereof,
except for the Voting Agreement, neither Parent nor, to its knowledge without
independent investigation, any of its affiliates, (i) beneficially owns (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, or (ii)
is party to any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of, in each case, shares of capital
stock of the Company, other, in each case, than the shares of the Company's
capital stock held directly or indirectly, in trust accounts, managed accounts
or the like or held for the account of another person.
(o) Voting Requirements. Assuming the accuracy of the Company's
representation and warranty contained in Section 3.3(c), no vote of the holders
of Parent Common Stock or Parent's preferred stock is necessary to authorize the
issuance of Parent Common Stock or Parent New Preferred Stock pursuant to the
Merger or otherwise in connection with the transactions contemplated by this
Agreement, including the stock exchange listings contemplated by Section 5.11
(except as contemplated by Section 5.6(c)).
(p) Environmental Liability. Except as set forth in the Parent SEC
Documents or the Company Disclosure Schedule, there are no legal,
administrative, arbitral or other proceedings, claims, actions, causes of
action, private environmental investigations or remediation activities or
governmental investigations of any nature seeking to impose on Parent or any of
its subsidiaries, or that reasonably could be expected to result in the
imposition on Parent or any of its subsidiaries of, any liability or obligation
arising under applicable Environmental Laws, pending or, to the knowledge of
Parent, threatened, against Parent or any of its subsidiaries. To the knowledge
of Parent, each of Parent and each of its subsidiaries is, and each former
subsidiary of Parent was, for so long as such subsidiary was a subsidiary of
Parent, in compliance with all Environmental Laws and has or at such time had
all permits required under Environmental Laws and there is no reasonable basis
for any proceeding, claim, action or governmental investigation under any
Environmental Law that would impose any liability or obligation on Parent or its
subsidiaries based on any failure |
