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EXHIBIT-10.1
Agreement and Plan of Merger by
and among the Company, Rexflor
Acquisition Corporation and Lexford
Properties, Inc. ("Lexford") and
the Shareholders of Lexford
dated as of July 19, 1996
==============================================
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
CARDINAL REALTY SERVICES, INC.
REXFLOR ACQUISITION CORPORATION
AND
LEXFORD PROPERTIES, INC.
AND THE SHAREHOLDERS OF
LEXFORD PROPERTIES, INC.
DATED AS OF
JULY 19, 1996
=============================================
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TABLE OF CONTENTS
ARTICLE I THE MERGER.................................................................................... 1
Section 1.1 THE MERGER........................................................................... 1
Section 1.2 EFFECTIVE TIME....................................................................... 1
Section 1.3 CLOSING.............................................................................. 2
Section 1.4 DIRECTORS AND OFFICERS............................................................... 2
Section 1.5 SHAREHOLDERS' MEETING................................................................ 2
Section 1.6 TAX-FREE REORGANIZATION.............................................................. 3
Section 1.7 CONSENT TO SUIT IN OHIO AND SERVICE ON SECRETARY OF STATE OF
OHIO................................................................................. 3
ARTICLE II CONVERSION OF SHARES.......................................................................... 3
Section 2.1 CONVERSION OF SHARES................................................................. 3
Section 2.2 ISSUANCE OF PARENT COMMON STOCK; CASH IN LIEU OF FRACTIONAL
SHARES............................................................................... 3
Section 2.3 STOCK TRANSFER BOOKS................................................................. 8
Section 2.4 DISSENTING SHARES.................................................................... 9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................. 10
Section 3.1 HISTORY AND ORGANIZATION............................................................. 10
Section 3.2 CAPITALIZATION....................................................................... 11
Section 3.3 CORPORATE AUTHORIZATION; VALIDITY OF AGREEMENT; COMPANY
ACTION............................................................................... 12
Section 3.4 CONSENTS AND APPROVALS; NO VIOLATIONS................................................ 12
Section 3.5 FINANCIAL STATEMENTS................................................................. 13
Section 3.6 ABSENCE OF CERTAIN CHANGES........................................................... 13
Section 3.7 NO UNDISCLOSED LIABILITIES........................................................... 13
Section 3.8 EMPLOYEE BENEFIT PLANS; ERISA........................................................ 14
Section 3.9 LITIGATION........................................................................... 16
Section 3.10 NO DEFAULT........................................................................... 16
Section 3.11 TAXES................................................................................ 17
Section 3.12 CONTRACTS............................................................................ 19
Section 3.13 ASSETS; REAL PROPERTY................................................................ 20
Section 3.14 ENVIRONMENTAL MATTERS................................................................ 20
Section 3.15 LABOR RELATIONS...................................................................... 20
Section 3.16 INSURANCE............................................................................ 21
Section 3.17 COMPLIANCE WITH LAW.................................................................. 21
Section 3.18 VOTE REQUIRED........................................................................ 21
Section 3.19 REPRESENTATIONS AND WARRANTIES TRUE AND COMPLETE AT
CLOSING.............................................................................. 21
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Page
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND
SUB........................................................................................... 21
Section 4.1 ORGANIZATION......................................................................... 21
Section 4.2 CAPITALIZATION....................................................................... 22
Section 4.3 CORPORATE AUTHORIZATION; VALIDITY OF AGREEMENT; NECESSARY
ACTION............................................................................... 23
Section 4.4 CONSENTS AND APPROVALS; NO VIOLATIONS................................................ 23
Section 4.5 SEC REPORTS AND FINANCIAL STATEMENTS................................................. 23
Section 4.6 ABSENCE OF CERTAIN CHANGES........................................................... 24
Section 4.7 NO DEFAULT........................................................................... 24
Section 4.8 REPRESENTATIONS AND WARRANTIES TRUE AND COMPLETE AS OF
CLOSING.............................................................................. 25
ARTICLE V COVENANTS..................................................................................... 25
Section 5.1 INTERIM OPERATIONS OF THE COMPANY.................................................... 25
Section 5.2 ACCESS TO INFORMATION................................................................ 27
Section 5.3 CONSENTS AND APPROVALS............................................................... 29
Section 5.4 NO SOLICITATION...................................................................... 29
Section 5.5 ADDITIONAL AGREEMENTS................................................................ 30
Section 5.6 PUBLICITY............................................................................ 30
Section 5.7 NOTIFICATION OF CERTAIN MATTERS...................................................... 30
Section 5.8 COOPERATION.......................................................................... 31
Section 5.9 REPRESENTATION ON BOARD OF DIRECTORS................................................. 31
Section 5.10 EMPLOYMENT AGREEMENTS................................................................ 31
Section 5.11 FIMBERG/WILLIAMS CONSULTING AGREEMENTS............................................... 31
Section 5.12 PAY OFF OF COMPANY INDEBTEDNESS...................................................... 31
Section 5.13 RESTRICTIONS ON ISSUANCE OF PARENT COMMON STOCK; DIVIDENDS
AND DISTRIBUTIONS.................................................................... 31
Section 5.14 RDO SALARIES......................................................................... 32
Section 5.15 EMPLOYEE STOCK OPTION AWARDS......................................................... 32
Section 5.16 LEASE GUARANTIES..................................................................... 32
ARTICLE VI CONDITIONS.................................................................................... 32
Section 6.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY.......................................... 32
Section 6.2 CONDITIONS TO OBLIGATIONS OF PARENT AND SUB.......................................... 32
Section 6.3 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY......................................... 33
ARTICLE VII TERMINATION.......................................................................... 34
Section 7.1 TERMINATION.......................................................................... 34
Section 7.2 EFFECT OF TERMINATION................................................................ 35
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Page
ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND
WARRANTIES; INDEMNIFICATION; DISPUTES................................................ 35
Section 8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES........................................... 35
Section 8.2 INDEMNIFICATION...................................................................... 36
Section 8.3 DEFENSE OF CLAIM..................................................................... 36
Section 8.4 LIMITATIONS ON INDEMNIFICATION....................................................... 37
Section 8.5 SATISFACTION OF INDEMNIFICATION CLAIMS............................................... 37
ARTICLE IX MISCELLANEOUS................................................................................. 38
Section 9.1 FEES AND EXPENSES.................................................................... 38
Section 9.2 FINDERS' FEES........................................................................ 38
Section 9.3 AMENDMENT AND MODIFICATION........................................................... 38
Section 9.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES........................................... 38
Section 9.5 NOTICES.............................................................................. 39
Section 9.6 INTERPRETATION....................................................................... 40
Section 9.7 COUNTERPARTS......................................................................... 40
Section 9.8 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES; RIGHTS OF
OWNERSHIP............................................................................ 40
Section 9.9 SEVERABILITY......................................................................... 40
Section 9.10 SPECIFIC PERFORMANCE................................................................. 40
Section 9.11 GOVERNING LAW........................................................................ 41
Section 9.12 ASSIGNMENT........................................................................... 41
Section 9.13 ARBITRATION.......................................................................... 41
Schedule I - Shareholders of the Company
Schedule II - Contribution to Profit -- Procedures for Determination
Schedule III - RDOs
COMPANY DISCLOSURE SCHEDULE
PARENT DISCLOSURE SCHEDULE
EXHIBITS
Exhibits A-1 through A-5 Forms of Employment Agreements
Exhibits B-1 through B-2 Forms of Consulting Agreements
Exhibit C Form of Investment Letter
Exhibit D Form of Registration Rights Agreement
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AGREEMENT AND PLAN OF MERGER RE: LEXFORD
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER ("Agreement"), dated as of July 19, 1996,
by and among Cardinal Realty Services, Inc., an Ohio corporation ("Parent"),
Rexflor Acquisition Corporation, an Ohio corporation and a wholly owned
subsidiary of Parent ("Sub"), Lexford Properties, Inc., a Texas corporation (the
"Company"), Stanley R. Fimberg ("Fimberg") and the shareholders of the Company
listed on the signature page hereof and Schedule I attached hereto (together
with Fimberg, collectively, the "Shareholders" and each individually, a
"Shareholder").
WHEREAS, the Boards of Directors of Parent, Sub and the Company have
approved, and deem it advisable and in the best interests of their respective
shareholders to consummate, the acquisition of the Company by Parent upon the
terms and subject to the conditions set forth herein;
WHEREAS, it is intended that the acquisition be accomplished by a
merger of Sub with and into the Company, with the Company being the surviving
corporation; and
WHEREAS, the parties intend for the Merger to qualify as a tax-free
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code).
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 THE MERGER. Subject to the terms and conditions of this
Agreement and in accordance with the Texas Business Corporation Act ("TBCA") and
the Ohio Revised Code ("ORC"), at the Effective Time (as defined below), the
Company and Sub shall consummate a merger (the "Merger") pursuant to which (i)
Sub shall be merged with and into the Company and the separate corporate
existence of Sub shall thereupon cease, and (ii) the Company shall be the
successor or surviving corporation in the Merger (the "Surviving Corporation"),
shall continue to be governed by the laws of the State of Texas and shall
maintain its principal place of business at 8615 Freeport Parkway, Suite 200,
Irving, Texas 75063. Pursuant to the Merger, (x) the Articles of Incorporation
of the Company, as in effect immediately prior to the Effective Time, shall be
the Articles of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Articles of Incorporation, and (y) the
Bylaws of the Company, as in effect immediately prior to the Effective Time,
shall be the Bylaws of the Surviving Corporation until thereafter amended as
provided by law, the Articles of Incorporation of the Surviving Corporation and
such Bylaws. The Merger shall have the effects set forth in the TBCA.
Section 1.2 EFFECTIVE TIME. Parent, Sub and the Company will cause
Articles of Merger or Certificates of Merger, as the case may be, (collectively
the "Articles of Merger") with respect to the Merger to be executed and filed on
the date of the Closing (as defined in Section 1.3) (or on such other date as
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Parent and the Company may agree) with the Secretaries of State of the States of
Texas and Ohio as provided in the TBCA and the ORC, respectively. The Merger
shall become effective when a Certificate of Merger is issued by the Secretary
of State of the State of Texas and the Articles of Merger and other filings
required by the ORC have been duly filed with the Secretary of State of the
State of Ohio or at such time as is agreed upon by the parties and specified in
the Articles of Merger, and such time is hereinafter referred to as the
"Effective Time".
Section 1.3 CLOSING. The closing of the Merger (the "Closing") will
take place at 10:00 a.m., Cleveland, Ohio time, on a date to be mutually agreed
by the parties hereto, such date to be not more than thirty (30) days of the
date of this Agreement, unless an extension is mutually agreed to by the parties
(the "Closing Date"), at the offices of Benesch, Friedlander, Coplan & Aronoff
P.L.L., 88 East Broad Street, Columbus, Ohio, unless another time, date or place
is agreed to in writing by the parties hereto.
Section 1.4 DIRECTORS AND OFFICERS. The directors of the Surviving
Corporation shall, from and after the Effective Time, be Messrs. John B.
Bartling, Jr., Mark D. Thompson and Pat Holder and the officers of the Surviving
Corporation shall, from and after the Effective Time, be as follows:
John B. Bartling, Chairman of the Board of Directors
Pat Holder, President
Bruce Woodward, Vice President
Annette Hoover, Vice President
Peggy Crow Smith, Vice President
Peggy Hunt, Vice President
David P. Blackmore, Vice President and Chief Financial Officer
Mark D. Thompson, Vice President
Thomas Trubiana, Vice President
Paul R. Selid, Vice President
Tamra L. Byers, Vice President
Ronald P. Koegler, Vice President and Treasurer
Jeffrey D. Meyer, Secretary
Dain C. Akin, Acting General Counsel and Assistant Secretary
Mark Zando, Financial Reporting Manager
in each case until their successors shall have been duly elected or appointed or
qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Articles of Incorporation and Bylaws.
Section 1.5 SHAREHOLDERS' MEETING. In order to consummate the Merger,
the Company, acting through its Board of Directors, shall, in accordance with
the TBCA and all other applicable law, duly call, give notice of, convene and
hold a special meeting of its shareholders (the "Company Special Meeting"), as
soon as practicable for the purpose of considering and taking action upon this
Agreement. The Board of Directors of the Company shall recommend that the
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shareholders of the Company vote in favor of the approval of the Merger and the
adoption of this Agreement. In lieu of the Company Special Meeting, the
shareholders of the Company may take action upon and approve the Company's
execution and delivery of, and performance of its obligations under, this
Agreement without a meeting by unanimous written consent of all the Shareholders
to the extent permitted by and in accordance with the TBCA and the Company's
Bylaws.
Section 1.6 TAX-FREE REORGANIZATION. The parties intend to adopt this
Agreement as a tax-free plan of reorganization and to consummate the Merger in
accordance with the provisions of Sections 368(a)(1)(A) and 368(a)(2)(E) of the
Code.
Section 1.7 CONSENT TO SUIT IN OHIO AND SERVICE ON SECRETARY OF STATE
OF OHIO. The Surviving Corporation hereby consents to be sued and served with
process in the State of Ohio, and irrevocably appoints the Secretary of State of
Ohio as its agent to accept service of process in any proceeding in Ohio, to
enforce against the Surviving Corporation any obligation of Sub, or to enforce
the rights of any dissenting shareholder of Sub.
ARTICLE II
CONVERSION OF SHARES
Section 2.1 CONVERSION OF SHARES.
(a) Each share of common stock, without par value, of Sub
issued and outstanding immediately prior to the Effective Time, by
virtue of the merger and without any other action taken by Parent, Sub
or the Company, shall, at the Effective Time, be automatically
converted into and become one fully paid and nonassessable share of
common stock of the Surviving Corporation.
(b) Each share of common stock, par value $1.00 per share, of
the Company ("Company Common Stock") issued and outstanding immediately
prior to the Effective Time shall, at the Effective Time, by virtue of
the Merger and without any action taken on the part of the holder
thereof, be automatically converted into the right to receive Three
Hundred Fifty (350) duly authorized, validly issued, fully paid and
nonassessable shares of common stock, no par value, of Parent ("Parent
Common Stock"), subject in part however, to forfeiture and claims for
indemnification as hereinafter provided.
(c) On and after the Effective Time, holders of certificates
which immediately prior to the Effective Time represented outstanding
shares of Company Common Stock (the "Certificates") shall cease to have
any rights as shareholders of the Company, except the right to receive
the consideration set forth in this Article II (the "Merger
Consideration").
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Section 2.2 ISSUANCE OF PARENT COMMON STOCK; CASH IN LIEU OF FRACTIONAL
SHARES.
(a) The manner in which each share of Company Common Stock
shall be converted into Three Hundred Fifty (350) shares of Parent
Common Stock shall be as set forth in this Section 2.2.
(b) Parent shall act as exchange/escrow agent for the holders
of shares of Company Common Stock in connection with the Merger (the
"Exchange/Escrow Agent"). In connection therewith, the Exchange/Escrow
Agent shall accept the Certificates delivered by such holders and shall
deliver (and hold, pending cancellation, forfeiture or delivery,
pursuant to Sections 2.2(d) or 8.5 below, as the case may be)
certificates evidencing shares of Parent Common Stock to which the
Shareholders shall become entitled pursuant to this Article II.
(c) As soon as reasonably practicable after the Effective
Time, the Exchange/Escrow Agent shall deliver personally to those
Shareholders in attendance at the Closing or otherwise shall mail to
each Shareholder (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/Escrow Agent and shall be in such form and have such other
provisions as Parent may reasonably specify) (the "Letter of
Transmittal") and (ii) instructions for use in effecting the surrender
of the Certificates in exchange for the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Exchange/Escrow
Agent or to such other agent or agents as may be appointed by Parent,
together with such letter of transmittal, duly executed, the
Shareholder of such Certificate shall be entitled to receive in
exchange therefor the Merger Consideration for such shares of Company
Common Stock formerly represented by such Certificate and Parent shall
cause the Surviving Corporation to cancel the Certificate so
surrendered. The name of each Shareholder, the number of shares of
Company Common Stock, the number of shares of Parent Common Stock to
which each Shareholder shall become entitled to receive as of the
Effective Time, the number of Escrow Shares (as that term is defined
below) issuable to each Shareholder, and the number of Forfeitable
Shares (as that term is defined below) issuable to each Shareholder is
set forth on Schedule I attached hereto. The shares of Parent Common
Stock into which the shares of Company Common Stock have been converted
in the Merger are hereinafter referred to as the "Exchange Shares."
(d) Notwithstanding anything to the contrary contained in this
Agreement, Five Hundred Thousand (500,000) of the Exchange Shares shall
be held by the Exchange/Escrow Agent, in trust, for the benefit of the
Shareholders, as follows:
(i) Fifty Thousand (50,000) Exchange Shares (the
"Escrow Shares") shall be held by the Exchange/Escrow Agent
until the first to occur of: (x) the fourth (4th) anniversary
of the Closing Date (the "Fourth Anniversary"), (y) the
completion of an independent audit of Parent's consolidated
financial statements for a full fiscal year beginning and
ending after the Closing Date in which the "Contribution to
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Profit" of the combined property management businesses of
Parent and the Company (as more fully defined, and to be
determined in the manner illustrated in Schedule II attached
hereto) exceeds Ten Million Ninety Thousand Dollars
($10,090,000) (the "RELEASE TRIGGER EVENT") or (z)
cancellation of all the Escrow Shares in satisfaction of an
Indemnification Claim (as defined and provided for in Article
VIII below); and
(ii) FORFEITABLE SHARES.
(A) GROUP 1 FORFEITABLE SHARES. One Hundred
Fifty Thousand (150,000) Exchange Shares (the "Group
1 Forfeitable Shares") shall be held by the
Exchange/Escrow Agent until the Release Trigger Event
occurs, at which time the Exchange/Escrow Agent will
release the Group 1 Forfeitable Shares in the manner
provided in Section 2.2(e)(ii). If, prior to the
occurrence of the Release Trigger Event, the
Contribution to Profit for any full fiscal year
beginning and ending after the Closing Date and prior
to the Fourth Anniversary exceeds Seven Million
Ninety Thousand Dollars ($7,090,000) but is less than
Seven Million Eight Hundred Ninety Thousand Dollars
($7,890,000), then the Shareholders will be entitled
to receive (each on a pro rata, cumulative basis),
that number of Group 1 Forfeitable Shares calculated
as follows:
NFS = 150,000 x (CPR - $7,090,000)
------------------
$800,000
Where:
NFS = the number of Group 1 Forfeitable
Shares to be released.
CPR = Contribution to Profit for such
fiscal year.
In the event that Contribution to Profit for any such
full fiscal year is Seven Million Eight Hundred
Ninety Thousand Dollars ($7,890,000) or greater, then
the Shareholders will be entitled to receive (each on
a pro rata, cumulative basis) all the Group 1
Forfeitable Shares not previously released pursuant
to this Section 2.2(d)(ii)(A).
Provided, however, that the number of Group 1
Forfeitable Shares to be released in accordance with
the above formula shall be reduced by (x) the
aggregate number of Group 1 Forfeitable Shares
previously released under this Section 2.2(d)(ii)(A)
and (y) the aggregate number of Group 1 Forfeitable
Shares previously cancelled by Parent in satisfaction
of an Indemnification Claim in accordance with the
provisions of Article VIII hereof and not previously
deducted in calculating the number of Forfeitable
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Shares to be released pursuant to this Section
2.2(d)(ii) on account of a prior fiscal year.
(B) GROUP 2 FORFEITABLE SHARES. Three
Hundred Thousand (300,000) Exchange Shares (the
"Group 2 Forfeitable Shares" and together with the
Group 1 Forfeitable Shares, the "Forfeitable Shares")
shall be held by the Exchange/Escrow Agent until the
Release Trigger Event occurs at which time the
Exchange/Escrow Agent will release the Group 2
Forfeitable Shares in the manner provided in Section
2.2(e)(ii). If prior to the occurrence of the Release
Trigger Event, the Contribution to Profit for any
full fiscal year beginning and ending after the
Closing Date and prior to the Fourth Anniversary
exceeds Seven Million Eight Hundred Ninety Thousand
Dollars ($7,890,000) but is less than Ten Million
Ninety Thousand Dollars ($10,090,000), then the
Shareholders will be entitled to receive (each on a
pro rata, cumulative basis) that number of Group 2
Forfeitable Shares calculated as follows:
NSF = 300,000 x (CPR - $7,890,000)
------------------
$2,200,000
Where:
NFS = the number of Group 2 Forfeitable
Shares to be released.
CPR = Contribution to Profit.
Provided, however, that the number of Group 2
Forfeitable Shares to be released in accordance with
the above formula shall be reduced by (x) the
aggregate number of Group 2 Forfeitable Shares
previously released under this Section 2.2(d)(ii)(B)
and (y) the aggregate number of Group 2 Forfeitable
Shares previously cancelled by Parent in satisfaction
of an Indemnification Claim in accordance with the
provisions of Article VIII hereof and not previously
deducted in calculating the number of Forfeitable
Shares to be released pursuant to this Section
2.2(d)(ii) on account of a prior fiscal year.
(C) Upon the occurrence of the Release
Trigger Event or an event referred to in the
preceding Sections 2.2(d)(ii)(A) and (B), the
Forfeitable Shares, or the appropriate portion
thereof, shall be deemed, and shall for the purpose
of this Agreement be referred to as, "Non-Forfeited
Shares". If the Release Trigger Event has not
occurred on or before the Fourth Anniversary, any
Forfeitable Shares which have not been released in
accordance with this Section 2.2(d)(ii) will be
automatically forfeited to Parent without notice and
without consideration. Notwithstanding the foregoing,
at all times prior to the Release Trigger Event or
the Fourth Anniversary, as the case may be, the
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Forfeitable Shares (to the extent not theretofore
released to the Shareholders in accordance with this
Section 2.2(d)(ii)) may be canceled in satisfaction
of an Indemnification Claim pursuant to the
provisions of Article VIII hereof.
(e) RELEASE OF FORFEITABLE SHARES.
(i) As soon as practicable after the Effective Time,
each Shareholder, upon surrender to the Exchange/Escrow Agent,
in accordance with this Agreement and the Letter of
Transmittal, of one or more Certificates for such shares of
Company Common Stock for cancellation, shall be entitled to
receive certificates representing the number of shares of
Parent Common Stock into which such shares of Company Common
Stock shall have been converted in the Merger less the total
number of Escrow Shares and Forfeitable Shares.
(ii) Within fifteen (15) business days after the
Release Trigger Event occurs, the Exchange/Escrow Agent shall
deliver or mail to each Shareholder a certificate evidencing
such Shareholder's pro rata portion of the Escrow Shares and
the Non-Forfeited Shares. Within fifteen (15) business days
following each date upon which the Shareholders become
entitled to receive a number of Non-Forfeited Shares
determined in accordance with Section 2.2(d)(ii), the
Exchange/Escrow Agent will deliver or mail to each Shareholder
a certificate evidencing each Shareholder's pro rata portion
of the Non-Forfeited Shares.
(iii) If the Release Trigger Event has not occurred
on or before the Fourth Anniversary, the Exchange/Escrow Agent
shall deliver or mail to each Shareholder of shares of Company
Common Stock converted into Parent Common Stock such
Shareholder's pro rata portion of the Non-Forfeited Shares, if
any. The Exchange/Escrow Agent shall make such delivery or
mailing within fifteen (15) days of the Fourth Anniversary.
(f) DIVIDENDS OR DISTRIBUTIONS ON EXCHANGE SHARES.
(i) No dividends or distributions of any kind on the
Parent Common Stock (whether in cash, property, additional
shares of Parent Common Stock, shares of any other class of
Parent's capital stock, evidences of indebtedness of any kind
or description, the capital stock of any Subsidiary (as such
term is defined in Section 3.1 below) of Parent, or any
combination of the foregoing) will be paid to the Shareholders
until they surrender their Certificates, at which time all
such dividends or distributions shall be paid. In no event
shall the Shareholders be entitled to receive interest on such
dividends (except as provided below in the case of Exchange
Share Proceeds). Shareholders of Exchange Shares, including
Escrow Shares and Forfeitable Shares (in either case unless
and until forfeited or canceled), will enjoy all rights of a
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shareholder of Parent (including the right to vote such shares
and to receive dividends with respect to such shares).
(ii) Notwithstanding the immediately preceding clause
(i), in the event that Parent shall declare dividends or
distributions of any kind on the Parent Common Stock (whether
in cash, property, additional shares of Parent Common Stock,
shares of any other class of Parent's capital stock, evidences
of indebtedness of any kind or description, the capital stock
of any Subsidiary of Parent, or any combination of the
foregoing (collectively, "Exchange Share Proceeds")) the
Shareholders will not be entitled to receive, on a current
basis, any such dividends or distributions in respect of any
Escrow Shares or any Forfeitable Shares (other than
Non-Forfeited Shares). Any and all such Exchange Share
Proceeds declared and paid on account of the Escrow Shares and
the Forfeitable Shares will instead be held by the
Exchange/Escrow Agent pending the release of Non-Forfeited
Shares (and then with respect to such Non-Forfeited Shares
only), the Release Trigger Event or the Fourth Anniversary. To
the extent any Exchange Share Proceeds are payable in cash,
such cash Exchange Share Proceeds shall accrue interest at the
rate of six percent (6%) per annum so long as they are held by
the Exchange/Escrow Agent ("Proceeds Earnings"). If and when
any number of Escrow Shares and/or Forfeitable Shares are
released to one or more Shareholders pursuant to the terms of
this Agreement, the Exchange/Escrow Agent shall simultaneously
mail or deliver a check and/or certificates and/or
instruments, as the case may be, in the amount of, and/or
evidencing, all Exchange Share Proceeds and Proceeds Earnings
attributable thereto. In the event any Escrow Shares are
canceled to satisfy an Indemnification Claim or any
Forfeitable Shares are forfeited or are canceled to satisfy an
Indemnification Claim pursuant to the provisions of Article
VIII hereof, then, in such event, all Exchange Share Proceeds
and Proceeds Earnings attributable thereto shall be forfeited
by the Shareholders and shall be canceled and retired and, in
the case of Proceeds Earnings, shall revert to Parent.
(g) At any time following six months after the Fourth
Anniversary, the Surviving Corporation shall be entitled to require the
Exchange/Escrow Agent to deliver to it any shares of Parent Common
Stock, Exchange Share Proceeds or Proceeds Earnings which had been made
available by the Exchange/Escrow Agent to the Shareholders but which
have not been disbursed to the Shareholders despite Exchange/Escrow
Agent's commercially reasonable efforts to locate the Shareholders for
purposes of effecting such disbursement; and thereafter such
Shareholders shall be entitled to look solely to the Surviving
Corporation (subject to abandoned property, escheat or other similar
laws) with respect to the Merger Consideration (including any Exchange
Share Proceeds, Proceeds Earnings and other dividends and distributions
on Parent Common Stock) payable or issuable upon due surrender of their
Certificates, without any interest thereon.
Section 2.3 STOCK TRANSFER BOOKS. At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of shares of Company Common Stock on the records of
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the Company. If, after the Effective Time, Certificates are presented to the
Surviving Corporation the Surviving Corporation shall deliver such Certificates
to the Exchange/Escrow Agent and they shall be canceled and exchanged for
certificates representing Parent Common Stock pursuant to this Article II.
Section 2.4 DISSENTING SHARES. The Shareholders agree to vote in favor
of the Merger at the Company's Special Meeting or approve the merger by
unanimous written consent and that, accordingly, no Shareholder will have or
attempt to exercise any appraisal or dissenter's rights under the TBCA.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE SHAREHOLDERS
The Company and the Shareholders, jointly and severally, represent and
warrant to Parent and Sub as follows:
Section 3.1 HISTORY AND ORGANIZATION. The Company is the surviving
corporation of a merger, duly and properly effected under all applicable
provisions of the TBCA and all other applicable laws, effective as of July 11,
1996 (the "Texas Merger"), of Fimberg Realty, Inc., a Texas corporation ("FRI"),
with and into Lexford Partners, Inc., a Texas corporation ("LPI"). In connection
with the Texas Merger, LPI (i.e., the Company) changed its name to Lexford
Properties, Inc. At all times prior to the Texas Merger, FRI and LPI were the
sole co-venturers of Lexford Properties, a Texas joint venture, organized June
1, 1988, pursuant to that certain Joint Venture Agreement dated June 1, 1988, as
amended, in accordance with Texas and all other applicable law (the "Joint
Venture"). As a result of the Texas Merger, LPI has succeeded to all of the
business, assets and liabilities of every kind, nature and description
whatsoever, of each of FRI and the Joint Venture, and the separate legal
existence of each of FRI and the Joint Venture ceased. Prior to the Texas
Merger, neither of LPI nor FRI had any material assets or liabilities, matured,
contingent or otherwise, except for their respective equity ownership interests
in the Joint Venture. No Shareholder has, or will exercise any dissenter's
rights under the TBCA with respect to the Texas Merger. The Joint Venture, FRI
and the Company are hereinafter collectively referred to in this Agreement as
the "Company Affiliates." Except as set forth in Section 3.1 of the Company
Disclosure Schedule, each of the Company and its Subsidiaries is a corporation,
and at all times prior to the Texas Merger, each of FRI, LPI and the Joint
Venture was a corporation, partnership or other entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, and has (or had) all requisite corporate or other
power and authority and all necessary governmental approvals to own, lease and
operate its properties and to carry on its business as now (or previously) being
conducted. Except as set forth in Section 3.1 of the Company Disclosure
Schedule, each of the Company Affiliates and their Subsidiaries is (or was) duly
qualified or licensed to do business and in good standing in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes (or made), such qualification or licensing
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necessary. As used in this Agreement, the word "Subsidiary" means, with respect
to any party, any corporation or other organization, whether incorporated or
unincorporated, of which (i) such party or any other Subsidiary of such party is
a general partner (excluding such partnerships where such party or any
Subsidiary of such party do not have a majority of the voting interest in such
partnership) or (ii) at least a majority of the securities or other interests
having by their terms ordinary voting power to elect a majority of the Board of
Directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such party or by any one or more of its Subsidiaries, or by such party and
one or more of its Subsidiaries. Section 3.1 of the Company Disclosure Schedule
sets forth the name, state of organization, classes and number of shares of
authorized, issued and outstanding capital stock or other outstanding equity
interest (including the holders thereof) of each of the Company's Subsidiaries.
Section 3.2 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of
100,000 shares of Company Common Stock. The Company has no other
authorized classes of capital stock. As of the date hereof, (i) 2,000
shares of Company Common Stock are issued and outstanding and no shares
of Company Common Stock are issued and held in the Company's treasury.
All the outstanding shares of the Company's capital stock have been
issued in accordance with the respective terms thereof and are duly
authorized, validly issued, fully paid and nonassessable. Except as
disclosed on Section 3.2(a) of the Company Disclosure Schedule, there
are no bonds, debentures, notes or other indebtedness having voting
rights (or convertible into securities having such rights) ("Voting
Debt") of the Company or any of its Subsidiaries issued and
outstanding. Except as set forth above and except for the transactions
contemplated by this Agreement, (i) there are no shares of capital
stock of the Company authorized, issued or outstanding and (ii) there
are no existing options, warrants, calls, preemptive rights,
subscriptions or other rights, convertible securities, agreements,
arrangements or commitments of any character, relating to the issued or
unissued capital stock of the Company or any of its Subsidiaries,
obligating the Company or any of its Subsidiaries to issue, transfer or
sell or cause to be issued, transferred or sold any shares of capital
stock or Voting Debt of, or other equity interest in, the Company or
any of its Subsidiaries or securities convertible into or exchangeable
for such shares or equity interests or obligations of the Company or
any of its Subsidiaries to grant, extend or enter into any such option,
warrant, call, subscription or other right, convertible security,
agreement, arrangement or commitment. Except as disclosed on Section
3.2(a) of the Company Disclosure Schedule, there are no outstanding
contractual obligations of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock of
the Company or any subsidiary or Affiliate of the Company or to provide
funds to make any investment (in the form of a loan, capital
contribution or otherwise) in any Subsidiary or any other entity.
Except as permitted by this Agreement, following the Merger, neither
the Company nor any of its Subsidiaries will have any obligation to
issue, transfer or sell any shares of its capital stock pursuant to any
employee benefit plan or otherwise.
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(b) Except as disclosed on Section 3.1 of the Company
Disclosure Schedule, all of the outstanding shares of capital stock of
each of the Subsidiaries are beneficially owned by the Company,
directly or indirectly, and all such shares have been validly issued
and are fully paid and nonassessable and are owned by either the
Company or one of its Subsidiaries free and clear of all liens,
charges, security interests, options, claims or encumbrances of any
nature whatsoever.
(c) There are no voting trusts or other agreements or
understandings to which the Company or any of its Subsidiaries is a
party with respect to the voting of the capital stock of the Company or
any of its Subsidiaries. None of the Company or its Subsidiaries is
required to redeem, repurchase or otherwise acquire shares of capital
stock of the Company, or any of its Subsidiaries, respectively, as a
result of the transactions contemplated by this Agreement.
(d) At the Effective Time, the number of shares of Company
Common Stock outstanding shall equal 2,000 and all such shares shall be
held by each Shareholder free and clear of any and all liens, claims,
encumbrances and restrictions whatsoever in the amounts set forth in
Schedule I attached hereto.
Section 3.3 CORPORATE AUTHORIZATION; VALIDITY OF AGREEMENT; COMPANY
ACTION.
(a) The Company has full corporate power and authority to
execute and deliver this Agreement, and, subject to obtaining any
necessary approval of its shareholders as contemplated by Section 1.5
hereof with respect to the Merger, to consummate the transactions
contemplated hereby. The execution, delivery and performance by the
Company of this Agreement and the consummation by it of the
transactions contemplated hereby, have been duly and validly authorized
by its Board of Directors and, except in the case of this Agreement for
obtaining the approval of its shareholders as contemplated by Section
1.5 hereof with respect to the Merger, no other corporate action or
proceedings on the part of the Company is necessary to authorize the
execution and delivery by the Company of this Agreement and the
consummation by it of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Company and,
assuming this Agreement constitutes a valid and binding obligation of
Parent and Sub, constitutes a valid and binding obligation of the
Company enforceable against the Company in accordance with its terms,
except that (i) such enforcement may be subject to applicable
bankruptcy, insolvency or other similar laws, now or hereafter in
effect, affecting creditors' rights generally, and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief
may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
(b) The Board of Directors of the Company has duly and validly
approved and taken all corporate action required to be taken by the
Board of Directors for the consummation of the transactions
contemplated by this Agreement.
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Section 3.4 CONSENTS AND APPROVALS; NO VIOLATIONS. Except as disclosed
on Section 3.4 of the Company Disclosure Schedule, and except for all filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the TBCA, the ORC, and for the approval of
this Agreement by the Company's shareholders and the filing and recordation of
the Articles of Merger as required by the TBCA and the ORC, respectively,
neither the execution, delivery or performance of this Agreement nor the
consummation by the Company of the transactions contemplated hereby nor
compliance by the Company with any of the provisions hereof will (i) conflict
with or result in any breach of any provision of the Articles of Incorporation
or Bylaws or similar organizational documents of the Company or of any of its
Subsidiaries, (ii) require any filing with, or permit, authorization, consent or
approval of, any court, arbitral tribunal, administrative agency or commission
or other governmental or other regulatory authority or agency (a "Governmental
Entity"), (iii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation or acceleration) under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
guarantee, other evidence of indebtedness (collectively, the "Debt
Instruments"), lease, license, contract, agreement or other instrument or
obligation to which the Company or any of its Subsidiaries is a party or by
which any of them or any of their properties or assets may be bound and which
either has a term of more than one year or involves the payment or receipt of
money in excess of $10,000 per year (a "Company Agreement") or (iv) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to the
Company, any of its Subsidiaries or any of their properties or assets.
Section 3.5 FINANCIAL STATEMENTS. The Company has previously furnished
to Parent true and complete copies of (i) unaudited consolidated financial
statements of the Joint Venture and the Company Affiliates for the fiscal years
ended December 31, 1993, December 31, 1994 and December 31, 1995, and (ii)
unaudited consolidated monthly financial statements of the Joint Venture and the
Company Affiliates for each month from January, 1996 through May, 1996. Each of
the consolidated financial statements provided to Parent (i) have been prepared
from, and are in accordance with, the books and records of the Joint Venture and
the Company Affiliates and/or their respective consolidated Subsidiaries, (ii)
except as set forth in Section 3.5 of the Company Disclosure Schedule, have been
prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis during the periods involved,
and (iii) fairly present in all material respects the consolidated financial
position and the consolidated results of operations and cash flows (and changes
in financial position, if any) of the Joint Venture and the Company Affiliates
and their respective consolidated Subsidiaries as at the dates thereof or for
the periods presented therein, as the case may be.
Section 3.6 ABSENCE OF CERTAIN CHANGES. Except as otherwise disclosed
to Parent on Section 3.6 of the Company Disclosure Schedule, from December 31,
1995 through the date of this Agreement, the Joint Venture and the Company
Affiliates and their respective Subsidiaries have conducted their respective
businesses and operations in the ordinary course of business consistent with
past practice. From December 31, 1995 through the date of this Agreement, there
has not occurred (i) any events, changes, or effects (including the incurrence
of any liabilities of any nature, whether or not accrued, contingent or
otherwise) having or, which would be reasonably likely to have, individually or
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46
in the aggregate, a material adverse effect on the Company and its Subsidiaries;
(ii) any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to the equity
interests of the Company, the Joint Venture or of any of their Subsidiaries,
other than dividends paid by wholly owned Subsidiaries; or (iii) any material
change by the Company, the Joint Venture or any of their Subsidiaries in
accounting principles or methods, except insofar as may be required by a change
in GAAP. Except as set forth in Section 3.6 of the Company Disclosure Schedule,
from December 31, 1995 through the date of this Agreement, none of the Joint
Venture, the Company nor any of its Subsidiaries has taken any of the actions
prohibited by Section 5.1 hereof.
Section 3.7 NO UNDISCLOSED LIABILITIES. Except for liabilities and
obligations incurred in the ordinary course of business consistent with past
practice, during the period from December 31, 1995 through the date of this
Agreement, none of the Company Affiliates nor any of their Subsidiaries have
incurred any liabilities or obligations of any nature, whether or not accrued,
contingent or otherwise, that have, or would be reasonably likely to have, a
material adverse effect on the Company and its Subsidiaries or would be required
to be reflected or reserved against on a consolidated balance sheet of the
Company and its Subsidiaries (including the notes thereto) prepared in
accordance with GAAP. Section 3.7 of the Company Disclosure Schedule sets forth
each instrument evidencing indebtedness of the Company and its Subsidiaries
which will accelerate or become due or payable, or result in a right of
redemption or repurchase on the part of the holder of such indebtedness, or with
respect to which any other payment or amount will become due or payable, in any
such case with or without due notice or lapse of time or both, as a result of
this Agreement, the Merger or the other transactions contemplated hereby.
Section 3.8 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Except as set forth in Section 3.8(a) of the Company
Disclosure Schedule: there are no material employee benefit plans,
arrangements, practices, contracts or agreements (including, without
limitation, employment agreements, change of control employment
agreements and severance agreements, incentive compensation, bonus,
stock option, stock appreciation rights and stock purchase plans) of
any type (including, but not limited to, plans described in section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), maintained by any of the Company Affiliates, any of their
respective Subsidiaries or any trade or business, whether or not
incorporated (an "ERISA Affiliate"), that together with the Company
would be deemed a "controlled group" within the meaning of section
4001(a)(14) of ERISA, or with respect to which the Company or any of
its Subsidiaries has or may have a liability, other than those listed
on Section 3.8(a) of the Company Disclosure Schedule (the "Benefit
Plans"). Except as disclosed on Section 3.8(a) of the Company
Disclosure Schedule: (1) neither the Company nor any ERISA Affiliate
has any formal plan or commitment, whether legally binding or not, to
create any additional Benefit Plan or modify or change any existing
Benefit Plan that would affect any employee or terminated employee of
the Company or any ERISA Affiliate; and (2) since December 31, 1995,
there has been no change, amendment, modification to, or adoption of,
any Benefit Plan. Section 3.8(a) of the Company Disclosure Schedule
contains a list of each material employment, termination, severance,
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47
incentive and deferred compensation agreement or arrangement that is a
Benefit Plan, and the date of execution of each such agreement or
arrangement.
(b) Except as disclosed on Section 3.8(b) of the Company
Disclosure Schedule, under the applicable laws of all jurisdictions
within the United States of America and all foreign jurisdictions, with
respect to any Benefit Plan, there are no material amounts accrued but
unpaid as of the most recent balance sheet date that are not reflected
on that balance sheet prepared in accordance with GAAP.
(c) With respect to each Benefit Plan, except as disclosed on
Section 3.8(c) of the Company Disclosure Schedule: (i) if intended to
qualify under section 401(a), 401(k) or 403(a) of the Code, such plan
so qualifies, and its trust is exempt from taxation under section
501(a) of the Code; (ii) such plan has been administered in accordance
with its terms and applicable law; (iii) no breaches of fiduciary duty
have occurred; (iv) no disputes are pending, or, to the knowledge of
the Company, threatened; (v) no prohibited transaction (within the
meaning of Section 406 of ERISA) has occurred; (vi) no lien imposed
under the Code or ERISA exists or is likely to exist; and (vii) all
contributions and premiums due (giving effect to any valid extensions
for such contributions and premiums) have been made in full.
(d) Except as disclosed on Section 3.8(d) of the Company
Disclosure Schedule, none of the Benefit Plans has incurred any
"accumulated funding deficiency," as such term is defined in section
412 of the Code, whether or not waived.
(e) Except as disclosed on Section 3.8(e) of the Company
Disclosure Schedule: (i) neither the Company nor any ERISA Affiliate
has incurred any liability under Title IV of ERISA since the effective
date of ERISA that has not been satisfied in full except as would not
have or would not reasonably be likely to have a material adverse
effect on the Company and its Subsidiaries (including sections
4063-4064 and 4069 of ERISA) and, to the knowledge of the Company, no
basis for any such liability exists; (ii) neither the Company nor any
ERISA Affiliate maintains (or contributes to), or has maintained (or
has contributed to) within the last six years, any employee benefit
plan that is subject to Title IV of ERISA; and (iii) there is no
pending dispute between the Company or any ERISA Affiliate concerning
payment of contributions or payment of withdrawal liability payments.
(f) With respect to each Benefit Plan that is a "welfare plan"
(as defined in section 3(1) of ERISA), except as specifically disclosed
in Section 3.8(f) of the Company Disclosure Schedule, no such plan
provides medical or death benefits with respect to current or former
employees of any of the Company Affiliates or any of its Subsidiaries
beyond their termination of employment, other than on an
employee-pay-all basis, and each such welfare plan may be amended or
terminated by the Company or any of its Subsidiaries at any time with
respect to such former or current employees.
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(g) With respect to each Benefit Plan that is intended to
provide special tax treatment to participants (including sections 79,
105, 106, 125, 127 and 129 of the Code), to the Company's knowledge,
such Benefit Plan has satisfied all of the material requirements for
the receipt of such special tax treatment since January 1, 1992.
(h) Except as specifically set forth in Section 3.8(h) of the
Company Disclosure Schedule, the consummation of the transactions
contemplated by this Agreement will not (i) entitle any individual to
severance pay or any tax "gross-up" payments with respect to the
imposition of any tax pursuant to Section 4999 of the Code or
accelerate the time of payment or vesting, or increase the amount, of
compensation or benefits due to any individual with respect to any
Benefit Plan, or (ii) constitute or result in a prohibited transaction
under section 4975 of the Code or section 406 or 407 of ERISA with
respect to any Benefit Plan.
(i) Except as disclosed on Section 3.8(i) of the Company
Disclosure Schedule, neither the Company, any ERISA Affiliate nor any
"administrator" as that term is defined in section 3(16) of ERISA, has
any liability with respect to or connected with any Benefit Plan for
excise taxes payable under the Code or civil penalties payable under
ERISA and, to the Company's knowledge, no basis for any such liability
exists.
(j) Except as disclosed on Section 3.8(j) of the Company
Disclosure Schedule, there is no Benefit Plan that is a "multiemployer
plan," as such term is defined in section 3(37) of ERISA, or which is
covered by section 4063 or 4064 of ERISA.
(k) With respect to each Benefit Plan except Multiemployer
Plans from which the Company has withdrawn, the Company has delivered
or made available to Parent accurate and complete (with de minimis
omissions) copies of all plan texts, summary plan descriptions,
summaries of material modifications, trust agreements and other related
agreements including all amendments to the foregoing; the two most
recent annual reports; the most recent annual and periodic accounting
of plan assets; the most recent determination letter received from the
United States Internal Revenue Service (the "Service"); and the two
most recent actuarial reports, to the extent any of the foregoing may
be applicable to a particular Benefit Plan.
(l) With respect to each Benefit Plan that is a "group health
plan" as such term is defined in section 5000(b) of the Code, except as
specifically set forth in Section 3.8(l) of the Company Disclosure
Schedule, to the Company's knowledge, each such Benefit Plan complies
and has complied with the requirements of Part 6 of Title I of ERISA
and Sections 4980B and 5000 of the Code except where the failure to so
comply would not have a material adverse effect on the Company and its
Subsidiaries.
(m) There are no material plans, arrangements, practices,
contracts or agreements (including change of control agreements,
severance agreements, retirement agreements, stock option or purchase
agreements, medical or death benefit agreements) maintained by the
Company or an ERISA Affiliate or with respect to which the Company or
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any of its Subsidiaries has a material liability to a director or
former director (as a director) of any of the Company Affiliates or an
ERISA Affiliate other than those listed on Section 3.8(m) of the
Company Disclosure Schedule or disclosed in the Company's most recent
proxy statement (the "Director Plans"). Neither the Company nor any
ERISA Affiliate has any formal plan or commitment, whether legally
binding or not, to create any Director Plan or modify or change any
existing Director Plan that would affect any director or former
director of the Company or any ERISA Affiliate.
Section 3.9 LITIGATION. Except to the extent disclosed on Section 3.9
of the Company Disclosure Schedule, there is no suit, claim, action, proceeding
or investigation pending or, to the best knowledge of the Company, threatened
against or affecting, the Company (including any predecessor of the Company), or
any of its Subsidiaries, or any of their respective assets.
Section 3.10 NO DEFAULT. Except as disclosed on Section 3.10 of the
Company Disclosure Schedule, the business of the Company and each of its
Subsidiaries is not being conducted in default or violation of any term,
condition or provision of (a) its respective Articles of Incorporation or Bylaws
or similar organizational documents, (b) any Company Agreement or (c) any
federal, state, local or foreign law, statute, regulation, rule, ordinance,
judgment, decree, order, writ, injunction, concession, grant, franchise, permit
or license or other governmental authorization or approval applicable to the
Company or any of its Subsidiaries. No investigation or review by any
governmental entity with respect to the Company (including any predecessor of
the Company) or any of its Subsidiaries is pending or, to the best knowledge of
the Company, threatened, nor to the best knowledge of the Company, has any
governmental entity indicated an intention to conduct the same.
Section 3.11 TAXES.
(a) Except as set forth in Section 3.11 of the Company
Disclosure Schedule:
(i) Each of the Company Affiliates and their
Subsidiaries have (1) duly filed (or there have been filed on
their behalf) with the appropriate governmental authorities
all Tax Returns (as hereinafter defined) required to be filed
by them and such Tax Returns are true, correct and complete in
all material respects, and (2) duly paid in full or made
provision in accordance with GAAP (or there has been paid or
provision has been made on their behalf) for the payment of
all Taxes (as hereinafter defined) for all periods through the
date of the most recent balance sheet provided to Parent;
(ii) Each of the Company Affiliates and their
Subsidiaries have complied in all material respects with all
applicable laws, rules and regulations relating to the payment
and withholding of Taxes and have, within the time and the
manner prescribed by law, withheld and paid over to the proper
governmental authorities all amounts required to be so
withheld and paid over under applicable laws;
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(iii) no federal, state, local or foreign audits or other
administrative proceedings or court proceedings are presently
pending with regard to any Taxes or Tax Returns of any of the
Company Affiliates or their Subsidiaries and neither the
Company (including any predecessor of the Company) nor its
Subsidiaries has received a notice of any pending audits or
proceedings;
(iv) neither the Service nor any other taxing authority
(whether domestic or foreign) has asserted, or to the best
knowledge of the Company, is threatening to assert, against
the Company (including any predecessor of the Company) or any
of its Subsidiaries any deficiency or claim for Taxes; and
(b) Except as set forth in Section 3.11 of the Company
Disclosure Schedule:
(i) there are no liens for Taxes upon any
property or assets of the Company or any Subsidiary thereof;
(ii) neither the Company nor any of its Subsidiaries
has agreed to or is required to make any adjustment under
Section 481(a) of the Code;
(iii) the federal income Tax Returns of the Company and
its Subsidiaries have been examined by the Service (or the
applicable statutes of limitation for the assessment of
federal income Taxes for such periods have expired) for all
periods except as set forth in Section 3.11 of the Company
Disclosure Schedule;
(iv) the state income, franchise, gross receipts and
sales tax returns of the Company and its Subsidiaries have
been examined by the applicable state taxing authority (or the
applicable statutes of limitations for assessment of taxes for
such periods have expired) for all periods except as set forth
in Section 3.11 of the Company Disclosure Schedule;
(v) there are no outstanding agreements or waivers
extending the statutory period of limitations applicable to
any tax return of the Company (including any predecessor of
the Company) or any of its Subsidiaries for any period;
(vi) none of the Company (including any predecessor of
the Company) or any of its Subsidiaries has made any payments,
is obligated to make any payments, or is a party to any
agreement that under certain circumstances could oblige it to
make any payments that would not be deductible under Section
280G of the Code;
(vii) none of the Company (including any predecessor of
the Company) or any of its Subsidiaries has been a United
States real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period as
specified in Section 897(c)(1)(A)(ii) of the Code;
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(viii) neither the Company (including any predecessor of
the Company) nor any of its Subsidiaries have ever been a
member of a consolidated, combined or unitary group for
federal or state income, gross receipts or franchise tax
purposes which included a member other than the Company
(including any predecessor of the Company) and its
Subsidiaries and with respect to which the Company or any of
its Subsidiaries could have liability pursuant to Treasury
Regulation Section 1-1502-6 or any comparable state statute or
regulation;
(ix) neither the Company (including any predecessor of
the Company) nor any of its Subsidiaries is a party to any
material agreement providing for the allocation or sharing of
Taxes; and
(x) neither the Company (including any predecessor of the
Company) nor any of its Subsidiaries has, with regard to any
assets or property held or acquired by any of them, filed a
consent to the application of Section 341(f) of the Code, or
agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as such term is defined
in Section 341(f)(4) of the Code) owned by the Company or any
of its Subsidiaries.
(c) The Company has provided to Parent complete and correct
copies of all federal, state, local and foreign income, gross receipts
and franchise tax returns filed by the Company Affiliates and any of
their Subsidiaries for each of their respective taxable years beginning
after December 31, 1990.
(d) The Company has provided to Parent complete and correct
copies of all audit reports received by any of the Company Affiliates
or any of their Subsidiaries from any taxing authority which relate to
the Company or any of its Subsidiaries for any taxable period beginning
after December 31, 1990.
(e) Section 3.11 of the Company Disclosure Schedule sets forth
all jurisdictions in which the Company or any of its Subsidiaries will
be required to file state income or franchise tax returns for each
taxable period beginning after December 31, 1994 and ending on or
before the Effective Date, or which includes the Effective Date.
(f) "Taxes" shall mean any and all taxes, charges, fees,
levies or other assessments, including, without limitation, income,
gross receipts, excise, real or personal property, sales, withholding,
social security, retirement, unemployment, occupation, use, service,
service use, license, net worth, payroll, franchise, transfer and
recording taxes, fees and charges, imposed by the Service or any taxing
authority (whether domestic or foreign including, without limitation,
any state, county, local or foreign government or any subdivision or
taxing agency thereof (including a United States possession)), whether
computed on a separate, consolidated, unitary, combined or any other
basis; and such term shall include any interest whether paid or
received, fines, penalties or additional amounts attributable to, or
imposed upon, or with respect to, any such taxes, charges, fees, levies
or other assessments. "Tax Return" shall mean any report, return,
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52
document, declaration or other information or filing required to be
supplied to any taxing authority or jurisdiction (foreign or domestic)
with respect to Taxes, including, without limitation, information
returns, any documents with respect to or accompanying payments of
estimated Taxes, or with respect to or accompanying requests for the
extension of time in which to file any such report, return, document,
declaration or other information.
Section 3.12 CONTRACTS. Each Company Agreement is valid, binding and
enforceable and in full force and effect, and there are no material defaults
thereunder by the Company (including any predecessor of the Company) or its
Subsidiaries or, to the best knowledge of the Company, by any other party
thereto. Except as disclosed on Section 3.12 of the Company Disclosure Schedule,
neither the Company nor any Subsidiary is a party to any agreement that
expressly limits the ability of the Company or any Subsidiary or Affiliate to
compete in or conduct any line of business or compete with any person or in any
geographic area or during any period of time.
Section 3.13 ASSETS; REAL PROPERTY. The assets, properties, rights and
contracts, including, without limitation (as applicable), title or leaseholds
thereto, of the Company and its Subsidiaries, taken as a whole, are sufficient
to permit the Company and its Subsidiaries to conduct their business as
currently being conducted with only such exceptions as are immaterial to the
Company and its Subsidiaries. None of the Company nor any of its Subsidiaries
owns any real property.
Section 3.14 ENVIRONMENTAL MATTERS. Except as disclosed on Section 3.14
of the Company Disclosure Schedule, the Company is in material compliance with
all applicable Environmental Laws (as defined below) and there are no
Environmental Liabilities and Costs (as defined below) of the Company and its
Subsidiaries that would have or are reasonably likely to have a material adverse
effect on the Company and its Subsidiaries.
For purposes of this Section 3.14, the following definitions shall
apply:
"Environmental Laws" means all applicable foreign, federal, state and
local laws, common law, regulations, rules and ordinances relating to pollution
or protection of health, safety or the environment.
"Environmental Liabilities and Costs" means all liabilities,
obligations, responsibilities, obligations to conduct cleanup, losses, damages,
deficiencies, punitive damages, consequential damages, treble damages, costs and
expenses (including, without limitation, all reasonable fees, disbursements and
expenses of counsel, expert and consulting fees and costs of investigations and
feasibility studies and responding to government requests for information or
documents), fines, penalties, restitution and monetary sanctions, interest,
direct or indirect, known or unknown, absolute or contingent, past, present or
future, resulting from any claim or demand, by any person or entity, whether
based in contract, tort, implied or express warranty, strict liability, joint
and several liability, criminal or civil statute, under any Environmental Law,
or arising from environmental, health or safety conditions, as a result of past
or present ownership, leasing or operation of any properties, owned, leased or
operated by the Company or any of its Subsidiaries.
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Section 3.15 LABOR RELATIONS. Except as set forth in Section 3.15 of
the Company Disclosure Schedule, there is no labor strike, slowdown or work
stoppage or lockout against the Company, any of its Subsidiaries, SRF Personnel,
Inc., a Texas corporation ("SRF"), RVW Personnel, Inc., a Texas corporation
("RVW"), (SRF and RVW are collectively referred to as the "Employer Affiliates")
or, to the best of the Company's knowledge, any other person or entity who
employs any employees that perform services incident to the Company's or any of
its Subsidiaries' performance under any Company Agreement, there is no unfair
labor practice charge or complaint against or pending before the National Labor
Relations Board (the "NLRB") which if decided adversely could have an adverse
effect on the Company, any of its Subsidiaries or any other Employer Affiliate,
and there is no representation claim or petition pending before the NLRB and no
question concerning representation exists with respect to the employees of the
Company or its Subsidiaries or any Employer Affiliates. No Employer Affiliate is
a party to any collective bargaining agreement.
Section 3.16 INSURANCE. The Company and each of its Subsidiaries are
insured by insurers, reasonably believed by the Company to be of recognized
financial responsibility and solvency, against such losses and risks and in such
amounts as are customary in the businesses in which they are engaged. There are
no outstanding or unsatisfied requirements of recommendations of any insurance
company currently providing insurance to the Company or its Subsidiaries or any
board of fire underwriters or other body exercising similar functions or of any
Governmental Entity requiring or recommending any repairs or other work to be
done on or with respect to, or requiring or recommending any equipment or
fixtures to be installed on or in connection with any premises used or occupied
by the Company or its Subsidiaries. All policies of insurance and fidelity or
surety bonds are in full force and effect. Descriptions of these plans and
related liability coverage have been previously provided to Parent. Section 3.16
of the Company Disclosure Schedule contains a listing of all open workers
compensation and general liability claims against the Company (including any
predecessor of the Company), any of its Subsidiaries and/or any Employer
Affiliate as of the date hereof. These claims, individually or in the aggregate,
would not result in any liability payable by the Company or any Subsidiary
exceeding Ten Thousand Dollars ($10,000). All necessary notifications of claims
have been made to insurance carriers.
Section 3.17 COMPLIANCE WITH LAW. Except as set forth on Section 3.17
of the Company Disclosure Schedule, the Company (including all predecessors of
the Company) and its Subsidiaries have complied with all laws, statutes,
regulations, rules, ordinances, and judgments, decrees, orders, writs and
injunctions, of any court or governmental entity relating to any of the property
owned, leased or used by them, or applicable to their business, including, but
not limited to, equal employment opportunity, discrimination, occupational
safety and health, environmental, interstate commerce, antitrust laws, ERISA and
laws relating to Taxes. The Company, and its Subsidiaries, have all permits and
licenses necessary to carry on the business being conducted.
Section 3.18 VOTE REQUIRED. The approval of the holders of at least
two-thirds of the outstanding shares of Company Common Stock is the only
approval of the holders of any class or series of the Company's capital stock
necessary to approve the Merger.
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Section 3.19 REPRESENTATIONS AND WARRANTIES TRUE AND COMPLETE AT
CLOSING. The representations and warranties set forth in this Article III will
be true and complete in all material respects on the date scheduled for Closing
pursuant to Section 1.3 hereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as follows:
Section 4.1 ORGANIZATION. Each of Parent and Sub is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its organization and has all requisite corporate or other power and authority
and all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as now being conducted, except where the
failure to be so organized, existing and in good standing or to have such power,
authority and governmental approvals would not have a material adverse effect on
Parent and its Subsidiaries. Parent and each of its Subsidiaries is duly
qualified or licensed to do business and in good standing in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing necessary, except
where the failure to be so duly qualified or licensed and in good standing would
not have a material adverse effect on Parent and its Subsidiaries.
Section 4.2 CAPITALIZATION.
(a) The authorized capital stock of Parent consists of
13,500,000 shares of Parent Common Stock and (b) 1,500,000 preferred
shares, without par value (the "Parent Preferred Stock"). As of the
date hereof, (i) 3,699,797 shares of Parent Common Stock are issued and
outstanding, (ii) no shares of Parent Preferred Stock are issued and
outstanding, and (iii) 142,408 shares of Parent Common Stock are issued
and held in the treasury of Parent. All of the outstanding shares of
Parent's capital stock are duly authorized, validly issued, fully paid
and nonassessable. The authorized capital stock of Sub consists of 850
shares of common stock, without par value ("Sub Common Stock"). As of
the date hereof, 100 shares of Sub Common Stock are issued and
outstanding, all of which are owned by Parent. All of the outstanding
shares of Sub Common Stock are duly authorized, validly issued, fully
paid and nonassessable. There are no bonds, debentures, notes or other
indebtedness having voting rights (or convertible into securities
having such rights) ("Parent Voting Debt") of Parent or any of its
Subsidiaries issued and outstanding. Except as set forth above, and
except as set forth in Section 4.2 of the Disclosure Schedule delivered
to the Company on or prior to the date hereof (the "Parent Disclosure
Schedule") and except for transactions contemplated by this Agreement,
(i) there are no shares of capital stock of Parent authorized, issued
or outstanding and (ii) there are no existing options, warrants, calls,
preemptive rights, subscriptions or other rights, convertible
securities, agreements, arrangements or commitments of any character,
relating to the issued or unissued capital stock of Parent or any of
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its Subsidiaries, obligating Parent or any of its Subsidiaries to
issue, transfer or sell or cause to be issued, transferred or sold any
shares of capital stock or Parent Voting Debt of, or other equity
interest in, Parent or any of its Subsidiaries or securities
convertible into or exchangeable for such shares or equity interests or
obligations of Parent or any of its Subsidiaries to grant, extend or
enter into any such option, warrant, call, subscription or other right,
convertible security, agreement, arrangement or commitment. There are
no outstanding contractual obligations of Parent or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of
Parent Common Stock or the capital stock of Parent or any subsidiary or
Affiliate of Parent or to provide funds to make any investment (in the
form of a loan, capital contribution or otherwise) in any Subsidiary or
any other entity.
(b) There are no voting trusts or other agreements or
understandings to which Parent or any of its Subsidiaries is a party
with respect to the voting of the capital stock of Parent or its
Subsidiaries. None of Parent or its Subsidiaries is required to redeem,
repurchase or otherwise acquire shares of capital stock of Parent, or
any of its Subsidiaries, respectively, as a result of the transactions
contemplated by this Agreement.
Section 4.3 CORPORATE AUTHORIZATION; VALIDITY OF AGREEMENT; NECESSARY
ACTION. Each of Parent and Sub has full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance by Parent and Sub of this
Agreement and the consummation by Parent and Sub of the transactions
contemplated hereby have been duly and validly authorized by their respective
Boards of Directors and by Sub's sole shareholder and, no other corporate action
or proceedings on the part of Parent and Sub are necessary to authorize the
execution and delivery by Parent and Sub of this Agreement and the consummation
by Parent and Sub of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by Parent and Sub, and, assuming this Agreement
constitutes valid and binding obligations of the Company, constitutes valid and
binding obligations of each of Parent and Sub, enforceable against them in
accordance with its terms, except that (i) such enforcement may be subject to
applicable bankruptcy, insolvency or other similar laws, now or hereafter in
effect, affecting creditors' rights generally, and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought. The shares of Parent Common Stock to be
issued pursuant to the Merger will be duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights.
Section 4.4 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Exchange Act of 1934 (the
"Exchange Act"), the Securities Act of 1933 (the "Securities Act"), the TBCA,
the ORC and state blue sky laws, neither the execution, delivery or performance
of this Agreement by Parent and Sub nor the consummation by Parent and Sub of
the transactions contemplated hereby nor compliance by Parent and Sub with any
of the provisions hereof will (i) conflict with or result in any breach of any
provision of the Articles of Incorporation or Regulations of Parent and Sub,
(ii) require any filing with, or permit, authorization, consent or approval of,
any Governmental Entity (except where the failure to obtain such permits,
authorizations, consents or approvals or to make such filings would not have a
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material adverse effect on Parent and its Subsidiaries or would not, or would
not be reasonably likely to, materially impair the ability of Parent and Sub to
consummate the Merger or the other transactions contemplated hereby), (iii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
amendment, cancellation or acceleration) under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, guarantee, other evidence of
indebtedness, lease, license, contract, agreement or other instrument or
obligation to which Parent or any of its Subsidiaries is a party or by which any
of them or any of their properties or assets may be bound or (iv) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
Parent, any of its Subsidiaries or any of their properties or assets, except in
the case of clauses (iii) and (iv) for violations, breaches or defaults which
would not have a material adverse effect on Parent and its Subsidiaries or would
not, or would not be reasonably likely to, materially impair the ability of
Parent or Sub to consummate the Merger or the other transactions contemplated
hereby.
Section 4.5 SEC REPORTS AND FINANCIAL STATEMENTS. Parent has filed with
the Securities and Exchange Commission (the "SEC"), and has heretofore made
available to the Company, true and complete copies of, all forms, reports,
schedules, statements and other documents required to be filed by it and its
Subsidiaries since December 31, 1992 under the Exchange Act or the Securities
Act (as such documents have been amended since the time of their filing,
collectively, the "Parent SEC Documents"). As of their respective dates or, if
amended, as of the date of the last such amendment, the Parent SEC Documents,
including, without limitation, any financial statements or schedules included
therein (a) did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading and (b) complied in all material respects with the
applicable requirements of the Exchange Act and the Securities Act, as the case
may be, and the applicable rules and regulations of the SEC thereunder. Each of
the consolidated financial statements included in the Parent SEC Documents have
been prepared from, and are in accordance with, the books and records of Parent
and/or its consolidated Subsidiaries, comply in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with GAAP
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present in all material respects the
consolidated financial position and the consolidated results of operations and
cash flows (and changes in financial position, if any) of Parent and its
consolidated Subsidiaries as at the dates thereof or for the periods presented
therein.
Section 4.6 ABSENCE OF CERTAIN CHANGES. Except to the extent disclosed
in the Parent SEC Documents filed prior to the date of this Agreement, from
December 31, 1995 through the date of this Agreement, Parent and its
Subsidiaries have conducted their respective businesses in the ordinary course
of business consistent with past practice. Except to the extent disclosed in the
Parent SEC Documents filed prior to the date of this Agreement, from December
31, 1995 through the date of this Agreement, there has not occurred (i) any
events, changes, or effects (including the incurrence of any liabilities of any
nature, whether or not accrued, contingent or otherwise) having or, which would
be reasonably likely to have, individually or in the aggregate, a material
adverse effect on Parent and its Subsidiaries; (ii) any declaration, setting
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aside or payment of any dividend or other distribution (whether in cash, stock
or property) with respect to the equity interests of Parent or of any of its
Subsidiaries other than regular quarterly cash dividends, distributions or
payments on account of indebtedness paid by Subsidiaries to Parent or a
Subsidiary of Parent; or (iii) any change by Parent or any of its Subsidiaries
in accounting principles or methods, except insofar as may be required by a
change in GAAP.
Section 4.7 NO DEFAULT. The business of Parent and each of its
Subsidiaries is not being conducted in default or violation of any term,
condition or provision of (a) its respective Articles of Incorporation or
Regulations or similar organizational documents, (b) any lease, license,
contract, agreement or other instrument or obligation to which Parent or any of
its Subsidiaries is a party or by which any of them or any of their properties
or assets may be bound and which either has a term of more than one year or
involves the payment or receipt of money in excess of $10,000 or (c) any
federal, state, local or foreign law, statute, regulation, rule, ordinance,
judgment, decree, order, writ, injunction, concession, grant, franchise, permit
or license or other governmental authorization or approval applicable to Parent
or any of its Subsidiaries, excluding from the foregoing clauses (b) and (c),
defaults or violations that would not have a material adverse effect on Parent
and its Subsidiaries taken as a whole or would not, or would not be reasonably
likely to, materially impair the ability of Parent or Sub to consummate the
Merger or the other transactions contemplated hereby. No investigation or review
by any Governmental Entity with respect to Parent or any of its Subsidiaries is
pending or, to the best knowledge of Parent or Sub, threatened, nor to the best
knowledge of Parent or Sub, has any Governmental Entity indicated an intention
to conduct the same.
Section 4.8 REPRESENTATIONS AND WARRANTIES TRUE AND COMPLETE AS OF
CLOSING. The representations and warranties set forth in this Article IV will be
true and complete in all respects on the date scheduled for Closing pursuant to
Section 1.3.
ARTICLE V
COVENANTS
Section 5.1 INTERIM OPERATIONS OF THE COMPANY. The Shareholders and the
Company, jointly and severally, covenant and agree that, from the date of this
Agreement through the Effective Time, except with the prior written consent of
Parent:
(a) the business of the Company and its Subsidiaries shall be
conducted only in the ordinary course of business consistent with past
practice and, to the extent consistent therewith, each of the Company
and its Subsidiaries shall use its best efforts to, and will cause each
Employer Affiliate to, preserve its business organization intact and
maintain its existing relations with customers, suppliers, employees,
creditors and business partners;
(b) (i) the Company will not, directly or indirectly, split,
combine or reclassify the outstanding Company Common Stock, or any
outstanding capital stock of any of the Subsidiaries of the Company or
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issue any additional shares of Company Common Stock; and (ii) none of
the Shareholders will, nor will they enter into any agreement to,
transfer, pledge, hypothecate, encumber, grant rights in respect of or
otherwise restrict, the shares of Company Common Stock held by such
Shareholder;
(c) neither the Company nor any of its Subsidiaries shall: (i)
amend its Articles of Incorporation or Bylaws or similar organizational
documents; (ii) declare, set aside or pay any dividend or other
distribution payable in cash, stock or property with respect to its
capital stock other than dividends paid by the Company's Subsidiaries
to the Company or its Subsidiaries; (iii) issue, sell, transfer,
pledge, dispose of or encumber any additional shares of, or securities
convertible into or exchangeable for, or options, warrants, calls,
commitments or rights of any kind to acquire, any shares of capital
stock of any class of the Company or its Subsidiaries; (iv) transfer,
lease, license, sell, mortgage, pledge, dispose of, or encumber any
material assets other than (a) in the ordinary course of business
consistent with past practice or (b) pursuant to existing agreements
disclosed on Section 5.1(c) of the Company Disclosure Schedule; or (v)
redeem, purchase or otherwise acquire directly or indirectly any of its
capital stock;
(d) neither the Company nor any of its Subsidiaries shall nor
will either of Stanley R. Fimberg or Ralph V. Williams suffer or permit
either Employer Affiliate to: (i) except as otherwise provided in this
Agreement and except for normal, regularly scheduled increases for
non-officer employees consistent with past practice, grant any increase
in the compensation payable or to become payable by the Company or any
of its Subsidiaries to any officer or employee (including through any
new award made under, or the exercise of any discretion under, any
Benefit Plan); (ii) adopt any new, or amend or otherwise increase, or
accelerate the payment or vesting of the amounts payable or to become
payable under any existing, bonus, incentive compensation, deferred
compensation, severance, profit sharing, stock option, stock purchase,
insurance, pension, retirement or other employee benefit plan agreement
or arrangement; (iii) enter into any, or amend any existing, employment
or severance agreement with or, grant any severance or termination pay
to any officer, director, employee or consultant of the Company or any
of its Subsidiaries; or (iv) make any additional contributions to any
grantor trust created by the Company to provide funding for
non-tax-qualified employee benefits or compensation; or (v) provide any
severance program to any employee who does not participate in a
severance program as of the date of this Agreement;
(e) neither the Company nor any of its Subsidiaries shall
modify, amend or terminate any of the Company Agreements or waive,
release or assign any material rights or claims, except in the ordinary
course of business consistent with past practice or except to effect
any assignment from or to obtain any waiver, amendment or consent to,
the Company's succession to the Joint Venture thereunder or the Merger
and other transactions contemplated hereby;
(f) none of the Company, any of its Subsidiaries or the
Company Affiliates shall permit any material insurance policy naming
any of them as a beneficiary or a loss payable payee to be canceled or
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terminated without notice to Parent, except in the ordinary course of
business consistent with past practice;
(g) neither the Company nor any of its Subsidiaries shall: (i)
incur or assume any debt except for borrowings under existing credit
facilities in the ordinary course consistent with past practice; (ii)
assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of
any other person, except in the ordinary course of business consistent
with past practice; (iii) make any loans, advances or capital
contributions to, or investments in, any other person (other than to
wholly owned Subsidiaries of the Company); or (iv) enter into any
material commitment (including, but not limited to, any leases, capital
expenditure or purchase of assets);
(h) neither the Company nor any of its Subsidiaries shall
change any of the accounting principles used by it unless required by
GAAP;
(i) neither the Company nor any of its Subsidiaries shall pay,
discharge or satisfy any claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction of any such claims, liabilities
or obligations when any of the foregoing become due and payable, to the
extent, (x) reflected or reserved against in the consolidated financial
statements (or the notes thereto) of the Company and its consolidated
Subsidiaries, (y) incurred in the ordinary course of business
consistent with past practice or (z) which are legally required to be
paid, discharged or satisfied; provided, however, that the Company
shall pay and discharge in full all its indebtedness owed to the
Company's Bank (as defined in Section 5.12 hereof) in accordance with
Section 5.12 hereof and may pay up to a maximum of Fifty Thousand
Dollars ($50,000) of the fees and expenses of Michener, Larimore,
Swindle, Whitaker, Flowers, Sawyer, Reynolds & Chalk, L.L.P. incurred
in connection with this Agreement and the transactions contemplated
hereby, as contemplated by Section 9.1;
(j) neither the Company nor any of its Subsidiaries will adopt
a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other material
reorganization of the Company or any of its Subsidiaries or any
agreement relating to a Takeover Proposal (as defined in Section 5.4)
(other than the Merger);
(k) neither the Company nor any of its Subsidiaries will take,
or agree to commit to take, any action that would make any
representation or warranty of the Company contained herein inaccurate
in any respect at, or as of any time prior to, the Effective Time;
(l) neither the Company nor any of its Subsidiaries will
engage in any transaction with, or enter into any agreement,
arrangement, or understanding with, directly or indirectly, any of the
Affiliates of the Company, other than pursuant to such agreements,
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arrangements, or understandings existing on the date of this Agreement
(which are set forth on Section 5.1(l) of the Company Disclosure
Schedule);
(m) enter into any new lease (other than renewals of existing
leases after consultation with Parent) or purchase or acquire or enter
into any agreement to purchase or acquire any real estate;
(n) neither the Company nor any of its Subsidiaries will incur
any liabilities or obligations of any nature, whether or not accrued,
contingent or otherwise, that have, or would be reasonably likely to
have, a material adverse effect on the Company and its Subsidiaries;
and
(o) neither the Company nor any of its Subsidiaries will enter
into an agreement, contract, commitment or arrangement to do any of the
foregoing, or to authorize, recommend, propose or announce an intention
to do any of the foregoing.
Section 5.2 ACCESS TO INFORMATION.
(a) To the extent permitted by applicable law, the Company
and, with respect to the Employer Affiliates, each of Stanley R.
Fimberg and Ralph V. Williams, shall (and shall cause each of its
Subsidiaries to) afford to the officers, employees, accountants,
counsel, financing sources and other representatives of Parent, access,
during normal business hours, during the period prior to the Effective
Time, to all of its, its Subsidiaries', and the Employer Affiliates'
properties, books, contracts, commitments and records (including any
Tax Returns or other Tax related information pertaining to the Company
and its Subsidiaries) and, during such period, the Company shall (and
shall cause each of its Subsidiaries to) furnish promptly to Parent (i)
a copy of each report, schedule, registration statement and other
document filed or received by it during such period pursuant to the
requirements of federal securities laws and (ii) all other information
concerning its business, properties and personnel as Parent may
reasonably request (including any Tax Returns or other Tax related
information pertaining to the Company and its Subsidiaries).
(b) To the extent permitted by applicable law, Parent shall
(and shall cause each of its Subsidiaries to) afford to the officers,
employees, accountants, counsel, financing sources and other
representatives of the Company, access, during normal business hours,
during the period prior to the Effective Time, to its and all of its
Subsidiaries' properties, books, contracts, commitments and records
(including any Tax Returns pertaining to Parent) and, during such
period, Parent shall (and shall cause each of its Subsidiaries to)
furnish promptly to the Company (a) a copy of each report, schedule,
registration statement and other document filed or received by it
during such period pursuant to the requirements of the federal
securities laws and (b) all other information as the Company may
reasonably request (including any Tax Returns pertaining to Parent);
provided, however, in no event shall Parent or its Subsidiaries be
required to provide access to proprietary computer programs and related
documentation.
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(c) Neither Parent nor its Subsidiaries shall disclose or use
or enable anyone else to disclose or use any confidential information
of the Company, except if such information which (i) is generally
publicly known or becomes generally publicly known through no fault of
Parent or its Subsidiaries, (ii) is generally or readily obtainable
within the industry relating to the Company, (iii) was available or
becomes available to Parent or its Subsidiaries on a non-confidential
basis, or (iv) Parent or its Subsidiaries is legally required, by
deposition, subpoena or other court or governmental action, to
disclose; provided, however, that in connection with the transactions
contemplated hereby, Parent may disclose confidential information of
the Company to its accountants, lawyers and other representatives
advising or assisting Parent in connection therewith, provided that all
such parties are informed of this confidentiality arrangement and the
confidential nature of such information. In the event of termination of
this Agreement, Parent shall use all reasonable efforts to (x) cause to
be delivered to the Company and retain no copies of any documents, work
papers, and other materials obtained by Parent or on its behalf from
the Company, whether so obtained before or after the execution hereof,
and (y) destroy any documents, memoranda, notes, or other writings
prepared by Parent based on information contained in such materials.
Parent's obligations under this Section 5.2(c) shall terminate on the
Closing Date.
(d) Any non-public information that the Company or its
Subsidiaries obtain in connection herewith with respect to Parent or
its Subsidiaries shall be deemed confidential, and the Company or its
Subsidiaries shall not disclose such information to any third party or
use such information to the detriment of Parent or its Subsidiaries;
provided, that (i) the Company or its Subsidiaries may use and disclose
any such information once it has been publicly disclosed (other than by
the Company or its Subsidiaries in breach of their obligations under
this Section 5.2(d)) or which has rightfully come into the possession
of the Company or its Subsidiaries (other than from Parent or its
Subsidiaries) and (ii) to the extent that the Company or its
Subsidiaries may become legally compelled to disclose any of such
information, the Company or its Subsidiaries may disclose such
information if reasonable efforts have been used by the Company or its
Subsidiaries (and Parent or its Subsidiaries have been afforded the
opportunity) to obtain an appropriate protective order or other
satisfactory assurance of confidential treatment for the information
required to be disclosed.
Section 5.3 CONSENTS AND APPROVALS. Each of the Company, Parent and Sub
will take all reasonable actions necessary to comply promptly with all legal
requirements (which actions shall include, without limitation, furnishing all
information in connection with filings with any Governmental Entity), and will
promptly cooperate with and furnish information to each other in connection with
any such requirements imposed upon any of them or any of their Subsidiaries in
connection with this Agreement and the transactions contemplated hereby. Each of
the Company, Parent and Sub will, and will cause its Subsidiaries to, take all
reasonable actions necessary to obtain any consent, authorization, order or
approval of, or any exemption by, any Governmental Entity or other public or
private third party, required to be obtained or made by Parent, Sub, the Company
or any of their respective Subsidiaries in connection with the Merger or the
taking of any action contemplated by this Agreement.
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Section 5.4 NO SOLICITATION.
(a) The Shareholders and the Company (and its Subsidiaries and
Affiliates over which it exercises control) will not, and the
Shareholders and the Company (and its Subsidiaries and Affiliates over
which it exercises control) will use their best efforts to ensure that
their respective officers, directors, employees, investment bankers,
attorneys, accountants and other agents do not, directly or indirectly:
(i) initiate, solicit or encourage, or take any action to facilitate
the making of, any offer or proposal which constitutes or is reasonably
likely to lead to any Takeover Proposal (as defined below) of the
Company or any Subsidiary or an inquiry with respect thereto, or, (ii)
in the event of an unsolicited Takeover Proposal for the Company or any
Subsidiary or Affiliate of the Company, engage in negotiations or
discussions with, or provide any information or data to, any
corporation, partnership, person or other entity or group (other than
Parent, any of its Affiliates or representatives) (each, a "Person")
relating to any Takeover Proposal. The Company shall notify Parent and
Sub orally and in writing of any such offers, proposals, inquiries or
Takeover Proposals (including, without limitation, the material terms
and conditions thereof and the identity of the Person making it),
within 24 hours of the receipt thereof, and shall thereafter inform
Parent on a reasonable basis of the status and content of any
discussions or negotiations with such a third party, including any
material changes to the terms and conditions thereof. The Company
shall, and shall cause its Subsidiaries and Affiliates over which it
exercises control, and will use best efforts to ensure their respective
officers, directors, employees, investment bankers, attorneys,
accountants and other agents to, immediately cease and cause to be
terminated all discussions and negotiations that have taken place prior
to the date hereof, if any, with any parties conducted heretofore with
respect to any Takeover Proposal relating to the Company.
(b) As used in this Agreement, "Takeover Proposal" when used
in connection with any Person shall mean any tender or exchange offer
involving the capital stock of such Person, any proposal for a merger,
consolidation or other business combination involving such Person or
any Subsidiary of such Person, any proposal or offer to acquire in any
manner a substantial equity interest in, or a substantial portion of
the business or assets of, such Person or any Subsidiary of such
Person, any proposal or offer with respect to any recapitalization or
restructuring with respect to such Person or any Subsidiary of such
Person or any proposal or offer with respect to any other transaction
similar to any of the foregoing with respect to such Person or any
Subsidiary of such Person other than pursuant to the transactions to be
effected pursuant to this Agreement.
Section 5.5 ADDITIONAL AGREEMENTS. Subject to the terms and conditions
herein provided (including, but not limited to, Section 5.3) each of the parties
hereto agrees to use its reasonable efforts to take, or cause to be taken, all
action and to do, or cause to be done, all things necessary, proper or
advisable, whether under applicable laws and regulations or otherwise, or to
remove any injunctions or other impediments or delays, legal or otherwise, to
consummate and make effective the Merger and the other transactions contemplated
by this Agreement. In case at any time after the Effective Time any further
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action is necessary or desirable to carry out the purposes of this Agreement,
the proper officers and directors of the Company and Parent shall use their
reasonable efforts to take, or cause to be taken, all such necessary actions.
Section 5.6 PUBLICITY. So long as this Agreement is in effect, none of
the Shareholders, the Company nor Parent (nor any of their Affiliates which any
of them control) shall issue or cause the publication of any press release or
other public statement or announcement with respect to this Agreement or the
transactions contemplated hereby without the prior consultation of the other
party, except as may be required by law or by obligations pursuant to Parent's
listing agreement with the National Association of Securities Dealers, Inc.
National Market System ("NASDAQ NMS"), provided that each party will use its
best efforts to consult with the other party prior to any such issuance.
Section 5.7 NOTIFICATION OF CERTAIN MATTERS. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(a) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would cause any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect at or prior to
the Effective Time and (b) any material failure of the Company or Parent, as the
case may be, to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 5.7 shall not limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
Section 5.8 COOPERATION. Parent and the Company shall together, or
pursuant to an allocation of responsibility to be agreed upon between them,
coordinate and cooperate (a) with respect to the timing of the Company Special
Meeting, if any, (b) in determining whether any action by or in respect of, or
filing with, any Governmental Entity is required, or any actions, consents
approvals or waivers are required to be obtained from parties to any material
contracts, in connection with the consummation of the transactions contemplated
by this Agreement, and (c) in seeking any such actions, consents, approvals or
waivers or making any such filings, furnishing information required in
connection therewith and timely seeking to obtain any such actions, consents,
approvals or waivers.
Section 5.9 REPRESENTATION ON BOARD OF DIRECTORS. If at the time of
Parent's 1997 Annual Meeting of Shareholders the Consulting Agreement with
Stanley Fimberg and the Employment Agreement with Pat Holder are still in full
force and effect, then Parent shall cause each of Messrs. Fimberg and Holder to
be nominated for election to the Board of Directors of Parent.
Section 5.10 EMPLOYMENT AGREEMENTS. On the Closing Date, the Surviving
Corporation shall enter into employment agreements (the "Employment Agreements")
with each of Pat Holder, Annette Hoover, Bruce Woodward, Peggy Crow Smith and
Peggy Hunt in substantially the forms of Exhibits A-1 through A-5 attached
hereto.
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Section 5.11 FIMBERG/WILLIAMS CONSULTING AGREEMENTS. On the Closing
Date, Parent shall enter into the Consulting Agreements (the "Consulting
Agreements") with each of Stanley Fimberg and Ralph Williams in substantially
the forms of Exhibits B-1 and B-2 attached hereto.
Section 5.12 PAY OFF OF COMPANY INDEBTEDNESS. The Company will pay and
discharge in full all indebtedness owed to Texas Commerce Bank, NA (the
"Company's Bank") and will procure from the Company's Bank evidence,
satisfactory to Parent and its counsel, of the termination of such credit
facility, the satisfaction of all the Company's obligations and liabilities
thereunder and the release of all liens securing such indebtedness on or prior
to the Closing.
Section 5.13 RESTRICTIONS ON ISSUANCE OF PARENT COMMON STOCK; DIVIDENDS
AND DISTRIBUTIONS. From the date of this Agreement through the Effective Time,
except with the prior written consent of the Company, Parent will not (a) issue
any additional shares of Parent Common Stock or securities convertible into
shares of Parent Common Stock (other than issuances pursuant to those options,
warrants, calls, preemptive rights, subscriptions and other rights, convertible
securities, agreements and arrangements set forth in Section 4.2 of the Parent
Disclosure Schedule), (b) directly or indirectly split, combine or reclassify
the outstanding Parent Common Stock, or (c) disclose, pay, or make any dividend
or distribution of any kind on the Parent Common Stock (whether in cash,
property, additional shares of Parent Common Stock, shares of any other class of
Parent's capital stock, evidences of indebtedness of any kind or description,
shares of the capital stock of any Subsidiary, or otherwise).
Section 5.14 RDO SALARIES. As soon as practicable after the Effective
Time, Parent will cause the Surviving Corporation to increase by Ten Thousand
Dollars ($10,000) the annual salary of each Regional Director of Operations
(collectively, the "RDOs") listed on Schedule III attached hereto.
Section 5.15 EMPLOYEE STOCK OPTION AWARDS. After the Effective Time,
Parent will cause non-qualified stock option grants of up to a maximum of Two
Thousand Five Hundred (2,500) shares of Parent Common Stock to be awarded to the
RDOs, and in such amounts, as designated by Pat Holder after the Effective Time
(the "Stock Option Awards"). The Stock Option Awards will be issued under the
Parent's Amended and Restated 1992 Incentive Equity Plan pursuant to Award
Agreements (as defined therein) upon terms and conditions substantially similar
to Award Agreements currently in effect between Parent and other key employees
of Parent.
Section 5.16 LEASE GUARANTIES. After the Effective Time, Parent will
use commercially reasonable efforts to cause the release and termination of the
personal guaranties of Stanley R. Fimberg and Pat Holder with respect to the
Company's lease of the property located at 8615 Freeport Parkway, Suite 200,
Irving, Texas 75063 (the "Main Office Premises"). Parent's commercially
reasonable efforts will in no event require Parent to make any payment to the
landlord of the Main Office Premises in consideration for, or in order to
induce, any such release and termination.
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ARTICLE VI
CONDITIONS
Section 6.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The
obligations of the Company, on the one hand, and Parent and Sub, on the other
hand, to consummate the Merger are subject to the satisfaction (or, if
permissible, waiver by the Company, Parent and Sub) of the following conditions:
(a) this Agreement shall have been adopted and approved by the
shareholders of the Company in accordance with the TBCA;
(b) no court, arbitrator or governmental body, agency or
official shall have issued any order, decree or ruling which remains in
force and there shall not be any statute, rule or regulation,
restraining, enjoining or prohibiting the consummation of the Merger;
(c) All consents, authorizations, orders, approvals,
amendments and waivers of (or filings or registrations with) any
Governmental Entity or any third party to any Company Agreement,
required in connection with the execution, delivery and performance of
this Agreement shall have been obtained or made, except for filings in
connection with the Merger and any other documents required to be filed
after the Effective Time;
(d) The parties shall have received fully executed copies of
each of the Employment Agreements and the Consulting Agreements; and
(e) All consents, authorizations, orders, approvals,
amendments and waivers of (or filings or registrations with) any
Governmental Entity or any third party to any Company Agreement,
required in connection with, or as a result of, the consummation of the
Texas Merger shall have been obtained or made; and
(f) on the last trading day prior to the Closing Date, the
closing price for Parents's Common Stock shall have been equal to or
greater than Sixteen Dollars ($16) per share and less than or equal to
Twenty-Four Dollars ($24) per share.
(g) All schedules identified in this Agreement will be revised
and updated as of the Closing Date by Parent, Sub, and the Company, as
the case may be, to ensure that such schedules will be true and
complete in all material respects as of the Closing Date as
contemplated by Sections 3.19 and 4.8 of this Agreement. All such
revisions must be satisfactory to Parent, in the case of the Company
Disclosure Schedule, and the Company, in the case of the Parent
Disclosure Schedule.
Section 6.2 CONDITIONS TO OBLIGATIONS OF PARENT AND SUB. The
obligations of Parent and Sub to consummate the Merger are subject to the
satisfaction (or if permissible, waiver by Parent and Sub) of the following
conditions:
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(a) Except for changes contemplated by this Agreement, each of
the representations and warranties of the Shareholders and/or Company
contained in Article III of this Agreement shall be true and correct in
all material respects as of the date of this Agreement and as of the
Effective Time, and the Shareholders and the Company shall have
delivered to Parent and Sub a certificate to that effect signed by the
Shareholders and an executive officer of the Company, respectively;
(b) The Shareholders and the Company shall have complied in
all material respects with each of its obligations under this Agreement
and shall have delivered to Parent and Sub a certificate to that effect
signed by the Shareholders and an executive officer of the Company,
respectively;
(c) All the officers and directors of the Company, other than
those continuing in such positions as set forth in Section 1.4, shall
have tendered resignations to become effective as of the Effective
Time;
(d) All indebtedness of any employee, officer or director of
the Company to the Company, as the case may be, shall have been paid in
full;
(e) Parent and Sub shall have received an opinion from
Michener, Larimore, Swindle, Whitaker, Flowers, Sawyer, Reynolds &
Chalk, L.L.P., counsel for the Company, in form and substance
reasonably satisfactory to Parent;
(f) Parent shall have received from each Shareholder an
agreement and acknowledgment substantially in the form of Exhibit C to
this Agreement;
(g) All indebtedness of the Company to the Company's Bank
shall have been paid in full and all liens securing such indebtedness
shall have been terminated and released;
(h) Parent shall be satisfied in good faith with the results
of its business and legal due diligence review of the Company such that
Parent's expected benefits to be derived from and risks assumed under
this Agreement have not materially and adversely changed since the date
of its execution of this Agreement. Parent shall not be deemed to have
accepted as satisfactory any matters contained in the Company
Disclosure Schedule prior to its complete review of all the information
relating to such matters; and
Section 6.3 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company to consummate the Merger are subject to the
satisfaction (or if permissible, waiver by the Company) of the following
conditions:
(a) Each of the representations and warranties of Parent and
Sub contained in Article IV of this Agreement shall be true and correct
in all material respects as of the date of this Agreement and as of the
Effective Time and Parent and Sub shall have delivered to the Company a
certificate to that effect signed by an executive officer;
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(b) Parent and Sub shall have complied in all material
respects with each of their obligations under this Agreement and Parent
and Sub shall have delivered to the Company a certificate to that
effect signed by an executive officer;
(c) The Company shall have received an opinion from Benesch,
Friedlander, Coplan & Aronoff, P.L.L., counsel for Parent and Sub, in
form and substance reasonably satisfactory to the Company;
(d) The Shareholders and Parent shall have each executed and
delivered a Registration Rights Agreement substantially in the form of
Exhibit D attached hereto; and
(e) The Company shall be satisfied in good faith with the
results of its business and legal due diligence review of the Parent
such that the Company's expected benefits to be derived from and risks
assumed under this Agreement have not materially and adversely changed
since the date of its execution of this Agreement. The Company shall
not be deemed to have accepted as satisfactory any matters contained in
the Parent Disclosure Schedule prior to its complete review of all the
information relating to such matters.
ARTICLE VII
TERMINATION
Section 7.1 TERMINATION. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated and the Merger contemplated
herein may be abandoned at any time prior to the Effective Time, whether before
or after shareholder approval hereof:
(a) By the mutual consent of Parent and the Company.
(b) By either the Company or Parent if any Governmental Entity
shall have issued an order, decree or ruling or taken any other action
(which order, decree, ruling or other action the parties hereto shall
use their best efforts to lift), in each case permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by
this Agreement and such order, decree, ruling or other action shall
have become final and non-appealable.
(c) By the Company if Parent or Sub (x) breaches or fails in
any material respect to perform or comply with any of its material
covenants and agreements contained herein or (y) breaches its
representations and warranties in any material respect and such breach
would have or would be reasonably likely to have a material adverse
effect on Parent and its Subsidiaries; provided, however, that if any
such breach is cured on or before the date scheduled for Closing
pursuant to Section 1.3 (without implying or imposing any obligation on
the Company to extend the same), the Company may not terminate this
Agreement pursuant to this Section 7.1(c).
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(d) By Parent if the Company or any of the Shareholders, as
the case may be, (x) breaches or fails in any material respect to
perform or comply with any of its, his or her material covenants and
agreements contained herein or (y) breaches its, his or her
representations and warranties in any material respect; provided,
however, that if any such breach is cured prior to the date scheduled
for Closing pursuant to Section 1.3 (without implying or imposing any
obligation on Parent to extend the same), Parent may not terminate this
Agreement pursuant to this Section 7.1(d).
(e) By either the Company or Parent if the conditions
precedent to their respective obligations to consummate the Merger, as
set forth in Article VI hereof, are not satisfied on the date scheduled
for Closing pursuant to Section 1.3 or, if permissible waived.
Section 7.2 EFFECT OF TERMINATION. In the event of the termination of
this Agreement as provided in Section 7.1, written notice thereof shall
forthwith be given to the other party or parties specifying the provision hereof
pursuant to which such termination is made, including, without limitation, if
the termination is being made pursuant to Section 7.1(e), the reasons for such
party being dissatisfied with the results of its due diligence investigation,
and this Agreement shall forthwith become null and void, and there shall be no
liability on the part of Parent, Sub or the Company except (A) for fraud or for
material breach of this Agreement and (B) as set forth in Sections 9.1 and 9.2
hereof.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS
AND WARRANTIES; INDEMNIFICATION; DISPUTES
Section 8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
Notwithstanding the Closing of the transactions contemplated under this
Agreement, or any investigation made by or on behalf of any party to this
Agreement, the representations and warranties of the Company and the
Shareholders contained in this Agreement or in any certificate, Company
Disclosure Schedule, chart, list, letter, compilation or other document
furnished or to be furnished pursuant to this Agreement, will survive the Merger
as provided in Section 9.4 hereof.
Section 8.2 INDEMNIFICATION. Shareholders, jointly and severally, will
indemnify and save harmless Parent and its Subsidiaries, shareholders,
directors, officers, employees and agents from any and all costs, expenses,
losses, damages and liabilities incurred or suffered, directly or indirectly, by
any of them (including, without limitation, reasonable legal fees and expenses),
in each case, net of any insurance proceeds that Parent or any Subsidiary of
Parent is entitled to receive and that is not subject to any rights of setoff or
claims for subrogation on the part of the insurance carrier, (collectively, in
each case, an "Indemnification Claim") resulting from or attributable to (a) the
breach of any covenant or agreement of the Company or any of the Shareholders
hereunder, (b) the breach of, or misstatement in, any one or more of the
representations or warranties of Company or the Shareholders made in or pursuant
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to this Agreement, and (c) any claims, demands, suits, investigations,
proceedings or actions by any third party containing allegations that, if true
would constitute a breach of, or misstatement in, any one or more of the
representations or warranties of Company or the Shareholders made in or pursuant
to this Agreement (a "Third Party Claim"); provided, however, that in the event
of any Third Party Claim pursuant to paragraph (c) of this Section 8.2 as to
which Parent seeks indemnification hereunder, and as to which the Shareholders
assume the defense, if it is finally determined by a court of competent
jurisdiction that Parent, the Surviving Corporation, any of their Subsidiaries,
and the Shareholders have no liability with respect to such Third Party Claim
or, if not so determined, the Shareholders have effected a final and binding
settlement of such Third Party Claim without incurring any payment or other
obligation, then such Third Party Claim will not constitute an Indemnification
Claim.
Section 8.3 DEFENSE OF CLAIM. In case Parent, Surviving Corporation or
any of their Subsidiaries has received actual notice of any claim asserted or
any action or administrative or other proceeding commenced in respect of which
claim, action or proceeding, an Indemnification Claim properly may be asserted
against Shareholders pursuant to this Agreement, Parent will give notice in
writing to Shareholders within twenty (20) days of its receipt of such notice
provided that Parent's failure to give notice within such twenty (20) day period
will not operate as a bar to its Indemnification Claim hereunder so long as the
Shareholders are not materially prejudiced by any such delay. Within twenty (20)
days after the receipt of such notice, Shareholders may give Parent written
notice of their election to conduct the defense of such claim, action or
proceeding at their own expense. Any such election will be effective, and will
be binding on, and enforceable against, each of the Shareholders, jointly and
severally, if the election is signed by Shareholders receiving at least a
majority of the Merger Consideration hereunder. If Shareholders have given
Parent such notice of election to conduct the defense, Shareholders may conduct
the defense at their expense, but Parent will nevertheless have the right to
participate in the defense, but such participation will be solely at the expense
of Parent, without a right of further reimbursement. If Shareholders have not so
notified Parent in writing (within the time above provided) of their election to
conduct the defense of such claim, action or proceeding, Parent may (but need
not) conduct (at Shareholders' expense) the defense of such claim, action or
proceeding. Parent may at any time notify Shareholders of Parent's intention to
settle, compromise or satisfy any such claim, action or proceeding (the defense
of which Shareholders have not previously elected to conduct) and may make such
settlement, compromise or satisfaction (at Shareholders' expense) unless
Shareholders notify Parent in writing (within five (5) days after receipt of
such notice of intention to settle, compromise or satisfy) of their election to
assume (at their expense) the defense of any such claim, action or proceeding
and promptly take appropriate action to implement such defense. Any bona fide
settlement, compromise or satisfaction made by Parent, or any such final
judgment or decree entered in, any claim, action or proceeding defended only by
Parent, regardless of the amount or terms, will be deemed to have been consented
to by, and will be binding on, Shareholders as fully as though they alone had
assumed the defense and a final judgment or decree had been entered in such
proceeding or action by a court of competent jurisdiction in the amount of such
settlement, compromise, satisfaction, judgment or decree. If Shareholders have
elected under this Section 8.3 to conduct the defense of any claim, action or
proceeding, then Shareholders will be obligated in respect of the amount of any
adverse final judgment or decree rendered with respect to such claim, action or
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proceeding which will constitute an Indemnification Claim hereunder. If
Shareholders elect to settle, compromise or satisfy any claim, action or
proceeding defended by them, the cost of any such settlement, compromise or
satisfaction will constitute an Indemnification Claim hereunder and may be made
only with the consent of Parent, which consent will not be unreasonably
withheld. Parent and Shareholders will use all reasonable efforts to cooperate
fully with respect to the defense of any claim, action or proceeding covered by
this Section 8.3.
Section 8.4 LIMITATIONS ON INDEMNIFICATION. Any of the foregoing
notwithstanding, Parent will not have the right to assess and collect the amount
of an Indemnification Claim under Section 8.2 hereof unless and until the
aggregate amount of the Indemnification Claim exceeds Four Hundred Thousand
Dollars ($400,000) (the "Threshold Amount") and thereafter, will be entitled to
the full extent of the Indemnification Claim and all subsequent Indemnification
Claims, if any (it being acknowledged and understood that Parent may assess and
collect any such subsequent Indemnification Claim only if it exceeds Ten
Thousand Dollars ($10,000) in value). In determining whether the Threshold
Amount is met, Parent shall be entitled to aggregate each separate
Indemnification Claim from and after the Closing Date unless (i) any such
separate Indemnification Claim, individually, fails to exceed Ten Thousand
Dollars ($10,000), or (ii) Parent has not followed the procedures required under
this Article VIII with respect to such Indemnification Claim.
Section 8.5 SATISFACTION OF INDEMNIFICATION CLAIMS. If at any time or
times Parent is entitled to payment on account of an Indemnification Claim, it
will provide the Shareholders with notice of such right and the amount of the
Indemnification Claim. The Shareholders will each individually have twenty (20)
days from the date of such notice in which to elect to pay his or her pro rata
(based upon the proportionate amount of the Merger Consideration payable to such
Shareholder hereunder) portion of such Indemnification Claim to Parent in cash.
If such Shareholder does not satisfy his or her pro rata share of the
Indemnification Claim by cash payment, then the Exchange/Escrow Agent will
satisfy such Indemnification Claim by cancelling first, that number of the
Escrow Shares, second, if necessary, the Group 1 Forfeitable Shares, issued and
not released pursuant to Section 2.2(d)(ii)(A) hereof to such Shareholder, and
third, if necessary, the Group 2 Forfeitable Shares, issued and not released
pursuant to Section 2.2(d)(ii)(B) hereof to such Shareholder, as may be
necessary to satisfy such Indemnification Claim; provided, however, that in the
event the Forfeitable Shares so cancelled would not have been released to the
Shareholders pursuant to Section 2.2(d)(ii) prior to the Fourth Anniversary had
they not been cancelled, such Forfeitable Shares so cancelled shall be deemed to
have no value and the Shareholders satisfying their Indemnification Claims
through the cancellation of such Forfeitable Shares shall be obligated to
satisfy such Indemnification Claims by cash payment not later than twenty (20)
days following the Fourth Anniversary. In determining the number of Escrow
Shares and/or Forfeitable Shares necessary to satisfy any Indemnification Claim
hereunder, each Exchange Share will be given a value of Twenty Dollars ($20.00).
If at the time any Exchange Shares become subject to cancellation pursuant to
this Section 8.5, the Exchange/Escrow Agent is also holding Exchange Share
Proceeds and Proceeds Earnings, if any, all such Exchange Share Proceeds and
Proceeds Earnings attributable to the Exchange Shares being cancelled will
likewise be cancelled or shall revert to Parent, as the case may be, all without
being accorded any additional or separate value for purposes of satisfying any
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Indemnification Claim. The Shareholders will be and remain liable for any
Indemnification Claim which cannot be satisfied by means of the cancellation of
any Exchange Shares.
ARTICLE IX
MISCELLANEOUS
Section 9.1 FEES AND EXPENSES. All costs and expenses incurred in
connection with this Agreement and the consummation of the transactions
contemplated hereby shall be paid by Parent and Sub on the one hand, and by the
Shareholders on account of the costs and expenses incurred by the Shareholders
and the Company, on the other hand. The preceding sentence notwithstanding, the
Company shall pay, prior to the Closing, the fees and expenses of Michener,
Larimore, Swindle, Whitaker, Flowers, Sawyer, Reynolds & Chalk, L.L.P. up to a
maximum of Fifty Thousand Dollars ($50,000).
Section 9.2 FINDERS' FEES.
(a) There is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on
behalf of the Shareholders, the Company or any of its Subsidiaries who
might be entitled to any fee or commission from the Shareholders, the
Company or any of its Subsidiaries upon consummation of the
transactions contemplated by this Agreement.
(b) There is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on
behalf of Parent or any of its Subsidiaries who might be entitled to
any fee or commission from Parent or any of its Subsidiaries upon
consummation of the transactions contemplated by this Agreement.
Section 9.3 AMENDMENT AND MODIFICATION. Subject to applicable law, this
Agreement may be amended, modified and supplemented in any and all respects,
whether before or after the approval of the shareholders of the Company
contemplated hereby, by written agreement of the parties hereto, at any time
prior to the Effective Time with respect to any of the terms contained herein;
provided, however, that after the approval of this Agreement by the shareholders
of the Company, no such amendment, modification or supplement shall reduce or
change the consideration to be received by the Shareholders in the Merger.
Section 9.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Shareholders and the Company contained in
this Agreement or in any schedule, instrument or other document delivered
pursuant to this Agreement shall survive any investigation by Parent or Sub and
shall not terminate until the Fourth Anniversary at which time they shall lapse.
Notwithstanding the foregoing, any Indemnification Claim shall survive the
Fourth Anniversary if Parent has given notice to the Shareholders of such
Indemnification Claim prior to the Fourth Anniversary.
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Section 9.5 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or sent by an overnight courier service, such as
Federal Express, to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Parent or Sub, to:
Cardinal Realty Services, Inc.
6954 Americana Parkway
Reynoldsburg, Ohio 43068
Attention: Mark D. Thompson
Executive Vice President
Telephone No.: (614) 759-1566
Telecopy No.: (614) 575-5175
with a copy to:
Benesch, Friedlander, Coplan & Aronoff P.L.L.
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114
Attention: Bradley A. Van Auken
Telephone No.: (216) 363-4500
Telecopy No.: (216) 363-4588
and
(b) if to the Company or the Shareholders, to:
Lexford Properties, Inc.
8615 Freeport Parkway, Suite 200
Irving, Texas 75063
Attention: Pat Holder
Telephone No.: (214) 929-4880
Telecopy No.: (214) 929-1465
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with a copy to:
Michener, Larimore, Swindle, Whitaker, Flowers,
Sawyer, Reynolds & Chalk, L.L.P.
3500 City Center Tower II
301 Commerce Street
Fort Worth, Texas 76102-4186
Attention: John W. Michener, Jr.
Telephone No.: (817) 335-4417
Telecopy No.: (817) 335-6935
Any notice given by (i) telecopier will be effective when confirmed if
given on a business day, otherwise it will be effective on the next succeeding
business day; (ii) overnight courier or personal delivery will be effective on
the day delivered, unless such day is not a business day, otherwise it will be
effective on the next succeeding business day. For purposes of this Agreement,
"business day" will mean any day which is not a Saturday, Sunday or federal
holiday.
Section 9.6 INTERPRETATION. When a reference is made in this Agreement
to Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. Whenever the words "include", "includes" or "including" are
used in this Agreement they shall be deemed to be followed by the words "without
limitation". As used in this Agreement, the term "Affiliate(s)" shall have the
meaning set forth in Rule 12b-2 of the Exchange Act.
Section 9.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 9.8 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES; RIGHTS OF
OWNERSHIP. This Agreement (including the exhibits hereto and the documents and
the instruments referred to herein): (a) constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, and (b) are not intended
to confer upon any person other than the parties hereto any rights or remedies
hereunder.
Section 9.9 SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
Section 9.10 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
40
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entitled to the remedy of specific performance of the terms hereof, in addition
to any other remedy at law or equity.
Section 9.11 GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Ohio without giving effect
to the principles of conflicts of law thereof.
Section 9.12 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that Sub may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder to
Parent or to any direct or indirect wholly owned Subsidiary of Parent; provided,
however, that no such assignment shall relieve Parent from any of its
obligations hereunder. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
Section 9.13 ARBITRATION. In the event any dispute or controversy
arises under this Agreement, the Shareholders, acting through the holders of a
majority in interest of the Exchange Shares at the Effective Time, the Company,
Parent or Sub, as the case may be, will resolve such dispute or controversy
through arbitration. Such dispute or controversy will be submitted by the
parties thereto to binding arbitration before a single arbitrator in Columbus,
Ohio, selected by the parties to the dispute or controversy, or, if such parties
cannot agree on an arbitrator, by the American Arbitration Association. The
arbitration will be conducted in accordance with the rules of the American
Arbitration Association, then in effect. The award or decision will be rendered
in such form that judgment may be entered thereon in any court having
jurisdiction and will be final and binding upon all the parties.
If the dispute or controversy relates to the allegation by one party of
a breach of this Agreement by another party, the fees and expenses of the
arbitration (excluding the fees and expenses of counsel, accountants or other
professionals retained by a party (such expenses to be borne by the party
retaining such professionals)) (the "Arbitration Costs") will be borne by the
breaching party, if a breach was determined to exist by the arbitrator or by the
party alleging the breach, if no breach was determined to exist by the
arbitrator. If the dispute or controversy relates to the amount of an
Indemnification Claim, each party to such dispute or controversy will submit to
the arbitrator its determination of the amount, if any, of the Indemnification
Claim in dispute (the difference between the amount of the Indemnification Claim
submitted by Parent and the amount of the Indemnification Claim submitted by the
Shareholders is referred to as the "Indemnification Claim Dispute Amount"). If
the arbitrator's final determination of such Indemnification Claim results in an
amount which is (i) less than the Indemnification Claim submitted by Parent
(such shortage amount referred to as the "Decrease in Indemnification Claim")
and the Decrease in Indemnification Claim is greater than fifty percent (50%) of
the Indemnification Claim Dispute Amount, or (ii) less than or equal to the
Indemnification Claim submitted by the Shareholders, Parent will bear the
Arbitration Costs. If the arbitrator's final determination of such
Indemnification Claim results in an amount which (i) results in a Decrease in
Indemnification Claim and the Decrease in Indemnification Claim is fifty percent
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(50%) or less than the Indemnification Claim Dispute Amount, or (ii) is more
than the Indemnification Claim submitted by Parent, the Shareholders will bear
the Arbitration Costs.
IN WITNESS WHEREOF, Parent, Sub, the Company and the Shareholders have
each caused this Agreement to be signed (by their respective officers thereunto
duly authorized in the case of Parent, Sub and the Company) as of the date first
written above.
/s/ Pat Holder CARDINAL REALTY SERVICES, INC.
- -----------------------------
PAT HOLDER By: /s/ Mark D. Thompson
-------------------------
/s/ Stanley R. Fimberg Name: Mark D. Thompson
- ----------------------------- Title: Executive Vice President
STANLEY R. FIMBERG of Corporate Acquisitions
/s/ Ralph V. Williams
- ---------------------------- REXFLOR ACQUISITION
RALPH V. WILLIAMS CORPORATION
/s/ Annette Hoover By: /s/ Mark D. Thompson
- ---------------------------- -------------------------
ANNETTE HOOVER Name: Mark D. Thompson
Title: Vice President
/s/ Bruce Woodward
- ----------------------------
BRUCE WOODWARD
/s/ Eric Madsen LEXFORD PROPERTIES, INC.
- ----------------------------
ERIC MADSEN By: /s/ Pat Holder
---------------------------
Name: Pat Holder
/s/ Peggy Crow Smith Title: President
- ----------------------------
PEGGY CROW SMITH
FSC REALTY, L.L.C.
By: /s/ Stanley R. Fimberg, Manager
--------------------------------
STANLEY R. FIMBERG, MANAGER
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SCHEDULE I
TO MERGER AGREEMENT
Name of Shareholder Number of Number of Shares Number of Number of Number of
Shares of Parent Escrow Shares Group 1 Group 2
of Company Common Forfeitable Forfeitable
Common Stock Stock to Receive Shares Shares
at
Effective Time
=========================== ===================== ======================= =================== =================== ==============
Pat Holder 500 50,000 12,500 37,500 75,000
Annette Hoover 200 20,000 5,000 15,000 30,000
Bruce Woodward 200 20,000 5,000 15,000 30,000
Peggy Crow Smith 100 10,000 2,500 7,500 15,000
FSC Realty, L.L.C. 470 47,000 11,750 35,250 70,500
Ralph V. Williams 380 38,000 9,500 28,500 57,000
Eric Madsen 150 15,000 3,750 11,250 22,500
TOTALS 2,000 200,000 50,000 150,000 300,000
=========================== ===================== ======================= =================== =================== ==============
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SCHEDULE II
TO MERGER AGREEMENT
Contribution to Profit shall be the net profit of the management services
segment of Parent's business, determined in a manner consistent with past
practices as set forth on, and using an allocation of Parent's overhead expenses
as set forth on, the attached schedules. Notwithstanding the foregoing, (a) all
expenses of Parent (i) for which an Indemnification Claim was made and satisfied
in accordance with Article VIII of the Merger Agreement or (ii) incurred under
the Consulting Agreements, shall be excluded from any calculation of
Contribution to Profit, and (b) subject to the following paragraph, all
regularly scheduled payments made by Lexford Northwest, Inc. ("LNI") in
accordance with that certain Exclusive Management Agreement dated as of November
1, 1994 (the "Management Agreement") by and between LNI, CPM Properties L.P. and
Mark C. Odell ("Odell Payments") shall be included as expenses in any
determination of Contribution to Profit.
The preceding sentence notwithstanding, if the working capital of the Company
immediately prior to the Effective Time is positive, then a credit against each
Odell Payment shall be made for purposes of determining Contribution to Profit
as follows: For purposes of determining Contribution to Profit, a credit shall
be made against each Odell Payment (offsetting the amount of such expense) in an
amount equal to one-fortieth (1/40) of the Company's working capital (determined
in accordance with GAAP) as of the Effective Time as evidenced on the balance
sheet of the Company as of the Effective Time, such amount not to exceed the
amount of each such Odell Payment. It is acknowledged that the number of Odell
Payments to be made by LNI is contingent in nature in accordance with the terms
of the Management Agreement. Pursuant to the terms of the Management Agreement,
LNI may be relieved of any liability to make the final 12 regularly scheduled
Odell Payments. In the event that LNI is not required to make the final 12 Odell
Payments, then in such event, Contribution to Profit calculated in accordance
with this Schedule II will be redetermined by recalculating the credit made
against each Odell Payment by crediting against each Odell Payment theretofore
made an amount equal to one-twenty-eighth (1/28) of the Company's working
capital (determined in accordance with GAAP) as of the Effective Time. For
example, if the working capital of the Company as of the Effective Time is
$400,000, then, for purposes of determining Contribution to Profit, there shall
be a credit of $10,000 made against each regularly scheduled Odell Payment.
Thereafter, in the event that LNIis not required to make the final 12 Odell
Payments, the credit referred to in the immediately preceding sentence (based
upon working capital of the Company as of the Effective Time of $400,000) will
be recalculated, therefore resulting in a credit in the amount of $14,286
against each Odell Payment theretofore made and Contribution to Profit will be
recalculated accordingly . Further, in preparing the balance sheet of the
Company as of the Effective Time, any indebtedness owing from the Company to
Parent will be classified in full as a current liability of the Company. In
order to facilitate the foregoing adjustment, within sixty (60) days after the
Closing, Parent shall cause a balance sheet of the Company as of the close of
business on the date on which the Effective Time occurs to be prepared by Parent
in accordance with GAAP.
78
Contribution to Profit shall be determined by the internal accounting staff of
Parent and delivered to the Shareholders together with a detailed calculation
thereof (the "Contribution to Profit Determination Notice") within ninety (90)
days of the end of each fiscal year beginning and ending after the Effective
Time and before the Fourth Anniversary. The Shareholders, acting through the
holders of a majority in interest of the Exchange Shares, may dispute the
determination of Contribution to Profit by delivering a written notice of such
dispute containing the Shareholders' calculation of Contribution to Profit (the
"Dispute Notice") to Parent within ten (10) days of their receipt of the
Contribution to Profit Determination Notice. If the dispute cannot be resolved
between the parties within thirty (30) days after delivery of the Dispute
Notice, the disputed issues that are the subject of such dispute shall be
submitted to a single arbitrator in Columbus, Ohio, selected by the parties or,
if the parties cannot agree on an arbitrator, by the American Arbitration
Association. The arbitration will be conducted in accordance with the rules of
the American Arbitration Association and the final decision of the arbitrator
will be final and binding on all the parties. If the arbitrator's final
calculation of Contribution to Profit results in an amount which is (i) greater
than the Contribution to Profit as calculated by Parent (such excess amount
referred to as the "Increase in Contribution to Profit") and the Increase in
Contribution to Profit is greater than fifty percent (50%) of the difference
between the Contribution to Profit as calculated by the Shareholders and the
Contribution to Profit as calculated by Parent (the "Amount in Dispute"), or
(ii) greater than the Contribution to Profit as calculated by the Shareholders,
Parent will bear the fees and expenses of the arbitration (excluding the fees
and expenses of counsel, accountants or other professionals retained by either
party (such expenses to be borne by the party retaining such professionals))
(the "Arbitration Costs"). If the arbitrator's final calculation of the
Contribution to Profit results in an amount which (i) results in an Increase in
Contribution to Profit and the Increase in Contribution to Profit is fifty
percent (50%) or less than the Amount in Dispute, or (ii) is less than the
Contribution to Profit as calculated by Parent, the Shareholders will bear the
Arbitration Costs.
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SCHEDULE III
TO MERGER AGREEMENT
CURRENT
SALARY
Sandra Cloer $60,000
Claudette Cox $60,000
Janice Dawson $60,000
Kay Hall $60,000
Joy Lamb $50,000
Cindy Wolfe $60,000