AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
E*TRADE GROUP, INC.,
TURBO ACQUISITION CORP.
AND
TELEBANC FINANCIAL CORPORATION
May 31, 1999
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TABLE OF CONTENTS
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ARTICLE I THE MERGER........................................................... 2
1.1 The Merger.......................................................... 2
1.2 Closing; Effective Time............................................. 2
1.3 Effect of the Merger................................................ 2
1.4 Certificate of Incorporation; Bylaws................................ 2
1.5 Directors and Officers.............................................. 3
1.6 Effect on Capital Stock............................................. 3
1.7 Surrender of Certificates........................................... 4
1.8 No Further Ownership Rights in Company Capital Stock................ 6
1.9 Lost, Stolen or Destroyed Certificates.............................. 6
1.10 Tax and Accounting Consequences..................................... 6
1.11 Withholding Rights.................................................. 6
1.12 Taking of Necessary Action; Further Action.......................... 6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY........................... 7
2.1 Organization, Standing and Power.................................... 7
2.2 Capital Structure................................................... 7
2.3 Authority........................................................... 8
2.4 SEC Documents; Financial Statements................................. 9
2.5 Absence of Certain Changes.......................................... 10
2.6 Absence of Undisclosed Liabilities.................................. 11
2.7 Litigation.......................................................... 11
2.8 Restrictions on Business Activities................................. 11
2.9 Compliance With Laws................................................ 11
2.10 Title to Property................................................... 11
2.11 Intellectual Property............................................... 12
2.12 Environmental Matters............................................... 13
2.13 Taxes............................................................... 14
2.14 Employee Benefit Plans.............................................. 15
2.15 Employee Matters.................................................... 18
2.16 Interested Party Transactions....................................... 19
2.17 Insurance........................................................... 19
2.18 Regulatory Matters.................................................. 19
2.19 Material Contracts.................................................. 21
2.20 Banking Business.................................................... 22
2.21 Year 2000 Compliance................................................ 23
2.22 Opinion of Financial Advisor........................................ 23
2.23 Company Affiliates.................................................. 23
2.24 State Takeover Statutes; Charter Provisions......................... 23
2.25 Tax and Accounting Treatment........................................ 24
2.26 Brokers' and Finders' Fees.......................................... 24
2.27 Representations Complete............................................ 24
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT........................... 24
3.1 Organization, Standing and Power.................................... 24
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3.2 Capital Structure................................................... 25
3.3 Authority........................................................... 25
3.4 SEC Documents; Financial Statements................................. 27
3.5 Absence of Undisclosed Liabilities.................................. 27
3.6 Litigation.......................................................... 27
3.7 Compliance With Laws................................................ 27
3.8 Year 2000 Compliance................................................ 28
3.9 Tax Treatment....................................................... 28
3.10 Broker's and Finders' Fees.......................................... 28
3.11 Representations Complete............................................ 28
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME................................. 28
4.1 Conduct of Business................................................. 28
4.2 Conduct of Business of Company...................................... 29
4.3 Conduct of Parent................................................... 32
4.4 No Solicitation..................................................... 32
ARTICLE V ADDITIONAL AGREEMENTS................................................ 33
5.1 Registration Statement; Proxy Statements............................ 33
5.2 Meeting of Stockholders............................................. 36
5.3 Access to Information............................................... 37
5.4 Confidentiality..................................................... 37
5.5 Public Disclosure................................................... 37
5.6 Consents; Cooperation............................................... 37
5.7 Reasonable Best Efforts and Further Assurances...................... 38
5.8 Blue Sky Laws....................................................... 38
5.9 Listing of Additional Shares; Nasdaq Quotation...................... 38
5.10 Pooling Accounting.................................................. 39
5.11 Affiliate Agreements................................................ 39
5.12 Tax Treatment....................................................... 39
5.13 Company Options..................................................... 39
5.14 Form S-8............................................................ 40
5.15 Employees; Employee Benefit Matters................................. 40
5.16 Director and Officer Indemnification................................ 41
5.17 Comfort Letters..................................................... 42
5.18 Stockholder Litigation.............................................. 42
5.19 Company Debt Securities............................................. 42
ARTICLE VI CONDITIONS TO THE MERGER............................................ 43
6.1 Conditions to Obligations of Each Party to Effect the Merger........ 43
6.2 Additional Conditions to Obligations of Company..................... 44
6.3 Additional Conditions to the Obligations of Parent and Merger Sub... 44
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER.................................. 46
7.1 Termination......................................................... 46
7.2 Effect of Termination............................................... 47
7.3 Expenses and Termination Fees....................................... 47
7.4 Amendment........................................................... 48
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7.5 Extension; Waiver................................................... 48
ARTICLE VIII GENERAL PROVISIONS................................................ 49
8.1 Non-Survival at Effective Time...................................... 49
8.2 Notices............................................................. 49
8.3 Interpretation...................................................... 50
8.4 Counterparts........................................................ 50
8.5 Entire Agreement; Nonassignability; Parties in Interest............. 50
8.6 Severability........................................................ 51
8.7 Remedies Cumulative................................................. 51
8.8 Governing Law....................................................... 51
8.9 Rules of Construction............................................... 51
8.10 Definitions; Etc.................................................... 51
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EXHIBITS
Exhibit A - Form of Certificate of Merger
Exhibit B - Form of Company Affiliate Agreement
Exhibit C - Form of Parent Affiliate Agreement
Exhibit D - Form of Management Continuity Agreement
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
-----------------------------------------------
This AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the "Agreement")
is made and entered into as of May 31, 1999, by and among E*TRADE Group, Inc., a
Delaware corporation ("Parent"), Turbo Acquisition Corp., a Delaware corporation
and wholly owned subsidiary of Parent ("Merger Sub"), and Telebanc Financial
Corporation, a Delaware corporation ("Company").
RECITALS
A. The Board of Directors of Company has unanimously (i) determined
that it is advisable and fair to, and in the best interests of, Company and its
stockholders that, upon the terms and subject to the conditions of this
Agreement, Merger Sub merge with and into Company, with Company being the
surviving corporation (the "Merger"), (ii) approved this Agreement, the Merger
and the other transactions contemplated hereby and (iii) determined to recommend
the approval of this Agreement and the Merger by the stockholders of Company.
B. The Board of Directors of Parent has (i) determined that the
Merger is advisable and in the best interests of Parent and its stockholders and
(ii) approved this Agreement, the Merger and the other transactions contemplated
hereby.
C. Pursuant to the Merger, among other things, the outstanding shares
of Common Stock, par value $.01 per share ("Company Common Stock"), of Company
shall be converted into the right to receive the consideration set forth herein.
D. The parties intend, by executing this Agreement, to adopt a plan
of reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code"), and to cause the Merger to qualify as a
"reorganization" under the provisions of Sections 368(a)(1)(A) and 368(a)(2)(E)
of the Code, and as a pooling of interests for financial accounting purposes.
E. Concurrently with the execution of this Agreement and as an
inducement to Parent and Merger Sub to enter into this Agreement, (a) Company
and Parent have entered into a stock option agreement dated the date hereof (the
"Option Agreement") providing for the purchase by Parent of newly-issued shares
of Company Common Stock under certain circumstances, and (b) certain affiliates
of Company have on the date hereof entered into Stockholder Agreements the
("Stockholder Agreements") pursuant to which they have agreed among other
things, to vote the shares of Company Common Stock over which such persons have
voting power to approve this Agreement and the Merger;
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
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ARTICLE I
THE MERGER
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1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
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subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Delaware General Corporation Law ("Delaware Law"),
Merger Sub shall be merged with and into Company, the separate corporate
existence of Merger Sub shall cease and Company shall continue as the surviving
corporation. Company as the surviving corporation after the Merger is
hereinafter sometimes referred to as the "Surviving Corporation."
1.2 Closing; Effective Time. The consummation of the Merger (the
-----------------------
"Closing") shall take place as soon as practicable, and in any event not later
than two (2) business days, after the satisfaction or waiver of each of the
conditions set forth in Article VI hereof or at such other time as the parties
hereto may agree (the "Closing Date"). The Closing shall take place at the
offices of Brobeck, Phleger & Harrison LLP, Two Embarcadero Place, 2200 Geng
Road, Palo Alto, California 94303, or at such other location as the parties
hereto may agree in writing. The Merger shall become effective on the Closing
Date, as set forth in the Certificate of Merger in the form attached hereto as
Exhibit A (the "Certificate of Merger"), which shall be filed with the Secretary
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of State of the State of Delaware on the Closing Date. The term "Effective Time"
shall be the date and time when the Merger becomes effective on the Closing
Date, as set forth in the Certificate of Merger.
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of Delaware Law. At and after the Effective Time, the
Merger shall have the effects set forth in Sections 259 and 261 of the Delaware
Law. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time, all the property, rights, privileges, powers and franchises
of Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of Company and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
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(a) At the Effective Time, the Certificate of Incorporation of
Company, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation; provided, however,
that immediately after the Effective Time the Certificate of Incorporation of
the Surviving Corporation shall be amended and restated so as to read in its
entirety like the Certificate of Incorporation of Merger Sub with Article I of
the Certificate of Incorporation amended to read as follows: "The name of the
corporation is Telebanc Financial Corporation."
(b) The Bylaws of Company, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended; provided, however, that immediately after the Effective Time
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the Bylaws of the Surviving Corporation shall be amended and restated so as to
read like the Bylaws of Merger Sub.
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1.5 Directors and Officers. At the Effective Time, the directors of
Merger Sub shall be the initial directors of the Surviving Corporation, until
their successors are duly elected or appointed and qualified. The officers of
Company at the Effective Time shall be the initial officers of Surviving
Corporation, until their respective successors are duly elected or appointed and
qualified.
1.6 Effect on Capital Stock. At the Effective Time, by virtue of the
-----------------------
Merger and without any action on the part of Parent, Merger Sub, Company or the
holders of any of the following securities:
(a) Conversion of Company Capital Stock. Each share of Company
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Common Stock issued and outstanding immediately prior to the Effective Time
(other than any shares of Company Common Stock to be cancelled pursuant to
Section 1.6(b)) will be converted automatically into the right to receive 2.1
shares (the "Exchange Ratio") of Parent Common Stock, par value $.01 per share
("Parent Common Stock"), upon surrender of the certificate representing such
share of Company Common Stock in the manner provided in Section 1.7 (or, in the
case of a lost, stolen or destroyed certificate, upon delivery of an affidavit
and, if required, bond, in the manner provided in Section 1.9).
(b) Cancellation of Company Capital Stock Owned by Parent, Merger
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Sub or Company. Each share of Company Common Stock that is owned by Company as
--------------
treasury stock and each share of Company Common Stock owned by Parent or Merger
Sub or any direct or indirect wholly owned Subsidiary (as defined below) of
Parent, Merger Sub or Company immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof.
(c) Company Stock Option Plans. At the Effective Time, Company's
--------------------------
1994 Stock Option Plan, 1997 Stock Option Plan and 1998 Stock Incentive Plan, as
amended (collectively, the "Company Stock Option Plans"), and all options to
purchase Company Common Stock then outstanding under the Company Stock Option
Plans or pursuant to option agreements listed on Schedule 1.6(c) attached hereto
---------------
(collectively, "Company Options") shall be assumed by Parent in accordance with
Section 5.13.
(d) Unvested Company Common Stock. If any shares of Company Common
-----------------------------
Stock outstanding immediately prior to the Effective Time are unvested or are
subject to a repurchase option, risk of forfeiture or other condition under the
Company Employee Stock Ownership Plan, any applicable restricted stock purchase
agreement, or other agreement with Company or under which Company has any
rights, then (unless such condition terminates by virtue of the Merger pursuant
to the express term of such agreement) the shares of Parent Common Stock issued
in exchange for such shares of Parent Common Stock will also be unvested and
subject to the same repurchase option, risk of forfeiture or other condition,
and the certificates representing such shares of Parent Common Stock may
accordingly be marked with appropriate legends. Company shall take all action
that may be necessary to ensure that, from and after the Effective Time, Parent
is entitled to exercise any such repurchase option or other right set forth in
any such restricted stock purchase agreement or other agreement.
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(e) Capital Stock of Merger Sub. At the Effective Time, each share
---------------------------
of Common Stock, par value $.001 per share, of Merger Sub ("Merger Sub Common
Stock") issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock, par value $.001 per share, of the Surviving
Corporation, and the Surviving Corporation shall become a wholly owned
Subsidiary of Parent. Each stock certificate of Merger Sub evidencing ownership
of any such shares shall continue to evidence ownership of such shares of
capital stock of the Surviving Corporation.
(f) Adjustments to Exchange Ratio. The Exchange Ratio shall be
-----------------------------
appropriately adjusted to reflect the effect of any stock split, reverse split,
stock dividend (including any dividend or distribution of securities convertible
into Parent Common Stock or Company Common Stock), reorganization,
recapitalization or other like change with respect to Parent Common Stock or
Company Common Stock occurring after the date hereof and prior to the Effective
Time and of any increase in the number of shares of Company Common Stock
outstanding resulting from any failure of Section 2.2 to be correct on the date
hereof or by Company to comply with its covenants under Section 4.2 of this
Agreement, so as to provide Parent the same economic effect as contemplated by
this Agreement prior to such stock split, reverse split, stock dividend,
reorganization, recapitalization, like change or increase .
(g) Fractional Shares. No fraction of a share of Parent Common
Stock will be issued, but in lieu thereof each holder of shares of Company
Capital Stock who would otherwise be entitled to a fraction of a share of Parent
Common Stock (after aggregating all fractional shares of Parent Common Stock to
be received by such holder) shall receive from Parent an amount of cash (rounded
to the nearest whole cent) equal to the product of (i) such fraction, multiplied
by (ii) the average of the closing sale prices for a share of Parent Common
Stock as quoted on the Nasdaq National Market over the five (5) most recent
trading days that Parent Common Stock has traded ending on the last full trading
day prior to the date on which the Effective Time occurs.
1.7 Surrender of Certificates.
--------------------------
(a) Exchange Agent. Parent's transfer agent or another institution
--------------
selected by Parent and reasonably acceptable to Company shall act as exchange
agent (the "Exchange Agent") in the Merger.
(b) Parent to Provide Common Stock and Cash. Prior to the Effective
---------------------------------------
Time, Parent shall deposit with the Exchange Agent for exchange in accordance
with this Article I, through such reasonable procedures as Parent may adopt, (i)
the shares of Parent Common Stock issuable pursuant to Section 1.6(a) in
exchange for shares of Company Common Stock outstanding immediately prior to the
Effective Time and (ii) cash in an amount sufficient to permit payment of cash
in lieu of fractional shares pursuant to Section 1.6(g) and any dividend or
distribution to which holders of shares of Company Common Stock may be entitled
pursuant to Section 1.7(d).
(c) Exchange Procedures. Promptly after the Effective Time, Parent
-------------------
shall cause to be mailed to each holder of record of a certificate or
certificates (the "Certificates")
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which immediately prior to the Effective Time represented outstanding shares of
Company Common Stock, whose shares were converted into the right to receive
shares of Parent Common Stock (and cash in lieu of fractional shares) pursuant
to Section 1.6, (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon receipt of the Certificates by the Exchange Agent, and shall be in
such form and have such other provisions as Parent may reasonably specify) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Parent Common Stock (and cash
in lieu of fractional shares). Upon surrender of a Certificate for cancellation
to the Exchange Agent or to such other agent or agents as may be appointed by
Parent, together with such letter of transmittal, duly completed and validly
executed in accordance with the instructions thereto, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing the number of whole shares of Parent Common Stock and payment in
lieu of fractional shares which such holder has the right to receive pursuant to
Section 1.6 and any dividends or other distributions pursuant to Section 1.7(d),
and the Certificate so surrendered shall forthwith be canceled. Until so
surrendered, each outstanding Certificate that, prior to the Effective Time,
represented shares of Company Common Stock will be deemed from and after the
Effective Time, for all corporate purposes, other than the payment of dividends,
to evidence the ownership of the number of full shares of Parent Common Stock
into which such shares of Company Common Stock shall have been so converted and
the right to receive an amount in cash in lieu of the issuance of any fractional
shares in accordance with Section 1.6 and any dividends or other distributions
pursuant to Section 1.7(d).
(d) Distributions With Respect to Unexchanged Shares. No dividends
------------------------------------------------
or other distributions with respect to Parent Common Stock with a record date
after the Effective Time will be paid to the holder of any unsurrendered
Certificate with respect to the shares of Parent Common Stock represented
thereby until the holder of record of such Certificate shall surrender such
Certificate. Subject to applicable law, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of Parent Common Stock issued in exchange therefor,
without interest, at the time of such surrender, the amount of any such
dividends or other distributions with a record date after the Effective Time
theretofore payable (but for the provisions of this Section 1.7(d)) with respect
to such shares of Parent Common Stock.
(e) Transfers of Ownership. If any certificate for shares of Parent
----------------------
Common Stock is to be issued by the Exchange Agent in a name other than that in
which the Certificate surrendered in exchange therefor is registered, it will be
a condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Parent or any agent designated by it
any transfer or other taxes required by reason of the issuance of a check in any
name other than that of the registered holder of the Certificate surrendered, or
established to the satisfaction of Parent or any agent designated by it that
such tax has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in this
------------
Section 1.7, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to any person for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar law.
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1.8 No Further Ownership Rights in Company Capital Stock. All shares of
----------------------------------------------------
Parent Common Stock issued (and cash in lieu of fractional shares paid and any
dividends or other distributions pursuant to Section 1.7(d)) upon the surrender
for exchange of shares of Company Common Stock in accordance with the terms
hereof shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Company Common Stock, and there shall be no further
registration of transfers on the records of the Surviving Corporation of shares
of Company Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article I.
1.9 Lost, Stolen or Destroyed Certificates. In the event any
--------------------------------------
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares of Parent
Common Stock (and cash in lieu of fractional shares) as may be required pursuant
to Section 1.6; provided, however, that Parent may, in its discretion and as a
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condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Parent, the Surviving Corporation or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
1.10 Tax and Accounting Consequences. It is intended by the parties
-------------------------------
hereto that the Merger shall qualify as a reorganization under the provisions of
Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code and as a pooling of interests
for accounting purposes.
1.11 Withholding Rights. Parent and the Surviving Corporation shall be
------------------
entitled to deduct and withhold from the number of shares of Parent Common Stock
otherwise deliverable under this Agreement, and from any other payments made
pursuant to this Agreement, such amounts as Parent and the Surviving Corporation
are required to deduct and withhold with respect to such delivery and payment
under the Code or any provision of state, local, provincial or foreign tax law.
To the extent that amounts are so withheld, such withheld amounts shall be
treated for all purposes of this Agreement as having been delivered and paid to
the holder of shares of Company Common Stock in respect of which such deduction
and withholding was made by Parent and the Surviving Corporation.
1.12 Taking of Necessary Action; Further Action. If, at any time after
------------------------------------------
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Company and Merger Sub, the officers and directors of Company,
Parent and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action, so long as such action is not inconsistent with this Agreement.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
-----------------------------------------
Except as disclosed in the document of even date herewith delivered by
Company to Parent prior to the execution and delivery of this Agreement and
referring to the representations and warranties in this Agreement (the "Company
Disclosure Schedule"), any exception so disclosed in the Company Disclosure
Schedule to specifically identify the Section of this Agreement to which such
exception relates, Company represents and warrants to Parent and Merger Sub as
follows:
2.1 Organization, Standing and Power. Each of Company and its
--------------------------------
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. Company is
registered as a savings and loan holding company in accordance with the Home
Owners' Loan Act. Each of Company and its Subsidiaries has the corporate power
to own its properties and to carry on its business as now being conducted and as
proposed to be conducted and is duly qualified to do business and is in good
standing in each jurisdiction in which the failure to be so qualified and in
good standing would have a Material Adverse Effect (as defined in Section 8.10)
on Company. Company has made available to Parent a true and correct copy of the
certificate or articles of incorporation, as amended, and bylaws, as amended,
and any other charter or organizational documents, each as amended, of Company
and each of its Subsidiaries. Neither Company nor any of its Subsidiaries is in
violation of any of the provisions of its certificate or articles of
incorporation or bylaws or other charter or organizational documents, each as
amended. All of the outstanding shares of capital stock and voting securities of
each of Company's Subsidiaries owned, directly or indirectly, by Company are
duly authorized, validly issued, fully paid and nonassessable, and those shares
of capital stock and voting securities of each of Company's Subsidiaries owned
by Company, directly or indirectly, are free and clear of all liens, charges,
claims or encumbrances or rights of others. Except as disclosed in the Company
SEC Documents (as defined below), there are no outstanding subscriptions,
options, warrants, puts, calls, rights, exchangeable or convertible securities
or other commitments or agreements of any character relating to the issued or
unissued capital stock or other securities of any such Subsidiary, or otherwise
obligating Company or any such Subsidiary to issue, transfer, sell, purchase,
redeem or otherwise acquire any such securities. TeleBank is a federal savings
association existing under the laws of the United States. The deposit accounts
in TeleBank are insured by the Federal Deposit Insurance Corporation (the
"FDIC") through the Savings Association Insurance Fund to the fullest extent
permitted by law, and all premiums and assessments required in connection
therewith have been paid by TeleBank.
2.2 Capital Structure. The authorized capital stock of Company
consists of 135,000,000 shares of Company Common Stock, and 500,000 shares of
Preferred Stock, par value $.01 per share ("Preferred Stock"), of which there
were issued and outstanding as of the close of business on May 28, 1999,
16,857,835 shares of Company Common Stock and no shares of Preferred Stock.
There are no other outstanding shares of capital stock or voting securities and
no outstanding commitments to issue any shares of capital stock or voting
securities after May 28, 1999 other than pursuant to the exercise of Company
Options outstanding as of such date. All outstanding shares of Company Common
Stock are duly authorized, validly issued, fully paid and non-assessable and are
free and clear of any liens or
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encumbrances other than any liens or encumbrances created by or imposed upon the
holders thereof, and are not subject to preemptive rights or rights of first
refusal created by the Amended and Restated Certificate of Incorporation or
Bylaws, each as amended, of Company or any agreement to which Company is a party
or by which it is bound. As of the close of business on May 28, 1999, Company
has reserved an aggregate of 4,773,019 shares of Common Stock for issuance to
employees, consultants and directors pursuant to the Company Stock Option Plans
and the Company Options, of which 218,092 shares have been issued pursuant to
option exercises or direct stock purchases or awards, 2,570,680 shares are
subject to outstanding, unexercised options, and no shares are subject to
outstanding stock purchase rights. Since May 28, 1999, Company has not issued or
granted additional options under the Company Stock Option Plans or otherwise.
Company has not issued or granted any stock appreciation rights or performance
units payable in stock of the Company that are currently outstanding. Except for
(i) the rights created pursuant to this Agreement, the Company Stock Option
Plans, the Company Options and the Option Agreement and (ii) Company's right to
repurchase any unvested shares under the Company Stock Option Plans, the Company
Options or the Company Employee Stock Ownership Plan, there are no other
options, warrants, calls, rights, commitments or agreements of any character to
which Company is a party or by which it is bound obligating Company to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of capital stock of Company or obligating
Company to grant, extend, accelerate the vesting of, change the price of, or
otherwise amend or enter into any such option, warrant, call, right, commitment
or agreement. Except for this Agreement and as provided by Section 5.11, there
are no contracts, commitments or agreements relating to voting, purchase or sale
of Company's capital stock between or among Company and any of its stockholders.
The terms of the Company Stock Option Plans permit the assumption of options to
purchase Company Common Stock as provided in this Agreement, without the consent
or approval of the holders of such securities or the Company stockholders. True
and complete copies of all material agreements and instruments, that are
currently in force or under which Company has any liability, relating to or
issued under the Company Stock Option Plans, the Company Options and the Company
Employee Stock Ownership Plan have been provided to Parent and such agreements
and instruments have not been amended, modified or supplemented, and there are
no agreements to amend, modify or supplement such agreements or instruments in
any case from the form provided to Parent. All outstanding shares of Company
Common Stock and all Company Options were issued in compliance with all
applicable federal and state securities laws.
2.3 Authority. Assuming the filings and approvals described in
clauses (i) through (iv) of the last sentence of this Section are made or
obtained (as the case may be) and the condition set forth in Section 6.1(a) is
satisfied, Company has all requisite corporate power and authority to enter into
this Agreement and the Option Agreement and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Option Agreement and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of Company, subject only, as of the date of this Agreement, to the
approval of the Merger by Company's stockholders as contemplated by Section
6.1(a). Each of this Agreement and the Option Agreement has been duly executed
and delivered by Company and constitutes the valid and binding obligation of
Company, enforceable against Company in accordance with its terms, except as
such enforcement may be limited by (i) the effect of bankruptcy, insolvency,
reorganization, receivership, conservatorship, arrangement, moratorium or other
laws affecting
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or relating to the rights of creditors generally, or (ii) the rules governing
the availability of specific performance, injunctive relief or other equitable
remedies and general principles of equity, regardless of whether considered in a
proceeding in equity or at law. Assuming the filings and approvals described in
clauses (i) through (iv) of the last sentence of this Section are made or
obtained (as the case may be) and the condition set forth in Section 6.1(a) is
satisfied, the execution and delivery of this Agreement and the Option Agreement
by Company does not, and the consummation of the transactions contemplated
hereby and thereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation or acceleration of any obligation or
loss of any benefit under, (i) any provision of the certificate or articles of
incorporation, bylaws, or other charter or organizational documents, each as
amended, of Company or any of its Subsidiaries or (ii) any material mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Company or any of its Subsidiaries or any of their
properties or assets, except for any conflicts, violations, defaults or other
occurrences that would not (A) individually or in the aggregate have a Material
Adverse Effect on Company or any of its Subsidiaries or (B) prevent or
materially impair or delay the consummation of the Merger. No consent, approval,
order or authorization of, or registration, declaration or filing with, any
court, administrative agency or commission, self-regulatory organization ("SRO")
or other foreign or domestic governmental or quasi-governmental authority or
instrumentality (each of the foregoing, a "Governmental Entity") is required by
or with respect to Company or any of its Subsidiaries in connection with the
execution and delivery of this Agreement or the Option Agreement, the
performance of Company's obligations hereunder or thereunder or the consummation
of the transactions contemplated hereby or thereby, except for (i) the filing of
the Certificate of Merger as provided in Section 1.2, (ii) the filing of
applications and notices with and the receipt of requisite approvals from the
Office of Thrift Supervision (the "OTS") with respect to the Merger, (iii) the
filing with, and clearance by, the SEC of the Proxy Statement (as defined in
Section 5.1) relating to the Company Stockholders Meeting (as defined in Section
5.1), (iv) such notices, applications, consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal or state securities laws or the securities laws of any
foreign country in connection with the Merger; and (v) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not have a Material Adverse Effect on Company and would not prevent,
or materially alter or delay, any of the transactions contemplated by this
Agreement or the Option Agreement. Company is not aware of any reason why the
approvals of all Governmental Entities necessary to permit consummation of the
Merger or the other transactions contemplated by this Agreement will not be
received without the imposition of a condition or requirement described in
Section 6.3(c).
2.4 SEC Documents; Financial Statements. Company has furnished or made
-----------------------------------
available (including via EDGAR) to Parent a true and complete copy of each
statement, report, registration statement (with the prospectus in the form filed
pursuant to Rule 424(b) of the Securities Act of 1933, as amended (the
"Securities Act")), definitive proxy statement and other filings (including
exhibits, supplements and schedules thereto) filed with the SEC by Company since
January 1, 1997, and, prior to the Effective Time, Company will have furnished
or made available (including via EDGAR) to Parent true and complete copies of
any additional documents filed with the SEC by Company prior to the Effective
Time (collectively, the
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"Company SEC Documents"). As of their respective filing dates, the Company SEC
Documents complied in all material respects with the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Securities Act, and none of the Company SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except to the extent
corrected by a subsequently filed Company SEC Document. The financial statements
of Company, including the notes thereto, included in the Company SEC Documents
(the "Company Financial Statements") were complete and correct in all material
respects as of their respective dates (except to the extent corrected by a
subsequently filed Company SEC Document), complied as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto as of their respective dates,
and have been prepared in accordance with generally accepted accounting
principles applied on a basis consistent throughout the periods indicated
(except as may be indicated in the notes thereto or, in the case of unaudited
statements included in Quarterly Reports on Form 10-Q, as permitted by Form 10-Q
of the SEC). The Company Financial Statements fairly present the consolidated
financial condition and operating results of Company and its Subsidiaries at the
dates and during the periods indicated therein (subject, in the case of
unaudited statements, to normal and recurring year-end adjustments).
2.5 Absence of Certain Changes. Since December 31, 1998 (the "Company
--------------------------
Balance Sheet Date"), except as set forth in any Company SEC Document (but only
to the extent set forth therein), Company has conducted its business in the
ordinary course consistent with past practice and there has not occurred: (i)
any change, event or condition (whether or not covered by insurance) that has
resulted in, or might reasonably be expected to result in, a Material Adverse
Effect on Company; (ii) any acquisition, sale or transfer of any material asset
of Company or any of its Subsidiaries other than in the ordinary course of
business and consistent with past practice; (iii) any material change in
accounting methods or practices (including any change in depreciation or
amortization policies or rates) by Company or any revaluation by Company of any
of its or any of its Subsidiaries' assets, except as set forth in any Company
SEC Document (but only to the extent set forth therein); (iv) any declaration,
setting aside, or payment of a dividend or other distribution with respect to
the shares of Company, or any direct or indirect redemption, purchase or other
acquisition by Company of any of its shares of capital stock; (v) any material
contract entered into by Company or any of its Subsidiaries, other than in the
ordinary course of business and as made available to Parent, or any material
amendment or termination of, or default under, any material contract to which
Company or any of its Subsidiaries is a party or by which it is bound; (vi) any
amendment or change to the Certificate of Incorporation or Bylaws of Company;
(vii) any material increase in or modification of the compensation or benefits
payable or to become payable by Company or any of its Subsidiaries to any of
their respective directors, officers or employees, other than (in the case of
non-executive officer employees) in the ordinary course of business consistent
with past practice; (viii) any material change in the interest rate risk
management and hedging policies, procedures or practices of Company or any of
its Subsidiaries, or any failure to comply with such policies, procedures and
practices; or (ix) any negotiation or agreement by Company or any of its
Subsidiaries to do any of the things described in the preceding clauses (i)
through (vii) (other than negotiations with Parent and its representatives
regarding the transactions contemplated by this Agreement).
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2.6 Absence of Undisclosed Liabilities. None of Company or any of its
Subsidiaries has any material obligations or liabilities of any nature (matured
or unmatured, fixed or contingent) other than (i) those set forth or adequately
provided for in the consolidated balance sheet (and the related notes thereto)
of Company and its Subsidiaries included in Company's Annual Report on Form 10-
K/A for the fiscal year ended December 31, 1998 (the "Company Balance Sheet"),
(ii) those incurred in the ordinary course of business consistent with past
practice since the Company Balance Sheet Date and which have not had and are not
reasonably likely to have a Material Adverse Effect on Company, and (iii) those
incurred in connection with the execution of this Agreement.
2.7 Litigation. There is no private or governmental action, suit,
----------
proceeding, claim, arbitration, inquiry, examination, inspection or, to the
knowledge of Company or any of its Subsidiaries, investigation pending by or
before any Governmental Entity, agency, court or tribunal, foreign or domestic
or, to the knowledge of Company or any of its Subsidiaries, threatened against
Company or any of its Subsidiaries or any of their respective properties or any
of their respective officers or directors (in their capacities as such) that,
individually or in the aggregate, could reasonably be expected to prevent,
enjoin, alter or materially delay any of the transactions contemplated hereby or
could reasonably be expected to have a Material Adverse Effect on Company. There
is no judgment, decree or order against Company or any of its Subsidiaries, or,
to the knowledge of Company and its Subsidiaries, any of their respective
directors or officers (in their capacities as such), that, individually or in
the aggregate, could reasonably be expected to prevent, enjoin, alter or
materially delay any of the transactions contemplated by this Agreement or could
reasonably be expected to have a Material Adverse Effect on Company.
2.8 Restrictions on Business Activities. There is no agreement,
-----------------------------------
judgment, injunction, order or decree binding upon Company or any of its
Subsidiaries which has or could reasonably be expected to have the effect of
prohibiting or materially impairing any current or currently proposed business
practice of Company or any of its Subsidiaries, any acquisition of property by
Company or any of its Subsidiaries or the conduct of business by Company or any
of its Subsidiaries as currently conducted or as described in any Company SEC
Document as proposed to be conducted by Company or any of its Subsidiaries.
2.9 Compliance With Laws. Each of Company and its Subsidiaries has
--------------------
complied in all material respects with all applicable federal, state, local,
self-regulatory and foreign laws, statutes, ordinances, rules and regulations,
and is not in violation in any material respect of, and has not received any
notices of material violation with respect to, its respective certificate or
articles of incorporation or bylaws or other charter or organizational
documents, or any federal, state, local, self-regulatory or foreign statute,
law, ordinance, rule or regulation applicable to the conduct of its business or
the ownership or operation of its business.
2.10 Title to Property. Company and its Subsidiaries have good, valid
-----------------
and marketable title to all of their respective properties, interests in
properties and assets, real and personal, reflected in the Company Balance Sheet
or acquired after the Company Balance Sheet Date (except properties, interests
in properties and assets sold or otherwise disposed of since the Company Balance
Sheet Date in the ordinary course of business and except for any real property
that Company or any of its Subsidiaries has acquired in the ordinary course of
business by
11
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foreclosure or by deed in lieu thereof), or in the case of leased properties and
assets, valid leasehold interests in the leased properties and assets, free and
clear of all mortgages, liens, pledges, charges or encumbrances of any kind or
character, except (i) the lien of current taxes not yet due and payable, (ii)
recorded easements, covenants, conditions and other restrictions of record as do
not and will not materially detract from or interfere with the use of the
properties subject thereto or affected thereby, or otherwise materially impair
business operations involving such properties and (iii) liens securing debt
which is reflected on the Company Balance Sheet. There are no defaults (or
events that, with notice or lapse of time or both, would constitute defaults) by
Company or its Subsidiaries with respect to the liens securing debt which is
reflected on the Company Balance Sheet. With respect to any properties or assets
leased by Company or any of its Subsidiaries, there are no defaults (or events
that, with notice or lapse of time or both, would constitute defaults) by
Company or its Subsidiaries, or to the knowledge of Company, any other party to
the leases of such properties or assets. There are no outstanding options,
rights of first refusal or similar rights to purchase the properties and/or
assets owned by Company or any of its Subsidiaries. All properties used in the
operations of Company and its Subsidiaries are reflected in the Company Balance
Sheet to the extent generally accepted accounting principles require the same to
be reflected. Schedule 2.10 identifies each parcel of real property owned or
-------------
leased by Company or any of its Subsidiaries.
2.11 Intellectual Property.
---------------------
(a) Company and its Subsidiaries own, or are licensed or otherwise
possess legally enforceable and unencumbered rights to use all patents,
trademarks, trade names, service marks, domain names, database rights,
copyrights, and any applications therefor, maskworks, net lists, technology,
know-how, trade secrets, inventory, ideas, algorithms, processes, computer
software programs or applications (in both source code and object code form),
and tangible or intangible proprietary information or material ("Intellectual
Property") that are used or currently proposed to be used by Company and its
Subsidiaries in their respective businesses as currently conducted or as
currently proposed to be conducted by Company and its Subsidiaries. Company has
not (i) licensed any of its Intellectual Property in source code form to any
party or (ii) entered into any exclusive agreements relating to its Intellectual
Property.
(b) Schedule 2.11 lists (i) all patents and patent applications and
-------------
all registered and unregistered trademarks, trade names and service marks,
registered and unregistered copyrights, and maskworks included in the
Intellectual Property, including the jurisdictions in which each such
Intellectual Property right has been issued or registered or in which any
application for such issuance and registration has been filed, (ii) all material
licenses, sublicenses and other agreements as to which Company is a party and
pursuant to which any person is authorized to use any Intellectual Property
(excluding commercially available, off-the-shelf software), and (iii) all
material licenses, sublicenses and other agreements as to which Company is a
party and pursuant to which Company is authorized to use any third-party
patents, trademarks or copyrights, including software ("Third Party Intellectual
Property Rights"), which are incorporated in, are, or form a part of any Company
product or service (excluding commercially available, off-the-shelf software).
No royalties or other continuing payment obligations are due in respect of Third
Party Intellectual Property Rights.
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(c) To the knowledge of Company, there is no unauthorized use,
disclosure, infringement or misappropriation of any material Intellectual
Property rights of Company or any of its Subsidiaries, or any Intellectual
Property right of any third party to the extent licensed by or through Company
or any of its Subsidiaries, by any third party, including any employee or former
employee of Company or any of its Subsidiaries. Neither Company nor any of its
Subsidiaries has entered into any agreement to indemnify any other person
against any charge of infringement of any Intellectual Property .
(d) None of Company or its Subsidiaries is, nor will any of them be
as a result of the execution and delivery of this Agreement or the performance
of its obligations under this Agreement, in material breach of any license,
sublicense or other agreement relating to any Intellectual Property or Third
Party Intellectual Property Rights.
(e) All patents, registered trademarks, service marks and
copyrights held by Company and its Subsidiaries are valid and subsisting.
Neither Company nor any of its Subsidiaries (i) has been sued in any suit,
action or proceeding which involves a claim of infringement of any patents,
trademarks, service marks, copyrights or violation of any trade secret or other
proprietary right of any third party or (ii) has brought any action, suit or
proceeding for infringement of Intellectual Property or breach of any license or
agreement involving Intellectual Property against any third party. The
marketing, licensing or sale of the products or services of Company and its
Subsidiaries does not infringe any patent, trademark, service mark, copyright,
trade secret or other proprietary right of any third party.
(f) Company has secured valid written assignments from all
consultants and employees who contributed to the creation or development of
Intellectual Property of the rights to such contributions that Company does not
already own by operation of law.
(g) Company has taken reasonable steps consistent with prevailing
industry practice to protect and preserve the confidentiality of all
Intellectual Property not otherwise protected by patents, patent applications or
copyright ("Confidential Information"). All use, disclosure or appropriation of
Confidential Information owned by Company or any of its Subsidiaries by or to a
third party has been pursuant to the terms of a written agreement between
Company and such third party. All use, disclosure or appropriation by Company
and its Subsidiaries of Confidential Information not owned by Company or any
such Subsidiary has been pursuant to the terms of a written agreement between
Company and the owner of such Confidential Information, or is otherwise lawful.
2.12 Environmental Matters.
---------------------
(a) The following terms shall be defined as follows:
(i) "Environmental and Safety Laws" shall mean any federal,
state or local laws, ordinances, codes, regulations, rules, policies and orders
that are intended to assure the protection of the environment, or that classify,
regulate, call for the remediation of, require reporting with respect to, or
list or define air, water, groundwater, solid waste, hazardous or toxic
13
<PAGE>
substances, materials, wastes, pollutants or contaminants, or which are intended
to assure the safety of employees, workers or other persons, including the
public.
(ii) "Hazardous Materials" shall mean any toxic or hazardous
substance, material or waste or any pollutant or contaminant, or infectious or
radioactive substance or material, including without limitation, those
substances, materials and wastes defined in or regulated under any Environmental
and Safety Laws .
(iii) "Property" shall mean all real property leased or owned by
Company or its Subsidiaries either currently or in the past.
(iv) "Facilities" shall mean all buildings and improvements on
the Property of Company or its Subsidiaries.
(b) Company represents and warrants as follows, in each case
(except clauses (iii) and (iv) below) to its knowledge or the knowledge of any
of its Subsidiaries: (i) no methylene chloride or asbestos is contained in or
has been used at or released from the Facilities; (ii) all Hazardous Materials
have been disposed of in accordance with all Environmental and Safety Laws;
(iii) Company and its Subsidiaries have received no notice (verbal or written)
of any noncompliance of the Facilities or its past or present operations with
Environmental and Safety Laws; (iv) no notices, administrative actions or suits
are pending or, to the knowledge of Company or any of its Subsidiaries,
threatened relating to a violation of any Environmental and Safety Laws; (v)
neither Company nor any of its Subsidiaries is liable as a responsible party
under the federal Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA), or state analog statute, arising out of events occurring
prior to the Effective Time; (vi) there have not been in the past, and are not
now, any Hazardous Materials on, under or migrating to or from the Facilities or
any Property; (vii) there have not been in the past, and are not now, any
underground tanks or underground improvements at, on or under any Property
including without limitation, treatment or storage tanks, sumps, or water, gas
or oil wells; (viii) there are no polychlorinated biphenyls (PCBs) deposited,
stored, disposed of or located on the Property or Facilities or any equipment on
the Property containing PCBs at levels in excess of 50 parts per million; (ix)
there is no formaldehyde on the Property or in the Facilities, nor any
insulating material containing urea formaldehyde in the Facilities; (x) the
Facilities and Company's and its Subsidiaries' uses and activities therein have
at all times complied with all Environmental and Safety Laws; and (xi) Company
and its Subsidiaries have all the permits and licenses required to be issued
under Environmental and Safety Laws and are in full compliance with the terms
and conditions of those permits.
2.13 Taxes. Company and each of its Subsidiaries, and any
-----
consolidated, combined, unitary or aggregate group for Tax (as defined below)
purposes of which Company or any of its Subsidiaries is or has been a member
have properly completed and timely filed all Tax Returns (as defined below)
required to be filed by them and have paid all Taxes shown thereon to be due,
other than any Taxes for which adequate reserves under generally accepted
accounting principles have been recorded in the Financial Statements. Company
has provided adequate accruals in accordance with generally accepted accounting
principles in its financial statements for any Taxes that have not been paid,
whether or not shown as being due on any Tax Returns. Company has no material
liability for unpaid Taxes accruing after the date of its latest Financial
14
<PAGE>
Statements other than Taxes arising in the ordinary course of its business.
Except as disclosed in the SEC Documents, there is (i) no material claim for
Taxes that is a lien against the property of Company or any of its Subsidiaries
or is being asserted against Company or any of its Subsidiaries other than liens
for Taxes not yet due and payable, (ii) Company has not been notified and has no
other knowledge that any audit of any Tax Return of Company or any of its
Subsidiaries is being conducted by a Tax authority, (iii) no extension of the
statute of limitations on the assessment of any Taxes granted by Company or any
of its Subsidiaries and currently in effect, and (iv) there is no agreement,
contract or arrangement to which Company or any of its Subsidiaries is a party
that may result in the payment of any amount that would not be deductible by
reason of Sections 280G or 404 of the Code. Company has not been and will not be
required to include any material adjustment in Taxable income for any Tax period
(or portion thereof) pursuant to Section 481 or 263A of the Code or any
comparable provision under state or foreign Tax la ws as a result of
transactions, events or accounting methods employed prior to the Merger (based
on facts known as of the date of this Agreement). Neither Company nor any of its
Subsidiaries has filed or will file any consent to have the provisions of
paragraph 341(f)(2) of the Code (or comparable provisions of any state Tax laws)
apply to Company or any of its Subsidiaries. Neither Company nor any of its
Subsidiaries is a party to any currently effective Tax sharing or Tax allocation
agreement. Neither Company nor any of its Subsidiaries owes any amount under any
Tax sharing or Tax allocation agreement. Neither Company nor any of its
Subsidiaries has filed any disclosures under Section 6662 or comparable
provisions of state, local or foreign law to prevent the imposition of penalties
with respect to any Tax reporting position taken on any Tax Return. Neither
Company nor any of its Subsidiaries has within the last six (6) years been a
member of a consolidated, combined or unitary group of which Company was not the
ultimate parent corporation. Company and each of its Subsidiaries have in their
possession receipts for any Taxes paid to foreign Tax authorities. For purposes
of this Agreement, the following terms have the following meanings: "Tax" (and,
with correlative meaning, "Taxes" and "Taxable") means (i) any net income,
alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or other like assessment or charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount imposed by any
Governmental Entity (a "Tax authority") responsible for the imposition of any
such tax (domestic or foreign), (ii) any liability for the payment of any
amounts of the type described in (i) as a result of being a member of an
affiliated, consolidated, combined or unitary group for any Taxable period and
(iii) any liability for the payment of any amounts of the type described in (i)
or (ii) as a result of any express or implied obligation to indemnify any other
person. As used herein, "Tax Return" shall mean any return, statement, report or
form (including, without limitation, estimated Tax returns and reports,
withholding Tax returns and reports and information reports and returns)
required to be filed with respect to Taxes.
2.14 Employee Benefit Plans.
-----------------------
(a) Schedule 2.14 lists, with respect to Company, any Subsidiary of
-------------
Company and any trade or business (whether or not incorporated) which is treated
as a single employer with Company (an "ERISA Affiliate") within the meaning of
Section 414(b), (c), (m) or (o) of the Code, (i) all material employee benefit
plans (as defined in Section 3(3) of the
15
<PAGE>
Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
maintained by Company or any ERISA Affiliate, (ii) any other material
supplemental retirement, severance, sabbatical, employee relocation, cafeteria
benefit (Code Section 125) or dependent care (Code Section 129), life insurance
or accident insurance plans, programs or arrangements maintained by Company or
any ERISA Affiliate, (iii) all other material bonus, pension, profit sharing,
savings, deferred compensation or incentive plans, programs or arrangements
maintained by Company or any ERISA Affiliate, (iv) other material fringe or
employee benefit plans, programs or arrangements maintained by Company or any
ERISA Affiliate that apply to senior management of Company and that do not
generally apply to all employees, and (v) any current or former employment or
executive compensation or severance agreements, written or otherwise, maintained
by Company or any ERISA Affiliate as to which unsatisfied obligations of Company
of greater than fifty thousand dollars ($50,000) remain for the benefit of, or
relating to, any present or former employee, consultant or director of Company
(together, the "Company Employee Plans").
(b) Company has made available to Parent a copy of each of the
Company Employee Plans and related plan documents (including trust documents,
insurance policies or contracts, employee booklets, summary plan descriptions
and other authorizing documents, and any material employee communications
relating thereto, if applicable) and has, with respect to each Company Employee
Plan which is subject to ERISA reporting requirements, provided copies of the
Form 5500 reports filed for the last three plan years. Any Company Employee Plan
intended to be qualified under Section 401(a) of the Code has either obtained
from the Internal Revenue Service a favorable determination letter as to its
qualified status under the Code, including all amendments to the Code effected
by the Tax Reform Act of 1986 and subsequent legislation, or has applied to the
Internal Revenue Service for such a determination letter prior to the expiration
of the requisite period under applicable Treasury Regulations or Internal
Revenue Service pronouncements in which to apply for such determination letter
and to make any amendments necessary to obtain a favorable determination.
Company has also furnished Parent with a copy of the most recent Internal
Revenue Service determination letter issued with respect to each such Company
Employee Plan, and nothing has occurred since the issuance of each such letter
which could reasonably be expected to cause the loss of the tax-qualified status
of any Company Employee Plan subject to Code Section 401(a). Company has also
furnished or made available to Parent copies of all registration statements and
prospectuses filed with the SEC, OTS or other governmental authority or
distributed to employees or their beneficiaries in connection with each Company
Employee Plan.
(c) (i) Except as required by law, none of the Company Employee
Plans promises or provides retiree medical or other retiree welfare benefits to
any person, other than a benefit that could be terminated without further
liability; (ii) there has been no "prohibited transaction," as such term is
defined in Section 406 of ERISA and Section 4975 of the Code, with respect to
any Company Employee Plan, which could reasonably be expected to have, in the
aggregate, a Material Adverse Effect; (iii) each Company Employee Plan has been
administered in accordance with its terms and in compliance with the
requirements prescribed by any and all statutes, rules and regulations
(including ERISA and the Code), except as would not have, in the aggregate, a
Material Adverse Effect, and Company and each Subsidiary or ERISA Affiliate have
performed all obligations required to be performed by them under, and are not in
any material respect in default under or violation of, any of the Company
Employee Plans; (iv)
16
<PAGE>
neither Company nor any ERISA Affiliate is subject to any material liability or
penalty under Sections 4976 through 4980 of the Code or Title I of ERISA with
respect to any of the Company Employee Plans; (v) all material contributions
required to be made by Company or any Subsidiary or ERISA Affiliate to any
Company Employee Plan have been made on or before their due dates and the
amounts accrued in the Company Financial Statements for contributions to each
Company Employee Plan for the current plan years have been determined in
accordance with generally accepted accounting principles consistently applied;
(vi) with respect to each Company Employee Plan, no "reportable event" within
the meaning of Section 4043 of ERISA (excluding any such event for which the
thirty (30) day notice requirement has been waived under the regulations to
Section 4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 of
ERISA has occurred; and (vii) each Company Employee Plan can be amended,
terminated or otherwise discontinued after the Effective Time in accordance with
its terms, without liability to Parent or Company in excess of the amount
accrued with respect to such plan on the Company Financial Statements (other
than ordinary administrative expenses typically incurred in a termination
event). With respect to each Company Employee Plan subject to ERISA as either an
employee pension plan within the meaning of Section 3(2) of ERISA or an employee
welfare benefit plan within the meaning of Section 3(1) of ERISA, Company has
prepared in good faith and timely filed all requisite governmental reports
(which were true and correct in all material respects as of the date filed) and
has properly and timely filed and distributed or posted all material notices and
reports to employees required to be filed, distributed or posted with respect to
each such Company Employee Plan. No suit, administrative proceeding, action or
other litigation has been brought, or to the best knowledge of Company is
threatened, against or with respect to any such Company Employee Plan, including
any audit or examination by the IRS or United States Department of Labor. No
payment or benefit which will or may be made by Company to any employee will be
characterized as an "excess parachute payment" within the meaning of Section
280G(b)(1) of the Code. Neither Company nor any ERISA Affiliate is a party to,
or has ever been a party to, or has made any contribution to or otherwise
incurred any obligation under, any "multiemployer plan" as defined in Section
3(37) of ERISA. Neither Company nor any Company Subsidiary or ERISA Affiliate
currently maintains, sponsors, participates in or contributes to, nor has it
within the last seven (7) years maintained, established, sponsored, participated
in, or contributed to, any pension plan (within the meaning of Section 3(2) of
ERISA) which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of
ERISA or Section 412 of the Code.
(d) With respect to each Company Employee Plan, Company and each of
its United States Subsidiaries have complied (except to the extent that any such
failure to comply would not, in the aggregate, have a Material Adverse Effect on
Company or any of its Subsidiaries) with (i) the applicable health care
continuation and notice provisions of Section 602 of ERISA and Section 4980B of
the Code ("COBRA") and the regulations thereunder, (ii) the applicable
requirements of the Family Medical and Leave Act of 1993 and the regulations
thereunder, and (iii) the applicable requirements of the Health Insurance
Portability and Accountability Act of 1996.
(e) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or other service
provider of Company, any Company Subsidiary or any other ERISA Affiliate to
severance benefits or any other payment, except as expressly provided in this
Agreement, or (ii) accelerate the time of
17
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payment or vesting, or increase the amount of compensation due any such employee
or service provider.
(f) There has been no amendment to, or written interpretation or
announcement (whether or not written) by Company or any ERISA Affiliate relating
to, or change in participation or coverage under, any Company Employee Plan
which would materially increase the expense of maintaining such Plan above the
level of expense incurred with respect to that Plan for the most recent fiscal
year included in Company's financial statements.
(g) No employee of Company or any of its Subsidiaries has elected
to defer (i) the receipt of any cash payable to such employee or (ii) the
issuance of any securities of Company to such employee, in either case under the
Company Stock Option Plans or the Company Options.
2.15 Employee Matters.
----------------
(a) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby or thereby will (i) result
in any payment (including, without limitation, severance, unemployment
compensation, golden parachute, bonus or otherwise) becoming due to any director
or employee of Company or any of its Subsidiaries, (ii) materially increase any
benefits otherwise payable by Company or (iii) result in the acceleration of the
time of payment or vesting of any such benefits.
(b) Company and each of its Subsidiaries are in compliance in all
material respects with all currently applicable laws and regulations respecting
employment, discrimination in employment, terms and conditions of employment,
wages, hours and occupational safety and health and employment practices, and is
not engaged in any unfair labor practice. Company and each of its Subsidiaries
has withheld all material amounts required by law or by agreement to be withheld
from the wages, salaries, and other payments to employees, and is not liable for
any material arrears of wages or any material taxes or any material penalty for
failure to comply with any of the foregoing. Company is not liable for any
material payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for employees (other than
routine payments to be made in the normal course of business and consistent with
past practice). To the knowledge of Company and its Subsidiaries, there are no
pending claims against Company or any of its Subsidiaries under any workers
compensation plan or policy or for long term disability other than routine
claims for benefits. There are no controversies pending or, to the knowledge of
Company or any of its Subsidiaries, threatened between Company or any of its
Subsidiaries, on the one hand, and any of their respective employees, on the
other hand, which controversies have or could reasonably be expected to result
in an action, suit, proceeding, claim, arbitration or investigation before any
agency, court or tribunal, foreign or domestic. Neither Company nor any of its
Subsidiaries is a party to any collective bargaining agreement or other labor
union contract; nor does Company know of any activities or proceedings of any
labor union to organize any such employees. To the best of Company's knowledge,
no employees of Company are in violation in any material respect of any term of
any employment contract, patent disclosure agreement, noncompetition agreement,
or any restrictive covenant to a former employer relating to the right of any
such employee to be
18
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employed by Company because of the nature of the business conduced or presently
proposed to be conducted by Company or to the use of trade secrets or
proprietary information of others. Except as disclosed in the Company SEC
Documents filed prior to the date of this Agreement, Company does not have any
employment agreement with any of its officers or other employees. As of the date
hereof, no employees (other than clerical or solely administrative employees) of
Company have given notice to Company, nor is Company otherwise aware, that any
such employee intends to terminate his or her employment with Company.
(c) All employees of Company or any of its Subsidiaries engaged in
the business of, acting as, or performing the duties of a registered
representative, registered principal or similar registered personnel or agent
(under the definition of such terms in the rules of the National Association of
Securities Dealers, Inc. (the "NASD")), any other SRO or any state which has
jurisdiction over Company or any of its Subsidiaries (if applicable) are
properly registered to act in the capacity of a registered representative,
registered principal or similar registered personnel or agent under the rules of
the NASD, any other SRO or any state which has jurisdiction over Company or any
of its Subsidiaries (if applicable).
2.16 Interested Party Transactions. Except as disclosed in the Company
-----------------------------
SEC Documents filed prior to the date of this Agreement, there have been no
transactions of the type required to be disclosed pursuant to Items 402 and 404
of Regulation S-K under the Securities Act and the Exchange Act.
2.17 Insurance. Company and each of its Subsidiaries have policies of
---------
insurance and bonds of the type and in amounts customarily carried by persons
conducting businesses or owning assets similar to those of Company and its
Subsidiaries. There is no material claim pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and Company and its Subsidiaries are
otherwise in compliance in all material respects with the terms of such policies
and bonds. Company has no knowledge of any threatened termination of, or
material premium increase with respect to, any of such policies.
2.18 Regulatory Matters.
------------------
(a) Company and each of its Subsidiaries have obtained all
authorizations, consents, licenses, permits (temporary or otherwise), orders,
approvals, waivers, franchises and other rights ("Governmental Permits") of
Governmental Entities (i) pursuant to which Company or any of its Subsidiaries
currently operates or holds any interest in any of its properties or (ii) that
is required for the operation of Company's or any of its Subsidiaries' business
or the holding of any such interest, and all of such Governmental Permits are in
full force and effect, except where the failure to obtain or have any such
Governmental Permits could not reasonably be expected to have a Material Adverse
Effect on Company. There are no circumstances of which Company is aware which
indicate that any such Governmental Permits may be revoked or not renewed or
withdrawn or amended, in whole or in part (except in each case to an immaterial
or beneficial extent). Schedule 2.18(a) sets forth a true and complete list of
----------------
all Governmental Permits held by Company or any of its Subsidiaries.
19
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(b) Company and its Subsidiaries have complied, and are in
compliance, in all material respects with all applicable federal, state, local
and self-regulatory laws, statutes, licensing requirements, rules, and
regulations. Each of Company and its Subsidiaries has, and is in compliance in
all material respects with, all Governmental Permits necessary to conduct their
businesses, including, but not limited to, Governmental Permits of the OTS, the
FDIC, the SEC, the NASD, the NASD Regulation, Inc., the Nasdaq Stock Market, or
any state or foreign securities or prosecutorial authority. Neither Company nor
any of its Subsidiaries has received any notice from any Governmental Entity (i)
asserting that Company or any of its Subsidiaries is not in compliance with any
of the statutes, regulations, or ordinances that such Governmental Entity
enforces or (ii) restricting or disqualifying their activities (except for
restrictions generally imposed by law, rule, regulation or administrative policy
on banking organizations generally). After giving effect to the Merger, all
Governmental Permits of the Surviving Corporation and its Subsidiaries shall
continue to be valid and in full force and effect to the same extent as they
presently are for Company and its Subsidiaries, except for any conditions or
restrictions imposed on Parent, Company or a Subsidiary in approvals issued by a
Governmental Entity in connection with the Merger. There is no order issued,
investigation or proceeding pending or (to Company's knowledge) threatened, or
notice served, with respect to any violation of any law, statute, ordinance,
order, writ, decree, rule, or regulation issued by any Governmental Entity
applicable to either Company or any of its Subsidiaries or any of their
respective directors, officers or employees.
(c) Neither Company nor any of its Subsidiaries is a party or
subject to, any agreement, consent decree or order, or other understanding or
arrangement with, or any directive of any Governmental Entity which imposes any
material restrictions on, or otherwise affects in any material respect, the
conduct of the business of Company or any of its Subsidiaries. Schedule 2.18(c)
----------------
sets forth all compliance or enforcement proceedings or, to the knowledge of
Company, investigations or inquiries convened, and all fines, sanctions and
other measures imposed by any Governmental Entity or body against, concerning or
relating to Company, any of its Subsidiaries, or any of their current respective
directors, officers or employees.
(d) Each of Company and its Subsidiaries, to the extent required to
so register (the "Broker-Dealers"), is duly registered as a broker-dealer with
the SEC and under all applicable state, federal, foreign or related laws and, to
the extent required, is a member of the NASD and a member of SIPC. None of the
Broker-Dealers has exceeded in any material respect the business activities
enumerated in any membership agreements or other limitations imposed in
connection with its registrations, forms (including Form BDs and reports filed
with the NASD or any other Governmental Entity. The information contained in
such registrations, forms and reports was true and complete in all material
respects as of the date of the filing thereof with the SEC. Each such
registration is in full force and effect on the date hereof.
(e) Each of Company and its Subsidiaries, to the extent required to
so register (the "Advisers"), is duly registered as an investment adviser under
the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and under
all state, federal and foreign investment adviser or related laws pursuant to
which it is required to be so registered. The information contained in forms and
reports filed by any Advisors (including Form ADVs) was or will be true and
complete in all material respects as of the time of the filing thereof with the
SEC. Each such registration is in full force and effect on the date hereof.
20
<PAGE>
2.19 Material Contracts.
------------------
(a) Except for the contracts described in or filed as an exhibit to
the Company SEC Documents, neither Company nor any of its Subsidiaries is a
party to or bound by any of the following (together with the foregoing contracts
described in or filed as an exhibit to the Company SEC Documents, collectively,
the "Material Contracts"):
(i) any contract of participation with any other bank in any
loan in excess of $500,000 or any sales of assets of Company or its Subsidiaries
with recourse of any kind to Company or any of its Subsidiaries except the sale
of mortgage loans, servicing rights, repurchase or reverse repurchase
agreements, securities or other financial transactions in the ordinary course of
business;
(ii) any agreement providing for the sale or servicing of any
loan or other asset which constitutes a "recourse arrangement" with respect to
credit quality under applicable regulation or policy promulgated by a
Governmental Entity (except for agreements for the sale of guaranteed portions
of loans guaranteed in part by the U.S. Small Business Administration and
related servicing agreements);
(iii) any contract or agreement for the acquisition of the
securities or any material portion of the assets of any other person or entity
in each case outside the ordinary course of business;
(iv) any contract or agreement for the purchase of materials,
supplies, equipment or services involving in the case of any such contract or
agreement more than one million dollars ($1,000,000) over the life of the
contract;
(v) any contract, agreement or instrument that expires or
may be renewed at the option of any person other than Company or its
Subsidiaries so as to expire more than one year after the date of this Agreement
that involve payment of more than one million dollars ($1,000,000) per year;
(vi) any material trust indenture, mortgage, promissory note,
loan agreement or other contract, agreement or instrument for the borrowing
of money, any currency exchange, commodities or other hedging arrangement
(other than deposit contracts, Federal Home Loan Bank advances and other
agreements entered into in the ordinary course of Company's business) or
any leasing transaction of the type required to be capitalized in
accordance with generally accepted accounting principles;
(vii) any contract or agreement for capital expenditures in
excess of one million dollars ($1,000,000) in the aggregate;
(viii) any contract or agreement limiting the freedom of
Company or any of its Subsidiaries to engage in any line of business or to
compete with any other Person as that term is defined in the Exchange Act, or
under the constitution, laws, rules or regulations of any SRO, or any
confidentiality, secrecy or non-disclosure contract or agreement;
21
<PAGE>
(ix) any contract or agreement involving payments during any
twelve-month period of one million dollars ($1,000,000) or more, pursuant to
which Company or any of its Subsidiaries is a lessor of any machinery,
equipment, motor vehicles, office furniture, fixtures or other personal
property;
(x) any contract or agreement with any person with whom
Company or any of its Subsidiaries does not deal at arm's length within the
meaning of the Code;
(xi) any agreement of guarantee, support, indemnification,
assumption or endorsement of, or any similar commitment with respect to, the
obligations, liabilities (whether accrued, absolute, contingent or otherwise) or
indebtedness of any other Person other than those entered into in the ordinary
course of operating a banking business; or
(xii) any material agreement which would be terminable other
than by Company or its Subsidiaries as a result of the consummation of the
transactions contemplated by this Agreement.
(b) Each of Company and its Subsidiaries has performed all of the
material obligations required to be performed by it and is entitled to all
accrued benefits under, and is not alleged to be in default in respect of, each
Material Contract to which it is a party or by which it is bound. Each of the
Material Contracts is in full force and effect, unamended, and there exists no
default or event of default or event, occurrence, condition or act, with respect
to Company or any of its Subsidiaries or, to Company's knowledge, with respect
to any other contracting party, which, with the giving of notice, the lapse of
the time or the happening of any other event or condition, would become a
default or event of default under any Material Contract. True, correct and
complete copies of all Material Contracts have been made available to Parent or
filed as an exhibit to the Company SEC Documents.
2.20 Banking Business.
----------------
(a) Schedule 2.20(a) lists all exchange traded on over-the-counter
----------------
equity, interest rate, foreign exchange or other swap, forward, future, option,
cap, floor or collar or any other contract that is not included on the balance
sheet and is a derivative contract (including various combinations thereof) to
which Company or any of its Subsidiaries is a party and has agreed to enter.
Further, with respect to Company, Schedule 2.20(a) lists all securities owned by
----------------
Company and its Subsidiaries that are referred to as "structured rates," "high
risk mortgage derivatives," "capped floating rate notes," or "capped floating
rate mortgage derivatives," or similar securities. All swaps, caps, floors,
option agreements, futures and forward contracts and other similar risk
management arrangements, whether entered into for Company's own account, or for
the account of one or more of Company's Subsidiaries or their customers, were
entered into (i) in accordance with all applicable laws, rules, regulations and
regulatory policies and (ii) with counterparties believed to be financially
responsible at the time; and each of them constitutes the valid and legally
binding obligation of Company or one of its Subsidiaries, enforceable in
accordance with its terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
similar laws of general applicability relating to or affecting creditors' rights
or by general equity
22
<PAGE>
principles), and are in full force and effect. Neither Company nor any of its
Subsidiaries, nor to Company's knowledge any other party thereto, is in breach
of any of its obligations under such agreement or arrangement.
(b) Schedule 2.20(b) lists each investment security held by Company
----------------
and any of its Subsidiaries on the date indicated thereon. Such Schedule sets
forth, with respect to each such investment security: (i) the issues thereof;
(ii) the outstanding balance, face amount or number of shares; (iii) the
maturity, if applicable; (iv) the title of the issue; and (v) the classification
under SFAS No. 115.
(c) Schedule 2.20(c) sets forth as of the date indicated thereon a
----------------
true and complete description of (i) by type and classification, if any, each
loan, lease, interest in a pool of loans, other extension of credit or
commitment to extend credit by Company or any of its Subsidiaries; (ii) by type
and classification, all loans, leases, interests in pools of loans, other
extensions of credit and commitments to extend credit of Company or its
Subsidiaries that have been classified by regulators or auditors (external or
internal) as "Watch List," "Specially Mentioned," "Substandard," "Doubtful,"
"Loss" or any comparable classification; and (iii) each asset of TeleBank that
as of March 31, 1999 was classified as "Other Real Estate Owned" and the book
value thereof.
(d) TeleBank has received a rating of "Satisfactory" in its most
recent Community Reinvestment Act examination. TeleBank has not been advised of
any supervisory concerns regarding its or Company's compliance with the
Community Reinvestment Act.
2.21 Year 2000 Compliance. Company and Company's Subsidiaries have
--------------------
taken reasonable steps necessary to address the software, accounting and record-
keeping issues raised in order to be Year 2000 compliant in all material
respects (within the meaning of SEC, OTS, Federal Financial Institution's
Examination Council and SRO requirements) on or before the end of 1999, and
Company does not expect the future cost of addressing such issues to be
material. Neither Company nor any of Company's Subsidiaries has received a
rating of less than satisfactory from any bank regulatory agency with respect to
Year 2000 compliance. Company and Company's Subsidiaries are in compliance with
all guidelines provided by the OTS and the Federal Financial Institution's
Examination Council regarding Year 2000 issues.
2.22 Opinion of Financial Advisor. Company has been advised in writing
----------------------------
by its financial advisor, Goldman, Sachs & Co., that in such advisor's opinion,
as of the date hereof, the Exchange Ratio is fair, from a financial point of
view, to the stockholders of Company.
2.23 Company Affiliates. Schedule 2.23 contains a true and complete
------------------
list of all persons who, to Company's knowledge, may be deemed to be an
Affiliate (as defined below) of Company. For purposes of this Agreement, persons
and/or entities deemed affiliates of an entity within the meaning of Rule 144 of
the Rules and Regulations of the SEC promulgated under the Securities Act for
purposes of Accounting Series, Releases 130 and 135, as amended, of the SEC are
referred to as "Affiliates."
2.24 State Takeover Statutes; Charter Provisions. The Board of
-------------------------------------------
Directors of Company has taken all actions so that neither (a) the restrictions
contained in Section 203 of the
23
<PAGE>
Delaware Law applicable to a "business combination" (as defined in such Section
203) nor (b) the restrictions contained in Article 11 of Company's Amended and
Restated Certificate of Incorporation applicable to a "business combination" (as
defined in such Article 11) will apply to the execution, delivery or performance
of this Agreement, the Stockholder Agreements or the Option Agreement or the
consummation of the Merger or the other transactions contemplated by this
Agreement, the Stockholder Agreements or the Option Agreement. No other state
takeover statute is applicable to the Merger, this Agreement, the Option
Agreement, the Stockholder Agreements or the transactions contemplated hereby or
thereby.
2.25 Tax and Accounting Treatment. Neither Company nor, to Company's
----------------------------
knowledge, any of its directors or officers has taken any action that would
interfere with Parent's or the Surviving Corporation's ability to account for
the Merger as a pooling of interests or would prevent the Merger from
constituting a transaction qualifying as a reorganization within the meaning of
Section 368(a) of the Code. Neither Company nor, to Company's knowledge, any of
its directors or officers has knowledge of any agreement, plan or other
circumstance relating to Company or any of its Affiliates that would interfere
with Parent's or the Surviving Corporation's ability to account for the Merger
as a pooling of interests or prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
2.26 Brokers' and Finders' Fees. Company has not incurred, nor will it
--------------------------
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby, other
than under its engagement letter with Goldman, Sachs & Co. (a true and complete
copy of which has been furnished to Parent).
2.27 Representations Complete. None of the representations or
------------------------
warranties made by Company herein or in any schedule hereto, including the
Company Disclosure Schedule, or certificate furnished by Company pursuant to
this Agreement, or the Company SEC Documents, when all such documents are read
together in their entirety, contains or will contain at the Effective Time any
untrue statement of a material fact, or omits or will omit at the Effective Time
to state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
----------------------------------------
Except as disclosed in the document of even date herewith delivered by
Parent to Company prior to the execution and delivery of this Agreement and
referring to the representations and warranties in this Agreement (the "Parent
Disclosure Schedule"), any exception so disclosed in the Parent Disclosure
Schedule to specifically identify the Section of this Agreement to which such
exception relates, Parent represents and warrants to Company as follows:
3.1 Organization, Standing and Power. Each of Parent and Merger Sub is
--------------------------------
a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization. Parent and Merger Sub have all
requisite corporate power
24
<PAGE>
and authority to enter into this Agreement and the Option Agreement and to
consummate the transactions contemplated hereby and thereby.
3.2 Capital Structure. The authorized capital stock of Parent consists
-----------------
of 300,000,000 shares of Parent Common Stock and 1,000,000 shares of Parent's
preferred stock, par value $.01 per share ("Parent Preferred Stock"), of which
there were issued and outstanding as of the close of business on May 20, 1999,
116,741,621 shares of Parent Common Stock (before giving effect to the 2-for-1
split of Parent Common Stock which became effective on May 21, 1999) and no
shares of Parent Preferred Stock. There are no other outstanding shares of
capital stock or voting securities and no outstanding commitments to issue any
shares of capital stock or voting securities after May 20, 1999, other than
shares issued pursuant to the Parent stock split described above and other than
pursuant to the exercise of options outstanding as of such date under Parent's
1993 Stock Option Plan and 1996 Stock Incentive Plan (collectively, the "Parent
Stock Option Plans"). All outstanding shares of Parent Common Stock are duly
authorized, validly issued, fully paid and non-assessable and are free and clear
of any liens or encumbrances other than any liens or encumbrances created by or
imposed upon the holders thereof, and are not subject to preemptive rights or
rights of first refusal created by statute, the Certificate of Incorporation or
Bylaws, each as amended, of Parent or any agreement to which Parent is a party
or by which it is bound. As of the close of business on May 20, 1999, Parent had
reserved an aggregate of 17,704,144 shares of Common Stock for issuance to
employees, consultants and directors pursuant to the Parent Stock Option Plans,
of which 15,096,000 shares are subject to outstanding, unexercised options, and
an aggregate of 675,000 shares are available for issuance under the Parent's
1996 Stock Purchase Plan. Parent has not issued or granted any stock
appreciation rights or performance units under the Parent Stock Option Plans or
otherwise. Except for (i) the rights created pursuant to this Agreement and the
Parent Stock Option Plans (including options thereunder) and (ii) Parent's right
to repurchase any unvested shares under the Parent Stock Option Plans, there are
no other options, warrants, calls, rights, commitments or agreements of any
character to which Parent is a party or by which it is bound obligating Parent
to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of capital stock of Parent or
obligating Parent to grant, extend, accelerate the vesting of, change the price
of, or otherwise amend or enter into any such option, warrant, call, right,
commitment or agreement. There are no contracts, commitments or agreements
relating to voting, purchase or sale of Parent's capital stock between or among
Parent and any of its stockholders. True and complete copies of all material
agreements and instruments relating to or issued under the Parent Stock Option
Plans have been provided or made available to Company and such agreements and
instruments have not been amended, modified or supplemented, and there are no
agreements to amend, modify or supplement such agreements or instruments in any
case from the form provided or made available to Company. All outstanding shares
of Parent Common Stock and all options to purchase Parent Common Stock were
issued in compliance with all applicable federal and state securities laws. The
shares of Parent Common Stock to be issued pursuant to Section 1.6 hereof, when
issued in accordance with this Agreement, will be duly authorized, validly
issued, fully paid and non-assessable, and free and clear of any liens or
encumbrances other than liens or encumbrances created by or imposed upon the
holders thereof.
3.3 Authority. Assuming the filings and approvals described in clauses
---------
(i) through (vii) of the last sentence of this Section are made or obtained (as
the case may be) and that the condition set forth in Section 6.1(a) is
satisfied, the execution and delivery of this
25
<PAGE>
Agreement and the Option Agreement and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of Parent and Merger Sub, as applicable. This
Agreement and the Option Agreement each has been duly executed and delivered by
Parent and Merger Sub, as applicable, and constitutes the valid and binding
obligations of Parent and Merger Sub, enforceable against them in accordance
with its terms, except as such enforcement may be limited by (i) the effect of
bankruptcy, insolvency, reorganization, receivership, conservatorship,
arrangement, moratorium or other laws affecting or relating to the rights of
creditors generally, or (ii) the rules governing the availability of specific
performance, injunctive relief or other equitable remedies and general
principles of equity, regardless of whether considered in a proceeding in equity
or at law. Assuming the filings and approvals described in clauses (i) through
(vii) of the last sentence of this Section are made or obtained (as the case may
be) and that the condition set for in Section 6.1(a) is satisfied, the execution
and delivery of this Agreement and the Option Agreement do not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a benefit under, (i) any provision of
the Certificate of Incorporation or Bylaws of Parent or Merger Sub, as amended,
or (ii) any material mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Parent or Merger Sub
or their respective properties or assets, except for any conflicts, violations,
defaults or other occurrences that would not (A) individually or in the
aggregate have a Material Adverse Effect on Parent or any of its Subsidiaries or
(B) prevent or materially impair or delay the consummation of the Merger. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity, is required by or with respect to Parent
or Merger Sub in connection with the execution and delivery of this Agreement or
the Option Agreement by Parent and Merger Sub or the consummation by Parent and
Merger Sub of the transactions contemplated hereby, except for (i) the filing of
the Certificate of Merger as provided in Section 1.2 hereof, (ii) the filing of
applications and notices with and the receipt of requisite approval from, as
applicable, the OTS and the FDIC with respect to the Merger, (iii) the filing
with, and declaration of effectiveness or clearance by, the SEC and the NASD of
the Registration Statement and, if applicable, a Proxy Statement relating to any
Parent Stockholder Approval, (iv) the filing of a Form 8-K with the SEC and the
NASD within 15 days after the Closing Date, (v) any filings or applications as
may be required under applicable federal, SRO or state securities laws or the
securities laws of any foreign country, (vi) the filing with the Nasdaq National
Market of a Notification Form for Listing of Additional Shares with respect to
the shares of Parent Common Stock issuable upon conversion of the Company Common
Stock in the Merger and upon exercise of the options under the Company Stock
Option Plans assumed by Parent, (vii) the filing of a registration statement on
Form S-8 with the SEC, or other applicable form covering the shares of Parent
Common Stock issuable pursuant to outstanding options under the Company Stock
Option Plans assumed by Parent, and (viii) such other consents, authorizations,
filings, approvals and registrations which, if not obtained or made, would not
have a Material Adverse Effect on Parent and would not prevent or materially
alter or delay any of the transactions contemplated by this Agreement. Parent is
not aware of any reason why the approvals of all Governmental Entities necessary
to permit consummation of the Merger or the other transactions contemplated
26
<PAGE>
by this Agreement will not be received without the imposition of a condition or
requirement described in Section 6.1(d).
3.4 SEC Documents; Financial Statements. Parent has made available
-----------------------------------
(including via EDGAR) to Company each statement, report, registration statement
(with the prospectus in the form filed pursuant to Rule 424(b) of the Securities
Act), definitive proxy statement, and other filings (including exhibits,
supplements and schedules thereto) filed with the SEC by Parent since December
31, 1996, (collectively, the "Parent SEC Documents"). As of their respective
filing dates, the Parent SEC Documents complied in all material respects with
the requirements of the Exchange Act and the Securities Act, and none of the
Parent SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances in which they
were made, not misleading, except to the extent corrected by a subsequently
filed Parent SEC Document. The financial statements of Parent, including the
notes thereto, included in the Parent SEC Documents (the "Parent Financial
Statements") were complete and correct in all material respects as of their
respective dates (except to the extent corrected by a subsequently filed Parent
SEC Document), complied as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto as of their respective dates, and have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent throughout the periods indicated (except as may be indicated in the
notes thereto or, in the case of unaudited statements included in Quarterly
Reports on Form 10-Q, as permitted by Form 10-Q of the SEC). The Parent
Financial Statements fairly present the consolidated financial condition and
operating results of Parent and its Subsidiaries at the dates and during the
periods indicated therein (subject, in the case of unaudited statements, to
normal and recurring year-end adjustments).
3.5 Absence of Undisclosed Liabilities. Parent has no material
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obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the
consolidated balance sheet of Parent and its Subsidiaries or in the related
notes to the consolidated financial statements included in Parent's Annual
Report on Form 10-K for the period ended September 25, 1998 (the "Parent Balance
Sheet"), (ii) those disclosed in Parent SEC Documents filed subsequent to the
Parent Balance Sheet Date, and (iii) those incurred in the ordinary course of
business consistent with past practice since the Parent Balance Sheet Date and
which have not had and are not reasonably likely to have a Material Adverse
Effect on Parent .
3.6 Litigation. There is no judgment, decree or order against Parent
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or any of its Subsidiaries or, to the knowledge of Parent, any of their
respective directors or officers (in their capacities as such) that could
prevent, enjoin, alter or materially delay any of the transactions contemplated
by this Agreement.
3.7 Compliance With Laws. Each of Parent and its Subsidiaries has
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complied in all material respects with all applicable federal, state, local,
self-regulatory and foreign laws, statutes, ordinances, rules and regulations,
and is not in violation in any material respect of, and has not received any
notices of material violation with respect to, its respective certificate or
articles of incorporation or bylaws or other charter or organizational
documents, or any federal,
27
<PAGE>
state, local, self-regulatory or foreign statute, law, ordinance, rule or
regulation applicable to the conduct of its business or the ownership or
operation of its business.
3.8 Year 2000 Compliance. Parent and its Subsidiaries have taken
--------------------
reasonable steps necessary to address the software, accounting and record-
keeping issues raised in order to be Year 2000 compliant in all material
respects (within the meaning of SEC and any applicable SRO requirements) on or
before the end of 1999, and Parent does not expect the future cost of addressing
such issues to be material. Parent and its Subsidiaries are in compliance with
all guidelines provided by the SEC and any applicable SRO regarding Year 2000
issues.
3.9 Tax Treatment. Neither Parent nor any of its directors or officers
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has taken any action that would prevent the Merger from constituting a
transaction qualifying as a reorganization within the meaning of Section 368(a)
of the Code. Neither Parent nor, to Parent's knowledge, any of its affiliates or
agents is aware of any agreement, plan or other circumstance that would prevent
the Merger from qualifying as a reorganization within the meaning of Section
368(a) of the Code.
3.10 Broker's and Finders' Fees. Parent has not incurred, nor will it
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incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby, other
than the fees and expenses of BancBoston Robertson Stephens Inc. (which will be
borne by Parent).
3.11 Representations Complete. None of the representations or
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warranties made by Parent and Merger Sub herein or in any Schedule hereto,
including the Parent Disclosure Schedule, or certificate furnished by Parent
pursuant to this Agreement, or the Parent SEC Documents, when all such documents
are read together in their entirety, contains or will contain at the Effective
Time any untrue statement of a material fact, or omits or will omit at the
Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
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4.1 Conduct of Business. During the period from the date of this
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Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, Company agrees (except to the extent expressly
contemplated by this Agreement or as consented to in writing by Parent), to
carry on its and its Subsidiaries' business in the ordinary course in
substantially the same manner as heretofore conducted, to pay and to cause its
Subsidiaries to pay debts and Taxes when due subject to good faith disputes over
such debts or Taxes, to pay or perform other obligations when due, and to use
all commercially reasonable best efforts consistent with past practice and
policies to preserve intact its and its Subsidiaries' present business
organizations, keep available the services of its and its Subsidiaries' present
executive officers and key employees and preserve its and its Subsidiaries'
relationships with customers, suppliers, distributors, lic