CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This proxy statement, including information included or incorporated by reference in this document, contains certain forward-looking
statements within the meaning of federal securities laws. All statements, other than statements of historical fact, are forward-looking statements, including statements regarding the Company's
expected financial position, future financial performance, overall trends, liquidity and capital needs, and other statements of expectations, beliefs, future plans and strategies, anticipated events
or trends, and similar expressions concerning matters that are not historical facts. In this context, words such as "anticipates," "believes," "expects," "estimates," "plans," "intends," "could,"
"should," "will," "may" and similar words or expressions are intended to identify forward-looking statements and are not historical facts.
These
forward-looking statements involve risks, uncertainties and assumptions that, if they never materialize or prove incorrect, could cause the Company's results to differ materially
from those expressed or implied by such forward-looking statements. Risks, uncertainties and assumptions that may affect the Company's business, operating results and financial condition include, but
are not limited to, the following:
-
-
The occurrence of any event, change or other circumstances that could give rise to the termination of the Merger
Agreement;
-
-
The outcome of, or any expenses associated with, any legal proceedings, regulatory proceedings or enforcement matters that
have been or may be instituted against the Company and other persons relating to the Merger;
-
-
The inability to complete the Merger due to the failure to obtain stockholder approval or the failure to satisfy the other
conditions to the completion of the Merger, including the expiration or termination of the waiting period under the HSR Act;
-
-
The failure by the Investors (as defined herein) to provide equity financing as set forth in the Equity Commitment Letter;
-
-
Contractual restrictions on the conduct of the Company's business included in the Merger Agreement, and the potential
difficulties in employee retention as a result of the Merger, disruption of the Company's business and operations or any impact on the Company's relationships with third parties as a result of the
Merger;
-
-
The ability to recognize the benefits of the Merger;
-
-
Any delay in consummating or failure to consummate the Merger or the possible adverse effect on the Company's business and
the price of the Company's common stock if the Merger is not completed in a timely manner or at all;
-
-
The amount of costs, fees, expenses and charges related to the Merger;
-
-
The possibility that alternative acquisition proposals will or will not be made; and
-
-
Legislative developments, including changes in tax and other laws.
The
Company is also subject to other risks detailed herein or detailed from time to time in the Company's filings with the SEC, including the risks included in the Company's most recent
Quarterly Reports on Form 10-Q and Annual Report on Form 10-K which are incorporated by reference into this proxy statement, but the safe harbor provisions
included in the Quarterly Reports on Form 10-Q and Annual Report on Form 10-K that
are incorporated by reference into this proxy statement do not apply to any forward-looking statements the Company makes in connection with the Merger. These risks are not intended to be exhaustive
and the order in which the risks appear is not intended as an indication of their relative weight or importance. The Company operates in continually changing business
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environments,
and new risk factors emerge from time to time. The Company cannot predict these new risk factors, nor can the Company assess the impact, if any, of these new risk factors on the
Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those projected in any forward-looking statements.
You
are cautioned that the Company's forward-looking statements could be wrong in light of these and other risks, uncertainties and assumptions, which change over time. Actual results,
developments and outcomes may differ materially from those expressed in, or implied by, the Company's forward-looking statements. The forward-looking statements speak only as of the date the statement
is made, and the Company has no obligation to publicly update or revise its forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date the
forward-looking statements are made, except that, as required by Rule 13e-3(d)(2) under the Exchange Act or otherwise by law, the Company will amend this proxy statement to reflect
any material changes to the forward-looking statements included herein.
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SPECIAL FACTORS
Background of the Merger
As part of its ongoing evaluation of the Company's business, the Board and senior management regularly review and assess opportunities
to increase stockholder value and achieve long-term strategic goals, including, among other things, strategic alliances, potential opportunities for business combinations, internal
restructurings and investments and other strategic reviews.
As
a specialty finance company, the Company depends on third-party financing to fund (i) acquisitions of distressed asset portfolios in the U.S. and Europe and equity investments
in acquisition entities in connection with its portfolio asset acquisition and resolution business (referred to as the "
core business
") and
(ii) capital investments in other companies in connection with its special situations platform business acquisitions (referred to as the "
non-core
business
"). Since 1986, the Company has acquired for its own account or through investment entities formed with co-investors more than $12.2 billion face
value amount of portfolio assets, with the Company's equity investment of approximately $1.0 billion, focusing principally on commercial real estate loans and commercial and industrial loan
portfolios.
Following
the economic crisis in 2008, management believed that the purchasing environment for distressed loan portfolios was more attractive than it had been at any time in the
Company's history due to the conditions listed below. Management believed that the following factors would increase the trend of financial institutions, government agencies and other sellers to
package and sell asset portfolios to investors, generally at a discount as a means of disposing of under-performing and non-performing loans or other surplus or non-strategic
assets:
-
-
an increase generally in the amount of loans that were considered under-performing or non-performing following
the economic crisis;
-
-
the fact that the sale by financial institutions of under-performing and non-performing loans would improve
their regulatory capital position;
-
-
the opportunities that might arise if any of the significant corporate real estate loans maturing within a few years were
not repaid or refinanced; and
-
-
the opportunities that might arise in Europe as a result of European banks selling non-performing loans
following the debt crisis there.
Historically,
the Company's primary sources of funding for purchasing distressed loan portfolios were loans under credit facilities with third-party lenders, other special purpose
short-term borrowings, funds generated from operations, equity distributions from acquisition entities and other subsidiaries and interest and principal payments on subordinated
intercompany debt. A substantial majority of the Company's portfolio investments prior to July 2010 were funded through loan facilities provided by Bank of Scotland and BoS(USA), Inc.
Although
Bank of Scotland had provided financing to the Company for several years, following Lloyds Banking Group's acquisition of Bank of Scotland, Bank of Scotland and BoS(USA), Inc.
placed the Company's revolving loan facility in a wind-down structure. In June 2010, the facilities with Bank of Scotland and BoS(USA), Inc. were restructured into one facility with a
principal amount of $270 million ("
Reducing Note Facility
") under which Bank of Scotland and BoS(USA), Inc. had no further obligations to provide
financing to the Company. The Reducing Note Facility permitted a monthly cash leak-through to the Company to cover the overhead of the ongoing business and a cash flow
leak-through of 20% of cash flows up to a maximum amount of $25 million after the payment of interest and overhead allowance. The lack of a corporate line of credit substantially
restricted the
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Company's
ability to acquire loan portfolios. As a result, the Company's source of funding for acquisitions was primarily limited to its unencumbered cash flow from operations and the cash flow
leak-through, and the Company began to seek alternative sources of funding, which ultimately proved to be unachievable as the Company was never able to replace this source of funding.
Due
to a lack of funding, the Company was unable to pursue an aggressive acquisition strategy for its own account and almost all of the Company's new acquisitions were
off-balance sheet in the form of minority interests (ranging from 10% to 20%) in acquisition entities controlled by larger firms. The Company was unable to obtain financing to purchase
investments for its own account on reasonable terms. As a result, the Company's balance sheet began to shrink as its existing portfolios matured and new acquisitions were off-balance sheet
and the value of its servicing platform diminished.
The Company and VIP, an affiliate of Parent, began jointly investing through acquisition entities in April 2009 as to specific
transactions, with no investment obligation on either party. The Company and VIP formed five acquisition entities together prior to the effective date of the Investment Agreement (the
"
Investment Agreement
," as explained below), including an entity (owned 15% by the Company and 85% by VIP) to acquire a portfolio of
non-performing and under-performing assets from a third-party bank for a purchase price of approximately $114.2 million. In connection with that portfolio acquisition, the Company
and VIP entered into an investment agreement with the third-party bank pursuant to which they acquired 127,500 and 722,500 shares, respectively, of common stock of the third-party bank for an
aggregate purchase price of approximately $4.25 million. The Company and VIP also entered into a related registration rights agreement with the third-party bank. On January 25, 2013, VIP
sold all of its shares of common stock of the third-party bank.
In
May 2010, the Company and VIP began arms' length discussions for an exclusive arrangement pursuant to which VIP would have an option to participate in all distressed asset
acquisitions sourced by the Company with a value exceeding a certain dollar amount. These discussions resulted in the execution of the Investment Agreement by the Company and VIP pursuant to which VIP
could invest, at its discretion, in distressed loan portfolios and similar investment opportunities with the Company, subject to the terms and conditions contained in the Investment Agreement. Through
this arrangement, the Company would have access to funding for acquisitions of distressed asset portfolios and would be able increase its servicing base. However, the Company's interest in any
acquired asset portfolios would be a minority interest in the acquisition entity and "off-balance sheet," meaning that the portfolio assets would not be consolidated on the Company's
balance sheet. The primary terms of the Investment Agreement are:
-
-
The Company acts as the exclusive servicer for the investment portfolios;
-
-
The Company provides VIP with a right of first refusal with regard to distressed asset investment opportunities in excess
of $3 million sourced by the Company;
-
-
The Company, at its determination, co-invests between 5% and 25% in each investment;
-
-
The Company receives a monthly fee of $200,000 and VIP pays the Company's pro rata share of due diligence expenses
incurred in connection with proposed investments based upon its respective equity percentage of the acquisition entity;
-
-
The Company receives a base servicing fee (based on investment portfolio collections) and is eligible to receive
additional incentive-based servicing fees (depending on the performance of the portfolios acquired); and
-
-
The Company is eligible to receive incentive-based management fees (depending on the aggregate amount and performance of
the portfolios acquired).
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The
Investment Agreement has a termination date of June 30, 2015, subject to certain renewals or earlier termination. The cash flows from the assets and equity interests in
investments made pursuant to the Investment Agreement are not subject to the security interest requirements of the Company's credit facilities.
The
Investment Agreement and each limited liability company agreement (for entities created by the Company and VIP pursuant to the Investment Agreement) contain provisions that restrict
the Company and VIP from disclosing certain information related to the limited liability companies, the assets of the limited liability companies and other investments made by the Company and VIP,
either directly or indirectly through the limited liability companies formed by the Company and VIP.
Each
servicing agreement entered into between the Company and the entities formed by the Company and VIP pursuant to the Investment Agreement provides that the servicing agreement
terminates upon a change of control of the Company, unless the termination is waived by VIP. Each servicing agreement sets forth the manner in which the related assets will be serviced and budgets
within which procedures the Company, as servicer, must operate. These servicing procedures and budgets cannot be materially modified without the approval of the acquisition entity which acquired the
assets.
Each
limited liability company agreement governing the entities formed pursuant to the Investment Agreement provides VIP with an option, in the event that the related servicing agreement
is terminated due to a change of control of the Company, to purchase all of the Company's membership interest in
the limited liability company for a price equal to the projected net cash flows of the limited liability company discounted at a rate of 15%.
On
June 29, 2010, in connection with entering into the Investment Agreement, affiliates of Värde purchased 150,000 shares of the Company's common stock from
the Company (currently approximately 1.4% of the Company's outstanding shares of common stock) in a private placement at a price of $5.93 per share, which was the closing price of the Company's common
stock on June 28, 2010.
Since
entering into the Investment Agreement, almost all of the Company's U.S. portfolio acquisitions have been made with VIP and consist of a minority ownership in acquisition entities
that own distressed loan portfolios as well as servicing rights with respect to the loans. Since the Company's interest in these acquisitions is a minority equity interest in the acquisition entity,
the portfolio assets acquired by the entity are not consolidated on the Company's balance sheet. Specifically, for the year ended December 31,
2012:
-
-
The Company's total revenues and other income, including equity income from unconsolidated subsidiaries, were
approximately $86.0 million, of which approximately $60.0 million (or 70%) was derived from owning and servicing portfolio assets. Approximately $25.5 million, or 30%, of the
Company's total revenues and other income, including equity income from unconsolidated subsidiaries, and 42% of the Company's total revenues and other income, including equity income from
unconsolidated subsidiaries, derived from owning and servicing portfolio assets, was attributable to the relationship with VIP.
In
addition, at December 31, 2012:
-
-
The Company's total assets were approximately $245.0 million, of which approximately $132.0 million (or 54%)
was attributable to consolidated and unconsolidated investments in portfolio assets. Approximately $61.0 million, or 25% of the Company's total assets and 47% of the Company's investments in
consolidated and unconsolidated portfolio assets, was attributable to its relationship with VIP.
Also,
in 2011, the Company sold substantially all of its portfolio assets related to its German platform (held in eight consolidated entities) to a newly formed entity that was jointly
owned by
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affiliates
of VIP and the Company for an aggregate sale price of €16,231,621 (approximately $22.1 million) of which €14,083,537 (approximately
$19.2 million) was in the form of a cash payment and €2,184,084 (approximately $2.9 million) was in the form of preferred equity certificates issued by the jointly held
entity. The preferred equity certificates issued to the Company from the jointly held entity represented a 13.23% interest in such entity.
Additionally,
VIP regularly monitors the performance of the Company under the Investment Agreement and related servicing agreements. Senior management of the Company and VIP also meet
periodically (and no less than quarterly) to discuss performance, due diligence and operational matters related to the portfolio assets jointly owned. During these meetings, VIP and the Company
frequently discuss improvements that could be made to the Company's acquisition and servicing operations with respect to the portfolio assets jointly owned by the Company and VIP. On a periodic basis
(and no less than quarterly), VIP also prepares a detailed asset management report that senior management of the Company employs in executing its operational strategies related to such jointly owned
portfolio assets. VIP does not have any control or input with respect to matters related to portfolio assets acquired by the Company alone or with other investors or as to its Small Business
Administration lending platform, special situations platform or other operations.
At a Board meeting on August 15, 2011, the Board discussed the potential restructuring of its Reducing Note Facility payable to
Bank of Scotland and BoS(USA), Inc., which then had an outstanding principal balance of $199 million, to reduce both the principal amount and interest payable. In addition, the Board discussed
the Company's balance sheet and strategic focus, including a desire, given the lack of funding the Company had, to focus on the Company's core business of acquiring distressed loan portfolios in the
U.S. and Europe and potentially selling, at the appropriate time, some of the Company's other assets. The Board recognized that to enhance long-term stockholder value, the Company needed
to be in a position to acquire assets for its own account as opposed to acquisitions through acquisition entities in which it had a minority interest. In management's update to the Board on
acquisitions made by the Company in 2011, James T. Sartain, the Company's Chief Executive Officer, noted for the Board that of the approximately $220 million portfolio assets sourced by the
Company for purchase by the Company and its acquisition entities, the Company's investment was approximately $38 million (representing the dollar value of assets purchased directly by the
Company and the dollar value of minority equity investments in acquisition entities that purchased assets).
From
time to time, the Company had discussions generally about strategic transactions, including the negotiation of acquisition entities to acquire distressed loan portfolios, with a
representative of an investment asset management firm, with which the Company had in the past purchased a loan
portfolio. In September 2011, a representative of this firm asked to meet with Mr. Sartain. The representative brought a representative of a private equity firm to the meeting (both firms
referred to collectively as "
Party A
"), and the parties discussed generally the possibility of a strategic transaction which could provide the
Company access to funding, including a recapitalization or other transaction. Given the Company's lack of funding, capital and inability to find third-party financing at reasonable rates, the Company
and Party A signed a confidentiality agreement. During the next few months, the Company provided preliminary due diligence materials to Party A.
At
a Board meeting on November 9, 2011, the Board generally discussed the Company's current and future business strategies and prospects and the Board's views for the future of
the Company's operating business, including the difficulties caused by the lack of adequate funding, the Company's high leverage and the fact that almost all of its recent acquisitions had been
off-balance sheet investments with VIP in which the Company had only a minority interest. The Board discussed the effect of these factors on the Company's financial condition and results
of operations, including the fact that the Company's balance sheet was shrinking because most of the new portfolio acquisitions were
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being
made with VIP through minority-owned entities and the Company was not able to fund portfolio acquisitions for its own account that it believed were necessary for the Company's growth.
The
Board believed that it should evaluate potential strategic alternatives in addition to continuing its current operations to enhance stockholder value. At the November 9, 2011
meeting, the Board discussed on a preliminary basis the potential for: a capital markets transaction; a liquidation of the Company; and the sale of the Company to a strategic or financial buyer. The
Board believed that maintaining the status quo would be difficult given the lack of funding, the Company's high leverage and the fact that most of the Company's recent acquisitions were
off-balance sheet minority investments with VIP. The Board acknowledged that the balance sheet shrinkage was a negative factor in obtaining new funding. The Board believed that although a
successful equity or debt offering had the potential to improve the Company's long-term franchise value by allowing the Company to purchase assets for its own account, the execution risk
of a capital markets transaction would be high, the transaction would initially be non-accretive to stockholders, any significant issuance of common stock would be dilutive to existing
stockholders and the Board believed an offering had only a small probability of success due to the Company's financial condition. In addition, an equity transaction that did not allow existing
stockholders to retain ownership of the majority of shares of the Company's common stock would require the consent of VIP under the Investment Agreement due to the change of control provisions. The
Board believed that liquidation of the Company would not enhance stockholder value because (i) any distributions to stockholders through liquidation would be diminished by the costs of
liquidation, especially given that costs as an SEC reporting entity would continue, (ii) the public announcement of a liquidation would reduce the Company's platform value and (iii) the
Company's stockholders would not be able to benefit from any future business opportunities. In addition, the Company's platform value would be diminished in liquidation. A sale of the Company to
either a strategic or financial buyer was another option. Following this discussion, the Board
determined to postpone action on a strategic review until the Reducing Note Facility with Bank of Scotland and BoS(USA), Inc. was restructured. Representatives from Haynes and Boone, LLP, the
Company's outside legal counsel ("
Haynes and Boone
"), generally discussed with the Board the process in connection with a strategic review to enhance
stockholder value, including whether to form a committee of the Board and hire a financial advisor to assist in an evaluation of potential strategic alternatives for the Company.
On
November 22, 2011, representatives of the Company, the Company's chief executive officer and another director, discussed with senior management of Värde, the
Company's financial condition and potential strategic alternatives for the Company, including maintaining the status quo, a capital markets transaction, a possible sale of the Company to a third party
and liquidation. No specific further actions resulted from this meeting.
On
December 20, 2011, the Company completed the restructuring of its debt payable to Bank of Scotland and BoS(USA), Inc. and, as a result, the Company's debt obligations to Bank
of Scotland were reduced and divided into two separate loan facilities with Bank of Scotland and BoS(USA), Inc. In connection with the debt refinancing, the Company also closed on a new credit
facility with Bank of America, applying the net proceeds to the debt owed to Bank of Scotland and BoS(USA), Inc.
The
debt restructuring did not provide the Company with any funding for additional acquisitions, and following the restructuring, the Company continued to have significant debt on its
balance sheet ($190.0 million as of December 31, 2011). In addition, the majority of the Company's assets remained pledged to secure bank debt, making it more difficult to obtain
third-party financing. As of December 31, 2011, the Company had $34.8 million of cash on its consolidated balance sheet, but $20.4 million of this cash could only be used to
settle liabilities of certain consolidated variable interest entities and was not available for use in general operations.
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For
the year ended December 31, 2011:
-
-
as a result of the lack of funding, the Company's total earning assets declined by 23% and portfolio assets, declined by
35% as compared to the year ended December 31, 2010;
-
-
the Company acquired for its own balance sheet only $58 million face amount in portfolio assets while the
acquisition entities with VIP (in which the Company had a minority equity interest) purchased $287 million of portfolio assets;
-
-
setting aside the one-time gain associated with the debt restructuring with Bank of Scotland and BoS(USA),
Inc., servicing revenues were 25% lower than 2011 revenues and 21% lower than 2010 revenues, excluding a one-time gain of $4.6 million relating to a business combination;
-
-
excluding the one-time gain from the debt restructuring and a $4.6 million one-time gain
from a business combination, 2011 net income was 135% lower than 2010 net income; and
-
-
after applying the gain from the debt restructuring against the Company's net operating losses, the Company had almost
depleted its net operating losses, which would result in the Company having to pay income taxes in the future and future income tax payments would further reduce cash flows.
Additionally,
for years, the Company's stock has traded generally at a discount to book value and has been thinly traded without either significant institutional analyst coverage or
substantive institutional sponsorship. On December 30, 2011, the Company's closing stock price of $8.50 per share generally approximated the price at which shares had traded approximately eight
years previously.
On December 21, 2011, the Board resumed its review of potential strategic alternatives. Management reported that to date efforts
to secure funding for the Company had not been successful. The Board discussed the strategic review process with representatives of Haynes and Boone, including the process for engaging a financial
advisor. Mr. Sartain advised the Board that the Company would continue pursuing funding alternatives.
At
a Board meeting held on January 6, 2012, representatives of Haynes and Boone reviewed the Board's fiduciary duties and other considerations in connection with an evaluation of
potential strategic
alternatives, including a potential sale of the Company as a whole. The Board determined that although all of its members were independent except for Mr. Sartain, the use of a committee would
administratively facilitate a strategic review process. The Board authorized the formation of a strategic review committee with an initial limited mandate to interview financial advisors and make a
recommendation to the Board with respect to hiring a financial advisor. The Board designated each of William P. Hendry, Robert E. Garrison, II and F. Clayton Miller, all
independent members of the Board, as members of the SRC, with Mr. Hendry serving as Chairman. In addition, the Board determined to postpone consideration of any transaction with Party A
until the Company had engaged a financial advisor and established a strategic review process.
The
SRC subsequently interviewed several financial advisors and recommended that the Company engage LMM as its financial advisor based on, among other things, LMM's reputation,
experience and focus on middle market companies. The SRC also noted that LMM had not been engaged previously by the Company.
On
January 27, 2012, certain members of the Company's senior management, including Mr. Sartain, Mark B. Horrell, James C. Holmes, Terry R. DeWitt,
J. Bryan Baker and Jim W. Moore, engaged Baker Botts LLP ("
Baker Botts
") to represent their interests as senior management in connection
with a potential strategic transaction.
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At
a Board meeting on February 1, 2012, based in part on the recommendation of the SRC, the Board determined to engage LMM as the Company's financial advisor and the Company
subsequently engaged LMM. At the beginning of the meeting, the Board noted that potential bidders may be interested in entering into arrangements with Mr. Sartain, as President and Chief
Executive Officer, in connection with a potential sale, and after further discussion and in view of the actual or apparent conflicts of interest that could arise in the future, the Board determined,
and Mr. Sartain agreed, that Mr. Sartain should recuse himself as appropriate from Board deliberations and votes. To compensate the SRC for its time and effort in interviewing financial
advisors, the Board approved compensation for each committee member in the amount of a $3,000 fee, plus expenses.
At
a Board meeting on February 28, 2012, the Board met to discuss the status of the strategic review process. Representatives of the Company's management and legal and financial
advisors were also present. After discussion with outside legal counsel, the Board determined that it was not necessary to form a special committee to conduct the strategic review process and approve
or reject any strategic transaction because seven of the eight directors were independent and, although the Board believed that a potential acquirer may want to enter into post-closing
employment arrangements with Mr. Sartain, the Board would require full disclosure regarding any potential conflicts of interest in a strategic transaction involving Mr. Sartain. The
entire Board would continue to act through a majority of disinterested directors with the assistance of the SRC to facilitate the process administratively. The
Board expanded the authority of the SRC to administer the strategic review process with LMM's assistance and to make recommendations to the Board. The SRC was not given the authority to approve or
disapprove any transaction.
On
February 29, 2012, Party A requested additional time to complete due diligence and additional due diligence items in anticipation of making a proposal to acquire the
Company.
At
a Board meeting on March 3, 2012, the Board discussed the status of the strategic review process. Representatives of the Company's management and legal and financial advisors
were also present. After discussion, the Board determined to allow Party A to continue due diligence; provided that Party A was advised that it should not make a proposal until the Board
had completed its review of potential strategic alternatives.
On
March 23, 2012, the Board met again to discuss the status of the strategic review process. Representatives of the Company's management and legal and financial advisors were
also present. LMM reviewed with the Board various financial matters relating to the Company, its industry and potential strategic alternatives, including maintaining the status quo, capital markets
offerings, select asset sales, raising a fund and becoming the external fund manager, a full sale of the Company, and hypothetical liquidation and other preliminary financial analyses. The preliminary
financial analyses reviewed included analyses of selected public companies, selected precedent transactions involving commercial finance and receivables management companies and a discounted cash flow
analysis based on the Company's projections prepared by management reflecting a growth scenario for the Company with market-based financing, which preliminary financial analyses indicated an overall
implied equity value per share reference range for the Company of approximately $6.71 to $14.13 per share. The Board also reviewed certain other financial and market perspectives on the Company,
including the Company's implied trading multiples based on various financial metrics, the Company's historical market prices, premiums paid in selected precedent transactions and hypothetical balance
sheet fair market and liquidation values, which indicated an overall implied equity value per share reference range for the Company of approximately $5.79 to $11.64 per share. The Board noted that,
although the Company's projections that were used in these financial analyses assumed that the Company obtained market-based financing on commercially reasonable terms, such financing had been
unavailable to the Company for an extended period. LMM reviewed with the Board various other matters based on discussions conducted with the Company's management and publicly available information,
including the Company's historical operating performance, historical and current funding structure, current
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position
in the marketplace, business opportunities presented to the Company, its small capitalization, lack of research coverage and illiquidity of the Company's common stock, management's
five-year forecast and outlook for the Company and the Company's balance sheet and recent asset sales. The Board also discussed the process for an exploratory third-party solicitation
process. The Board considered that the Company, which operates a specialty finance business, is
dependent on third-party financing for growth and the absence of growth in the assets of a specialty finance business is generally viewed as a run-off portfolio, which often negatively
affects enterprise value. The Board also considered that in its present condition the Company would likely not be able to effectively leverage its established brand and reputation to capitalize on
market opportunities. The Company's participation was increasingly limited to minority interests in off-balance sheet entities. Therefore, the Company's balance sheet would shrink and the
Company would likely accrue nominal economic benefit from future acquisitions. The Board also discussed the potential difficulty in raising sufficient equity through a capital markets transaction
given the fact that the Company's common stock was trading at a discount to its book value, is thinly traded and lacks institutional analyst coverage or sponsorship. Given these factors, the Board
discussed the Company's ability to execute on management's business plan and achieve its financial forecast as an independent company in the absence of obtaining additional capital on reasonable
terms. The Board determined to adjourn and consider the matters discussed at this meeting before taking any action.
At
a Board meeting on March 28, 2012, the Board again reviewed potential strategic alternatives for the Company. Representatives of the Company's management and legal and
financial advisors also were present. LMM reviewed with the Board an update to the previously discussed preliminary financial analyses, including information regarding selected public companies,
selected precedent transactions and discounted cash flow analyses based on the Company's growth scenario projections, which updated preliminary financial analyses indicated an overall implied equity
value per share reference range for the Company of approximately $6.69 to $14.13 per share. The Board again reviewed certain other financial and market perspectives on the Company, including the
Company's implied trading multiples based on various financial metrics, the Company's historical market prices, premiums paid in selected transactions and hypothetical balance sheet fair market and
liquidation values, which indicated an overall implied equity value per share reference range for the Company of approximately $5.79 to $12.60 per share. The Board also discussed undertaking a
potential third-party solicitation process in connection with its review of potential strategic alternatives.
In
April 2012, the independent members of the Board and the SRC engaged Morris, Nichols, Arsht & Tunnell, LLP ("
Morris Nichols
") as
special Delaware counsel.
On
April 10, 2012, by unanimous written consent, the Board expanded the authority of the SRC to review and evaluate, with the assistance of management and legal and financial
advisors, potential strategic alternatives for the Company, including a potential sale of the Company's stock or assets. However, the Board retained its authority to approve or reject any possible
transaction. In addition, the Board determined to modify as follows the compensation of the SRC based on its significant work in connection with the process: the Chair would receive $15,000 per month
and the other two members would each receive $10,000 per month. No payments were conditioned on the recommendation or consummation of any strategic alternative.
At
a Board meeting on April 20, 2012, the Board determined that although the Company was not for sale, selected third parties should be contacted to determine their potential
interest in a transaction with the Company. The Board also discussed the necessity of having VIP consent under the Investment Agreement and related agreements to the disclosure of certain information
to potential participants in the Company's third-party solicitation process.
At
a Board meeting on May 5, 2012, the Board authorized a third-party solicitation process of parties that were identified by Board members, management and LMM as potentially
having an interest
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in
specialty finance companies and a potential strategic transaction with the Company. The Board, however, maintained its position that the Company was not for sale at that time. The Board
contemplated a third-party solicitation process consisting of two rounds whereby parties would first enter into a standard confidentiality agreement, submit preliminary indications of interest and
conduct preliminary due diligence. In the second round, parties would be given access to additional due diligence materials, including information relating to the Company's investments with VIP, if
they executed an expanded confidentiality agreement, and then submit final proposals.
In
May and June 2012, 32 parties were contacted and received informational material and a form confidentiality agreement. Subsequently, 15 parties entered into confidentiality agreements
with the Company and were provided with access to the Company's data room containing preliminary due diligence materials.
In
May 2012, Party A requested an exclusivity period with the Company to discuss a transaction, but Party A was informed by the Company that it should participate in the
Company's third-party solicitation process and sign a confidentiality agreement with the Company if it desired to submit a proposal. Party A subsequently declined to do so.
On
May 11, 2012, at the request of the Company, VIP agreed in writing to grant a waiver of the confidentiality provisions in the Investment Agreement so long as, with respect to
potential investors initially indicating interest, (i) the Company provided such investors with specific information relating to the Company's investments with VIP set forth in such waiver and
(ii) such investors executed a form of confidentiality agreement set forth in the waiver and certified that they met certain net worth requirements. VIP also agreed that the Company could
provide certain other information relating to the Company's investments with VIP to potential investors that executed a more restrictive confidentiality agreement and submitted information to the
Company evidencing that such investor could consummate a transaction. The Company agreed not to make certain amendments to the confidentiality agreements with potential investors without VIP's consent
and to guarantee the collection of any judgment rendered in favor of VIP in connection with any breach of a confidentiality agreement by a potential investor. In June 2012, the Company also requested
a waiver from VIP of its rights under the servicing agreements on a change of control of the Company, but VIP declined to provide such a waiver.
At
a Board meeting on June 15, 2012, the Board was updated on the status of the third-party solicitation process. Representatives of management and legal and financial advisors
were also present.
On
June 26, 2012, the potential bidders received first round bid process letters requesting that indications of interest be submitted on or before July 31, 2012. The
letters instructed bidders to include in their indications of interest, the proposed purchase price, rationale for the acquisition, material assumptions, sources of funds, timing, transaction
experience, due diligence requirements, regulatory approvals and clearances and conditions to closing, among other things.
In
July 2012, the Company gave management presentations to 11 participants in the process, including Värde.
On
July 31, 2012, four parties, including Värde, submitted written indications of interest in response to the June 26, 2012 process letter. Subject to
specific qualifications and conditions, in their respective preliminary proposals: (i) Party B indicated that it was interested in pursuing an acquisition of the Company at a purchase
price range of $10.42 to $10.89 per share; (ii) Party C indicated that it was interested in pursuing an acquisition of the Company at a purchase price range of $10.42 to $11.84 per
share; (iii) Party D indicated that it was interested in pursuing an acquisition of the Company at a purchase price range of $9.62 to $10.12 per share; and
(iv) Värde indicated that it was interested in pursuing an acquisition of the Company at a purchase price range of $8.50 to $9.00 per share. As per the process letter, these
proposals, including the purchase price range, were preliminary, subject to the
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completion
of additional due diligence and did not include specific financing proposals or certain other transaction terms.
On
August 3, 2012, the SRC convened a meeting to review the status of the process and the indications of interest that had been submitted. The Company's legal and financial
advisors attended the meeting. The SRC was informed that 32 parties had been contacted, of which 15 had executed confidentiality agreements, 11 had received a management presentation and four,
including Värde, had submitted an indication of interest. At that time, two other parties stated that they wanted to remain in the process but neither subsequently submitted an
indication of interest. The SRC discussed the terms of the indications of interest, including that Party C's offer was conditioned on a significant equity rollover by management and committed
to provide additional funding to the Company in connection with its ongoing operations. Each of the indications of interest stated that third-party financing would not be required for the transaction.
Party D requested reimbursement of all expenses if definitive agreements were executed or up to $100,000 for reimbursement of expenses if definitive agreements were not executed. The SRC also
discussed the Company's continuing funding issues and agreed to continue evaluating strategic alternatives in addition to a potential sale transaction. The SRC determined that
members of management should not have discussions with potential bidders regarding post-closing employment arrangements until the SRC authorized such discussions. In addition, the SRC
generally discussed potential severance arrangements but determined not to enter into any definitive arrangements with management until later in the strategic review process.
At
a Board meeting on August 6, 2012, the Board reviewed and discussed the four indications of interest received. Although Värde's bid was not the highest,
Värde had stated in its indication of interest that it would be willing to consider a price increase if the Company could retire at a discount a portion of the current unpaid principal
balance of the credit facility with Bank of Scotland. After considering the four indications of interest, the Board decided to invite each of Party B, Party C, Party D and
Värde to participate in the second round of the process.
On
August 7, 2012, the four remaining bidders, Party B, Party C, Party D and Värde, received the Company's second round bid process letter
requesting final bids on or before September 10, 2012. As contemplated by the Board at the beginning of the process, parties participating in the second round were requested to enter into an
expanded confidentiality agreement in the form previously agreed to with VIP to receive access to additional due diligence information relating to the Company's investments with VIP. Party C
was unable to reach agreement with the Company on the terms of the confidentiality agreement, in part because of the net worth requirements included therein, and withdrew from the process.
Party B and Party D entered into the required expanded confidentiality agreement and were granted access to additional due diligence materials and offered in-person
management meetings.
At
a Board meeting on August 14, 2012, the Board continued to discuss the three interested bidders as well as other funding alternatives.
Over
several months beginning in August 2012 and continuing through the execution of the merger agreement, one or more members of the SRC engaged in numerous informal telephone
conferences and discussions with the Company's legal and financial advisors regarding the status of the third-party solicitation process.
Throughout
August and September 2012, the three remaining bidders conducted additional due diligence, and Party B and Värde participated in onsite due diligence
sessions. Party D declined to attend an onsite due diligence session. During September 2012, Party A presented a term sheet to the Company for a recapitalization transaction involving
mezzanine debt. The SRC carefully reviewed the terms proposed by Party A and concluded that the terms were unattractive and did not warrant review at a full Board meeting. In particular, the
SRC determined not to pursue this possible recapitalization because the SRC believed the proposal, if implemented, would not resolve the Company's funding and
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balance
sheet concerns and the terms were otherwise not acceptable because the interest rates required by Party A were too high. Party A was notified that its proposal was unacceptable.
During
September and October 2012, the SRC and the Company continued to have extensive discussions regarding certain sales of non-core assets and the Bank of Scotland consent
in connection with the strategic review process.
Between
September 10 and September 21, 2012, three parties submitted revised indications of interest: (i) Party B was interested in acquiring the Company at a
price of $8.90 per share; (ii) Party D was interested in acquiring the Company at a price of $9.35 per share; and (iii) Värde was interested in acquiring the
Company at a price of $8.41 per share. Värde advised that it had substantially completed its business and financial due diligence review of the Company and required only limited
confirmatory legal due diligence in order to finalize its proposal. Both Party B and Party D stated that they had significant additional due diligence to conduct and Party D
requested exclusivity and expense reimbursement as a condition to its ongoing participation.
On
September 13, 2012, a member of the SRC, together with LMM, met with Party D to discuss its proposal. The SRC member informed Party D that the Company would not
enter into exclusive negotiations with Party D at that time as the solicitation process was not in its final stages and Party D's proposal, including its price, was not attractive enough
to warrant exclusive negotiations. Party D declined to continue to participate in the process on a nonexclusive basis.
The
Board met on September 22, 2012 to discuss the status of the process. Representatives of the Company's management and legal and financial advisors were present. The Board was
updated on the three revised indications of interest received and Party C's and Party D's withdrawal from the process. The Board also was informed that Värde's proposal
was subject to change if the Company's credit facilities did not continue on substantially the same terms following a sale transaction and was conditioned on retaining certain members of the Company's
senior management. Party B had completed substantial due diligence but was still reviewing certain legal aspects relating to the Company. The Board discussed potential next steps in the
Company's strategic review process, including discussions with the interested parties as well as other potential strategic alternatives such as maintaining the status quo, attempting to raise
additional capital and divestiture of non-core assets.
On
September 24, 2012, the SRC directed LMM to contact both remaining parties, Party B and Värde, to request that they increase their proposed purchase
prices.
On
September 24, 2012, Mr. Hendry, Chairman of the SRC, together with LMM, met with principals of Party B to discuss Party B's proposal. Party B agreed
to expedite its due diligence investigation in order to submit a revised final bid.
Also
on September 24, 2012, in accordance with the directives of the SRC, LMM contacted Värde and requested that Värde increase its proposed purchase
price. At this point, Värde declined to increase its bid.
From
September 25, 2012 through October 5, 2012, representatives of Party B and the Company had extensive discussions to further Party B's due diligence and
understanding of the Company's U.S. portfolio.
On
October 1 and 2, 2012, representatives of Party B and the SRC traveled to Paris, France to conduct onsite due diligence on the Company's interest in a foreign entity.
On
October 12, 2012, representatives of the Company and Party B met to provide Party B with an update regarding recent developments in the Company's business,
including contemplated asset divestitures and the potential impact on the Company's capital structure. Party B also was requested to submit a final bid in seven days.
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On October 19, 2012, Party B submitted a revised proposal of $102 million less unpaid corporate taxes and reimbursement for certain undefined
expenses. The revised proposal included several contingencies related to the completion of certain asset sales by the Company and the completion of Party B's due diligence. At this point in time, the
SRC was informed that Party B had only recently engaged legal counsel and had not yet retained an outside financial advisor. In addition, legal counsel to Party B informed the SRC that it had its own
substantial legal due diligence requirements.
On
October 22, 2012, at the request of the SRC, LMM contacted Värde to brief it on recent developments, including progress on the sale initiatives involving certain
assets and the accommodations articulated by Bank of Scotland with respect to the Company's outstanding debt. Värde indicated a strong interest in the Company and that it had
substantially completed its legal and business due diligence and asked to have the opportunity to review its prior proposal and bid based on recent developments.
On
October 23, 2012, Värde submitted a revised proposal of $9.50 per fully-diluted share, which was promptly increased to $9.69 per share upon confirming the
Company's share count calculation. The proposal implied aggregate consideration of approximately $103.5 million and had limited conditions. Värde confirmed that it had
substantially completed its due diligence.
On
October 24, 2012, at the request of the SRC, LMM requested that Party B and Värde submit their final bids on or before October 26, 2012.
Also
on October 24, 2012, at the request of the SRC, LMM met with Party B to discuss and request a clarification of its bid. In accordance with the SRC's instructions, LMM
informed Party B that its bid should include (i) an increased price expressed on a fully-diluted per share basis, (ii) a capped amount for expense reimbursement, (iii) a clarified transaction
structure, (iv) specified remaining due diligence requirements and (v) minimized contingencies and conditions.
Also
on October 24, 2012, at the request of the SRC, representatives of Haynes and Boone discussed Party B's bid with legal counsel to Party B.
On
October 25, 2012, the SRC, together with LMM, met with Värde and its financial advisor to discuss Värde's bid. The discussion covered the proposed
price, conditions, remaining due diligence, transaction structure, timeline and Värde's intended plan for employees and management of the Company.
On
October 26, 2012, Party B submitted a revised indication of interest to acquire the Company for approximately $102 million, the equivalent of $9.51 per fully-diluted share. The
revised indication of interest was subject to several contingencies, including, among others, the receipt of approvals from the Company's lenders, the completion of certain asset sales by the Company,
the termination of the Investment Agreement by the Company and the execution of a replacement agreement with Party B and the completion of Party B's due diligence.
On
October 26, 2012, representatives of the Company and Värde engaged in several communications in order to clarify the terms of Värde's bid.
On
October 26, 2012, Värde submitted a revised proposal of $9.75 per fully-diluted share for aggregate cash consideration of approximately $104.3 million.
Värde's proposal was conditioned upon the Company making certain divestitures prior to closing, the continuation of the Company's credit facilities on substantially the same terms
following a sale transaction and the retention of each of Messrs. Dewitt, Holmes and Horrell (individually, a "
Continuing Executive
" and
collectively, the "
Continuing Executives
"). Värde proposed entering into three-year employment agreements with the Continuing
Executives with their current base salary, a discretionary bonus and a 1.67% equity ownership stake for each of them in Parent after the merger, subject to increase based on certain performance
metrics and applicable vesting requirements. Värde also proposed severance arrangements
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for
certain non-continuing members of executive management based on 2010 compensation. At this time, Värde had not discussed any of the proposed arrangements with any
members of the Company's executive management, and neither the SRC nor the Board discussed any of the specific terms of the proposed arrangements with any members of executive management.
Värde also delivered its final confirmatory due diligence request.
On
October 27, 2012, the SRC met to discuss the proposals. Representatives of legal and financial advisors were present. The SRC determined that a member of the SRC would meet in
person with representatives of Värde to (i) request an increase in Värde's proposed purchase price to $10.00 per fully diluted share, (ii) request a
reduction or elimination of certain closing conditions, (iii) discuss the timeline, and (iv) discuss severance terms for executives who would not be continuing with the Company
post-closing.
Also
on October 27, 2012, a member of the SRC met with representatives of Värde to discuss its bid. Following the meeting, Värde submitted a final
revised proposal of $10.00 per fully-diluted share for aggregate cash consideration of approximately $107.1 million.
On
October 28, 2012, at a meeting of the SRC, the SRC was updated with a summary of the final stages of the strategic review process, including Värde's final
proposal to acquire the Company for a cash purchase price of $10.00 per fully diluted share and Party B's indication of interest which was submitted on October 26, 2012. The SRC considered
Party B's indication of interest to be inferior, noting that the price per share and aggregate consideration offered were less than Värde's proposal, such indication of interest was
more conditional than the SRC deemed acceptable, and Party B indicated that it needed additional time to complete its due diligence. The SRC believed that there was uncertainty regarding
Party B's ability to complete a transaction on a timely basis or at all because after communicating to Party B certain deficiencies in its earlier proposals, Party B continued to include a
number of conditions to the transaction that could affect the timing of a potential transaction, would not submit a final due diligence request list and would not provide an estimated timeline for
completion of the transaction. Värde's proposal was conditioned on the Company making certain divestitures prior to closing, the continuation of the Company's credit facilities on
substantially the same terms following a sale transaction and the retention of certain members of the Company's senior management. Värde requested that the Company execute a
60-day exclusivity agreement if the proposal was acceptable. However, neither the Board nor the SRC discussed any specific terms with respect to executive management retention at this
time.
Also
on October 28, 2012, at a meeting of the Board, after reviewing the proposal from Värde and the indication of interest from Party B, the Board
determined to pursue Värde's final proposal because, among other reasons, Värde had substantially finished its due diligence and submitted a final fully-diluted per share
purchase price that exceeded Party B's fully-diluted per share purchase price, and to enter into an exclusivity agreement with Värde. Värde and the Company executed an
exclusivity agreement on November 2, 2012 for an initial period through November 16, 2012.
On
November 1, 2012, representatives of Värde met with the Continuing Executives to discuss the Company's future strategy. There was no discussion at the meeting
with the Continuing Executives regarding their continued employment with the Company following the transaction.
On
November 2, 2012, representatives of Haynes and Boone delivered a draft merger agreement to representatives of Värde's outside legal counsel, Mayer
Brown LLP ("
Mayer Brown
"). The initial draft included a two-step structure requiring Värde to commence a tender offer
for the Company's common stock which, if successful, would be followed by a second-step merger.
In
early November 2012, Värde formed Parent and Merger Subsidiary and representatives of Parent's legal counsel, Mayer Brown, and Haynes and Boone discussed whether the
transaction could
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be
subject to the going private rules given Parent's existing contractual relationships with the Company. The parties determined to continue to analyze the applicability of the going private rules.
On
November 7, 2012, the Company entered into an agreement to sell its ownership interest in UBN, SAS, an acquisition entity that owns MCS et Associes in France for
€20,000,000 (approximately $26.3 million), which sale Parent had indicated would be a condition to its acquisition of the Company. The sale was completed on December 17,
2012.
On
November 9, 2012, representatives of Mayer Brown sent to representatives of Haynes and Boone comments to the initial draft of the merger agreement.
On
November 14, 2012, representatives of Mayer Brown and representatives of Haynes and Boone had an initial call to discuss the terms of the merger agreement.
On
November 16, 2012, the Board approved an extension of the exclusivity agreement to November 26, 2012, and Värde and the Company, through their
representatives, agreed to such extension. Accordingly, on November 19, 2012, Värde and the Company executed an extension to the exclusivity agreement.
On
November 18, 2012, representatives of Haynes and Boone delivered a revised merger agreement to representatives of Mayer Brown.
On
November 20, 2012, at a Board meeting, management presented revised financial projections relating to the Company. In light of a number of recent unsuccessful attempts to
obtain access, on commercially reasonable terms, to financing from commercial lenders, financial services firms and third party lenders, management determined it was appropriate to revise its earlier
financial projections. These financial projections were revised to include the assumption that the Company could not obtain financing on commercially reasonable terms and reflected a liquidation
scenario. After discussion, the Board approved the financial projections and authorized their use in connection with the proposed transaction and by LMM.
Also
on November 20, 2012, representatives of Haynes and Boone and Mayer Brown had a conference call to discuss the open issues remaining in the draft merger agreement, including,
among other things, limitation on remedies and specific performance, matching rights with respect to competing unsolicited bids and the timing of various divestiture transactions by the Company with
respect to the signing of the merger agreement and the closing of the merger. Representatives of Mayer Brown also distributed an initial draft of an equity commitment letter, which called for certain
funds affiliated with Värde to provide equity financing for the merger in exchange for equity interests in Parent.
On
November 21, 2012 and November 23, 2012, representatives of the SRC and Parent, together with the Company's and Parent's respective advisors, had conference calls to
discuss the potential applicability of the going private rules and the open issues remaining in the draft merger agreement, including, among other things, limitation on remedies and specific
performance, matching rights with respect to competing unsolicited bids and the timing of various divestiture transactions by the Company with respect to the signing of the merger agreement and the
closing of the merger.
In
connection with these conference calls, on November 23, 2012, representatives of Mayer Brown provided additional comments to the merger agreement.
At
a Board meeting on November 26, 2012, the SRC updated the Board on the process and status of negotiations with Parent. After discussion, the Board determined to extend Parent's
exclusivity for a period not to exceed two weeks from November 26, 2012.
On
November 27, 2012, for purposes of its credit facility, Bank of America provided a consent with respect to the proposed acquisition of the Company by Parent.
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On
December 3, 2012, representatives of Haynes and Boone and Mayer Brown had a conference call to discuss the open issues remaining in the merger agreement, including, among other
things, the strength of the equity commitment and the Company's right to enforce it as a third-party beneficiary, Parent's ability to sue in the event of a willful and material breach by the Company,
the covenants related to the conduct of the Company's business, matching rights with respect to competing unsolicited bids and the timing of various divestiture transactions by the Company and the
representation with respect to the Company's portfolio assets.
On
December 5, 2012, representatives of Mayer Brown circulated additional comments to the merger agreement and distributed drafts of a limited guarantee, which contemplated a
guarantee by certain funds affiliated with Värde of the termination fee and expense reimbursement to be paid by Parent under the merger agreement, and a support agreement pursuant to
which Parent requested that all directors and certain executive officers agree to vote in favor of adoption of the merger agreement.
On
December 6, 2012, for purposes of its credit facility, Bank of Scotland, the Company and certain of its affiliates entered into a consent relating to the Reducing Note Facility
with respect to the proposed acquisition of the Company by Parent.
On
December 7, 2012, an affiliate of Värde and the Company executed an extension to the exclusivity agreement to extend exclusivity through December 18,
2012.
In
early December 2012, the SRC agreed that Parent could begin discussing management arrangements with the Continuing Executives, as these members of executive management would be the
only members of executive management retained after the merger. Following discussions, Parent and such parties came to a general understanding regarding their potential future employment.
Also
in early December 2012, the parties determined to comply with the going private rules in connection with the transaction and change the structure of the transaction to a
one-step merger in light of the fact that the transaction would not be able to close prior to December 31, 2012.
During
mid-December and through December 20, 2012, Baker Botts provided comments and entered into negotiations with counsel to the Company and Parent on behalf of
certain members of
executive management with respect to the support agreement, management agreements, separation agreements and the retirement and consulting agreement.
On
December 10, 2012, Parent distributed a form of severance arrangement for J. Bryan Baker, Joe S. Greak and Jim W. Moore to members of the SRC.
At
a Board meeting on December 10, 2012, representatives of Haynes and Boone updated the Board as to the status of negotiations with Parent.
On
December 11, 2012, representatives of Mayer Brown sent to representatives of Haynes and Boone a form of employment agreement and framework for compensation relating to the
Continuing Executives.
On
December 12, 2012, representatives of Haynes and Boone sent drafts of the merger agreement and related documents, including summaries thereof, to the members of the Board of
Directors by overnight mail.
Also
on December 12, 2012, the Compensation Committee of the Board engaged Exequity LLP to review compensation and severance arrangements with the Company's management.
As
of December 14, 2012, the parties continued work toward finalizing the transaction agreements.
At
a Board meeting on December 17, 2012, representatives of Haynes and Boone updated the Board on the status of the negotiations and summarized for the Board the terms of the
merger agreement and related agreements. In particular, the Board discussed with representatives of Haynes
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and
Boone the no-shop provision, the termination provisions and remedies available for breaches of the merger agreement, including a termination fee and a reverse termination fee. In
addition, representatives of Haynes and Boone described various requirements in connection with a going private transaction subject to Rule 13e-3 under the Exchange Act, including
the requirement to state whether or not the merger is conditioned on a majority of the minority vote as well as whether the transaction, and not just the offer price, is fair to unaffiliated
stockholders. The Board noted that in this transaction, because Parent's affiliates owned only 150,000 shares of the
Company's outstanding common stock, requiring a majority of the minority vote would not materially increase the protections to unaffiliated stockholders. Also at the Board meeting, LMM informed the
Board that certain affiliates of LMM (but not the LMM deal team involved in the financial advisory engagement for the Company) have provided investment banking services to Värde and
certain of its affiliates unrelated to the merger, for which services Värde and certain of its affiliates paid to affiliates of LMM during 2011 through mid-December 2012 aggregate fees
of approximately $5 million. The Board and LMM further discussed the services and fees paid by Värde and certain of its affiliates.
At
a Board meeting on December 20, 2012, the Board discussed the proposed transaction with Parent, the Company's present financial condition and potential alternatives to the
sale. Representatives of legal counsel, Haynes and Boone and Morris Nichols, and the Company's financial advisor, LMM, were also present at the meeting.
The
Board noted that although the Company had moderate cash flow in 2012, a portion of the cash flow was from non-recurring sales of non-core assets and such cash
flow was insufficient to sustain the Company's growth. The Board believed that a liquidation process was not attractive because, even though stockholders might receive distributions in a liquidation,
an announcement of an intention to liquidate would reduce the value of the Company because its operating performance would likely be adversely affected by employee attrition. The Board recognized that
the lack of funding had resulted in the Board not being able to expand the financial performance of the Company, and without growth, the underlying value of the Company was eroding and it was becoming
less likely that the Company could obtain funding. The Board believed that the fact that the Company's stock traded in the micro-cap market further exacerbated the Company's inability to
obtain funding because larger companies were perceived to have more valuable servicing platforms. The Board also discussed with management and LMM the Board's view that the Company's value as a viable
company was dependent on having a capital base to acquire new assets for its own account and without acquisitions of earning assets, the Company's value would erode, making it more difficult to obtain
liquidity. It was noted that, based on then current debt markets and the Company's financial condition, it would probably be difficult for the Company to obtain financing on terms similar to the
facility with Bank of Scotland. The Board also discussed with representatives of LMM the services of certain affiliates of LMM and related fees paid by Värde and certain of its
affiliates as previously discussed at the Board's December 17th meeting. Representatives of LMM confirmed that no members of the LMM deal team involved in the financial advisory engagement for the
Company had provided investment banking services to Värde or its affiliates.
Also
at this meeting, representatives of Haynes and Boone discussed the Board's fiduciary duties in connection with the proposed transaction and reported that there had not been any
material changes to the transaction documents since their distribution to the Board prior to the Board meeting on December 17, 2012. The Board then discussed certain provisions of the merger
agreement, including the no-shop provision and the negative covenants on the operation of the Company's business pending closing. Also at this meeting, LMM reviewed with the Board its
financial analysis of the merger consideration and rendered to the Board an oral opinion, confirmed by delivery of a written opinion dated December 20, 2012, to the effect that, as of that date
and based upon and subject to the assumptions, factors and qualifications set forth in such opinion, the merger consideration to be paid to holders of Company common stock (other than excluded
holders) was fair, from a financial point of
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view,
to such holders. Representatives of Exequity LLP joined the Board meeting by telephone and advised the Board that, in its view, the proposed arrangements with management were within
market for change of control transactions.
Following
this discussion, the Board meeting was adjourned to allow the SRC to meet and discuss its recommendation to the Board. The SRC met and, after discussion, determined that the
merger agreement and the transactions contemplated thereby, including the merger, were advisable and fair to, and in the best interests of, the Company's stockholders, including the unaffiliated
stockholders, and recommended to the Board that the Board approve the merger agreement and the transactions contemplated thereby, including the merger as well as the terms of the equity commitment
letter, the limited guarantee, the support agreement, the management agreements with Continuing Executives, the retirement and consulting agreement with Mr. Sartain and the separation
agreements.
The
Board meeting then reconvened and based in part on the recommendation of the SRC, the Board determined that the merger agreement and the transactions contemplated thereby, including
the merger, was advisable and fair to, and in the best interests of, the Company's stockholders, including the unaffiliated stockholders, and approved the merger agreement as well as the terms of the
equity commitment letter, the limited guarantee, the support agreement, the management agreements with Continuing Executives, the retirement and consulting agreement with Mr. Sartain and the
separation agreements. In addition, the Board unanimously determined that due to the nominal stock ownership by Parent's affiliates, a majority of the minority vote requirement would not materially
increase the protections for the Company's unaffiliated stockholders. Mr. Sartain abstained from the vote with respect to the approval of his arrangement with Parent.
In
early March 2013, in connection with the preparation of amended preliminary proxy materials responding to SEC comments, the Company was informed that the aggregate amount of fees paid
by Värde and certain of its affiliates to affiliates of LMM was greater than the amount that LMM previously disclosed to the Board at the December 17, 2012 and
December 20, 2012 Board meetings and that LMM was in the process of obtaining revised information.
On
March 18, 2013, the Company received information from representatives of LMM (which information was confirmed by representatives of Värde) that the aggregate
amount of fees (including interest) paid during the two-year period prior to December 20, 2012 (the date of LMM's opinion) by Värde and certain of its affiliates to
affiliates of LMM for certain investment banking services unrelated to the merger was approximately $19.2 million. Of this amount, approximately $11.6 million was paid to an affiliate of
LMM for placement agent and other financial advisory services with respect to various Värde funds and approximately $7.6 million was paid to one of LMM's London-based affiliates
for restructuring and related services to or in respect of Crest Nicholson plc, an affiliate of Värde (approximately $5.0 million of which was paid directly by Crest
Nicholson plc and one of its subsidiaries). Of the total fee amount, approximately $6.6 million was
earned and booked prior to, but paid in, the two-year period prior to December 20, 2012.
On
March 21, 2013, the Board met to review and discuss the new fee information. Representatives of legal counsel, Haynes and Boone and Morris Nichols, and the Company's financial
advisor, LMM, were also present at the meeting. The Board discussed with representatives of LMM the services of certain affiliates of LMM and related fees paid by Värde and certain of
its affiliates during the two-year period prior to December 20, 2012. Representatives of LMM confirmed that no members of the LMM deal team involved in the financial advisory
engagement for the Company had provided any investment banking services to Värde or its affiliates. Following further review and discussion, the Board determined that its knowledge of
the new fee information did not adversely impact the Board's decision to recommend that the Company's stockholders vote to adopt the merger agreement because the increased amount of fees was not a
material change to the information upon which the Board
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based
its decision to approve the merger agreement and recommend that the Company's stockholders vote to adopt the merger agreement.
Recommendation of the SRC and Board of Directors; Reasons for Recommending Approval of the Merger
The SRC, by unanimous vote at a meeting held on December 20, 2012, and after consideration of the factors described below,
resolved that the Merger Agreement and the transactions contemplated thereby, including the Merger, were advisable and fair to, and in the best interests of, the Company's stockholders, including the
unaffiliated stockholders, and resolved to recommend that (i) the Board determine that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable and
fair to, and in the best interests of, the Company's
stockholders, including the unaffiliated stockholders, and (ii) the Board recommend that the Company's stockholders vote to adopt the Merger Agreement.
In
the course of its deliberations and making the determination and the recommendations to the Board described above, the SRC considered a number of factors. These factors included
reasons that the SRC viewed as being generally positive or favorable to substantive and procedural fairness, as well as certain reasons that the SRC considered to be generally negative or unfavorable
to substantive and procedural unfairness. The material factors are summarized below.
The
SRC viewed the following factors as being generally positive or favorable in its deliberations and making its determination and the
recommendations:
-
-
the Company's strength, platform value, results of operations and financial condition have been undermined over recent
years due to a lack of funding, a relatively complex corporate financing structure and a business case that is difficult for investors to understand;
-
-
despite the Company's position as a specialist in a large, opportunity-rich environment for investors in
distressed asset portfolios, the Company has been unable to acquire significant portfolios for its own account due to a lack of funding;
-
-
despite efforts to obtain financing from both financial institutions and other investors, the Company has not been
successful in obtaining funding on commercially reasonable terms;
-
-
without funding, the Company's balance sheet is shrinking because as the Company's current portfolio assets mature or are
otherwise resolved, the Company is forced to retire debt instead of reinvesting in a similar amount in new portfolio assets;
-
-
the perceived value of specialty finance companies, such as the Company, is primarily based on the growth of the earning
assets, and a specialty finance company that is not growing is generally viewed as a run-off portfolio with less value, and this perception in turn has made it more difficult for the
Company to obtain funding;
-
-
the Company's ability to purchase distressed assets has been further undermined due to increased competition from
investment firms that have access to significant capital;
-
-
the cash consideration in the Merger provides certainty of value and the fact that the Merger Consideration represented a
20.5% premium to the closing price of the Company's common stock on December 20, 2012, the last trading day before the public announcement of the Merger Agreement, and a 22.8% premium over the
30-day average closing price of the Company's common stock of $8.14 per share as of December 20, 2012;
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-
-
the fact that the extensive negotiations by the SRC with Parent resulted, among other things, in an increase in price to
$10.00 per share from an initial proposed price in the range of $8.50 to $9.00 per share;
-
-
the fact that the Merger Consideration is all cash, which allows stockholders to immediately realize certain value for all
of their shares of common stock and provides liquidity with respect to a stock that is thinly traded;
-
-
the fact that the Board and the SRC had been considering strategic alternatives for over a year and conducted an extensive
process to determine the potential interest in a strategic transaction;
-
-
the fact that, after a review of potential strategic alternatives by the SRC and the Board, with the assistance of the
Company's management and legal and financial advisors, including the possibility of remaining independent, combinations with other merger partners, the possibility of equity or debt public or private
offerings, the possibility of select asset sales or a liquidation, the SRC and the Board believed that the $10.00 per share Merger Consideration was more favorable to the Company's stockholders than
other alternatives given the potential risks, rewards and uncertainties associated with those alternatives as set forth in more detail below:
-
-
the SRC and the Board considered continuing operations as a stand-alone entity, but determined that without sufficient
capital from a strategic transaction, as the balance sheet continued to shrink, it would become even more difficult to obtain funding and long-term stockholder value would continue to
erode;
-
-
the SRC and the Board considered issuing additional equity or debt to provide funding for operations, but given the thin
trading of and general lack of investor interest in the Company's common stock, and the Company's financial condition with insufficient capital and a shrinking balance sheet, the SRC and the Board
believed that it was unlikely that investors would provide sufficient capital to maintain the franchise value of the Company and that any such transaction would likely be significantly dilutive to the
Company's stockholders; and
-
-
the SRC and the Board considered liquidation as an option but the Board believed that liquidation would not maximize
stockholder value because of the costs of liquidation, including the costs of remaining a public company, and the belief that the Company's value would be diminished once it had announced a
liquidation due to the difficulties of realizing full values of residual assets in an expedited fashion;
-
-
the fact that the Company's stockholders would recognize significant value through the Merger Consideration and would no
longer be subject to market, economic and other risks that arise from owning an equity interest in a public company which includes the risk that the market price for the common stock could be
adversely impacted by earnings fluctuations that may result from changes in the Company's operations or the Company's industry generally;
-
-
the fact that the Board had determined in December 2011 to focus on its core business of portfolio acquisition and
servicing and proceed with the orderly sale of its non-core businesses, but even after selling certain assets in 2012 for approximately $8.7 million, the Company did not have
sufficient capital to sustain long-term growth;
-
-
the fact that the Board requested and received the opinion and financial presentation of LMM, dated December 20,
2012, to the Board as to the fairness, from a financial point of view and as of such date, of the Merger Consideration to be paid to holders of Company common stock (other than excluded holders),
which opinion was based on and subject to the procedures followed, assumptions made, matters considered and qualifications and limitations on the review
33
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34
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In the course of its deliberations and making its recommendations described above, the SRC considered the following factors relating to the procedural safeguards
that the SRC believes were present to ensure the fairness of the Merger to the Company's stockholders, including the unaffiliated stockholders, each of which the SRC believes supports the making of
its recommendations:
-
-
the $10.00 per share cash consideration and the other terms and conditions of the Merger Agreement resulted from extensive
negotiations between Parent and its advisors, on the one hand, and the SRC and its advisors, on the other hand;
-
-
the fact that seven of the eight members of the Board of Directors are independent directors who are not employees or
officers of the Company or affiliates of Parent, Merger Subsidiary or the Värde Filing Persons;
-
-
the fact that the SRC is comprised of three independent directors who are not employees or officers of the Company or
affiliates of Parent, Merger Subsidiary or the Värde Filing Persons;
-
-
the fact that, other than the receipt of Board and SRC fees (which are not contingent upon the consummation of the Merger
or a recommendation of the Merger), customary director and officer insurance and settlement of options and vesting of restricted stock, seven of the eight members of the Board and each of the SRC
members do not have interests in the Merger different from, or in addition to, those of unaffiliated stockholders;
-
-
the fact that the discussions related to the Merger and the consideration and negotiation of the price and other terms of
the proposed Merger were conducted with the oversight of the SRC and the Board;
-
-
the fact that Mr. Sartain, the only director of the Company who is also an officer of the Company, abstained from
the vote with respect to the retirement and consulting agreement due to his interest in such agreement;
-
-
the fact that the retirement and consulting agreement, management agreements and separation agreements (collectively, the
"
Executive Arrangements
") were not negotiated nor were the general terms disclosed until the $10.00 price per share Merger Consideration had been
negotiated between the SRC and Parent;
-
-
the fact that the Compensation Committee of the Board hired Exequity LLP, an independent compensation consultant, to
review the terms of the Executive Arrangements and Exequity LLP concluded that the Executive Arrangements were within market for change of control transactions;
-
-
the fact that the SRC was actively involved in the Company's strategic process for many months and that the SRC and the
Board (i) were advised by Haynes and Boone, the Company's legal counsel, Morris Nichols, as Delaware counsel to the independent members of the Board (including the SRC), and LMM, the Company's
financial advisor, (ii) conducted extensive deliberations and discussions with the Company's management and such advisors and (iii) conducted extensive negotiations with Parent regarding
the terms of the Merger Agreement and the proposed Merger;
-
-
the fact that the SRC and the Board discussed whether the adoption of the Merger Agreement should require the affirmative
vote of a majority of the outstanding shares held by unaffiliated stockholders, and following such discussion, determined not to require this vote because of the insignificant number of shares held by
Parent, Merger Subsidiary and the Värde Filing Persons;
-
-
the ability of the Company's stockholders who comply with all of the required procedures within applicable time periods
under Delaware law to seek appraisal of the "fair value" of their shares;
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-
-
the Company's ability, under certain circumstances, to consider and respond to an unsolicited written acquisition
proposal, furnish confidential information to, and engaged in discussions or negotiations with, the person or parties making such a proposal, if the SRC, prior to taking such actions, determines in
good faith that such acquisition proposal either constitutes a superior proposal or could reasonably be expected to result in a superior proposal;
-
-
the Company's ability, under certain circumstances, prior to stockholder approval having been obtained for the merger
proposal, to terminate the merger agreement in order to enter into an agreement providing for a superior proposal, provided it complies with its relevant obligations, including, if applicable, paying
to Parent the applicable termination fee and certain expenses;
-
-
the Board's ability in certain circumstances to change, qualify, withdraw or modify its recommendation that the
stockholders vote to adopt the merger agreement; and
-
-
that while, pursuant to the Support Agreement, the parties to the Support Agreement have committed to vote in favor of
approving the Merger Agreement and the Merger, such commitments terminate automatically upon termination of the Merger Agreement in accordance with its terms, including termination by the Company to
accept a superior proposal and in other circumstances specified in the Support Agreement.
In
the course of its deliberations and making the recommendations described above, the SRC considered the following factors to be generally negative or unfavorable in its deliberations
and making its recommendations:
-
-
the risk that the proposed Merger might not be completed in a timely manner or at all, including the risk that the Merger
will not occur if the equity financing is not obtained;
-
-
the risks and costs to the Company if the proposed Merger does not close, including the diversion of management and
employee attention, potential employee attrition and the potential disruptive effect on the Company's various business relationships, including its relations with affiliates of Parent pursuant to
existing contractual relationships;
-
-
the fact that following the completion of the Merger, unaffiliated stockholders would not be able to participate in the
future growth or earnings of the Company;
-
-
the restrictions on the Company's operations prior to completion of the Merger, which may delay or prevent the Company
from undertaking business opportunities that may arise or any other action it would otherwise take with respect to the operations of the Company pending the completion of the Merger;
-
-
the possibility that the $2 million termination fee, and reimbursement of up to $1 million in expenses,
payable by the Company upon the termination of the Merger Agreement under certain circumstances may discourage other potential acquirers from making a competing proposal for a transaction with the
Company;
-
-
the fact that if the proposed Merger is not completed, the Company will be required to pay its own expenses associated
with the negotiation of the Merger Agreement, and the transactions contemplated thereby, as well as, under certain circumstances, to pay Parent a $2 million termination fee, and reimburse
Parent and Merger Subsidiary up to $1 million in expenses in connection with the termination of the Merger Agreement;
-
-
the fact that Parent and Merger Subsidiary are newly formed entities with essentially no assets other than the equity
commitment of the Investors, and that the Company's remedy in the event of breach of the Merger Agreement by Parent or Merger Subsidiary may be limited to receipt of the $5 million termination
fee, plus up to $1 million in expenses, and that under certain circumstances the Company may not be entitled to a termination fee or other damages at all;
-
-
the fact that an all cash transaction would be taxable to the Company's stockholders that are U.S. holders for U.S.
federal income tax purposes; and
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-
-
the terms of the participation in the Merger by Messrs. Sartain, Horrell, Holmes and DeWitt and the fact that they
may have interests in the transaction that are different from, or in addition to, those of unaffiliated stockholders.
The
SRC did not consider the Company's going concern value as a factor because the SRC believed that there were questions about the Company's ability to continue as a going concern in
the absence of obtaining significant funding, and the SRC did not believe that the Company would be able to obtain such funding in light of its financial condition. The SRC had discussed with
management whether there was franchise value related to the servicing entity as an ongoing entity, but management informed the SRC that historically the Company's servicing business had operated at a
loss. The SRC reviewed management's projections which were based on a run-off scenario in which the Company would not purchase additional assets but would collect and resolve its existing
portfolio assets and liquidate the business by 2016.
The
SRC did not consider the purchase prices paid in transactions described under "
Certain Purchases and Sales of FirstCity Common Stock
,"
because such transactions occurred after the SRC made its recommendations concerning the Merger Agreement and the transactions contemplated thereby, including the Merger. The SRC noted that Parent,
Merger Subsidiary, the Värde Filing Persons and the Company had not purchased any shares of the Company's common stock during the last two years.
Further,
the SRC did not consider net book value a material indicator of the value of the Company because it believed that net book value reflects historical costs and is not a material
indicator of the value of the Company's common stock. The Company's net book value per share was $12.19 as of December 31, 2012.
The
SRC was not aware of any firm offer for a merger, sale of all or a substantial part of the Company's assets or a purchase of a controlling amount of the Company's securities having
been received by the Company from anyone other than Parent in the two years preceding the signing of the Merger Agreement.
The
SRC also considered the current and historical market prices of the Company's common stock. Specifically, the SRC considered the fact that the Merger Consideration represented a
20.5% premium to the closing price of the Company's common stock on December 20, 2012, the last trading day before the public announcement of the Merger Agreement, and a 22.8% premium over the
30-day average closing price of the Company's common stock of $8.14 per share as of December 20, 2012. The Merger Consideration represents a premium within the range of observed
premiums implied in selected all-cash transactions noted by LMM for the Board as an informational factor, but the Merger Consideration implied a premium that was lower than the observed median premium
and observed average premiums of such transactions. In addition, the SRC considered that the closing price of the Company's common stock on December 20, 2012 generally approximated the price at which
shares had traded approximately nine years previously.
The
foregoing discussion of the information and factors considered by the SRC addresses the material factors considered by the SRC in its deliberations of the Merger Agreement. In view
of the variety of factors considered in connection with its evaluation of the Merger Agreement and the Merger, the SRC did not find it practicable to, and did not, quantify or otherwise assign
relative weights to the specific factors considered in its deliberations or in making its recommendations. In addition, individual SRC members may have given different weights to factors. The SRC did
not structure the transaction to require approval of a majority of unaffiliated stockholders or retain an unaffiliated representative to act solely on behalf of unaffiliated stockholders for purposes
of negotiating the Merger Agreement. Nonetheless, the SRC recommended the Board approve the Merger Agreement and the transactions contemplated thereby, including the Merger, based upon the totality of
the information presented to and considered by it. The SRC conducted extensive discussions
37
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of,
among other things, the factors described above, and unanimously determined that the Merger Agreement is advisable and fair to, and in the best interests of, the Company's stockholders, including
the unaffiliated stockholders, and determined to recommend that the Board approve the Merger Agreement and the transactions contemplated thereby, including the Merger, and recommend that the
stockholders of the Company vote to adopt the Merger Agreement.
Although seven of the eight members of the Board are independent from Parent and its affiliates, the Board created the SRC for
administrative purposes to oversee the strategic review process, including to evaluate and negotiate a potential strategic transaction, including the Merger, and to make recommendations to the Board
to approve or reject a strategic transaction. The Board authorized the SRC to make recommendations to the Board, but the SRC did not have authority to approve or reject a strategic transaction. In
addition, because the Board contemplated that any potential acquirer might be interested in retaining certain members of management in a sale, including Mr. Sartain, in early 2012, the Board
determined that Mr. Sartain was not independent and should recuse himself from deliberations and votes relating to the strategic process. Although Mr. Sartain voted to approve the Merger
Agreement and the transactions contemplated thereby, including the Merger, he abstained from the vote as it related to the retirement and consulting agreement due to his interest therein.
On
December 20, 2012, after extensive discussion and based on the recommendations of the SRC and the factors considered by the SRC as described above, the Board, by unanimous
vote, (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable and fair to, and in the best interests of, the Company's
stockholders, including the unaffiliated stockholders, (ii) approved the Executive Arrangements, the Support Agreement, the Limited Guarantee and the Equity Commitment Letter and
(iii) recommended that the Company's stockholders vote to adopt the Merger Agreement.
In
determining that the Merger Agreement is advisable and fair to, and in the best interests of, the Company's stockholders, including the unaffiliated stockholders, and approving the
Merger Agreement and the transactions contemplated thereby, including the Merger, the Board considered a number of factors, including the following material factors:
-
1.
-
The
recommendations of the SRC; and
-
2.
-
The
factors described above that were considered by the SRC, including the factors that the SRC considered positive or favorable, the factors that the SRC
considered relating to procedural safeguards and the factors that the SRC considered negative or unfavorable, of which the Board adopted in determining that the Merger Agreement is advisable and fair
to, and in the best interests of the Company's stockholders, including the unaffiliated stockholders.
The
foregoing discussion of the information and factors considered by the Board is not intended to be exhaustive, but includes the material factors considered by the Board. These factors
included reasons that the Board viewed as being generally positive or favorable to substantive and procedural fairness, as well as certain reasons that the Board viewed as being generally negative or
unfavorable to substantive and procedural unfairness. In view of the variety of factors considered in connection with its evaluation of the Merger, the Board did not find it practicable to, and did
not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendations. In addition, individual directors may have given different
weights to different factors. Those factors generally figured positively or favorably.
Despite
the fact that the SRC did not have the authority to approve or reject any strategic transaction, the Board believes the Merger is procedurally fair based on the factors described
above
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and
because the Merger Agreement was unanimously approved by all of the directors who were not employees of the Company.
Opinion of the Company's Financial Advisor
LMM is acting as the Company's financial advisor in connection with the Merger. As part of that engagement, the Board requested that
LMM evaluate the fairness, from a financial point of view, of the Merger Consideration to be paid to holders of Company common stock (other than excluded holders). On December 20, 2012, at a
meeting of the Board held to evaluate the Merger, LMM rendered to the Board an oral opinion, confirmed by delivery of a written opinion dated December 20, 2012, to the effect that, as of that
date and based upon and subject to the assumptions, factors and qualifications set forth in such opinion, the Merger Consideration to be paid to holders of
Company common stock (other than excluded holders) was fair, from a financial point of view, to such holders.
The full text of LMM's written opinion, which sets forth, among other things, the procedures followed, assumptions made, matters considered and qualifications and
limitations on the review undertaken by LMM in connection with its opinion, is attached to this proxy statement as Annex B and is incorporated into this proxy statement by reference. LMM's
engagement and its opinion were for the benefit of the Board (in its capacity as such) and such opinion was rendered to the Board in connection with its evaluation of the Merger Consideration from a
financial point of view and did not address any other aspects of the Merger. LMM's opinion did not address the relative merits of the Merger as compared to any other transaction or business strategy
in which the Company might engage or the merits of the underlying decision by the Company to engage in the Merger. LMM's opinion was not intended to and does not constitute a recommendation to any
stockholder as to how such stockholder should vote or act with respect to the Merger or any related matter.
In connection with its opinion, LMM:
-
-
reviewed the financial terms and conditions of a draft, dated December 20, 2012, of the Merger Agreement;
-
-
reviewed certain publicly available historical business and financial information relating to the Company;
-
-
reviewed various financial forecasts and other estimates and data provided to LMM by the Company relating to the Company's
business and discussed certain sensitivities to such financial forecasts and other estimates and data with the Company's senior management, in each case as approved for LMM's use by the Board;
-
-
held discussions with members of the Company's senior management with respect to the business and prospects of the
Company;
-
-
reviewed public information with respect to certain other companies in lines of business LMM believed to be generally
relevant in evaluating the business of the Company;
-
-
reviewed the financial terms of certain business combinations involving companies in lines of business LMM believed to be
generally relevant in evaluating the business of the Company;
-
-
reviewed historical stock prices and trading volumes of Company common stock; and
-
-
conducted such other financial studies, analyses and investigations as LMM deemed appropriate.
LMM
assumed and relied upon the accuracy and completeness of the foregoing information, without independent verification of such information. LMM did not conduct any independent
valuation or appraisal of any of the assets or liabilities (contingent or otherwise) of the Company or concerning the solvency or fair value of the Company, and LMM was not furnished with any such
valuation or appraisal. With respect to the financial forecasts and other estimates and data (including related
39
Table of Contents
sensitivities)
utilized by LMM in its analyses, LMM assumed, with the Company's consent, that they were reasonably prepared on bases reflecting the best currently available estimates and judgments as
to the future financial performance of the Company. LMM assumed no responsibility for and expressed no view as to any forecasts, estimates or data or the assumptions on which they were based. In
addition, LMM relied, at the Company's direction, on the assessments of the Company's management and the Board as to (i) the liquidity needs of and capital resources available to the Company to
fund its operations and potential for new investments and (ii) the planned divestitures by the Company or its affiliates of certain assets and the expected timing of and proceeds to be received
from such divestitures. LMM is not an expert in the evaluation of loan and lease portfolios or allowances for related losses and LMM was not requested to, and it did not, conduct a review of
individual credit files or make an analysis of, nor did LMM express any opinion or view as to, the adequacy or sufficiency of the Company's or any other entity's allowances for losses or any other
related matters. LMM's opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to LMM as of, the date of its opinion. LMM
assumed no responsibility for updating or revising its opinion based on circumstances or events occurring after the date of its opinion. LMM did not express any opinion as to the price at which shares
of Company common stock would trade at any time subsequent to the announcement of the Merger.
In
rendering its opinion, LMM assumed, with the Company's consent, that the Merger would be consummated on the terms described in the Merger Agreement, without any waiver or modification
of any material terms or conditions. Representatives of the Company advised LMM, and LMM assumed, that the Merger Agreement, when executed, would conform to the draft reviewed by LMM in all material
respects. LMM also assumed, with the Company's consent, that obtaining the necessary governmental, regulatory or third-party approvals and consents for the Merger would not have an adverse effect on
the Company or the Merger. LMM did not express any opinion as to any tax or other consequences that might result from the Merger, nor did LMM's opinion address any legal, tax, regulatory or accounting
matters, as to which LMM understood that the Company obtained such advice as it deemed necessary from qualified professionals. LMM expressed no view or opinion as to any terms or other aspects of the
Merger (other than the Merger Consideration to the extent expressly specified in its opinion), including, without limitation, the form or structure of the Merger or any terms, aspects or implications
of any support agreements or other agreements or arrangements entered into in connection with, or contemplated by, the Merger. In addition, LMM expressed no view or opinion as to the fairness of the
amount or nature of, or any other aspects relating to, the compensation to any officers, directors or employees of any parties to the Merger, or class of such persons, relative to the Merger
Consideration or otherwise. The issuance of LMM's opinion was approved by LMM's opinion committee. Except as described in this summary, the Company imposed no other instructions or limitations on LMM
with respect to the investigations made or the procedures followed by it in rendering its opinion.
In
preparing its opinion to the Board, LMM performed a variety of financial and comparative analyses. The following is a brief summary of the material financial and comparative analyses
that LMM deemed to be appropriate for this type of transaction and that were reviewed with the Board by LMM in connection with rendering its opinion. The preparation of a financial opinion is a
complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances
and, therefore, is not readily susceptible to partial or summary description. In arriving at its opinion, LMM considered the results of all of the analyses undertaken by it and assessed as a whole and
did not draw, in isolation, conclusions from or with regard to any one factor or method of analysis considered by it. Rather, LMM made its determination as to fairness on the basis of its experience
and professional judgment after considering the results of all of the analyses. Accordingly, LMM believes that its financial analyses must be considered as a whole and that selecting portions of its
analyses and factors or focusing on information presented in tabular format, without considering all analyses and factors or
40
Table of Contents
the
narrative description of the analyses, could create a misleading or incomplete view of the processes underlying its analyses and opinion.
In
its financial analyses, LMM considered industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of the
Company. No company or transaction used in LMM's financial analyses is identical to the Company or the Merger,
and an evaluation of the results of those analyses is not entirely mathematical. Rather, the analyses involve complex considerations and judgments concerning financial and operating characteristics
and other factors that could affect the public trading, acquisition or other values of the companies and transactions analyzed. The estimates contained in LMM's analyses and the ranges of valuations
resulting from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested
by the analyses. In addition, analyses relating to the value of businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold
or acquired. Accordingly, the estimates used in, and the results derived from, LMM's analyses are inherently subject to substantial uncertainty.
The financial analyses summarized below include information presented in tabular format. In order to fully understand LMM's financial analyses, the tables must be
read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data in the tables below without considering the full
narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of LMM's financial analyses.
Selected Public Companies Analysis.
LMM reviewed publicly available financial information of the following 20 selected U.S.
publicly traded companies
with market capitalizations of under $750 million as of December 19, 2012 that LMM deemed relevant taking into account the Company's business operations, four of which are commercial
finance companies, three of which are receivables management companies, three of which are specialty commercial real estate (CRE) services companies and 10 of which are business development companies
(BDC) that have been publicly traded companies for more than 180 days:
|
|
|
Selected Commercial Finance Companies
|
|
Selected Receivables Management Companies
|
Marlin Business Services
Corp.
|
|
Asset Acceptance Capital
Corp.
|
MicroFinancial
Incorporated
|
|
Asta Funding,
Inc.
|
Mitcham Industries,
Inc.
|
|
Encore Capital Group,
Inc.
|
NewStar Financial,
Inc.
|
|
|
Selected Specialty CRE Services Companies
|
|
Selected Business Development Companies
|
Federal Agricultural Mortgage
Corp.
|
|
Fidus Investment
Corporation
|
Resource America,
Inc.
|
|
Gladstone Capital
Corporation
|
Walker & Dunlop,
Inc.
|
|
Gladstone Investment
Corporation
|
|
|
Horizon Technology Finance
Corporation
|
|
|
Kohlberg Capital
Corporation
|
|
|
Medley Capital
Corporation
|
|
|
NGP Capital Resources
Company
|
|
|
PennantPark Floating Rate
Capital Ltd.
|
|
|
Solar Senior
Capital Ltd.
|
|
|
THL Credit,
Inc.
|
LMM reviewed closing stock prices of the selected companies on December 19, 2012 as multiples of tangible book value per share as of September 30,
2012 and calendar year 2012 estimated earnings per share ("EPS"). The overall observed low, median, average and high multiples for the selected companies of tangible book value per share as of
September 30, 2012 were 0.73x, 1.07x, 1.13x and
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1.99x,
respectively, and of calendar year 2012 estimated EPS multiples were 7.0x, 11.2x, 12.5x and 29.9x, respectively. LMM then applied selected multiple ranges of tangible book value per share as of
September 30, 2012 of 0.73x to 1.07x and calendar year 2012 estimated EPS of 7.0x to 11.2x derived from the selected companies to corresponding data of the Company, including the Company's
estimated EPS as adjusted to exclude the full-year earnings impact of recent and near-term planned divestitures per the Company's management. Financial data of the selected
companies were based on publicly available research analysts' estimates, public filings and other publicly available information. Financial data of the Company were based on the Company's public
filings and internal estimates of the Company's management. This analysis indicated the following approximate implied per share equity value reference ranges for the Company, as compared to the Merger
Consideration:
|
|
|
|
|
Implied Per Share Equity Value
Reference Ranges Based on:
|
|
|
Tangible Book Value
|
|
EPS
|
|
Merger
Consideration
|
$8.83$12.75
|
|
$8.45$13.27
|
|
$10.00
|
Selected Precedent Transactions Analysis.
LMM reviewed, to the extent publicly available, financial information relating to the
following eight
selected all-cash U.S transactions that LMM deemed relevant taking into account the Company's business operations with transaction values of $40 million to $300 million
announced between January 1, 2003 and December 19, 2012 involving
specialized commercial mortgage banking companies, diversified commercial lending companies, diversified mortgage lending companies, diversified specialty lending companies, niche commercial lending
companies and business development corporations:
|
|
|
|
|
Date Announced
|
|
Acquiror
|
|
Target
|
06/07/12
|
|
Walker & Dunlop,
Inc.
|
|
CW Capital,
LLC
|
10/22/09
|
|
EverBank Financial
Corp
|
|
Tygris Commercial Finance
Group, Inc.
|
06/08/05
|
|
MuniMae, LLC
|
|
Glaser Financial
Group Inc.
|
01/29/04
|
|
Sumitomo
Corporation
|
|
Oxford Finance
Corporation
|
09/15/03
|
|
Rabobank Nederland
/FI
|
|
Lend Lease Agri-Business,
Inc.
|
08/14/03
|
|
Wachovia
Corporation
|
|
Lend Lease Mortgage
Capital
|
07/25/03
|
|
Hudson United
Bancorp
|
|
Flatiron Credit Company,
Inc.
|
05/07/03
|
|
General Motors Acceptance
Corp.
|
|
Lend Lease's U.S. Debt
Advisory Group/CapMark
|
LMM reviewed the purchase prices paid for the target companies in the selected transactions as a multiple of tangible book value per share as of the most
recently completed quarter (except in the case of the Lend Lease Agri-Business, Inc., Lend Lease Mortgage Capital and Lend Lease's U.S. Debt Advisory Group/CapMark transactions in which
tangible book value per share was not publicly disclosed and for which book value per share was utilized). The overall low, median, average and high tangible book value per share multiples observed
for the selected transactions were 0.52x, 1.07x, 1.18x and 2.23x. LMM then applied a selected multiple range of tangible book value per share of 0.52x to 1.07x derived from the selected transactions
to the Company's tangible book value per share as of September 30, 2012. Financial data of the selected transactions were based on publicly available research analysts' estimates, public
filings and other publicly available information. Financial data of the Company were based on the Company's public filings. This analysis indicated the following approximate implied per share equity
value reference range for the Company, as compared to the Merger Consideration:
|
|
|
Implied Per Share
Equity Value Reference Range
|
|
Per Share Merger
Consideration
|
$6.35$12.75
|
|
$10.00
|
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Discounted Cash Flow Analysis.
LMM performed a discounted cash flow analysis to calculate the estimated present values of
after-tax cash
flows that the Company was projected to generate during fiscal years ending December 31, 2013 through the projected terminal year for the Company of December 31, 2016 based on internal
estimates of the Company's management assuming, consistent with such estimates, that no interim dividends would be paid to the Company's stockholders and alternatively assuming, based on certain
sensitivities approved by the Board for LMM's use, the payment of annual dividends in excess of working capital and reduction of the Company's annual operating cash flow. Operating cash flow was
calculated based on management's projections as the Company's net increase (or decrease) in cash and cash equivalents. The cash flows were then discounted to present value as of December 31,
2012 using discount rates ranging from 15.0% to 18.0%, which range was derived taking into account a cost of equity calculation utilizing a capital asset pricing model. This analysis indicated the
following approximate overall implied per share equity value reference range for the Company, as compared to the Merger Consideration:
|
|
|
Implied Per Share
Equity Value Reference Range
|
|
Per Share Merger
Consideration
|
$7.42$10.66
|
|
$10.00
|
Other.
LMM also noted certain additional factors that were not considered part of LMM's financial analyses with respect to its
opinion but were
referenced for informational purposes, including, among other things, the following:
-
-
premiums paid in selected all-cash transactions involving financial services targets with equity values of
$75 million to $500 million, including implied premiums based on the target company's closing stock prices one day, one week and four weeks prior to announcement of the relevant
transaction of approximately (31%), (36%) and (41%) (the observed low premiums), 35% (in each case, the observed median premium), 33%, 30% and 29% (the observed average premiums) and 120%, 108% and
107% (the observed high premiums), respectively; after taking into consideration, among other things, the observed average one-week and four-week premiums, LMM applied a
selected range of implied premiums of 20% to 40% to the closing price of Company common stock as of December 19, 2012, which indicated an implied per share equity value reference range for the
Company of approximately $9.92 to $11.58; and
-
-
historical trading performance of Company common stock during the 52-week period ended December 19,
2012, which indicated overall low and high closing prices for Company common stock during such period of $6.88 to $10.00 per share.
In connection with LMM's services as the Company's financial advisor, the Company has agreed to pay LMM an aggregate fee currently
estimated to be approximately $1.6 million, $150,000 of which was paid in connection with LMM's engagement, $125,000 of which was paid upon delivery of LMM's presentation following completion
of the Company's initial strategic review, $250,000 of which was paid upon delivery of LMM's opinion, and approximately $1.1 million of which is payable contingent on completion of the Merger.
The Company also has agreed to reimburse LMM for reasonable expenses, including fees and expenses of LMM's legal counsel, and to indemnify LMM and related parties against liabilities and other items,
including liabilities under U.S. federal securities laws, arising out of or related to its engagement.
Certain
affiliates of LMM, including Lazard Frères & Co. LLC, the parent of LMM, referred to as Lazard, in the past have provided, currently are providing and in
the future may provide investment banking services to Värde and certain of its affiliates unrelated to the Merger, for which services compensation has been and may be received,
including acting as financial advisor to Värde in
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connection
with the debt restructuring of and acquisition of a majority interest in Crest Nicholson plc in 2011 and as placement agent and/or financial advisor to Värde and certain of
its affiliates for various other transactions. During the two-year period prior to December 20, 2012 (the date of LMM's opinion), Värde and certain of its affiliates paid to such
affiliates of LMM aggregate fees of approximately $19.2 million for such services. Of this amount, approximately $11.6 million was paid to an affiliate of LMM for placement agent and
other financial advisory services with respect to various Värde funds and approximately $7.6 million was paid to one of LMM's London-based affiliates for restructuring and
related services to or in respect of Crest Nicholson plc, an affiliate of Värde (approximately $5.0 million of which was paid directly by Crest Nicholson plc and one of its
subsidiaries). In addition, an executive of an affiliate of Lazard is Chairman of the Board of Directors of Crest Nicholson plc. In the ordinary course of their respective businesses, Lazard, LFCM
Holdings LLC (an entity indirectly owned in large part by managing directors of Lazard) and certain of their and LMM's respective affiliates may actively trade securities of the Company and certain of
its affiliates or certain affiliates and/or portfolio companies of Värde for their own accounts and for the accounts of their customers and, accordingly, may at any time hold a long or
short position in such securities, and also may trade and hold securities on behalf of the Company, Värde and certain of their respective affiliates and/or portfolio companies.
The
Company selected LMM to act as its financial advisor in connection with the Merger based on LMM's qualifications, experience and reputation. LMM is part of the Lazard Group, an
internationally recognized investment banking firm providing a broad range of financial advisory services and, as part of its investment banking business, is regularly engaged in valuations of
businesses and securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, leveraged buyouts and
valuations for other purposes. The consideration payable in the Merger was determined through negotiations between the Company and Värde and was approved by the Board. LMM was not
requested to, and it did not, recommend the specific consideration payable in the Merger or that any given consideration constituted the only appropriate consideration for the Merger. The decision to
enter into the Merger Agreement was solely that of the Board and LMM's opinion and financial analyses were only one of many factors taken into consideration by the Board in its evaluation of the
Merger. Consequently, the financial analyses described above should not be viewed as determinative of the views of the Board or management with respect to the Merger or the consideration payable in
the Merger or as to whether the Board would have been willing to determine that a different consideration was fair.
Position of Parent, Merger Subsidiary and the Värde Filing Persons as to the Fairness of the Merger
Under a potential interpretation of the SEC rules governing "going-private" transactions, each of Parent, Merger Subsidiary and the
Värde Filing Persons may be deemed to be affiliates of the Company and required to express their beliefs as to the fairness of the
Merger to the unaffiliated stockholders of the Company. Parent, Merger Subsidiary and the Värde Filing Persons are making the statements included in this section solely for the purpose
of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. The views of Parent, Merger Subsidiary and the Värde Filing Persons should
not be construed as a recommendation to any the Company stockholder as to how that stockholder should vote on the proposal to adopt the Merger Agreement.
Parent
and Merger Subsidiary attempted to negotiate the terms of a transaction that would be most favorable to them, and not to the stockholders of the Company, and, accordingly, did not
negotiate the Merger Agreement with a goal of obtaining terms that were fair to such stockholders. None of Parent, Merger Subsidiary or the Värde Filing Persons believes that it has or
had any fiduciary duty to the Company or its stockholders, including with respect to the Merger and its terms.
None
of Parent, Merger Subsidiary and the Värde Filing Persons participated in the deliberation process of the SRC or the Board, or in the conclusions of the SRC and the
Board, as to the substantive
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and
procedural fairness of the Merger to the unaffiliated stockholders of the Company, nor did they undertake any independent evaluation of the fairness of the Merger or engage a financial advisor for
such purpose. Parent engaged Sandler O'Neill+Partners, L.P. ("
Sandler O'Neil
") to provide certain negotiation advisory services in
connection with a potential transaction involving the Company. Sandler O'Neil was not asked to deliver and none of the Parent, Merger Subsidiary, the Värde Filing Persons, the SRC or
the Board has received any report, opinion or appraisal as to the fairness, from a financial point of view or otherwise, of the Merger Consideration to be paid or received, as the case may be, in
connection with the Merger. Nevertheless, based on the knowledge and review by Parent, Merger Subsidiary and the Värde Filing Persons of available information regarding the Company and
discussions with members of the Board and the Company's senior management regarding the Company and its business and the factors considered by, and the review and resulting conclusions of, the SRC and
the Board discussed in this proxy statement in "
Special FactorsRecommendation of the SRC and Board of Directors; Reasons for Recommending Approval of the
Merger
" beginning on page 32 (which review and resulting conclusions the Parent, Merger Subsidiary and the Värde Filing Persons expressly adopt), they
believe that the proposed Merger is substantively and procedurally fair to the unaffiliated stockholders of the Company on the basis of the factors discussed below.
Parent,
Merger Subsidiary and the Värde Filing Persons believe that the proposed Merger is substantively fair to the unaffiliated stockholders of the Company based on the
following factors:
-
-
the Company's strength, platform value, results of operations and financial condition have been undermined over recent
years due to a lack of funding, a relatively complex corporate financing structure and a business case that is difficult for investors to understand;
-
-
despite the Company's position as a specialist in a large, opportunity-rich environment for investors in
distressed asset portfolios, the Company has been unable to acquire significant portfolios for its own account due to a lack of funding;
-
-
despite efforts to obtain financing from both financial institutions and other investors, the Company has not been
successful in obtaining funding on commercially reasonable terms;
-
-
without funding, the Company's balance sheet is shrinking because as the Company's current portfolio assets mature or are
otherwise resolved, the Company is forced to retire debt instead of reinvesting a similar amount in new portfolio assets;
-
-
the perceived value of specialty finance companies, such as the Company, is primarily based on the growth of earning
assets, and a specialty finance company that is not growing is generally viewed as a run-off portfolio with less value, and this perception in turn has made it more difficult for the
Company to obtain funding;
-
-
the Company's ability to purchase distressed assets has been further undermined due to increased competition from
investment firms that have access to significant capital;
-
-
the cash consideration in the Merger provides certainty of value and fact that the Merger Consideration represented a
20.5% premium over the closing price of the common stock on December 20, 2012, the last trading day before the public announcement of the Merger Agreement, and a 22.8% premium over the
30-day average closing price of the Company's common stock of $8.14 per share as of December 20, 2012;
-
-
the fact that the extensive negotiations by the SRC with Parent resulted, among other things, in an increase in price to
$10.00 per share from an initial proposed price in the range of $8.50 to $9.00 per share;
-
-
the financial and other terms and conditions of the Merger Agreement were the product of extensive negotiations between
the SRC and its advisors, on the one hand, and Parent and its advisors on the other hand;
45
Table of Contents
-
-
the fact that Parent, Merger Subsidiary and the Värde Filing Persons understood that the Company had
conducted an extensive process of soliciting bids in multiple rounds of bidding and the fact that the Board and the SRC had been considering strategic alternatives for over a year, and ultimately
approved Parent's offer;
-
-
the fact that the Merger Consideration is all cash, which allows stockholders to immediately realize a certain value for
all of their shares of common stock and provides liquidity with respect to a stock that is thinly traded;
-
-
the fact that the Company's stockholders would recognize significant value through the Merger Consideration and would no
longer be subject to the market, economic and other risks that arise from owning an equity interest in a public company which include the risk that the market price for the common stock could be
adversely impacted by earnings fluctuations that may result from changes in the Company's operations and in the Company's industry generally;
-
-
the likelihood that the Merger would be completed based on, among other things (not in any relative order of
importance):
-
-
the fact that Parent had entered into the Equity Commitment Letter for the transaction and did not require third-party
debt financing for the transaction, the limited number and nature of conditions to the equity financing and the obligation of Parent to use its reasonable best efforts to obtain the equity financing,
each of which increases the likelihood of such financing being completed;
-
-
the likelihood and anticipated timing of completing the proposed Merger in light of the scope of the conditions to
completion;
-
-
the fact that the Merger Agreement provides that, in the event of a failure of the Merger to be consummated under certain
circumstances, Parent will pay the Company a $5 million termination fee and reimburse up to $1 million in expenses, without the Company having to establish any damages, and the limited
guarantee of such payment obligation by the Investors; and
-
-
the Company's ability, under certain circumstances pursuant to the Merger Agreement and the Equity Commitment Letter, to
seek specific performance of Parent's obligation to cause the Investors to make the equity contributions to Parent pursuant to the Equity Commitment Letter and of Parent's obligation to effect the
transactions contemplated by the Merger Agreement;
-
-
the other terms of the Merger Agreement and related agreements, including:
-
-
the ability of the Company to furnish information to and engage in discussions or negotiations with a third-party under
certain circumstances;
-
-
the Board's ability, under certain circumstances, to withdraw or modify its recommendation regarding the Merger; and
-
-
the Company's ability, under certain circumstances, to terminate the Merger Agreement to enter into an agreement providing
for a superior proposal; provided, that the Company complies with its obligations to pay to Parent a $2 million termination fee, and reimburse Parent and Merger Subsidiary for up to
$1 million in expenses;
-
-
the fact that all of the Company's stockholders will receive the same consideration per share of common stock;
-
-
the availability of appraisal rights to the Company's stockholders who comply with all of the required procedures under
Section 262 for exercising such rights, which rights allow such holders
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Table of Contents
Parent,
Merger Subsidiary and the Värde Filing Persons believe that the proposed Merger is procedurally fair to the unaffiliated stockholders based on the following
factors:
-
-
$10.00 per share cash consideration and the other terms and conditions of the Merger Agreement resulted from extensive
negotiations between Parent and its advisors, on the one hand, and the SRC and its advisors, on the other hand;
-
-
the fact that seven of the eight members of the Board are independent directors who are not employees or officers of the
Company or affiliates of Parent, Merger Subsidiary or the Värde Filing Persons;
-
-
the fact that the SRC is comprised of three independent directors who are not employees or officers of the Company or
affiliates of Parent, Merger Subsidiary or the Värde Filing Persons;
-
-
the fact that, other than the receipt of Board and SRC fees (which are not contingent upon the consummation of the Merger
or a recommendation of the Merger), customary director and officer insurance and settlement of options and vesting of restricted stock, seven of the eight members of the Board and each of the SRC
members do not have interests in the Merger different from, or in addition to, those of unaffiliated stockholders;
-
-
the fact that the discussions related to the Merger and the consideration and negotiation of the price and other terms of
the proposed Merger was conducted under the oversight of the SRC and the Board;
-
-
the fact that Mr. Sartain, the only director of the Company who is also an officer of the Company, abstained from
the vote with respect to the retirement and consulting agreement due to his interest in such agreement;
-
-
the fact that the Executive Arrangements were not negotiated nor were the general terms disclosed until the $10.00 price
per share Merger Consideration had been negotiated between the SRC and Parent;
-
-
the fact that the Compensation Committee of the Board hired Exequity LLP, an independent compensation consultant, to
review the terms of the Executive Arrangements and Exequity LLP concluded that the Executive Arrangements were within market for change of control transactions;
-
-
the fact that the SRC was actively involved in the Company's strategic process for many months and that the SRC and the
Board (i) were advised by legal and financial advisors, (ii) conducted extensive deliberations and discussions with the Company's management and such advisors and (iii) conducted
extensive negotiations with Parent regarding the terms of the Merger Agreement and the proposed Merger;
-
-
the fact that the Board requested and received an opinion from the Company's financial advisor, dated December 20,
2012, to the Board as to the fairness, from a financial point of view and as of such date, of the Merger Consideration to be paid to holders of Company common stock (other than excluded holders);
-
-
the fact that the SRC and the Board discussed whether the adoption of the Merger Agreement should require the affirmative
vote of a majority of the outstanding shares held by unaffiliated
47
Table of Contents
stockholders,
and following such discussion, determined not to require this vote because of the insignificant number of shares held by Parent, Merger Subsidiary and the Värde Filing
Persons;
-
-
the ability of stockholders who comply with all of the required procedures within applicable time periods under Delaware
law to seek appraisal of the "fair value" of their shares;
-
-
the Company's ability, under certain circumstances, to consider and respond to an unsolicited written acquisition
proposal, to furnish confidential information to, and engage in discussions or negotiations with, the person or parties making such a proposal, if the SRC, prior to taking such actions, determines in
good faith that such acquisition proposal either constitutes a superior proposal or could reasonably be expected to result in a superior proposal;
-
-
the Company's ability, under certain circumstances, prior to stockholder approval having been obtained for the merger
proposal, to terminate the Merger Agreement in order to enter into an agreement providing for a superior proposal, provided it complies with its relevant obligations, including paying to Parent the
applicable termination fee and certain expenses;
-
-
the Board's ability in certain circumstances to change, qualify, withdraw or modify its recommendation that the
stockholders vote to adopt the Merger Agreement;
-
-
that while, pursuant to the Support Agreement, the parties to the Support Agreement have committed to vote in favor of
approving the Merger Agreement and the Merger, such commitments terminate automatically upon termination of the Merger Agreement in accordance with its terms, including termination by the Company to
accept a superior proposal and in other circumstances specified in the Support Agreement; and
-
-
the Board unanimously, which includes a majority of directors who are not employees of the Company, approved the Merger
and entry into the Merger Agreement and resolved to recommend the Merger Agreement for adoption by the Company's stockholders.
Parent,
Merger Subsidiary and the Värde Filing Persons also did not consider the liquidation value of the Company's assets as indicative of the Company's value due to the
fact that the Company is being sold as an ongoing business and the liquidation value is irrelevant to a determination as to whether the Merger is fair to the unaffiliated stockholders. Parent, Merger
Subsidiary and the Värde Filing Persons did not establish a pre-merger going concern value for the Company's equity as a public company for the purposes of determining the
fairness of the Merger Consideration to the unaffiliated stockholders because, following the Merger, the Company will have a different operating strategy, with the goal of more efficiently pursuing
different opportunities and risks as a private company. Also, Parent, Merger Subsidiary and the Värde Filing Persons did not consider the going concern value because Parent, Merger
Subsidiary and the Värde Filing Persons believed that there were questions
about the Company's ability to continue as a going concern in the absence of obtaining significant funding, and Parent, Merger Subsidiary and the Värde Filing Persons did not believe
that the Company would be able to obtain such funding in light of its financial condition. Parent, Merger Subsidiary and the Värde Filing Persons did not consider whether there was
franchise value related to the servicing entity as an ongoing entity, because historically the Company's servicing business had operated at a loss.
Parent,
Merger Subsidiary and the Värde Filing Persons did not consider the purchase prices paid in transactions described under "
Certain Purchases
and Sales of FirstCity Common Stock
," because such transactions occurred after Parent, Merger Subsidiary and the Company had entered into the Merger Agreement. In addition,
Parent, Merger Subsidiary and the Värde Filing Persons did not purchase any shares of the Company's common stock during the last two years.
Parent,
Merger Subsidiary and the Värde Filing Persons were not aware of any firm offer for a merger, sale of all or a substantial part of the Company's assets or a
purchase of a controlling amount
48
Table of Contents
of
the Company's securities having been received by the Company from anyone other than Parent in the two years preceding the signing of the Merger Agreement.
Parent,
Merger Subsidiary and the Värde Filing Persons also considered the current and historical market prices of the Company's common stock. Specifically, Parent, Merger
Subsidiary and the Värde Filing Persons considered the fact that the Merger Consideration represented a 20.5% premium to the closing price of the Company's common stock on
December 20, 2012, the last trading day before the public announcement of the Merger Agreement, and a 22.8% premium over the 30-day average closing price of the Company's common
stock of $8.14 per share as of December 20, 2012. In addition, Parent, Merger Subsidiary and the Värde Filing Persons considered that the closing price of the Company's common
stock on December 20, 2012 generally approximated the price at which shares had traded approximately nine years previously.
The
foregoing discussion of the information and factors considered by Parent, Merger Subsidiary and the Värde Filing Persons in connection with the fairness of the Merger
is not intended to be exhaustive but is believed to include all material factors considered by Parent, Merger Subsidiary and the Värde Filing Persons. Parent, Merger Subsidiary and the
Värde Filing Persons did not find it practicable to assign, and did not, assign or otherwise attach, relative weights to the individual factors in reaching their position as to the
fairness of the Merger. Rather, their fairness determinations were made after consideration of all of the foregoing factors as a whole. While the transaction was not structured to require the approval
of a majority of unaffiliated stockholders and an unaffiliated representative was not retained to act solely on behalf of unaffiliated stockholders, Parent, Merger Subsidiary and the
Värde Filing Persons believe the foregoing factors provide a reasonable basis for their belief that the Merger is substantively and procedurally fair to the unaffiliated stockholders.
This belief should not, however, be construed as a recommendation to any of the Company's stockholders to adopt the Merger Agreement. Parent, Merger Subsidiary and the Värde Filing
Persons do not make any recommendation as to how stockholders of the Company should vote their shares of the Company's common stock relating to the proposal to adopt the Merger Agreement.
Reasons of Parent, Merger Subsidiary and the Värde Filing Persons for the Merger
Under a potential interpretation of the SEC rules governing "going-private" transactions, each of Parent, Merger Subsidiary and the
Värde Filing Persons may be deemed to be affiliates of the Company and required to express their beliefs as to the purposes and reasons for the Merger to the unaffiliated stockholders
of the Company. Parent, Merger Subsidiary and the Värde Filing Persons are making the statements included in this section solely for the purpose of complying with the requirements of
Rule 13e-3 and related rules under the Exchange Act. The views of Parent, Merger Subsidiary and the Värde Filing Persons should not be construed as a recommendation
to any Company stockholder as to how that stockholder should vote on the proposal to adopt the Merger Agreement.
If
the Merger is completed, the Company will become a wholly owned subsidiary of Parent. For Parent and Merger Subsidiary, the purpose of the Merger is to effectuate the transactions
contemplated by the Merger Agreement. For the Värde Filing Persons, the purpose of the Merger is to allow the Investors to indirectly own equity interests in the Company and to bear the
rewards and risks of such ownership after the shares of common stock cease to be publicly traded.
Parent,
Merger Subsidiary and the Värde Filing Persons believe that it is best for the Company to operate as a privately held entity in order to provide the Company with
greater operational flexibility and to allow the Company to focus on continuing improvements to its business without the constraints and distractions caused by the public equity market's valuation of
its common stock. Parent, Merger Subsidiary and the Värde Filing Persons also believe that the Merger will provide the Company with flexibility to pursue certain strategic actions that
it would not be practicable to pursue as a public company, including the ability to pursue business initiatives without focusing on the short-term market
49
Table of Contents
reaction
of the Company's public stockholders with respect to such initiatives or the collective risk tolerance of such public stockholders as it relates to such initiatives. Moreover, Parent, Merger
Subsidiary and the Värde Filing Persons believe that the Company's ability to capitalize on future market opportunities can be improved through the participation of Parent in the
strategic direction of the Company. Parent, Merger Subsidiary and the Värde Filing Persons are proposing that the Company become a privately held entity at this time in order to realize
the benefits of being a private entity as soon as possible and because, after considering all the factors described under "
Special FactorsRecommendation of the SRC
and Board of Directors; Reasons for Recommending Approval of the Merger
" beginning on page 32, the SRC and, upon the recommendation of the SRC, the Board unanimously
accepted the proposal made by Värde and approved the Merger Agreement and the transactions contemplated thereby, including the Merger.
Parent,
Merger Subsidiary and the Värde Filing Persons believe that structuring the transaction as a merger is preferable to other transaction structures because
(i) it will enable Parent to acquire all of the outstanding common stock at the same time and (ii) it represents an opportunity for the Company's unaffiliated stockholders to receive
fair value for their shares of common stock. Further, following the effective time of the Merger, the Continuing Executives are expected to participate in an equity compensation program with respect
to up to 10% of Parent's limited liability company interests. Parent, Merger Subsidiary and the Värde Filing Persons considered certain alternative transaction structures with respect
to the acquisition of the Company, including structuring the transaction as a tender offer. However, allowed Parent, Merger Subsidiary and the Värde Filing Persons believe that no other
structure, including a tender offer would provide the ability to take advantage of the factors discussed in (i) and (ii) above to the same extent as a merger. In addition, a tender offer
structure was rejected, among other reasons, because of the risks associated with the tender of less than the desired amount of the common stock, certain legal issues associated with a tender offer,
and the possible necessity to finance separate purchases of common stock and implementing a second-step merger to acquire any shares of common stock not tendered into any such tender
offer.
SUBMISSION OF STOCKHOLDER PROPOSALS
If the Merger is completed, the Company will have no public stockholders and there will be no public participation in any of the
Company's future stockholder meetings. The Company intends to hold the annual meeting of stockholders in 2013 only if the Merger is not completed.
As
of the date of this proxy statement, the Board knows of no other matters which may be presented for consideration at the special meeting. If, however, any other matter is properly
presented for consideration and action at the meeting or any adjournment or postponement thereof, it is intended that the proxies will be voted with respect thereto in accordance with the best
judgment and in the discretion of the proxy holders.
Pursuant
to the Exchange Act and regulations thereunder, individual stockholders have a limited right to propose for inclusion in a proxy statement proposals for action to be taken at an
annual meeting of the stockholders. Proposals intended to be presented at the annual meeting to be held in 2013 must be received at the Company's principal executive offices no later than
July 1, 2013. Such proposals should be addressed as follows: FirstCity Financial Corporation, P.O. Box 8216, Waco, Texas, 76714-8216, Attention:
Lotte Bostick, Secretary.
With
respect to nominations of one or more persons for election as directors, written notice of the stockholder's intent to make such nomination(s), which notice must comply in all
respects with the requirements set forth in the Company's bylaws, must be mailed or delivered to the attention of the Secretary at the address above and must be received by the Company no later than
30 days, and no sooner than 60 days, prior to the date of the 2013 annual meeting of stockholders or, if such annual meeting is not publicly announced at least 40 days prior to
the date of such annual meeting, no later than the close of business 10 days after the date of such public announcement. The nomination must be made in accordance with the provisions in the
Company's bylaws, and if the presiding officer of the annual meeting determines that the nomination does not comply with the provisions, he may cause the
nomination to be disregarded. A copy of the nomination provisions is available upon request from the Secretary of the Company at the address set forth above.
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ADDITIONAL INFORMATION
The Company files annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any
reports, proxy statements or other information that the Company files at the SEC's public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference room. The Company's public filings are available to the public from the SEC's website at www.sec.gov
and from the Company's website at www.fcfc.com under the "Investors" section.
The
Company will make available a copy of its public filings, without charge, upon written request to: FirstCity Financial Corporation, P.O. Box 8216, Waco,
Texas 76714-8216, Attention: Lotte Bostick, Secretary. Each such request must set forth a good faith representation that, as of the record date, the person making the request
was a beneficial owner of common stock entitled to vote at the special meeting. In order to ensure timely delivery of such documents prior to the special meeting, any such request should be made
promptly to the Company. A copy of any exhibit may be obtained upon written request by a stockholder (for a fee limited to the Company's reasonable expenses in furnishing such exhibit) to: FirstCity
Financial Corporation, P.O. Box 8216, Waco, Texas 76714-8216, Attention: Lotte Bostick, Secretary.
Because
the Merger may be deemed a "going private" transaction, the Company, Parent, Merger Subsidiary and the Värde Filing Persons have filed with the SEC a Transaction
Statement on Schedule 13E-3 with respect to the Merger. The report, opinions or appraisals referenced in this proxy statement and the Schedule 13E-3, including
any amendments and exhibits filed or incorporated by reference as a part of it, are available for inspection as set forth above. The Schedule 13E-3 will be amended to report
promptly any material change in the information set forth in the most recent Schedule 13E-3 filed with the SEC.
The
SEC allows the Company to "incorporate by reference" into this proxy statement the documents the Company files with the SEC. This means that the Company can disclose important
information to
you by referring you to those documents. The information incorporated by reference is considered to be a part of this proxy statement, and later information that the Company files with the SEC will
update and supersede the information in this proxy statement. Information in documents that is deemed, in accordance with SEC rules, to be furnished and not filed shall not be deemed to be
incorporated by reference into this proxy statement. The Company incorporates by reference the documents listed below and, with respect to this proxy statement but not the Schedule 13E-3,
any documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this proxy statement and prior to the date of the special meeting (except
with respect to any reference in such document to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and any information furnished pursuant to Item 2.02 or
Item 7.01 of Form 8-K):
-
-
Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed on
March 21, 2013; and
-
-
Current Report on Form 8-K, filed on January 7, 2013.
The
Company will amend the Schedule 13E-3 to incorporate by reference any additional documents that the Company may file with the SEC under Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this proxy statement and prior to the date of the special meeting to the extent required to fulfill the Company's obligations under the
Exchange Act.
No persons have been authorized to give any information or to make any representations other than those contained in this proxy statement and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company or any other person. This proxy statement is dated April 17, 2013. You should not assume that the information
contained in this proxy
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statement
is accurate as of any date other than that date, and the mailing of this proxy statement to stockholders shall not create any implication to the contrary.
This
proxy statement does not constitute an offer to sell or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person
to whom it is not lawful to make any offer or solicitation in that jurisdiction.
*
* * * *
121
Annex A
AGREEMENT AND PLAN OF MERGER
Among
Hotspurs Holdings LLC,
Hotspurs Acquisition Corporation
and
FirstCity Financial Corporation
December 20,
2012
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TABLE OF CONTENTS
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "
Agreement
"), dated as of December 20, 2012,
by and among Hotspurs Holdings LLC, a Delaware limited liability company ("
Parent
"), Hotspurs Acquisition Corporation, a Delaware corporation
("
Merger Subsidiary
"), and FirstCity Financial Corporation, a Delaware corporation (the "
Company
").
RECITALS
:
WHEREAS,
the respective Boards of Directors of Parent, Merger Subsidiary and the Company have approved the acquisition of the Company by Parent on the terms
and subject to the conditions set forth in this Agreement;
WHEREAS,
the respective Boards of Directors of Merger Subsidiary and the Company have (i) declared advisable and approved this Agreement and the merger of Merger Subsidiary with
and into the Company in which the Company would become a wholly-owned Subsidiary of Parent, as set forth below (the "
Merger
"), in accordance with the
General Corporation Law of the State of Delaware (the "
DGCL
") and upon the terms and subject to the conditions set forth in this Agreement and
(ii) deemed it in the best interests of their respective stockholders to consummate the Merger on the terms and conditions set forth in this Agreement and recommended that this Agreement be
adopted by the stockholders of Merger Subsidiary and the Company, as the case may be;
WHEREAS,
Parent, Merger Subsidiary and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Merger and also to prescribe
various conditions to the Merger;
WHEREAS,
concurrently with the execution and delivery of this Agreement, and as a condition and inducement to the Company's willingness to enter into this Agreement, The
Värde Fund X (Master), L.P., Värde Investment Partners, L.P., Värde Investment Partners (Offshore) Master, L.P. and The
Värde Fund VI-A, L.P. (together, the "
Sponsors
") and Parent have entered into the Equity Commitment Letter (as defined
below), dated as of the date hereof;
WHEREAS,
concurrently with the execution and delivery of this Agreement, and as a condition and inducement to the Company's willingness to enter into this Agreement, certain parties (the
"
Guarantors
") are entering into a limited guarantee in favor of the Company, dated as of the date hereof (the
"
Guarantee
"), with respect to certain obligations of Parent and Merger Subsidiary under this Agreement; and
WHEREAS,
concurrently with the execution and delivery of this Agreement, and as a condition and inducement to the willingness of Parent and Merger Subsidiary to enter into this
Agreement, certain of the Company's stockholders have delivered to Parent a support agreement (the "
Support Agreement
"), dated as of the date hereof,
providing that such stockholders have, among other things, agreed to support the Merger and the other transactions contemplated hereby, each on the terms and subject to the conditions set forth in the
Support Agreement.
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NOW,
THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth herein, Parent, Merger Subsidiary and the Company
agree as follows:
ARTICLE I.
DEFINITIONS
1.1
Definitions.
When
used in this Agreement, the following terms in all of their tenses and cases shall have the meanings assigned to them below or elsewhere in this Agreement as indicated below:
"
ABL
" means American Business Lending, Inc.
"
Acquisition Proposal
" means any inquiry, contract, proposal or offer (whether or not in writing and whether or not delivered to the
stockholders of the Company generally) relating to any of the following (other than the transactions contemplated by this Agreement or the Merger): (a) any merger, share exchange, tender offer
for capital stock, recapitalization, consolidation or other business combination transaction directly or indirectly involving the Company or any of its Subsidiaries, (b) the acquisition in any
manner, directly or indirectly, of any business segment of the Company or its Subsidiaries that generates 15% or more of the Company's consolidated net revenues or net income or assets representing
15% or more of the book value of the assets of the Company and its Subsidiaries, taken as a whole, in each case in a single transaction or a series of related transactions, (c) any proposal for
the issuance or sale by the Company of 15% or more of the Shares or (d) any direct or indirect acquisition of beneficial ownership (as defined under Section 13(d) of the Exchange Act) of
15% or more of the Shares of the Company whether in a single transaction or a series of related transactions;
provided
, that the term "Acquisition
Proposal" shall not include any of the Divestment Transactions.
"
Affiliate
" means, when used with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under
common control with such Person. As used in the definition of "Affiliate," the term "control" means possession, directly or indirectly, of the power to direct or cause the direction of the management
or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Only for purposes of this Agreement and all other agreements and instruments that expressly
incorporate the defined terms contained in this Agreement, the term "Affiliate" when used with respect to either Parent or Merger Subsidiary does not include the Company or any other Person directly
or indirectly controlling, controlled by, or under common control with the Company. Only for purposes of this Agreement and all other agreements and instruments that expressly incorporate the defined
terms contained in this Agreement, the term "Affiliate" when used with respect to the Company does not include Värde Partners, Inc. or any other Person directly or indirectly
controlling, controlled by, or under common control with Värde Partners, Inc.
"
Affiliate Transaction
" shall have the meaning set forth in
Section 4.20
.
"
Agreement
" shall have the meaning set forth in the opening paragraph.
"
Authorization
" shall mean any and all permits, licenses, authorizations, franchises, orders, certificates, registrations or other
approvals granted by any Governmental Authority.
"
Benefit Plans
" shall mean, with respect to a specified Person, any employee pension benefit plan (whether or not insured), as defined in
Section 3(2) of ERISA, any employee welfare benefit plan (whether or not insured) as defined in Section 3(1) of ERISA, any plans that would be employee pension benefit plans or employee
welfare benefit plans if they were subject to ERISA, such as foreign plans and plans for directors, any stock bonus or other equity compensation, stock ownership, stock option, stock purchase, stock
appreciation rights, phantom stock, severance, retention, employment,
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vacation,
holiday, sick leave, change-in-control, deferred compensation and any bonus or incentive compensation plan, agreement, program or policy (whether qualified or
nonqualified, written or oral) sponsored, maintained, or contributed to by the specified Person or any of its Subsidiaries or any such plans which have been so sponsored, maintained or contributed to
within six years prior to the date of this Agreement or with respect to which such Person or any of its Subsidiaries may have any liability;
provided
,
however
, that such term shall not include (a) routine employment policies and procedures developed and applied in the ordinary course of business
and consistent with past practice, including wage policies, (b) workers' compensation insurance and (c) directors and officers liability insurance.
"
Board of Directors
" means, with respect to any Person, the board of directors or other governing body of such Person.
"
Book-Entry Shares
" shall have the meaning set forth in
Section 3.2(a)
.
"
Business Day
" means any day, other than Saturday, Sunday or a United States federal holiday, and shall consist of the time period from
12:01 a.m. through 12:00 midnight Eastern time;
provided
, that for purposes of
Article II
,
"
Business Day
" as it relates to time periods prescribed under the Securities Act or the Exchange Act shall have the meaning given to such term in
Rule 14d-1(g)(3) of the Exchange Act.
"
Bylaws
" means, with respect to any Person, the bylaws of such Person in effect on the date hereof unless the context otherwise requires.
"
Certificate of Incorporation
" means, with respect to any Person, the certificate of incorporation or articles of incorporation, as
applicable, of such Person in effect on the date hereof unless the context otherwise requires.
"
Certificate of Merger
" shall have the meaning set forth in
Section 2.1(c)
.
"
Certificates
" shall have the meaning set forth in
Section 3.2(b)
.
"
Change of Board Recommendation
" shall have the meaning set forth in
Section 6.3(e)
.
"
Closing
" shall have the meaning set forth in
Section 2.1(b)
.
"
Closing Date
" shall have the meaning set forth in
Section 2.1(b)
.
"
COBRA
" shall have the meaning set forth in
Section 4.13(a)
.
"
Code
" shall mean the Internal Revenue Code of 1986, as amended, and the rules and Regulations promulgated thereunder.
"
Company
" shall have the meaning set forth in the opening paragraph.
"
Company Approvals
" shall have the meaning set forth in
Section 4.5
.
"
Company Benefit Plans
" shall mean Benefit Plans with respect to the Company or any of its Subsidiaries.
"
Company Board Recommendation
" shall have the meaning set forth in
Section 4.4(b)
.
"
Company Disclosure Documents
" shall have the meaning set forth in
Section 4.23(a)
.
"
Company Intellectual Property
" shall have the meaning set forth in
Section 4.17
.
"
Company Material Adverse Effect
" shall mean any change, effect, event, circumstance or occurrence that (a) is materially adverse
to the current or future business, assets, properties, liabilities or obligations, results of operations or financial condition of the Company and its Subsidiaries, taken as a whole or
(b) would materially impair the ability of the Company to consummate the transactions contemplated by this Agreement;
provided
, that for purposes
of clause (a) none of the following shall
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constitute,
or shall be considered in determining whether there has occurred, and no event, circumstance, change or effect resulting from or arising out of any of the following shall constitute, a
Company Material Adverse Effect: (i) changes in general economic, regulatory or business conditions in the United States generally or in world capital markets, to the extent such changes or
conditions do not adversely affect the Company and its Subsidiaries, taken as a whole, in a disproportionate manner relative to other similarly situated participants in the industries or markets in
which they operate, (ii) changes in general economic conditions that affect the industries in which the Company and its Subsidiaries conduct their business, to the extent such changes do not
adversely affect the Company and its Subsidiaries, taken as a whole, in a disproportionate manner relative to other similarly situated participants in the industries or markets in which they operate,
(iii) any outbreak of hostilities or war (including acts of terrorism) or natural disasters, in each case, in the United States or elsewhere in which the Company and its Subsidiaries conduct
their business, to the extent such events do not adversely affect the Company and its Subsidiaries, taken as a whole, in a disproportionate manner relative to other similarly situated participants in
the industries or markets in which they operate, (iv) changes that affect the financial services industry generally (including regulatory changes affecting the financial services industry
generally), to the extent such changes do not adversely affect the Company and its Subsidiaries, taken as a whole, in a disproportionate manner relative to other similarly situated participants in the
financial services industry, (v) any change in the trading prices or trading volume of the Company's capital stock, in the Company's credit rating or in any analyst's recommendations with
respect to the Company (
provided
, that the facts and circumstances giving rise to such changes shall not be excluded under this clause (v)),
(vi) any failure by the Company to meet any published or internally prepared earnings or other financial projections, performance measures or operating statistics (whether such projections or
predictions were made by the Company or independent third parties) (
provided
, that the facts and circumstances giving rise to such failure shall not be
excluded under this clause (vi)), (vii) any adoption, implementation, promulgation, repeal, modification, reinterpretation or proposal of any rule, regulation, ordinance, order, protocol
or any other applicable law of or by any national, regional, state or local governmental entity in the United States or elsewhere in the world where the Company or any of its Subsidiaries operate to
the extent that such adoption, implementation, promulgation, repeal, modification, reinterpretation or proposal does not adversely affect the Company and its Subsidiaries, taken as a whole, in a
disproportionate manner relative to other similarly situated participants in the industries or markets in which they operate, (viii) any changes in GAAP or accounting standards or
interpretations thereof, to the extent such changes do not adversely affect the Company and its Subsidiaries, taken as a whole, in a disproportionate manner relative to other similarly situated
participants in the industries or markets in
which they operate, (ix) the Company's failure to maintain the listing of the Shares on the NASDAQ Global Select Market as a result of the trading price of the Shares
(
provided
, that the facts and circumstances giving rise to such failures shall not be excluded under this clause (ix)) or (x) any change
or effect from the announcement or pendency of this Agreement or the Merger.
"
Company Preferred Stock
" shall mean the Optional Preferred Stock of the Company, par value $0.01 per share.
"
Company Related Parties
" shall have the meaning set forth in
Section 8.3(f)(ii)
.
"
Company Restricted Shares
" shall mean each award of restricted Shares.
"
Company Stock Option
" shall have the meaning set forth in
Section 3.3(a)
.
"
Company Stock Plans
" shall mean the Company's (i) 2004 Stock Option and Award Plan, (ii) 2006 Stock Option and Award Plan
and (iii) 2010 Stock Option and Award Plan, each as amended through the date hereof.
"
Company's Consolidated Balance Sheet
" shall mean the consolidated balance sheet of the Company as of December 31, 2011 included in
the Company's Consolidated Financial Statements.
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"
Company's Consolidated Financial Statements
" shall mean (i) the audited consolidated balance sheets of the Company and its
Subsidiaries at December 31, 2010 and 2011 and the related consolidated statements of earnings, stockholders' equity, cash flows and comprehensive income (loss) for the fiscal years ended
December 31, 2009, 2010 and 2011, and (ii) the unaudited consolidated balance sheets of the Company and its Subsidiaries at September 30, 2012 and 2011 and the unaudited
consolidated statements of earnings, stockholders' equity, cash flows and comprehensive income (loss) for the nine months ended September 30, 2012 and 2011, together with the notes thereto and
included in the Company's Current Year's SEC Reports.
"
Company's Disclosure Letter
" shall mean a letter of even date herewith delivered by the Company to Parent prior to the execution of this
Agreement and certified by a duly authorized officer of the Company, which identifies (i) exceptions to the Company's representations and warranties contained in
Article IV
and (ii) the
other matters set forth therein.
"
Confidentiality Agreement
" shall mean that certain confidentiality agreement among Värde Partners, Inc.,
Värde Investment Partners, Inc. and the Company dated July 17, 2012, as amended on August 17, 2012.
"
Continuing Employee
" shall mean the individuals who were employees of the Company or a Subsidiary of the Company immediately prior to the
Effective Time and who continue employment with the Surviving Corporation, Parent, or a Subsidiary or Affiliate of the Company or Parent from and after the Effective Time.
"
Control
" (including the terms "controlled," "controlled by" and "under common control with") means (except where another definition is
expressly indicated) the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management or policies of a Person, whether through the
ownership of stock or other voting securities or as trustee or executor, by contract or credit arrangement or otherwise. Only for purposes of this Agreement and all other agreements and instruments
that expressly incorporate the defined terms contained in this Agreement, the term "Control" (including the terms "controlled," "controlled by" and "under common control with") when used with respect
to either Parent or Merger Subsidiary does not include the Company and any other Person directly or indirectly controlling, controlled by, or under common control with the Company. Only for purposes
of this and all other agreements and instruments that expressly incorporate the defined terms contained in this Agreement, the term "Control" (including the terms "controlled," "controlled by" and
"under common control with") when used with respect to the Company does not include Värde Partners, Inc. and any other Person directly or indirectly controlling, controlled by,
or under common control with Värde Partners, Inc.
"
Court
" shall mean any court or arbitration tribunal of the United States, any foreign country or any domestic or foreign state, and any
political subdivision thereof.
"
Covered Matters
" shall have the meaning set forth in
Section 9.5(b)
.
"
Covered Party
" shall have the meaning set forth in
Section 9.5(d)
.
"
CSFC
" means CapitalSpring Finance Company, LLC.
"
Current Company Benefit Plans
" shall mean Benefit Plans that are sponsored, maintained or contributed to by the Company or any of its
Subsidiaries or with respect to which the Company or any of its Subsidiaries has any liability, as of the date of this Agreement.
"
Current Year's SEC Reports
" of a Person shall mean SEC Reports filed or required to be filed by such Person since December 31,
2011.
"
D&O Insurance
" shall have the meaning set forth in
Section 6.7(b)
.
"
Delaware Secretary of State
" shall have the meaning set forth in
Section 2.1(c)
.
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"
DGCL
" shall have the meaning set forth in the recitals.
"
Disbursing Agent
" shall have the meaning set forth in
Section 3.2(a)
.
"
Disclosed Conditions
" shall have the meaning set forth in
Section 5.6(e)
.
"
Dissenting Shares
" shall have the meaning set forth in
Section 3.4(a)
.
"
Divestment Transactions
" shall have the meaning set forth in
Section 1.1(c)
of the
Company's Disclosure Letter.
"
Effective Time
" shall have the meaning set forth in
Section 2.1(c)
.
"
End Date
" shall have the meaning set forth in
Section 8.1(b)
.
"
Environmental Law or Laws
" shall mean any and all laws, statutes, regulations, ordinances or rules of the United States, any state of the
United States, any foreign country and any political subdivision thereof pertaining to the protection of the environment currently in effect and applicable to a specified Person and its Subsidiaries,
including, without limitation, the Clean Air Act, as amended, the Clean Water Act, as amended, the Resource Conservation and Recovery Act of 1976, as amended, the Comprehensive Environmental,
Response, Compensation, and Liability Act of 1980, as amended ("
CERCLA
"), the Federal Water Pollution Control Act, as amended, the Safe Drinking Water
Act, as amended, the Toxic Substances Control Act, as amended, the Atomic Energy Act, the National Environmental Policy Act, the Hazardous & Solid Waste Amendments Act of 1984, as amended, the
Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended, the Oil Pollution Act of 1990, as amended, the Federal Insecticide, Fungicide,
and Rodenticide Act, as amended, the Emergency Planning and Community Right-to-Know Act, as amended, and any state or local Laws implementing or analogous to the foregoing
federal Laws.
"
Equity Commitment Letter
" shall have the meaning set forth in
Section 5.6(a)
.
"
Equity Financing
" shall have the meaning set forth in
Section 5.6(a)
.
"
Equity Securities
" shall mean, with respect to a specified Person, any shares of capital stock of, or other equity interests in, or any
securities that are convertible into or exchangeable for any shares of capital stock of, or other equity interests in, or any options, warrants or rights of any kind to acquire any shares of capital
stock of, or other equity interests in, such Person.
"
ERISA
" shall mean the Employee Retirement Income Security Act of 1974, as amended, and the Regulations promulgated thereunder.
"
ERISA Affiliate
" shall mean any entity or trade or business (whether or not incorporated), other than the Company, that together with the
Company is considered under common control and is currently treated as a single employer under Sections 414(b), (c), (m) or (o) of the Code.
"
Exchange Act
" shall mean the Securities Exchange Act of 1934, as amended, and the Regulations promulgated thereunder.
"
Exchange Fund
" shall have the meaning set forth in
Section 3.2(a)
.
"
Existing Loan Facilities
" shall mean those loan facilities of the Company and its Subsidiaries listed in
Section 1.1(a)
of the Company's Disclosure Letter.
"
Expenses
" shall mean all reasonable out of pocket expenses (including all fees and expenses of outside counsel, investment bankers,
banks, other financial institutions, accountants, financial printers, experts and consultants to a party thereto) incurred by a party or on its behalf in connection with or related to the
investigation, due diligence examination, authorization, preparation, negotiation, execution and performance of this Agreement and the transactions contemplated herein.
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"
FCBL
" means FirstCity Business Lending Corporation.
"
GAAP
" shall mean accounting principles generally accepted in the United States as in effect from time to time applied on a consistent
basis.
"
Governmental Authority
" shall mean any governmental agency or authority (including a Court) of the United States, any foreign country, or
any domestic or foreign state, and any political subdivision thereof, and shall include any multinational authority having governmental or quasi-governmental powers.
"
Guarantee
" shall have the meaning set forth in the recitals.
"
Guarantors
" shall have the meaning set forth in the recitals.
"
Hazardous Substance
" shall have the meaning specified in CERCLA for "hazardous substance";
provided
,
however
, that, to
the extent the Environmental Law of the country, state or locality in which
the property is located establishes a meaning for "hazardous substance" that is broader than that specified in CERCLA, such broader meaning shall apply with respect to that country, state or locality,
and the term "hazardous substance" shall include all dehydration and treating wastes, waste (or spilled) oil, and waste (or spilled) petroleum products, friable asbestos-containing materials,
lead-based paint, radiation, mold and polychlorinated biphenyls.
"
HSR Act
" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the Regulations promulgated
thereunder.
"
Immaterial Entity
" shall mean each Person listed in
Section 1.1(b)
of the
Company's Disclosure Letter;
provided
, that if any such Person has assets with an aggregate fair market value of $100,000 or more, such Person shall
cease to constitute an Immaterial Entity.
"
Indemnified Parties
" shall have the meaning set forth in
Section 6.7(a)
.
"
Intellectual Property
" shall mean all intellectual property rights, whether registered or not, including: (i) inventions (whether
patentable or unpatentable and whether or not reduced to practice), pending patent applications, and issued patents; (ii) trademarks, trademark registrations and applications, trade dress,
packaging design, internet domain names, business or corporate names, and associated goodwill; (iii) copyrights and copyright registrations and applications; (iv) industrial design
registrations and applications; and (v) trade secrets.
"
Interim Period
" shall have the meaning set forth in
Section 6.1
.
"
Intervening Event
" means a material event, fact, circumstance, development or occurrence that is unknown to or by the Board of Directors
of the Company as of the date of this Agreement (or if known, the material consequences of which were not known by the Board of Directors of the Company and were not reasonably foreseeable, in each
case, as of the date hereof), which material event, fact, circumstance, development or occurrence or material consequence becomes known to or by the Board of Directors of the Company prior to
obtaining the Required Company Vote;
provided, however
, that, in no event shall the receipt, existence or terms of an Acquisition Proposal or any matter
relating thereto or consequence thereof constitute an Intervening Event.
"
IRS
" shall mean the Internal Revenue Service.
"
Knowledge
" shall mean, with respect to either the Company or Parent, the actual knowledge of any executive officer of such party.
"
Law
" shall mean all laws, statutes, ordinances and Regulations of the United States, any state of the United States, any foreign country,
any foreign state and any political subdivision thereof, including all decisions of Courts having the effect of law in each such jurisdiction.
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"
Legal Proceeding
" shall mean any judicial, administrative, regulatory or arbitral action, suit, mediation, investigation, inquiry,
proceedings or claims (including counterclaims) by or before any Governmental Authority.
"
Lien
" shall mean any mortgage, pledge, security interest, adverse claim, encumbrance, lien or charge of any kind (including any agreement
to give any of the foregoing), any conditional sale or other title retention agreement, any lease in the nature thereof or the filing of or agreement to give any financing statement under the Laws of
any jurisdiction.
"
Management Agreements
" shall mean each of the employment contracts, dated as of the date hereof, between Parent and Terry R. Dewitt, Mark
B. Horrell and James C. Holmes.
"
Material Contract
" shall mean each contract, lease, indenture, agreement, arrangement or understanding to which the Company or any of its
Subsidiaries is a party or to which any of the assets or operations of the Company or any of its Subsidiaries is subject that (a) is of a type that would be required to be included as an
exhibit to a registration statement on Form S-1 pursuant to Paragraph (2), (4) or (10) of Item 601(b) of Regulation S-K under the
Securities Act if such a registration statement were to be filed by the Company under the Securities Act on the date of determination, or (b) is described below:
(a) Any
collective bargaining agreement or other contract with any labor union, collective bargaining representative, works council, or other form of employee
representative;
(b) any
contract, agreement or understanding limiting or restricting the freedom of the Company or any of its Subsidiaries with any Person (other than with
Värde Partners, Inc., any of its controlled Affiliates, VFC Partners 5 LLC or VFC Properties 5 LLC) (A) to engage in any line of business, (B) to own,
operate, sell, transfer, pledge or otherwise dispose of or encumber any asset, (C) to compete with any Person or (D) to engage in any business or activity in any geographic region;
provided
,
that this clause (b) shall not apply to (1) any broker agreement that contains a commission or fee arrangement providing for
commissions or fees from the Company or its Subsidiaries, in each case, in amounts that do not exceed the amounts of commissions or fees for similar services customarily paid by similarly situated
participants in the industries or markets in which the Company or any of its Subsidiaries operate or (2) any confidentiality agreement arising in the ordinary course of business consistent with
past practice;
(c) any
lease or similar agreement under which the Company or any of its Subsidiaries (excluding any REO Affiliate) is the lessor of, or makes available for use by any third
Person, any tangible personal property owned by the Company or any of its Subsidiaries for an annual rent in excess of $50,000, in each case;
provided
,
that this clause (c) shall not include any lease or similar agreement with respect to the assets owned by CityCap Equipment Finance LLC as of the date hereof;
(d) any
contract, agreement, understanding or instrument relating to (A) any outstanding loan or advance by the Company or any of its Subsidiaries to employees other
than a normally incurred business expenses or (B) trade receivables, other than arising in the ordinary course of business consistent with past practice;
(e) any
partnership, joint venture or profit sharing agreement with any Person (other than with Värde Partners, Inc., any of its controlled Affiliates,
VFC Partners 5 LLC or VFC Properties 5 LLC, and other than with the Company or any of its wholly-owned Subsidiaries (
provided
, that the
Company or such wholly-owned Subsidiary is the only other party to the agreement)), which partnership, joint venture or profit sharing agreement generated revenues during its most recently completed
fiscal year or is expected to generate net revenues to the Company or its Subsidiaries during the current fiscal year of $500,000 or more;
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(f) any
employment or consulting agreement, contract or commitment between the Company or any of its Subsidiaries and any employee, officer, director or consultant thereof;
(g) any
contract, agreement, letter of intent or understanding relating to the disposition or acquisition by the Company or any of its Subsidiaries after the date of this
Agreement of assets having a book value in excess of $500,000;
(h) contracts,
agreements or understandings relating to any outstanding commitment for capital expenditures in excess of $50,000;
(i) contracts,
agreements or understandings containing provisions applicable upon a change of control of the Company or any of its Subsidiaries;
(j) contracts,
agreements or understandings with former or present directors or officers;
(k) confidentiality
or standstill agreements with any Person (other than with Värde Partners, Inc., any of its controlled Affiliates, VFC Partners
5 LLC or VFC Properties 5 LLC) that restrict the Company or any of its Subsidiaries in the use of any information or the taking of any actions that were entered into in connection with
the consideration by the Company or any of its Subsidiaries of any material acquisition of assets or Equity Securities;
provided
, that this
clause (k) shall not apply to any confidentiality agreement arising in the ordinary course of business consistent with past practice related to the purchase or sale of Portfolio Assets;
(l) any
notes, mortgages, indentures, guarantees, loan or credit agreements, security agreements, subordination agreements or other agreements or instruments relating to the
borrowing by the Company or any of its Subsidiaries of money involving amounts in excess of $250,000;
(m) any
notes, mortgages, indentures, guarantees, loan or credit agreements, security agreements, subordination agreements or other material agreements or instruments with
any Person (other than with Värde Partners, Inc., any of its controlled Affiliates, VFC Partners 5 LLC or VFC Properties 5 LLC) in connection with the extension of
credit with respect to any Portfolio Asset or any loan by ABL with a book value in excess of $750,000;
provided
, that with respect to loans by ABL, such
book value shall be determined after giving effect to the sale of any guaranteed portion thereof in the ordinary course of business consistent with past practice;
(n) except
for contracts, agreements or understandings the subject matter of which are subject to any of the clauses (a) through (m) above (which exception
includes any contracts, agreements or understandings the subject matter of which is described in any of clauses (a) through (m) that fails to meet all of the requirements of such clause
because of a failure to satisfy a dollar amount threshold, the identity of the counterparty to such contract, agreement or understanding, the ordinary course nature of such contract, agreement or
understanding or any other qualification set forth in such clause), any contract, agreement or understanding involving payments by or to the Company or any of its Subsidiaries with any Person (other
than with Värde Partners, Inc., any of its controlled Affiliates, VFC Partners 5 LLC or VFC Properties 5 LLC) in excess of $100,000 other than in the ordinary
course of business consistent with past practice; and
(o) any
other agreement which is material to the Company and its Subsidiaries taken as a whole with any Person (other than with Värde Partners, Inc.,
any of its controlled Affiliates, VFC Partners 5 LLC or VFC Properties 5 LLC).
"
Merger
" shall have the meaning set forth in the recitals.
"
Merger Consideration
" shall have the meaning set forth in
Section 3.1(b)
.
"
Merger Subsidiary
" shall have the meaning set forth in the opening paragraph.
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"
New Special Preferred Stock
" shall mean the New Special Preferred Stock of the Company, par value $0.01 per share.
"
Option Consideration
" means the excess, if any, of the Merger Consideration over the per share exercise price of the applicable Company
Stock Option immediately prior to the Effective Time.
"
Order
" shall mean any judgment, order or decree of any Court or other Governmental Authority, federal, foreign, state or local, of
competent jurisdiction.
"
Parent
" shall have the meaning set forth in the opening paragraph.
"
Parent Approvals
" shall have the meaning set forth in
Section 5.3
.
"
Parent Benefit Plans
" shall have the meaning set forth in
Section 6.16(b)
.
"
Parent Related Parties
" shall have the meaning set forth in
Section 8.3(f)(i)
.
"
Parent Termination Fee
" shall have the meaning set forth in
Section 8.3(d)
.
"
Payee
" shall have the meaning set forth in
Section 8.3(b)
.
"
Permitted Liens
" means
(a) Liens
reflected in the Company's Consolidated Balance Sheet or disclosed in the notes to the Company's Consolidated Financial Statements in the Company's Current Year's
SEC Reports;
(b) Liens
created pursuant to, and in accordance with, the loan documents in favor of the lenders under the Existing Loan Facilities to secure the obligations under the
Existing Loan Facilities;
(c) zoning,
building codes and other land use Laws regulating the use or occupancy of real property or the activities conducted thereon which are imposed by any Governmental
Authority having jurisdiction over such real property and are not violated by the current use or occupancy of such real property or the operation of the business thereon;
(d) easements,
covenants, conditions, restrictions and other similar matters of record affecting title to real property which do not or would not materially impair the use
or occupancy of such real property in the operation of the business conducted thereon;
(e) Liens
for current Taxes or assessments not yet delinquent or are being contested in good faith by appropriate proceedings diligently pursued and for which adequate
accruals or reserves have been established on the Company's Consolidated Balance Sheet in accordance with GAAP;
(f) any
statutory landlord's, materialman's, mechanic's, repairman's, employee's, contractor's or other similar Liens or charges relating to obligations not yet delinquent
incurred in the ordinary course of business of the Company or its Subsidiaries consistent with past practice;
(g) Liens
arising under sales contracts and equipment leases with third parties entered into in the ordinary course of business of the Company or its Subsidiaries consistent
with past practice; and
(h) Liens
that do not exceed $25,000 individually or $250,000 in the aggregate and that do not materially impair the continued use and operation of the assets to which they
relate.
"
Person
" shall mean (a) an individual, partnership, limited liability company, corporation, joint stock company, trust, estate,
joint venture, association or unincorporated organization, or any other form of business or professional entity, but shall not include a Governmental Authority, or (b) any "person" for purposes
of Section 13(d)(3) of the Exchange Act.
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"
Portfolio Asset
" shall mean an under-performing loan, non-performing loan, performing loan, unsecured loan, leases or real
estate, generally acquired at a discount to the legal principal balance or appraised value and also includes real estate owned by an REO Affiliate.
"
Proxy Statement
" shall have the meaning as set forth in
Section 4.23(a)
.
"
Regulation
" shall mean any rule or regulation of any Governmental Authority having the effect of Law or of any rule or regulation of any
self-regulatory organization, such as the Stock Exchange.
"
Regulatory Law
" shall have the meaning set forth in
Section 6.11(e)
.
"
Release
" shall have the meaning specified in CERCLA for "release."
"
REO Affiliate
" shall mean a Person, which is a corporation, limited liability company or partnership, of which at least 50% of the equity
interests of such Person are owned by a Subsidiary of the Company (herein the "
REO Owner
"), which Person has been established solely to acquire, from
the REO Owner or a seller from which such REO Owner was acquiring other assets, title to (and owns no assets other than) parcels of real property (or distressed notes secured by real property for
purposes of obtaining title to real property securing such loans).
"
Representatives
" means, when used with respect to Parent or the Company, the directors, officers, employees, consultants, accountants,
legal counsel, financing sources, investment bankers, agents, controlling persons and other representatives of Parent, its Affiliates and its Subsidiaries, or the Company, its Affiliates and its
Subsidiaries.
"
Required Action
" shall have the meaning set forth in
Section 5.2(a)
.
"
Required Company Vote
" shall have the meaning as set forth in
Section 4.4(b)
.
"
Sarbanes-Oxley Act
" means the Sarbanes-Oxley Act of 2002 and the Regulations promulgated thereunder.
"
Schedule 13E-3
" shall mean the Rule 13E-3 transaction statement on
Schedule 13E-3 (as amended or supplemented from time to time and including any document incorporated by reference therein) relating to this Agreement and the transactions
contemplated hereby, including the Merger, to be jointly filed by the parties hereto and all other filing Persons required by the rules and regulations of the SEC.
"
SEC
" means the U.S. Securities and Exchange Commission.
"
SEC Reports
" shall mean (1) all Annual Reports on Form 10-K, (2) all Quarterly Reports on
Form 10-Q, (3) all proxy statements relating to meetings of stockholders (whether annual or special), (4) all Current Reports on Form 8-K and
(5) all other reports, schedules, registration statements or other documents required to be filed by a specified Person with the SEC pursuant to the Securities Act or the Exchange Act.
"
Securities Act
" shall mean the Securities Act of 1933, as amended, and the Regulations promulgated thereunder.
"
Shares
" shall mean the common stock, par value $.01 per share, of the Company.
"
Sponsors
" shall have the meaning set forth in the recitals.
"
Standstill Agreement
" shall have the meaning set forth in
Section 6.3(b)
.
"
Stock Exchange
" shall mean The NASDAQ Global Select Market.
"
Stockholders Meeting
" shall have the meaning set forth in
Section 6.9
.
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"
Subsidiary
" of a specified Person shall be any corporation, partnership, limited liability company, joint venture or other legal entity
of which the specified Person (either alone or through or together with any other Subsidiary) owns, directly or indirectly, 50% or more of the stock or other equity or partnership interests, the
holders of which are generally entitled to vote for the election of or otherwise elect a majority of the Board of Directors or other governing body of such corporation or other legal entity or of
which the specified Person controls the management. Only for purposes of this Agreement and all other agreements and instruments that expressly incorporate the defined terms contained in this
Agreement, the term "Subsidiary" when used with respect to the Company or any of its other Subsidiaries shall not include VFC Partners 5 LLC or VFC Properties 5 LLC.
"
Superior Proposal
" means a bona fide written Acquisition Proposal that did not result from a breach of
Section 6.3
made by a third party on terms which the Board
of Directors of the Company determines in good faith by a vote of a majority of the
entire Board of Directors of the Company (after consultation with the Company's legal and financial advisors), taking into account all legal, financial, regulatory and other aspects of the proposal
and the Person making such proposal, that such proposal (i) would, if consummated in accordance with its terms, be more favorable, from a financial point of view, to the holders of the Shares
than the transactions contemplated by this Agreement (after giving effect to all adjustments to the terms thereof which may be offered by Parent, including pursuant to
Section 6.3(e)(C)
),
(ii) contains conditions which are all reasonably capable of being satisfied in a timely manner and (iii) is
not subject to any financing contingency or to the extent financing for such proposal is required, that such financing is then committed;
provided
, that
for purposes of this definition of "Superior Proposal," the references to "15%" in the definition of "Acquisition Proposal" shall be deemed to be references to "50%."
"
Support Agreement
" shall have the meaning set forth in the recitals.
"
Surviving Bylaws
" shall have the meaning set forth in
Section 2.3
.
"
Surviving Charter
" shall have the meaning set forth in
Section 2.2
.
"
Surviving Corporation
" shall have the meaning set forth in
Section 2.1(a)
.
"
Tax
" or "
Taxes
" shall mean all income, ad valorem, excise, withholding, social security,
stamp, value added, gross receipts, premiums, real property, personal property (tangible and intangible),
environmental, production/severance, unclaimed property, windfall profits, sales, use, transfers, licensing, registration, employment, capital stock, unemployment, disability, payroll, franchise and
other taxes or charges, imposts, tariffs, fees and levies of any kind whatsoever imposed by or under any Law; and such terms shall include any interest, fines, penalties, assessments or additions to
tax resulting from, attributable to or incurred in connection with any such tax or any contest or dispute thereof, and including any obligation to indemnify or otherwise assume or succeed to the tax
liability of any other Person.
"
Tax Returns
" shall have the meaning set forth in
Section 4.14(a)
.
"
Termination Fee
" shall have the meaning set forth in
Section 8.3(b)
.
"
willful and material breach
" shall have the meaning set forth in
Section 8.2
.
1.2
Interpretation.
In
this Agreement, unless otherwise specified, the following rules of interpretation apply:
(a) references
to Articles, Sections, Schedules, Annexes, Exhibits, Clauses and Parties are references to articles, sections or sub-sections, schedules, annexes,
exhibits and clauses of, and parties to, this Agreement;
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(b) references
to any Person include references to such Person's successors and permitted assigns;
(c) words
importing the singular include the plural and vice versa;
(d) words
importing one gender include the other gender;
(e) references
to the word "including" shall be deemed to be followed by the words "without limitation" in each case where such words do not follow the word "including";
(f) the
words "hereof," "herein" and "hereunder" and words of similar import, when used in this Agreement, refer to this Agreement as a whole and not to any particular
provision of this Agreement;
(g) references
to "$" or "dollars" refer to U.S. dollars; and
(h) a
defined term has its defined meaning throughout this Agreement and in each Exhibit and Schedule to this Agreement, regardless of whether it appears before or after the
place where it is defined.
ARTICLE II.
THE MERGER
2.1
The Merger.
(a) Upon
the terms and subject to the conditions hereof, and in accordance with the provisions of the DGCL, Merger Subsidiary shall be merged with and into the Company at
the Effective Time. Following the Merger, the Company shall continue as the surviving corporation (the "
Surviving Corporation
") and shall continue its
corporate existence under the Laws of the State of Delaware, and the separate corporate existence of Merger Subsidiary shall cease.
(b) The
closing of the Merger (the "
Closing
") shall take place at the offices of Haynes and Boone, LLP, located at 201
Main Street, Fort Worth, Texas, at 10:00 a.m. (Fort Worth, Texas time) on a date to be specified by Parent and the Company, which shall be no later than the second (2
nd
)
Business Day after satisfaction or waiver (to the extent permitted by applicable Law) of the conditions set forth in
Article VII
(other than
those conditions that by their nature are to be satisfied or waived at the Closing, but subject to the satisfaction or waiver of those conditions at such time), unless another date, time, or place is
agreed to in writing by Parent and the Company (the date on which such Closing actually occurs is referred to as the "
Closing Date
").
(c) Upon
the terms and subject to the conditions set forth in
Article VII
, on the Closing Date, the parties to this
Agreement shall cause the Merger to be consummated by filing with the Secretary of State of the State of Delaware (the "
Delaware Secretary of State
") a
certificate of merger (the "
Certificate of Merger
") in such form as is required by and executed in accordance with the DGCL. The Merger shall become
effective when the Certificate of Merger has been filed with the Delaware Secretary of State or at such later time as shall be agreed upon by Parent and the Company and specified in the Certificate of
Merger (the "
Effective Time
").
(d) The
Merger shall have the effects specified under the DGCL. At and as of the Effective Time, the Company shall be a direct, wholly-owned Subsidiary of Parent.
2.2
Certificate of Incorporation.
At
the Effective Time, the Certificate of Incorporation of the Company in effect immediately prior to the Effective Time shall be amended so as to read in its entirety as set forth in
Exhibit A
(the
"
Surviving Charter
"), until amended as provided in the Surviving Charter or by
applicable Law.
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2.3
Bylaws.
The
Company shall take all requisite action so that the Bylaws of Merger Subsidiary in effect immediately prior to the Effective Time shall be, from and after the Effective Time, the
Bylaws of the Surviving Corporation, and all references therein to Merger Subsidiary shall become references to the Surviving Corporation (the "
Surviving
Bylaws
"), until amended in accordance with the Surviving Charter, the Surviving Bylaws or by applicable Law.
2.4
Directors and Officers.
The
directors of Merger Subsidiary immediately prior to the Effective Time shall be the directors of the Surviving Corporation until the earlier of their resignation or removal or until
their respective successors are duly elected and qualified, as the case may be. The officers of the Company immediately prior to the Effective Time shall be the officers of the Surviving Corporation
until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be.
ARTICLE III.
CONVERSION OF SHARES
3.1
Conversion of Shares.
At
the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger Subsidiary, the Company or the holders of any of the following securities:
(a) each
Share held immediately prior to the Effective Time by the Company or any wholly-owned Subsidiary of the Company and each issued and outstanding Share owned by
Parent or any of its wholly-owned Subsidiaries shall be canceled automatically and shall cease to exist, and no payment or consideration shall be made with respect thereto;
(b) each
issued and outstanding Share other than (i) Shares referred to in
Section 3.1(a)
and
(ii) Dissenting Shares, shall be converted into the right to receive $10.00 in cash, without interest (the "
Merger Consideration
"). At the
Effective Time, all such Shares shall no longer be outstanding and shall automatically be canceled and shall cease to exist, and each holder of a certificate representing any such Shares or
Book-Entry Shares immediately prior to the Effective Time shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration, without interest; and
(c) each
share of capital stock of Merger Subsidiary issued and outstanding immediately prior to the Effective Time shall be converted into one fully paid and nonassessable
share of common stock, par value $0.01 per share, of the Surviving Corporation and shall constitute the only outstanding shares of capital stock of the Surviving Corporation.
3.2
Surrender and Payment.
(a) Prior
to the Effective Time, Parent shall appoint a bank or trust company to act as disbursing agent (the "
Disbursing
Agent
") for the payment of Merger Consideration upon (i) surrender of certificates
representing the Shares or (ii) transfer of book-entry shares which immediately prior to the Effective Time represented Shares (the "
Book-Entry
Shares
"). Parent will enter into a disbursing agent agreement with the Disbursing Agent, and, at or prior to the Effective Time, Parent shall deposit or cause to be deposited
with the Disbursing Agent cash in an aggregate amount necessary to make the payments pursuant to
Section 3.1(b)
to holders of Shares (such
amounts being hereinafter referred to as the "
Exchange Fund
"). For purposes of determining the amount to be so deposited, Merger Subsidiary shall assume
that no stockholder of the Company will perfect any right to appraisal of his, her or its Shares. The Disbursing Agent shall invest the Exchange Fund as directed by Parent;
provided
, that such
investments shall be (i) direct
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obligations
of the United States of America, (ii) obligations for which the full faith and credit of the United States of America is pledged to provide for the payment of principal and
interest, or (iii) commercial paper rated the highest quality by either Moody's Investors Services, Inc. or Standard & Poor's Corporation;
provided
further
that no loss thereon or thereof shall affect the amounts payable to holders of Shares pursuant to
Section 3.1(b)
.
Any interest and other income resulting from such investment shall become a part of the Exchange Fund, and any amounts in excess of the amounts payable under
Section 3.1(b)
shall be promptly paid
to Parent. Parent shall promptly replenish the Exchange Fund to the extent of any investment losses. The
Exchange Fund shall not be used for any other purpose.
(b) Parent
shall instruct the Disbursing Agent to mail promptly after the Effective Time, but in no event later than the tenth (10th) Business Day thereafter, to each Person
who was a record holder as of the Effective Time of an outstanding certificate or certificates which immediately prior to the Effective Time represented Shares (the
"
Certificates
") or Book-Entry Shares, and whose Shares were converted into the right to receive Merger Consideration pursuant to
Section 3.1(b)
, a
form of letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the Disbursing Agent) and instructions for use in effecting the surrender of the Certificates or transfer of
Book-Entry Shares in exchange for payment of the Merger Consideration. Upon (i) surrender of a Certificate to the Disbursing Agent for cancellation, together with such letter of
transmittal duly executed and such other documents as may be reasonably required by the Disbursing Agent, or (ii) receipt of an "agents message" by the Disbursing Agent (or such other evidence,
if any, of transfer as the Disbursing Agent may reasonably request), in the case of Book-Entry Shares, the holder of such Certificate or Book-Entry Shares shall be entitled to
receive in exchange therefor the Merger Consideration payable in respect of such Certificate or Book-Entry Shares, less any required withholding of Taxes, and such Certificate or
Book-Entry Shares shall forthwith be canceled. No interest will be paid or accrued on the cash payable upon the surrender of the Certificates or transfer of the Book-Entry
Shares.
(c) If
payment is to be made to a Person other than the Person in whose name the Certificate or Book-Entry Shares surrendered or transferred is registered, it
shall be a condition of payment that the Certificate or Book-Entry Shares so surrendered or transferred be properly endorsed or otherwise be in proper form for transfer and that the Person
requesting such payment pay any transfer or other Taxes required by reason of the payment to a Person other than the registered holder of the Certificate or Book-Entry Shares surrendered
or transferred or establish to the satisfaction of the Surviving Corporation that such Tax has been paid or is not applicable.
(d) Until
surrendered or transferred, as applicable, in accordance with the provisions of this
Section 3.2
, all
Certificates and Book-Entry Shares (other than Certificates and Book-Entry Shares representing Shares owned by Parent or any of its wholly-owned Subsidiaries, Shares held by
the Company or any wholly-owned subsidiary of the Company and Dissenting Shares) shall represent for all purposes, from and after the Effective Time, only the right to receive the applicable Merger
Consideration.
(e) At
and after the Effective Time, there shall be no registration or transfers of Shares which were outstanding immediately prior to the Effective Time on the stock
transfer books of the Surviving Corporation. From and after the Effective Time, the holders of Shares outstanding immediately prior to the Effective Time shall cease to have any rights with respect to
such Shares except as otherwise provided in this Agreement or by applicable Law. The Merger Consideration paid upon the surrender of Certificates or transfer of Book-Entry Shares in
accordance with the terms of this
Article III
shall be deemed to have been paid in full satisfaction of all rights pertaining to the Shares
previously represented by such Certificates or Book-Entry Shares. If, after the Effective Time, Certificates or Book-Entry Shares are presented to the Surviving Corporation
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for
any reason, such Certificates or Book-Entry Shares shall represent the right to receive the Merger Consideration as provided in this
Article III
. At the close of business on the day of the
Effective Time, the stock ledger of the Company shall be closed.
(f) At
any time more than six (6) months after the Effective Time, the Disbursing Agent shall upon demand of Parent deliver to it any funds which had been made
available to the Disbursing Agent and not disbursed in exchange for Certificates or Book-Entry Shares (including all interest and other income received by the Disbursing Agent in respect
of all such funds). Thereafter, holders of Certificates or Book-Entry Shares shall look only to the Surviving Corporation (subject
to the terms of this Agreement, abandoned property, escheat and other similar Laws) as general creditors thereof with respect to any Merger Consideration that may be payable, without interest, upon
due surrender of the Certificates or transfer of the Book-Entry Shares held by them. Any amounts remaining unclaimed immediately prior to such time when such amounts would otherwise
escheat or become the property of any governmental unit or agency, shall, to the extent permitted by applicable Law, become the property of the Surviving Corporation, free and clear of all claims or
interest of any Person previously entitled thereto. Notwithstanding the preceding provisions of this
Section 3.2
, none of Parent, Merger
Subsidiary, the Company, the Surviving Corporation or the Disbursing Agent shall be liable to any holder of a Certificate or Book-Entry Shares for any Merger Consideration delivered in
respect of such Certificate or Book-Entry Shares to a public official pursuant to any abandoned property, escheat or other similar Law.
3.3
Company Stock Options and Other Payments.
(a) The
Company represents and warrants that each option to acquire Shares granted under any Company Stock Plan or any other agreement (each, a
"
Company Stock Option
"), that is not fully exercisable as of the date of this Agreement will automatically become fully vested and exercisable
immediately prior to the Effective Time pursuant to the terms of the applicable Company Stock Plan. On the Effective Time, each Company Stock Option, without any action on the part of the Company,
Parent, Merger Subsidiary or the holder of any such Company Stock Option, shall be canceled and converted into the right to receive an amount in cash, without interest, equal to (i) the Option
Consideration multiplied by (ii) the aggregate number of Shares into which the applicable Company Stock Option was exercisable immediately prior to the Effective Time;
provided
, that if the
exercise price per Share of any such Company Stock Option is equal to or greater than the Merger Consideration, such Company Stock
Option shall be canceled without any cash payment being made in respect thereof. Any payment made pursuant to this
Section 3.3(a)
to the holder
of any Company Stock Option shall be reduced by any income or employment Tax withholding required under (A) the Code, (B) any applicable state, local or foreign Tax Laws or
(C) any other applicable Laws. To the extent that any amounts are so withheld, those amounts shall be treated as having been paid to the holder of that Company Stock Option for all purposes
under this Agreement. The Company, or the Surviving Corporation, as the case may be, shall make the payments in respect of the Company Stock Options as promptly as practicable following the
cancellation of such Company Stock Options as contemplated by this
Section 3.3(a)
(but in no event later than twenty (20) Business Days
following the Effective Time) by checks payable to the holders of such Company Stock Options unless the aggregate amount payable to a particular individual exceeds $10,000.00, in which event payment
may be made by wire transfer of immediately available funds upon receipt by the Company of written payment instructions from the relevant option holder. Upon written notice from the Company, Parent
shall cause Merger Subsidiary to pay to the Company an amount in cash sufficient to fund the Company's payment obligation under this
Section 3.3(a)
as such amounts are paid (such amount to be set
forth in such written notice). The Company shall take all requisite action so
that,
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immediately
following such payment, each Company Stock Option shall be canceled and the applicable Company Stock Plans shall be terminated.
(b) Immediately
prior to the Effective Time each Company Restricted Share shall vest in full. To the extent any Shares that were formerly Company Restricted Shares have not
become Dissenting Shares, upon the Effective Time, they shall be converted into the right to receive the Merger Consideration in accordance with
Section 3.1(b)
. Any payment made pursuant to this
Section 3.3(b)
to the holder of any
Company Restricted Share shall be reduced by any income or employment Tax withholding required under (i) the Code, (ii) any applicable state, local or foreign Tax Laws or
(iii) any other applicable Laws.
3.4
Dissenting Shares.
(a) Notwithstanding
anything in this Agreement to the contrary (but subject to the other provisions of this
Section 3.4
), Shares that are held by any record holder who has not voted in favor of the Merger or consented
thereto in writing and who has
demanded appraisal rights with respect to such Shares in accordance with Section 262 of the DGCL (the "
Dissenting Shares
") shall not be converted
into the right to receive the Merger Consideration but instead shall be canceled and terminated and the holder of such Dissenting Shares shall cease to have any rights with respect to Dissenting
Shares other than such rights to be paid fair value of such stockholder's Dissenting Shares as are granted pursuant to Section 262 of the DGCL;
provided
,
however
, that any holder of Dissenting Shares who shall have failed to perfect or shall have
withdrawn or lost his rights to appraisal of such Dissenting Shares, in each case under the DGCL, shall forfeit the right to appraisal of such Dissenting Shares, and such Dissenting Shares shall be
deemed to have been converted into the right to receive, as of the Effective Time, the Merger Consideration, without interest. Notwithstanding anything to the contrary contained in this
Section 3.4
,
if the Merger is terminated, rescinded or abandoned, then the right of any stockholder to be paid the fair value of such
stockholder's Dissenting Shares shall cease. The Surviving Corporation shall comply with all of its obligations under the DGCL with respect to holders of Dissenting Shares.
(b) The
Company shall give Parent (i) prompt written notice of any demands for appraisal received by the Company, any withdrawals of such demands received by the
Company and any other related instruments served pursuant to Section 262 of the DGCL and received by the Company, and (ii) the opportunity to direct and participate in all negotiations
and proceedings with respect to demands for appraisal under the DGCL. The Company shall not, except with the prior written consent of Parent, make any payment with respect to any demands for appraisal
or negotiate, offer to settle or settle any such demands.
3.5
Adjustments.
If,
during the period between the date of this Agreement and the Effective Time, any change in the outstanding Shares shall occur (other than the exercise of other Company Stock
Options), including by reason of any reclassification, recapitalization, stock dividend, stock split or combination, exchange or readjustment of Shares, or any stock dividend thereon with a record
date during such period, the Merger Consideration and any other amounts payable pursuant to this Agreement, as the case may be, shall be appropriately adjusted.
3.6
Withholding Rights.
Each
of the Surviving Corporation, Parent and Merger Subsidiary shall be entitled to deduct and withhold, or cause the Disbursing Agent to deduct and withhold, from the consideration
otherwise payable to any Person pursuant to this
Article III
such amounts as it is required to deduct and withhold with respect to the making of
such payment under any provision of federal, state, local or foreign Tax Law. If the Surviving Corporation, Parent or Merger Subsidiary, as the case may be, so withholds such amounts, such amounts
shall be treated for all purposes of this Agreement as having been paid to the
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holder
of the Shares in respect of which the Surviving Corporation, Parent or Merger Subsidiary, as the case may be, made such deduction and withholding.
3.7
Lost Certificates.
If
any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if
required by Parent, the posting by such Person of a bond, in such reasonable and customary amount as Parent may direct, as indemnity against any claim that may be made against it with respect to such
lost, stolen or destroyed Certificate, the Disbursing Agent shall deliver in exchange for such lost, stolen or destroyed Certificate
the Merger Consideration to be paid in respect of the Shares represented by such Certificate, as contemplated by this
Article III
.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except (x) as set forth in the corresponding sections of the Company's Disclosure Letter, it being agreed that disclosure of any
item in any section of the Company's Disclosure Letter (whether or not an explicit cross-reference appears) shall be deemed to be disclosure with respect to any other section of the Company's
Disclosure Letter and any other representation or warranty made elsewhere in
Article IV
, in either case, to which the relevance of such item is
reasonably apparent from the face of such disclosure or (y) for any item disclosed in the Company's SEC Reports filed since January 1, 2010 (other than any of the Company's SEC Reports
filed on or after the date hereof and excluding any risk factor disclosures and any forward-looking statements or other statements that do not contain any specific factual information with respect to
any particular item or that are cautionary, predictive or forward-looking in nature), the Company represents and warrants to Parent and Merger Subsidiary that:
4.1
Organization and Qualification; Subsidiaries
The
Company is a corporation duly incorporated, validly existing and in good standing under the Laws of the State of Delaware. Each of the Company's Subsidiaries is duly incorporated or
formed, as the case may be, validly existing and in good standing under the Laws of the jurisdiction of its organization. The Company and each of its Subsidiaries has the requisite corporate or other
entity power and authority to own, lease and operate its properties and carry on its business as it is now being conducted, and is qualified or licensed to do business, and is in good standing, in
each jurisdiction in which the nature of its business or properties owned, operated or leased by it makes such qualification, licensing or good standing necessary, except where the failure to be so
qualified, licensed or in good standing, individually or in the aggregate, has not had and would not reasonably be expected to have a Company Material Adverse Effect. Neither the Company nor any of
its Subsidiaries is currently registered, or required to be registered, as an "investment company" pursuant to the Investment Company Act of 1940, as amended.
4.2
Certificate of Incorporation and Bylaws.
Except
as set forth in
Section 4.2
of the Company's Disclosure Letter, the Company has heretofore provided or made available to
Parent or Merger Subsidiary a complete and correct copy of the Certificate of Incorporation and the Bylaws of the Company and the comparable organizational documents of each of its Subsidiaries other
than its Immaterial Entities, each as amended to the date hereof.
4.3
Capitalization.
(a) The
authorized capital stock of the Company consists of (i) 100,000,000 Shares, of which as of the close of business on December 14, 2012,
(A) 10,556,197 Shares were issued and
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outstanding
and (B) 1,500,000 Shares were issued and held in the treasury of the Company, (ii) 2,500,000 shares of New Special Preferred Stock, of which on the date hereof none are
issued and outstanding and (iii) 100,000,000 shares of Company Preferred Stock, of which on the date hereof none are issued and outstanding. Since December 14, 2012, no Equity Securities
of the Company have been issued by the Company, except Shares issued upon exercise of outstanding Company Stock Options as set forth in
Section 4.3(a)
of the Company's Disclosure Letter. The
Company does not have in effect, and is not otherwise subject to, any stockholder rights
agreement or "poison pill" stockholder rights plan.
(b) As
of December 14, 2012, there were (i) outstanding Company Stock Options permitting the holders thereof to purchase 714,900 Shares and (ii) 868,277
Shares reserved in respect of the Company Stock Plans. Except as set forth in
Section 4.3(b)
of the Company's Disclosure Letter, each of the
outstanding Equity Securities of the Company is, and each such Equity Security issuable upon the exercise of Company Stock Options will be, when issued, duly authorized, validly issued, fully paid and
nonassessable, and has not been, or will not be, issued in violation of (nor are any of the authorized Equity Securities of the Company subject to) any pre-emptive or similar rights.
Except as set forth in
Section 4.3(a)
above, this
Section 4.3(b)
or in
Section 4.3(b)
of the
Company's Disclosure Letter, no Equity Securities of the Company are reserved for issuance. Except as set forth in this
Section 4.3(b)
or in
Section 4.3(b)
of the Company's Disclosure Letter, there are no
(i) outstanding securities, options or warrants, agreements or commitments of any character to which the Company or any of its Subsidiaries is a party relating to the Equity Securities of the
Company or any of its Subsidiaries or obligating the Company or any of its Subsidiaries to grant, issue, deliver or sell, or cause to be granted, issued, delivered or sold, any Equity Securities of
the Company or any of its Subsidiaries or (ii) stock appreciation rights or similar derivative securities or rights of the Company or
any of its Subsidiaries or any obligations by the Company or any of its Subsidiaries to make any payments based on the price or value of any Equity Securities of the Company or any of its
Subsidiaries. Except as set forth in
Section 4.3(b)
of the Company's Disclosure Letter, there are no obligations, contingent or otherwise, of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any Equity Securities of the Company or any of its Subsidiaries. Except as described in
Section 4.3(b)
of the Company's
Disclosure Letter, none of the Company nor any of its Subsidiaries directly or indirectly owns, has agreed to
purchase or otherwise acquire or holds any interest convertible into or exchangeable or exercisable for, any Equity Securities of any Person (other than the Subsidiaries of the Company).
(c) All
the issued and outstanding shares of Equity Securities of each Subsidiary of the Company (i) have been duly authorized and are validly issued, and, with
respect to capital stock, are fully paid and nonassessable, and were not issued in violation of any pre-emptive or similar rights and (ii) are owned by the Company or one of its
Subsidiaries free and clear of all Liens, except for Liens granted to any lender under any of the Existing Loan Facilities.
(d) Except
as set forth in
Section 4.3(d)
of the Company's Disclosure Letter, there are no voting trusts, proxies or
similar agreements or understandings to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound with respect to the voting of any Equity
Securities of the Company or any of its Subsidiaries.
(e) Except
for Company Stock Options, neither the Company nor any of its Subsidiaries has any outstanding bonds, debentures, notes or other obligations the holder of which
has the right to vote or which are convertible into, or exchangeable for, securities having the right to vote with the stockholders of the Company or any of its Subsidiaries on any matter.
(f)
Section 4.3(f)
of the Company's Disclosure Letter sets forth as of December 14, 2012, (i) the name
of each holder of a Company Stock Option together with the grant date, exercise
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price
and the number of Shares issuable upon exercise of each such Company Stock Option, and (ii) the name of each recipient of an award of shares reserved that has not vested as of the date
hereof together with the remaining vesting schedule for such award in respect of the Company Stock Plans.
4.4
Authorization.
(a) The
Company has all requisite corporate power and authority to execute and deliver this Agreement, (assuming the accuracy of the representation and warranty in
Section 5.10
) to perform its obligations
hereunder and, subject to any required approval of this Agreement and the Merger by the Required Company
Vote (and assuming the accuracy of the representation and warranty in
Section 5.10
), to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by the Company and (assuming the accuracy of the representation and warranty in
Section 5.10
) the
consummation by the Company of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of the Company or any of its Subsidiaries, as
applicable, and (assuming the accuracy of the representation and warranty in
Section 5.10
) no other corporate proceedings on the part of the
Company or any of its Subsidiaries, as applicable, are necessary to authorize this Agreement or to consummate the transactions contemplated hereby (other than, with respect to the Merger, the approval
and adoption of this Agreement and the Merger by the Required Company Vote and the filing of appropriate merger documents as required by the DGCL). This Agreement has been duly executed and delivered
by the Company and (assuming due authorization, execution and delivery hereof by the other parties hereto and assuming the accuracy of the representation and warranty in
Section 5.10
) constitutes a
legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms
except as enforcement may be limited by applicable bankruptcy, insolvency or other Laws affecting creditors' rights generally or by legal principles of general applicability governing the availability
of equitable remedies.
(b) At
a meeting duly called and held, the Board of Directors of the Company has unanimously (i) determined that this Agreement and the transactions contemplated
hereby, including the Merger, are advisable, and in the best interests of, the Company and its stockholders, (ii) adopted resolutions approving and declaring advisable this Agreement and the
transactions contemplated hereby, including the Merger, and (iii) resolved to recommend that the stockholders of the Company adopt and approve this Agreement and the transactions contemplated
hereby, including the Merger (collectively, the "
Company Board Recommendation
"). Assuming the accuracy of the representation and warranty in
Section 5.10
, the affirmative vote of the holders of at least a majority of the issued and outstanding Shares to adopt this Agreement (the
"
Required Company Vote
") is the only vote of holders of Shares or other securities (equity or otherwise) of the Company necessary to consummate the
Merger.
4.5
Approvals.
The
execution and delivery of this Agreement does not, and (assuming the accuracy of the representation and warranty in
Section 5.10
) consummation of the transactions contemplated hereby will not,
require the Company or any of its Subsidiaries to obtain any
Authorization or other approval of or from, or to make any filing with or notification to, any Governmental Authority or third Person, except (a) for the applicable requirements, if any, of the
Exchange Act, state securities or "blue sky" Laws, the HSR Act, the Stock Exchange and the filing and recordation of the Certificate of Merger as required
by the DGCL, (b) as set forth in
Section 4.5
of the Company's Disclosure Letter, (c) approval of this Agreement and the Merger by
the Required Company Vote and (d) such other consents, approvals, authorizations, permits, actions, filings or notifications, the failure of which to be made or obtained, individually or in the
aggregate, would not reasonably be expected to have a Company Material Adverse Effect (collectively, the "
Company Approvals
").
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4.6
No Violation.
Assuming
that the Authorizations, approvals, filings and notifications described in
Section 4.5
have been obtained or made, except
as set forth in
Section 4.6
of the Company's Disclosure Letter, the execution and delivery by the Company of this Agreement does not and
consummation of the transactions contemplated by this Agreement will not (a) conflict with, result in any violation or breach of, or cause a default (or an event that with notice, lapse of time
or otherwise would become a default) under, (i) (assuming the accuracy of the representation and warranty in
Section 5.10
) any Law,
Regulation or Order applicable to the Company or any of its Subsidiaries, (ii) the Certificate of Incorporation or Bylaws of the Company or (iii) the organizational documents of the
Company's Subsidiaries or (b) conflict with, result in any violation or breach of, or cause a default (or an event that with notice, lapse of time or otherwise would become a default) under, or
give to others any right of termination, cancellation, amendment or acceleration of, or require a payment under, or result in the loss of any benefit under, or in the creation of a Lien on any of the
properties or assets of the Company or any of its Subsidiaries pursuant to, any note, bond, mortgage, indenture, deed of trust, lease, license, permit, franchise, contract or agreement to which the
Company or any of its Subsidiaries is a party or by which it or any of its Subsidiaries or its or their respective properties or assets is bound, except in the case of matters described in
clauses (a)(i)
and
(b)
of this
Section 4.6
that, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect.
4.7
Reports.
(a) Since
January 1, 2010, the Company and its Subsidiaries have timely filed all of the Company's SEC Reports required to be filed with the SEC. The Company's SEC
Reports filed on or prior to the date of this Agreement, giving effect to any amendments or supplements thereto filed prior to the date hereof, (i) complied in all material respects in
accordance with the requirements of the Securities Act, the Exchange Act and the Sarbanes-Oxley Act, as the case may be and (ii) did not at the time they were filed (or if amended or
supplemented, at the date of such amendment or supplement), contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(b) The
Company's Consolidated Financial Statements (i) have been prepared in accordance with GAAP and comply as to form in all material respects with the
then-applicable published Regulations of the SEC and GAAP applied on a consistent basis throughout the periods involved (except (A) to the extent required by changes in GAAP,
(B) as may be indicated in the notes thereto and (C) in the case of unaudited statements, as permitted by Form 10-Q under the Exchange Act) and (ii) fairly
present, in all material respects, the consolidated financial position of the Company and its Subsidiaries as of the respective dates thereof and the consolidated results of their operations and cash
flows for the periods indicated (subject, in the case of any unaudited interim financial statements, to normal and recurring year-end adjustments consistent with past practice).
(c) The
Company and its Subsidiaries have no liabilities or obligations (whether absolute, accrued or contingent) that would be required by GAAP to be reflected on a
consolidated balance sheet of the Company and its Subsidiaries (including the notes thereto), except for liabilities or obligations (i) reflected or reserved against in the Company's
Consolidated Balance Sheet, (ii) incurred in the ordinary course of business consistent with past practice since December 31, 2011 or pursuant to any Material Contract,
(iii) arising out of this Agreement, (iv) arising out of a change of control, or (v) that individually or in the aggregate, have not had and would not reasonably be expected to
have a Company Material Adverse Effect.
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(d) The
Company's principal executive officer and its principal financial officer have disclosed, based on their most recent evaluation, to the Company's auditors and the
audit committee of the Company's Board of Directors (i) all significant deficiencies in the design or operation of internal controls that could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for the Company's auditors any material weaknesses in internal controls and (ii) any fraud, whether or not material, that
involves management or other employees who have a significant role in the Company's internal controls. The Company has established and maintains disclosure controls and procedures (as such term is
defined in Rule 13a-15 under the Exchange Act); such disclosure controls and procedures are designed to ensure that material information relating to the Company, including its
Subsidiaries, is made known to the Company's principal executive officer and its principal financial officer by others within those entities, particularly during the periods in which the periodic
reports required under the Exchange Act are being prepared; and such disclosure controls and procedures are effective in alerting in a timely fashion the Company's principal executive officer and its
principal financial officer to material information required to be included in the Company's periodic reports required under the Exchange Act.
(e) Except
as, individually or in the aggregate, has not had and would not reasonably be expected to have a Company Material Adverse Effect, the Company maintains a system
of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is
permitted only in accordance with management's general or specific authorization and (iv) the recorded accountability for physical assets is compared with the existing physical assets at
reasonable intervals and appropriate actions are taken with respect to any differences.
(f) Since
January 1, 2010, neither the Company nor any of its Subsidiaries nor any director, officer, employee nor, to the Company's Knowledge, any auditor,
accountant or Representative of the Company or any of its Subsidiaries has received or otherwise had or obtained knowledge of any complaint, allegation, assertion or claim seeking fines, penalties,
damages or judicial or administrative redress, whether written or oral, regarding questionable accounting or auditing practices, procedures or
methodologies of the Company or any of its Subsidiaries or their respective internal accounting controls.
(g) Except
as set forth in
Section 4.7(g)
of the Company's Disclosure Letter, there are no off-balance
sheet structures or transactions with respect to the Company or any of its Subsidiaries that would be required to be reported or set forth in the Company's SEC Reports.
(h) Except
as set forth in
Section 4.7(h)
of the Company's Disclosure Letter, since January 1, 2010 to the date
of this Agreement, neither the Company nor any of its Subsidiaries has received from the SEC or any other Governmental Authority any written comments or questions with respect to any of the Company's
SEC Reports (including the financial statements included therein) or any registration statement filed by any of them with the SEC or any notice from the SEC or other Governmental Authority that such
Company's SEC Reports (including the financial statements included therein) or registration statements are being reviewed or investigated, and to the Knowledge of the Company, except as set forth in
Section 4.7(h)
of the Company's Disclosure Letter there is not, as of the date of this Agreement, any investigation or review being conducted by
the SEC or any other Governmental Authority of any of the Company's SEC Reports (including the financial statements included therein) or registration statements of the Company or any of its
Subsidiaries.
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4.8
No Material Adverse Effect; Conduct.
(a) Since
December 31, 2011, there has not been any change, effect, event, circumstance or occurrence that, individually or in the aggregate, has had or would
reasonably be expected to have a Company Material Adverse Effect.
(b) Except
as set forth in
Section 4.8(b)
of the Company's Disclosure Letter, since September 30, 2012,
(i) each of the Company and its Subsidiaries has operated its business in all material respects in the ordinary course consistent with past practices and (ii) neither the Company nor any
of its Subsidiaries has taken any action that, if taken after the date hereof without Parent's consent, would constitute a breach of any of the covenants set forth in
Section 6.2
.
4.9
Certain Business Practices.
Since
January 1, 2010, neither the Company nor any of its Subsidiaries nor any director, officer, employee nor, to the Knowledge of the Company, agent, Representative or Affiliate
of the Company or any of its Subsidiaries has (a) while acting on behalf of the Company or any of its Subsidiaries (i) made or agreed to make any contribution, payment, gift or
entertainment to, or accepted or received any contributions, payments, gifts or entertainment from, any government official or employee, political party or agent or any candidate for any federal,
state, local or foreign public office, where either the contribution, payment or gift or the purpose thereof was in violation of Law or (ii) engaged in or otherwise knowingly participated in,
assisted or facilitated any transaction that is prohibited by any applicable embargo or related trade restriction imposed by the United States Office of Foreign Assets Control or any other agency of
the United States government or (b) made any unlawful payment to any government official or employee or to any political party or campaign or violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended.
4.10
Certain Obligations.
(a) Except
for those filed as an exhibit to or disclosed in the Company's SEC Reports filed prior to the date hereof or as set forth in
Section 4.10(a)(i)
and
Section 4.10(a)(ii)
of the Company's Disclosure Letter, as of the
date hereof, there are no Material Contracts. The Company has provided or made available to Parent a true and complete copy of each Material Contract listed in
Section 4.10(a)(i)
of the Company's
Disclosure Letter.
(b) Except
as set forth in
Section 4.10(b)
of the Company's Disclosure Letter, with respect to each Material Contract
to which the Company or any of its Subsidiaries is a party, (i) such Material Contract is valid, binding and enforceable in accordance with its terms (except as enforcement may be limited by
applicable bankruptcy, insolvency or other Laws affecting creditors' rights generally or by legal principles of general applicability governing the availability of equitable remedies) and is in full
force and effect, (ii) neither the Company nor any of its Subsidiaries is in material breach or default thereof as of the date of this Agreement, nor has the Company or any of its Subsidiaries
received written notice that it is in material breach or default thereof and (iii) no event has occurred which, with notice, or lapse of time or both, would constitute a material breach or
default thereof by the Company or any of its Subsidiaries or, to the Knowledge of the Company, by any other party thereto or would permit termination, modification, or acceleration thereof by any
other party thereto.
4.11
Authorizations; Compliance.
(a) Except
for the failure to obtain or maintain Authorizations that, individually or in the aggregate, have not had and would not reasonably be expected to have a Company
Material Adverse Effect (i) the Company and each of its Subsidiaries has obtained all Authorizations that are necessary to own, lease and operate its properties and to carry on its businesses
as currently conducted, (ii) such Authorizations are in full force and effect and will remain in full force and
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effect
after the consummation of the Merger and there are no existing violations thereof or defaults thereunder and (iii) there is no action, proceeding or investigation pending or, to the
Knowledge of the Company, threatened regarding, and no event has occurred that has resulted in or after notice or lapse of time, or both, could reasonably be expected to result in, suspension,
revocation or cancellation of any such Authorizations.
(b) Except
as set forth in
Section 4.11(b)
of the Company's Disclosure Letter, the Company and its Subsidiaries are in
compliance with all applicable Laws and Regulations and are not in default with respect to any Order applicable to the Company or any of its Subsidiaries, except such events of noncompliance or
defaults that, individually or in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect. Except as set forth in
Section 4.11(b)
of the Company's
Disclosure Letter, none of the Company nor any of its Subsidiaries has been notified by any Governmental
Authority regarding possible non-compliance, defaults or violations of Laws or Orders, except any such possible non-compliance, defaults or violations that, individually or in
the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect.
4.12
Litigation.
There
are no actions, suits, investigations or proceedings (including regulatory or administrative proceedings or any proceedings in arbitration) pending against or, to the Knowledge of
the Company, threatened against the Company or any of its Subsidiaries or against any present or former officer or director of the Company or any of its Subsidiaries or any other Person for which the
Company or any Subsidiary may be liable or to which any of their respective properties, assets or rights are reasonably likely to be subject before any Governmental Authority, except actions, suits,
investigations or proceedings that are disclosed in the Company's Current Year's SEC Reports filed prior to the date
hereof or that, individually or in the aggregate, if adversely determined have not had and would not reasonably be expected to have a Company Material Adverse Effect.
4.13
Employee Benefit Plans.
Each
Company Benefit Plan is listed in
Section 4.13
of the Company's Disclosure Letter. True and complete copies of each of the
following, to the extent applicable, have been made available to Parent with respect to each Current Company Benefit Plan: the most recent annual or other report filed with the Employee Benefits
Security Administration or any other Governmental Authority; the plan document (including all amendments thereto); the trust agreement (including all amendments thereto); the most recent summary plan
description; the most recent actuarial report or valuation; and the most recent determination letter or advisory opinion, issued by the IRS with respect to any Current Company Benefit Plan intended to
be qualified under Section 401(a) of the Code. Except as set forth in the Company's SEC Reports filed prior to the date hereof or in
Section 4.13
of the Company's Disclosure Letter:
(a) None
of the Company Benefit Plans promises or provides retiree or post-termination medical or other retiree or post-termination welfare benefits
to any Person other than as required under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("
COBRA
"). There has been no
"prohibited transaction" (within the meaning of Section 406 of ERISA and Section 4975 of the Code) with respect to any Company Benefit Plan that is not exempt under Section 408 of
ERISA which has not been corrected. Each Company Benefit Plan has been administered in compliance with its terms, and complies in all respects in form and operation, with all applicable requirements
prescribed by statutes, rules and Regulations (including ERISA and the Code), and the Company, each Subsidiary of the Company and each ERISA Affiliate has performed all obligations required to be
performed by it under, is not in default under or in violation of, and has no Knowledge of any default or violation by any other party to, any of the Company Benefit Plans except for such failures to
administer, defaults or violations that,
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individually
or in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect. All contributions required to be made by the Company, any Subsidiary of
the Company or any ERISA Affiliate to any Company Benefit Plan have been made on or before their due dates and, to the extent required by GAAP, all amounts have been accrued for the current plan year.
No Company Benefit Plan is subject to, and neither the Company nor any Subsidiary
of the Company or ERISA Affiliate has incurred or reasonably expects to incur any liability under, Title IV of ERISA or section 412 of the Code. With respect to each Company Benefit Plan
subject to ERISA as either an employee pension benefit 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,
the Company has prepared in good faith and filed all requisite governmental reports, including any required audit reports, and has filed and distributed or posted all notices and reports to employees
required to be filed, distributed or posted with respect to each such Company Benefit Plan. Except for ordinary claims for benefits submitted by participants or beneficiaries of any Company Benefit
Plan, no suit, administrative proceeding, action or other litigation has been brought, or to the Knowledge of the Company or any Subsidiary of the Company, is threatened, against the Company or any
Subsidiary of the Company or with respect to any such Company Benefit Plan, including, without limitation, any audit or inquiry by the IRS or United States Department of Labor.
(b) Neither
the Company nor any Subsidiary of the Company or ERISA Affiliate is a party to, or has made any contribution to, has incurred any obligation under or has any
liability (contingent or otherwise) with respect to, any "multiemployer plan" as such term is defined in Section 3(37) of ERISA or any "multiple employer plan" as such term is defined in
Section 413(c) of the Code. There has been no termination or partial termination of any Company Benefit Plan within the meaning of Section 411(d)(3) of the Code in respect of which the
Company or any Subsidiaries of the Company has any liability.
(c)
Section 4.13(c)
of the Company's Disclosure Letter lists each Person who the Company reasonably believes is, with
respect to the Company, any Subsidiary of the Company and/or any ERISA Affiliate, a "disqualified individual" (within the meaning of Section 280G of the Code and the Regulations promulgated
thereunder) determined as of the date hereof.
(d) Except
as set forth in
Section 4.13(d)
of the Company's Disclosure Letter, none of the execution and delivery of
this Agreement, the consummation of the Merger or any other transaction contemplated hereby or any termination of employment or service in connection therewith or subsequent thereto will
(i) result in any payment (including severance, unemployment compensation, golden parachute, bonus or otherwise) becoming due to any Person other than accrued payments, (ii) materially
increase or otherwise enhance any benefits otherwise payable by the Company or any Subsidiary of the Company, (iii) result in the acceleration of the time of payment or vesting of any such
benefits, except as required under Section 411(d)(3) of the Code, (iv) increase the amount of compensation due to any Person, or (v) result in the forgiveness in whole or in part
of any outstanding loans made by the Company or any Subsidiary of the Company to any Person.
(e) (i)
Each of the Company and each Subsidiary of the Company is in compliance with all currently applicable Laws respecting employment, discrimination in employment, terms
and conditions of employment, wages, hours and occupational safety and health and employment practices except for such noncompliance that, individually or in the aggregate, has not had and would not
reasonably be expected to have a Company Material Adverse Effect, (ii) the Company and each Subsidiary of the Company has paid in full to all employees, independent contractors and consultants
all wages, salaries, commissions, bonuses, benefits, and other compensation due to or on behalf of such employees, independent contractors or consultants in accordance with applicable Law,
(iii) neither the Company nor any Subsidiary of the Company is liable for any payment to
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any
trust or other fund or to any Governmental 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), and (iv) there are no controversies pending or, to the Knowledge of the Company, threatened, between the
Company or any Subsidiary of the Company and any of their respective employees, which controversies, individually or in the aggregate, have not had and would not reasonably be expected to have a
Company Material Adverse Effect.
(f) Neither
the Company nor any of the Subsidiaries of the Company has any obligation to pay any amount or provide any benefit to any former employee or former officer,
other than as required under COBRA (i) for which the Company has established a reserve for such amount on the Company's Consolidated Balance Sheet in accordance with GAAP and
(ii) pursuant to contracts entered into after December 31, 2011 and disclosed on
Section 4.13(f)
of the Company's Disclosure
Letter. Except as set forth in
Section 4.13(f)
of the Company's Disclosure Letter, neither the Company nor any Subsidiary of the Company is a
party to or bound by any collective bargaining agreement or other labor union contract, no collective bargaining agreement is being negotiated by the Company or any Subsidiary of the Company and
neither the Company nor any Subsidiary of the Company has any duty to bargain with any labor organization. Except as set forth in
Section 4.13(f)
of the Company's Disclosure Letter, there is no labor dispute, strike or group, work stoppage against the Company or any Subsidiary of the Company pending or, to the Knowledge of the Company,
threatened that may materially interfere with the respective business activities of the Company or any Subsidiary of the Company. Neither the Company nor any Subsidiary of the Company, nor, to the
Knowledge of the Company, any of their respective Representatives or employees has been found in the past year to have committed an unfair labor practice in connection with the operation of the
respective businesses of the Company or any Subsidiary of the Company, and there is no charge or complaint against the Company or any Subsidiary of the Company by the National Labor Relations Board or
any comparable Governmental Authority pending or, to the Knowledge of the Company, threatened.
(g) Except
as set forth in
Section 4.13(g)
of the Company's Disclosure Letter, neither the Company nor any Subsidiary
of the Company (nor any officer of the Company or any Subsidiary) is a party to any agreement, contract, or arrangement that, individually or collectively, either alone or together with any other
event (including the execution of and consummation of the transactions contemplated by this Agreement), could give rise to the payment of any amount (whether in cash or property, including shares of
capital stock) that would not be deductible pursuant to the terms of Section 280G or 162(m) of the Code.
4.14
Taxes.
(a) Except
for such matters as are set forth in
Section 4.14(a)
of the Company's Disclosure Letter, (i) all
federal income tax and other material returns and reports of or with respect to any Tax ("
Tax Returns
") required to be filed by or with respect to any
of the Company and its Subsidiaries have been duly and timely filed, (ii) all Taxes shown on such Tax Returns and all other material Taxes owed by any of the Company and its Subsidiaries which
are or have become due have been timely paid in full, (iii) all Tax withholding and deposit requirements imposed on or with respect to any of the Company and its Subsidiaries have been
satisfied in full in all material respects, (iv) there are no mortgages, pledges, Liens, encumbrances, charges or other security interests on any of the assets of the Company or any of its
Subsidiaries that arose in connection with any failure (or alleged failure) to pay any Tax and (v) all material Tax liabilities, to the extent not yet due and payable, have been accrued on the
Company's Consolidated Financial Statements.
(b) Except
as set forth in
Section 4.14(b)
of the Company's Disclosure Letter, there is no material claim against the
Company or any of its Subsidiaries for Taxes, and no material
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assessment,
deficiency or adjustment has been asserted, proposed or, to the Knowledge of the Company, threatened with respect to any Tax Return of or with respect to any of the Company and its
Subsidiaries.
(c) No
claim has ever been made by a Governmental Authority in a jurisdiction where any of the Company and its Subsidiaries does not file Tax Returns that they are or may be
subject to taxation in that jurisdiction.
(d) Except
as set forth in
Section 4.14(d)
of the Company's Disclosure Letter, there is not in force any extension of
time with respect to the due date for the filing of any Tax Return of or with respect to the Company or any of its Subsidiaries or any waiver or agreement for any extension of time for the assessment
or collection of any Tax of or with respect to the Company or any of its Subsidiaries.
(e) Except
as set forth in
Section 4.14(e)
of the Company's Disclosure Letter, neither the Company nor any of its
Subsidiaries has entered into any Tax allocation, sharing or indemnity agreement under which the Company or its Subsidiaries could become liable to another Person (other than the Company or its
Subsidiaries) as a result of the imposition of Tax upon such Person, or the assessment or collection of Tax. Parent and Merger Subsidiary will be entitled to the benefits of any item listed in
Section 4.14(e)
of the Company's Disclosure Letter.
(f) Except
as set forth in
Section 4.14(f)
of the Company's Disclosure Letter, neither the Company nor any of its
Subsidiaries owns any interest in any controlled foreign corporation (as defined in Section 957 of the Code) or a passive foreign investment company (as defined in Section 1297 of the
Code).
(g) Except
as set forth in
Section 4.14(g)
of the Company's Disclosure Letter, neither the Company nor any of its
Subsidiaries (i) has been a member of an affiliated group filing a consolidated Tax Return (other than a group including the Company and its Subsidiaries) or (ii) has any liability for
the Taxes of any Person (other than the Company and its Subsidiaries) by reason of being a member of a group of entities filing a consolidated, combined or unified Tax Return, as a transferee or
successor, by contract, or otherwise.
(h) Neither
the Company nor any of its Subsidiaries has been a party to a distribution of stock pursuant to Section 355 of the Code during the two-year
period preceding the date hereof as either a distributing corporation or a controlled corporation, as those terms are defined in Section 355 of the Code.
(i) True
and complete copies of all material Tax Returns filed by the Company and/or any of its Subsidiaries for any period that is considered open for assessment under
applicable Tax Laws have been provided or made available to Parent.
(j) Except
as set forth in
Section 4.14(j)
of the Company's Disclosure Letter, there are no pending Tax audits,
assessments, or proceedings in respect of the business or assets of the Company or any of its Subsidiaries.
(k) Except
as set forth in
Section 4.14(k)
of the Company's Disclosure Letter, neither the Company nor any of its
Subsidiaries has entered into any agreement with any Governmental Authority with respect to Tax matters relating to the Company or any of its Subsidiaries or any of their assets or business
operations.
(l) Except
as set forth in
Section 4.14(l)
of the Company's Disclosure Letter, since January 1, 2007, neither
the Company nor any of its Subsidiaries has requested or received approval to make, nor agreed to change, any Tax reporting practices, including any accounting methods.
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(m) Except
as set forth in
Section 4.14(m)
of the Company's Disclosure Letter, neither the Company, nor any of its
Subsidiaries, has made any request for any ruling with regard to Taxes, which ruling, if issued, would be binding on the Company or any of its Subsidiaries.
(n) Each
of the Company and its Subsidiaries has disclosed on its Tax Returns all positions taken therein that could give rise to a substantial understatement of Tax within
the meaning of Section 6662 of the Code.
(o) Neither
the Company nor any of its Subsidiaries has entered into, has any liability in respect of, or has any filing obligations with respect to, any transaction that
constitutes a "reportable transaction," as defined in Section 1.6011-4(b)(1) of the Treasury Regulations.
(p) No
Company will be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending
after the Closing Date as a result of: (i) any change in method of accounting for a taxable period ending on or prior to the Closing Date; (ii) any closing agreement executed on or prior
to the Closing Date; (iii) any installment sale or open transaction disposition made on or prior to the Closing Date; (iv) any intercompany transaction described in Treasury Regulations
under Section 1502 of the Code (or any corresponding or similar provision of state, local or non-United States tax law) or (v) any prepaid amount received on or prior to the
Closing Date.
(q) No
net operating losses or credits of the Company are currently limited by Section 382 or 383 of the Code and the Company has not made a covered asset acquisition
under Section 901(m) of the Code that limits its use of foreign tax credits.
4.15
Environmental Matters.
Except
for matters that, individually or in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect or as set forth in
Section 4.15
of the Company's
Disclosure Letter, (a) the properties, operations and activities of the Company and its Subsidiaries are in
compliance with all applicable Environmental Laws, (b) the Company and its Subsidiaries and the
properties, operations and activities of the Company and its Subsidiaries are not subject to any existing, pending or, to the Knowledge of the Company, threatened action, suit or proceeding by any
third party, including any Governmental Authority, under any Environmental Law, (c) all Authorizations, if any, required to be obtained or filed by the Company or any of its Subsidiaries under
any Environmental Law in connection with the business of the Company or its Subsidiaries have been obtained or filed (and all renewals thereof have been timely applied for) and are valid and currently
in full force and effect and (d) there has been no Release of any Hazardous Substance into the environment by the Company or its Subsidiaries.
The
Company has made available to Parent all material environmental investigations, assessments, audits, analyses or other reports in its possession or control relating to real property
owned or operated by the Company or its Subsidiaries.
The
representations and warranties made pursuant to this
Section 4.15
are the exclusive representations and warranties by the
Company or any of its Subsidiaries relating to environmental matters, Hazardous Substances, or compliance with or liability under Environmental Law.
4.16
Insurance.
The
Company and its Subsidiaries own and are beneficiaries under insurance policies underwritten by reputable insurers that, as to the risks insured, provide coverages and related limits
and deductibles which have not been exhausted or materially reduced and which the Company believes are reasonably adequate in all material respects for its business and operations.
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4.17
Intellectual Property.
The
Company or its Subsidiaries own, or are licensed or otherwise have the right to use, the Intellectual Property currently used in the conduct of the business of the Company and its
Subsidiaries (the "
Company Intellectual Property
"), except where the failure to so own or otherwise have the right to use such Intellectual Property,
individually or in the aggregate, has not had and would not reasonably be expected to have a Company Material Adverse Effect. No Person has notified either the Company
or any of its Subsidiaries that their use of Intellectual Property infringes on the rights of any Person, subject to such claims and infringements do not, individually or in the aggregate, give rise
to any liability on the part of the Company and its Subsidiaries that has not had and would not reasonably be expected to have a Company Material Adverse Effect. Except as set forth in
Section 4.17
of the Company's Disclosure Letter, to the Knowledge of the Company, no Person is infringing on any right of the Company or any of
its Subsidiaries with respect to Intellectual Property owned by the Company or any of its Subsidiaries. No claims are pending or, to the Knowledge of the Company, threatened alleging that the Company
or any of its Subsidiaries is infringing or otherwise adversely affecting the rights of any Person in any Company Intellectual Property, except those claims that, individually or in the aggregate,
have not had and would not reasonably be expected to have a Company Material Adverse Effect.
4.18
Properties.
(a) The
Company and its Subsidiaries have good and indefeasible title to, or have a valid and enforceable right to use or a valid and enforceable leasehold interest in, all
real property (including all buildings, fixtures and other improvements thereto) owned, used or held for use by them and material to the conduct of their respective businesses as such businesses are
now being conducted, except for defects in title that, individually or in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect and neither the
Company's nor any of its Subsidiaries' ownership of or leasehold interest in any such property is subject to any Lien, except for Permitted Liens.
(b) The
Company and its Subsidiaries have good title to, or in the case of leased property and assets, valid leasehold interests in, all of their tangible personal
properties and assets, used or held for use in their respective businesses, and such properties and assets, are free and clear of any Liens, except for Permitted Liens or those Liens as are set forth
in
Section 4.18(b)
of the Company's Disclosure Letter and except where the failure to have such title would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect.
4.19
Anti-Takeover Plan; State Takeover Statutes.
Prior
to the execution of this Agreement, (assuming the accuracy of the representation and warranty in
Section 5.10
) the Board of
Directors of the Company has taken all necessary action to cause the execution of this Agreement and the transactions contemplated hereby and thereby to be exempt from or not subject to the
restrictions of Section 203 of the DGCL and any other state takeover statute or state Law that purports to limit or restrict business combinations or the ability to acquire or vote shares.
After giving effect to the actions of the Company's Board of Directors described above, (assuming the accuracy of the representation and warranty in
Section 5.10
) no "moratorium," "control share
acquisition," "business combination," "fair price" or other form of anti-takeover
Laws and Regulations applies or purports to apply to the Merger, this Agreement, or any of the transactions contemplated by this Agreement. Neither the Company nor any of its Subsidiaries has in
effect any stockholder rights plan or similar device or arrangement, commonly or colloquially known as a "poison pill" or "anti-takeover" plan or any similar plan, device or arrangement
and the Board of Directors of the Company has not adopted or authorized the adoption of such a plan, device or arrangement.
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4.20
Interested Party Transactions.
Except
for employment contracts filed or incorporated by reference as an exhibit to an SEC Report filed prior to the date hereof or Company Benefit Plans,
Section 4.20
of the Company's Disclosure Letter
sets forth a true and complete list of the contracts or arrangements that are in existence as of
the date of this Agreement under which any of the Company or its Subsidiaries has any existing or future liabilities between any of the Company or its Subsidiaries, on the one hand, and, on the other
hand, any (a) present or former officer or director of any of the Company or its Subsidiaries or any Person that has served as such an officer or director within the past two (2) years
or any of such officer's or director's immediate family members or that remain in effect, (b) record or beneficial owner of more than 5% of the Shares as of the date hereof, or (c) to
the Knowledge of the Company, any Affiliate of any such officer, director or owner (other than the Company or its Subsidiaries) (each an "
Affiliate
Transaction
"). The Company has provided or made available to Parent true and complete copies of each such contract or other relevant documentation (including any amendments or
modifications thereto) providing for each Affiliate Transaction.
4.21
Brokers.
No
broker, finder or investment banker (other than Lazard Middle Market LLC) is entitled to any brokerage, finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of the Company or any of its Subsidiaries. Prior to the date of this Agreement, the Company has provided to Parent true and
correct copies of all agreements between the Company and such parties relating to the transactions contemplated by this Agreement.
4.22
Opinion of Financial Advisor.
The
Board of Directors of the Company has received the opinion of Lazard Middle Market LLC to the effect that, as of the date of such opinion, the Merger Consideration to be paid
to the holders of the Shares (other than Värde Partners, Inc., Parent, Merger Subsidiary and their respective affiliates and holders of Dissenting Shares) in the Merger is fair,
from a financial point of view, to such holders. The Company has provided, solely for informational purposes, a true and complete written copy of such opinion to Parent.
4.23
Proxy Statement and Schedule 13E-3
.
(a) Each
document required to be filed by the Company with the SEC or required to be distributed or otherwise disseminated to the Company's stockholders in connection with
the transactions contemplated by this Agreement (the "
Company Disclosure Documents
"), including the proxy or information statement of the Company (the
"
Proxy Statement
") and Schedule 13E-3 to be filed with the SEC in connection with the Merger, and any amendments or supplements
thereto, when filed, distributed or disseminated, as applicable, will comply as to form in all material respects with the applicable requirements of the Exchange Act. The representations and
warranties contained in this
Section 4.23(a)
do not apply to statements or omissions included in the Company Disclosure Documents based upon
information furnished to the Company by Parent specifically for use therein.
(b) The
Proxy Statement, as supplemented or amended, if applicable, at the time such Proxy Statement or any amendment or supplement thereto is first mailed to stockholders
of the Company and at the time such stockholders vote on adoption of this Agreement and at the Effective Time, the Schedule 13E-3, as supplemented or amended, if applicable, at the
time such Schedule 13E-3 or any supplement or amendment thereto is filed with the SEC and at the time of any distribution or dissemination thereof and any Company Disclosure
Documents (other than the Proxy Statement) at the time such Company Disclosure Document or any supplement or amendment thereto is filed with the SEC and at the time of any distribution or
dissemination
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thereof
will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under
which they were made, not misleading. The representations and warranties contained in this
Section 4.23(b)
do not apply to statements or
omissions included in the Company Disclosure Documents based upon information furnished to the Company by Parent specifically for use therein.
4.24
Portfolio Assets
.
Each
of the Portfolio Assets on the Company's or any of its Subsidiaries' books and records has been serviced in accordance with the Company's servicing policies in the ordinary course
of business and in accordance with terms of the applicable servicing agreements. The Company has previously made available to Parent and Merger Subsidiary true and complete copies of its servicing
policies. The amounts representing the Portfolio Assets in the Company's SEC Reports and the financial statements filed therewith have been adjusted for impairment recognized prior to the date of such
financial statements, as of their respective dates, and the allowances for loan losses for SBA Loans and Loans ReceivableOther as reflected in the Company's SEC Reports and the financial
statements (and notes thereto) are adequate under GAAP. Since September 30, 2012, there has not occurred any event, circumstance, effect, change or occurrence that, individually or in the
aggregate, required or would reasonably be expected to require the Company and its Subsidiaries, taken as a whole, to record impairment charges in an aggregate amount in excess of $10.0 million
on their respective Portfolio Assets.
4.25
Independent Investigation
.
In
entering into this Agreement and each of the other documents and instruments relating to the Merger and the other transactions contemplated by this Agreement, the Company has relied
solely upon its own investigation and analysis and the representations and warranties provided by Parent and Merger Subsidiary in
Article V
, and
the Company acknowledges and agrees that except for the specific representations and warranties of each of Parent and Merger Subsidiary contained in this Agreement, (i) none of Parent and
Merger Subsidiary, their Affiliates or any of its or their respective stockholders, controlling Persons or Representatives makes or has made and (ii) the Company has not relied upon, any
representation or warranty, either express or implied, with respect to Parent, Merger Subsidiary any of their Affiliates or their respective businesses, operations, assets, liabilities, results of
operations, financial condition, prospects, projections, budgets, estimates or operational metrics, or as to the accuracy or completeness of any of the information (including any statement, document
or agreement
delivered pursuant to this Agreement and any financial statements and any projections, estimates or other forward-looking information) provided or otherwise made available to the Company or any of its
Affiliates, stockholders or Representatives.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY
Each of Parent and Merger Subsidiary hereby represents and warrants to the Company that:
5.1
Organization
.
(a) Parent
is a limited liability company duly organized, validly existing and in good standing under the Laws of the State of Delaware, and has all requisite limited
liability company power and authority to own, lease and operate its properties and carry on its business as it is now being conducted and is qualified or licensed to do business, and is in good
standing, in each jurisdiction in which the nature of its business or properties owned, operated or leased by it makes such qualification, licensing or good standing necessary, except where the
failure to have such power or authority, or the failure to be so qualified, licensed or in good standing, would not materially
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impair
the ability of Parent and Merger Subsidiary, taken as a whole, to consummate the transactions contemplated by this Agreement. Merger Subsidiary is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware, and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as it
is now being conducted. Merger Subsidiary has not engaged and will not engage in any activities other than in connection with or as contemplated by this Agreement and the transactions contemplated
hereby. Parent owns all of the outstanding Equity Securities of Merger Subsidiary. The copy of the limited liability company agreement of Parent and the copies of the Certificate of Incorporation and
Bylaws of Merger Subsidiary that have been provided or made available to the Company are complete and correct and in full force and effect.
5.2
Authorization
.
(a) Each
of Parent and Merger Subsidiary has all requisite corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of this Agreement by each of Parent and Merger Subsidiary and consummation by each of Parent and Merger Subsidiary of the
transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of Parent and Merger Subsidiary, respectively, and no other corporate proceedings
on the part of Parent or Merger Subsidiary are necessary to authorize this Agreement or to consummate the transactions contemplated hereby, other than the adoption of this Agreement by Parent as sole
stockholder of Merger Subsidiary (such action, the "
Required Action
"). This Agreement has been duly executed and delivered by Parent and Merger
Subsidiary and (assuming due authorization, execution and delivery hereof by the other party hereto) constitutes a legal, valid and binding obligation of Parent and Merger Subsidiary, enforceable
against Parent and Merger Subsidiary in accordance with its terms except as enforcement may be limited by applicable bankruptcy, insolvency or other Laws affecting creditors' rights generally or by
legal principles of general applicability governing the availability of equitable remedies.
(b) The
Board of Directors of Parent has by unanimous approval determined that this Agreement and the Merger are advisable and in the best interest of Parent's
equityholders. No vote of the holders of limited liability company interests or other securities (equity or otherwise) of Parent is necessary to consummate the Merger.
5.3
Approvals
.
The
execution and delivery of this Agreement does not, and consummation of the transactions contemplated hereby will not, require Parent or Merger Subsidiary to obtain any Authorization
or other approval of or from, or to make any filing with or notification to, any Governmental Authority or third Person, except (a) for the applicable requirements, if any, of the Exchange Act,
state securities or "blue sky" Laws, the HSR Act, the Stock Exchange and the filing and recordation of the Certificate of Merger as required by the DGCL, (b) the Required Action, and
(c) such other consents, approvals, authorizations, permits, actions, filings or notifications, the failure of which to be made or obtained, individually or in the aggregate, would not
materially impair the ability of Parent and Merger Subsidiary, taken as a whole, to consummate the transactions contemplated by this Agreement (collectively, the "
Parent
Approvals
").
5.4
No Violation
.
Assuming
that the Authorizations, approvals, filings and notifications described in
Section 5.3
have been obtained or made, the
execution and delivery by Parent or Merger Subsidiary of this Agreement does
not and consummation of the transactions contemplated by this Agreement will not (a) conflict with, result in any violation or breach of, or cause a default (or an event that with notice, lapse
of time or otherwise would become a default) under (i) any Law, Regulation or Order applicable to Parent or
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Merger
Subsidiary, (ii) the Certificate of Incorporation or Bylaws of Merger Subsidiary or (iii) the organizational documents of Parent, or (b) conflict with, result in any
violation or breach of, or cause a default (or an event that with notice, lapse of time or otherwise would become a default) under, or give to others any right of termination, cancellation, amendment
or acceleration of, or require a payment under, or result in the loss of any benefit under, or in the creation of a Lien on any of the properties or assets of Parent or any of its Subsidiaries
pursuant to, any note, bond, mortgage, indenture, deed of trust, lease, license, permit, franchise, contract or agreement to which Parent or Merger Subsidiary is a party or by which it or any of its
Subsidiaries or its or their respective properties or assets is bound, except in the case of matters described in
clauses (a)(i)
and
(b)
of this
Section 5.4
that, individually or in the aggregate, would not materially impair the
ability of Parent and its Subsidiaries, taken as a whole, to consummate the transactions contemplated by this Agreement.
5.5
Litigation
.
There
are no actions, suits, investigations or proceedings (including regulatory or administrative proceedings or any proceedings in arbitration) pending against or, to the Knowledge of
Parent, threatened against Parent or Merger Subsidiary or against any present or former officer or director of Parent or Merger Subsidiary or any other Person for which Parent or any of its
Subsidiaries may be liable or to which any of their respective properties, assets or rights are reasonably likely to be subject before any Governmental Authority that, individually or in the
aggregate, would materially impair the ability of Parent and Merger Subsidiary, taken as a whole, to consummate the transactions contemplated by this Agreement.
5.6
Financing
.
(a) Parent
has delivered to the Company a true and complete copy of an executed equity commitment letter from the Sponsors to provide equity financing (the
"
Equity Financing
") to Parent and/or Merger Subsidiary to which the Company is an express third-party beneficiary pursuant to the terms and subject to
the conditions and limitations thereof (the "
Equity Commitment Letter
").
(b) The
Equity Commitment Letter is a legal, valid and binding obligation of Parent or Merger Subsidiary and, to the Knowledge of Parent, the other parties thereto, except
as enforcement may be
limited by applicable bankruptcy, insolvency or other Laws affecting creditors' rights generally or by legal principles of general applicability governing the availability of equitable remedies. The
Equity Commitment Letter is in full force and effect, and has not been withdrawn, rescinded or terminated or otherwise amended or modified in any respect.
(c) Assuming
the accuracy of the representations and warranties set forth in
Article IV
and the compliance by the
Company with its obligations under this Agreement, neither Parent nor Merger Subsidiary is in breach of any of the terms or conditions set forth in the Equity Commitment Letter, and no event has
occurred which, with or without notice, lapse of time or both, would reasonably be expected to constitute a breach, default or failure to satisfy any condition precedent set forth therein, other than
any such default, breach or failure to satisfy any condition precedent set forth therein that has been waived by the Sponsors or otherwise cured in a timely manner by Parent to the satisfaction of the
Sponsors.
(d) The
net proceeds from the Equity Financing will be sufficient to consummate the Merger and the other transactions contemplated by this Agreement, including the payment
by Parent and Merger Subsidiary of the Merger Consideration, amounts due under
Section 3.3
and any fees and expenses of or payable by Parent,
Merger Subsidiary or the Surviving Corporation.
(e) Other
than as set forth in the Equity Commitment Letter, there are no conditions precedent or other contingencies related to the funding of the full amount of the Equity
Financing (the "
Disclosed Conditions
"). To the Knowledge of Parent, no Person has any right to impose, and
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none
of the Sponsors, Parent or Merger Subsidiary has any obligation to accept, any condition precedent to such funding other than the Disclosed Conditions nor any reduction to the aggregate amount
available under the Equity Commitment Letter on the Closing Date (nor any term or condition which would have the effect of reducing the aggregate amount available under the Equity Commitment Letter on
the Closing Date). Assuming the accuracy of the representations and warranties set forth in
Article IV
and the compliance by the Company with its
obligations under this Agreement, as of the date hereof, neither Parent nor Merger Subsidiary has any reason to believe that it will be unable to satisfy on a timely basis any conditions to the
funding of the full amount of the Equity Financing, or that the Equity Financing will not be available to Parent or Merger Subsidiary on the Closing Date. Parent or Merger Subsidiary has paid in full
any and all commitment fees or other fees required to be paid pursuant to the terms of the Equity Commitment Letter that are due as of the date hereof. For the avoidance of doubt, it is not a
condition to the consummation of the Merger under this Agreement, for Parent or Merger Subsidiary to obtain the Equity Financing or any alternative financing.
5.7
Guarantee
.
Concurrently
with the execution of this Agreement, Parent has delivered to the Company a duly executed guarantee of the Guarantors with respect to the Guarantee. The Guarantee is in full
force and effect and is the valid, binding and enforceable obligation of the Guarantors except as enforcement may be limited by applicable bankruptcy, insolvency or other Laws affecting creditors'
rights generally or by legal principles of general applicability governing the availability of equitable remedies, and no event has occurred which, with or without notice, lapse of time or both, would
constitute a default on the part of the Guarantors under such Guarantee.
5.8
Absence of Arrangements with Management
.
Other
than this Agreement, the Management Agreements and the Support Agreement, as of the date hereof there are no contracts, undertakings, commitments, agreements or obligations or
understandings between Parent or Merger Subsidiary or any of their respective Affiliates, on the one hand, and any member of the Company's management or the Company's Board of Directors or any of
their respective Affiliates, on the other hand, relating to the transactions contemplated by this Agreement or the operations of the Company after the Effective Time. Parent has delivered to the
Company true and complete copies of the Management Agreements and the Support Agreement. As of the date hereof, each Management Agreement and each Support Agreement delivered by Parent to the Company
is in full force and effect, and has not been amended or modified in any respect.
5.9
Disclosure Documents
.
None
of the information with respect to Parent or Merger Subsidiary or any of their respective Subsidiaries or Affiliates that Parent or Merger Subsidiary furnishes to the Company
specifically for use in the Company Disclosure Documents or in a Schedule 13E-3, at the time of the filing thereof, at the time of any distribution or dissemination thereof and at
the time such stockholders vote on adoption of this Agreement, will contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not misleading.
5.10
Ownership
.
Other
than as a result of this Agreement and the Support Agreement, none of Parent, Merger Subsidiary or any of their "affiliates" or "associates" is, or at any time during the last
three years has
been, an "interested stockholder" of the Company, as such terms are defined in Section 203 of the DGCL.
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5.11
Brokers
.
No
broker, finder or investment banker (other than Sandler O'Neill + Partners, L.P.) is entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Parent or Merger Subsidiary.
5.12
Independent Investigation
.
In
entering into this Agreement and each of the other documents and instruments relating to the Merger and the other transactions contemplated by this Agreement, Parent and Merger
Subsidiary have each relied solely upon its own investigation and analysis and the representations and warranties provided by the Company in
Article IV
, and Parent and Merger Subsidiary acknowledge
and agree that except for the specific representations and warranties of the Company
contained in this Agreement (including any that are subject to the Company's Disclosure Letter and the Company's SEC Reports), (i) none of the Company, its Affiliates or any of its or their
respective stockholders, controlling Persons or Representatives makes or has made and (ii) neither Parent nor Merger Subsidiary has relied upon, any representation or warranty, either express
or implied, with respect to the Company or its Subsidiaries or Affiliates or their business, operations, technology, assets, liabilities, results of operations, financial condition, prospects,
projections, budgets, estimates or operational metrics, or as to the accuracy or completeness of any of the information (including any statement, document or agreement delivered pursuant to this
Agreement and any financial statements and any projections, estimates or other forward-looking information) provided (including in any management presentations, information or descriptive memorandum,
certain "data rooms" maintained by the Company, supplemental information or other materials or information with respect to any of the above) or otherwise made available to Parent and Merger Subsidiary
or any of their respective Affiliates, stockholders or Representatives.
ARTICLE VI.
COVENANTS
6.1
Affirmative Covenants
.
From
and after the date hereof and until the earlier of the Effective Time and the date, if any, on which this Agreement is terminated pursuant to
Section 8.1
(such time period, the "
Interim Period
"), and except (i) as may be otherwise
required by applicable Law, (ii) with the prior written consent of Parent (not to be unreasonably withheld, delayed or conditioned), (iii) as expressly contemplated or permitted by this
Agreement or (iv) as disclosed in
Section 6.1
of the Company's Disclosure Letter, the Company shall, and shall cause each of its
Subsidiaries to (1) conduct its business in all material respects in the ordinary course consistent with past practices, (2) use reasonable best efforts to maintain and preserve intact
its business organization, assets, insurance coverage and advantageous business relationships and to retain the services of its key officers and key employees, preserve the good will of Persons with
whom it has material business relationships in each case, in all material respects in the ordinary course of business consistent with past practices and (3) take no action which would
materially adversely affect or materially delay the ability of any of the parties hereto from obtaining any necessary approvals of any regulatory agency or other Governmental Authority required for
the transactions contemplated hereby, performing its covenants and agreements under this Agreement or consummating the transactions contemplated hereby or otherwise materially delay or prohibit
consummation of the Merger or other transactions contemplated hereby;
provided
,
however
, that no action
by the Company or its Subsidiaries with respect to matters specifically addressed by any provision of
Section 6.2
shall be deemed a breach of
this sentence unless such action constitutes a breach of such provision of
Section 6.2
.
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6.2
Negative Covenants
.
(a) The
Company covenants and agrees that during the Interim Period, except as may be otherwise required by applicable Law, as expressly set forth in
Section 6.2
of the Company's Disclosure Letter, as
expressly contemplated by this Agreement or as otherwise consented to in writing by Parent (or
orally by Parent's chief executive officer, chief financial officer or general counsel and confirmed in writing
within one (1) Business Day by the Company to Parent) which consent shall not be unreasonably withheld, delayed or conditioned, from the date of this Agreement until the Effective Time, it
shall not do, and shall not permit any of its Subsidiaries to do, any of the following:
(i) (A)
increase the compensation payable to or to become payable to or grant any bonuses, including but not limited to year end bonuses, to any former or present director,
officer, employee or consultant, except in the ordinary course of business consistent with past practice, (B) enter into or amend any employment, severance, termination or similar agreement or
arrangement with any former or present director, officer, employee or consultant, (C) establish, adopt, enter into or amend or modify any Benefit Plan (or any arrangement that would, upon its
establishment, adoption or other event constitute a Benefit Plan), (D) grant or increase any severance, retention or termination pay, (E) amend or take any other actions to increase the
amount of, or accelerate the payment or vesting of, any benefit or amount under any Benefit Plan or other policy or arrangement (including the acceleration of vesting, waiving of performance criteria
or the adjustment of awards or providing for compensation or benefits to any former or present director, officer, employee or consultant), (F) execute or amend in any material respect any
consulting or indemnification agreement between the Company or any of its Subsidiaries and any of their respective directors, officers, agents, consultants or employees, or any material collective
bargaining agreement or other material obligation to any labor organization or employee incurred or entered into by the Company or any of its Subsidiaries, or (G) contribute, transfer or
otherwise provide any cash, securities or other property to any grantee, trust, escrow or other arrangement that has the effect of providing or setting aside assets for benefits payable pursuant to
any termination, severance, retention or other change in control agreement; except in the case of (A) through (G), (1) pursuant to and in accordance with the terms of any Benefit Plan or
other plan, contract, agreement or other legal obligation of the Company or any of its Subsidiaries existing at the date of this Agreement, (2) in the case of severance or termination payments,
pursuant to the severance policy or plans of the Company or its Subsidiaries existing at the date of this Agreement (copies of which have been furnished to Parent) or in the ordinary course of
business consistent with past practice, (3) as required by applicable Law, (4) in the case of compensation or bonuses for senior management of the Company, as previously determined by
the Company's Board of Directors;
provided
, that such compensation or bonuses shall not in the aggregate exceed $3,750,000, and (5) any
amendments or new agreements with respect to the Company's labor unions in Chile and in Mexico;
provided
, that any such amendments or agreements shall
not result in additional liabilities of the Company or its Subsidiaries, taken as a whole, that, in the aggregate, exceed $250,000;
(ii) declare,
set aside or pay any dividend on, or make any other distribution in respect of outstanding Equity Securities of the Company or any of its Subsidiaries, except
to the extent that Company or its Subsidiaries that own such Equity Securities in the Person paying such dividends or making such distribution receives at least its proportionate share thereof (based
on its relative holdings of such Equity Securities in such Person paying such dividends or making such distribution);
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(iii) (A)
directly or indirectly redeem, purchase or otherwise acquire, or offer to redeem, purchase or otherwise acquire, any outstanding Equity Securities of the Company
or any of its Subsidiaries except for (1) any such acquisition by the Company or any of its Subsidiaries directly from any Subsidiary of the Company or (2) any repurchase, forfeiture or
retirement of Shares, Company Stock Options occurring pursuant to the terms as in effect on the date of this Agreement of any Equity Securities outstanding on the date hereof, or of any Benefit Plan
existing on the date hereof, or (B) effect any reorganization or recapitalization or split, combine or reclassify any of the Equity Securities in the Company or any of its Subsidiaries or issue
or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for, such Equity Securities;
(iv) (A)
issue, deliver, grant or sell, or authorize or propose the issuance, delivery, grant or sale of any Equity Securities of the Company or any of its Subsidiaries,
except for issuances of Shares (1) upon the exercise of Company Stock Options outstanding at the date of this Agreement in accordance with the terms thereof as in effect on the date of this
Agreement, (2) upon the expiration of any restrictions upon issuance of any grant existing at the date of this Agreement of restricted stock or bonus stock pursuant to the terms thereof as in
effect on the date of this Agreement of any Current Company Benefit Plans or (3) that constitute periodic issuances of Shares required by the terms as in effect on the date of this Agreement of
any Current Company Benefit Plans or other Equity Securities in connection with the formation of a Subsidiary which is to be an REO Affiliate, (B) amend or otherwise modify the terms of any
outstanding Equity Securities the effect of which will be to make such terms more favorable to the holders thereof except as otherwise permitted by
Section 6.2(a)(i)
, or (C) except as
expressly contemplated in
Section 6.3
or
otherwise in this Agreement, enter into or announce any agreement, understanding or arrangement with respect to the sale, voting, registration or repurchase of any Equity Securities of the Company or
any of its Subsidiaries;
(v) (A)
merge, consolidate or combine with any Person or dissolve or liquidate or adopt a plan of merger, consolidation or combination with any Person or dissolution or
complete or partial liquidation, (B) acquire by merging or consolidating with, purchasing substantial Equity Securities in, purchasing all or a substantial portion of the assets of, or in any
other manner, any business or any Person or otherwise acquire or agree to acquire any assets of any other Person (other than the purchase of Portfolio Assets in the ordinary course of business
consistent with past practice and not to exceed $3,000,000 in a single transaction and not to exceed $7,500,000 in the aggregate prior to the Effective Time and the purchase of assets from suppliers
or vendors in the ordinary course of business consistent with past practice), (C) enter into any material partnership, joint venture agreement or similar agreement other than with
Värde Partners, Inc., any of its controlled Affiliates, VFC Partners 5 LLC or VFC Properties 5 LLC, or (D) make any loans, advances or capital
contributions to, or investments in any Person except investments in Persons with Värde Partners, Inc., any of its controlled Affiliates, VFC Partners 5 LLC or VFC
Properties 5 LLC related to the acquisition of Portfolio Assets or for loans, advances and capital contributions (1) made in the ordinary course of business consistent with past
practice, (2) to any entity created by Subsidiaries of Company with VFC Member LLC, Värde Partners, Inc., any of its controlled Affiliates, VFC Partners
5 LLC, VFC Properties 5 LLC or to any other Person not in excess of $1,000,000, (3) to any Subsidiary under the terms of an Existing Loan Facility or (4) pursuant to and in
accordance with the terms of any Material Contract or other legal obligation, in each case existing as of the date of this Agreement;
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(vi) sell,
transfer, lease, exchange or otherwise dispose of, or grant any Lien with respect to, any of the material properties or assets of the Company or any of its
Subsidiaries, except for (a) sales of Portfolio Assets in the ordinary course of business consistent with past practice, (b) pursuant to any agreements existing on the date of this
Agreement, (c) sales disclosed in
Section 6.2
of the Company's Disclosure Letter, (d) sales or dispositions that constitute
Divestment Transactions, and (e) Permitted Liens;
(vii) adopt
or propose any amendments to its Certificate of Incorporation or Bylaws or other organizational documents or any of the organizational documents of the
Subsidiaries of the Company;
(viii) (A)
change any of its methods or principles of accounting in effect at December 31, 2011, except to the extent required to comply with GAAP as advised by the
Company's independent accountants, (B) make or rescind any material election relating to Taxes (other than any election that must be made periodically and is made consistent with past
practice), (C) settle or compromise any material claim, action, suit, litigation, proceeding, arbitration, investigation, audit or controversy relating to Taxes, (D) change any of its
material methods of reporting income or deductions for U.S. federal income tax purposes from those employed in the preparation of the U.S. federal income Tax Returns for the taxable year ended
December 31, 2011, (E) request any Tax opinions or rulings, (F) authorize any Tax indemnities, (G) file with or provide to a Governmental Authority any waiver extending the
statutory period for assessment or reassessment of Tax or any other waiver of restrictions on assessment or collection of any Tax, (H) enter into or amend any agreement or settlement with any
Governmental Authority respecting Taxes, (I) amend or revoke any previously filed Tax Return except, in each case, as may be required by Law or (J) enter into any transaction outside the
ordinary course of business if such transaction could reasonably be expected to give rise to a Tax liability in excess of $25,000, other than a Divestment Transaction;
(ix) incur,
create, assume, modify, guarantee or otherwise become liable for any obligation for borrowed money, purchase money indebtedness or any obligation of any other
Person, whether or not evidenced by a note, bond, debenture, guarantee, indemnity or similar instrument, except for (A) trade payables incurred in the ordinary course of business consistent
with past practice, (B) borrowings under any
Existing Loan Facility in the ordinary course of business consistent with past practice, (C) indebtedness with any wholly owned Subsidiary and (D) other obligations not exceeding
$250,000 in the aggregate outstanding at any one time;
(x) make
or commit to make any capital expenditures in excess of $250,000 in the aggregate during any fiscal quarter (net of any capital expenditures made by Regional
Rail, LLC, East Penn Railroad LLC or Middletown & New Jersey Railroad, LLC or entities whose Equity Securities are owned, directly or indirectly, in whole or part by
Subsidiaries of FirstCity Denver Investment Corp., in each case so long as any such capital commitments made are funded solely out of the retained earnings of such Person);
(xi) enter
into or amend any agreement between the Company or any of its Subsidiaries and any agent, sales representative or similar Person except in the ordinary course of
business consistent with the past practice;
(xii) transfer
to any Person or entity Intellectual Property owned by the Company and necessary to carry on the Company's business in all material respects;
(xiii) pay,
discharge, settle or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise) prior to the same being
due in excess of $50,000 in the aggregate, other than (A) pursuant to mandatory terms of any agreement,
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understanding
or arrangement as in effect on the date hereof, (B) in connection with the resolution of a Portfolio Asset (including the resolution of pending litigation related to such
Portfolio Asset) in the ordinary course of business or (C) in connection with the resolution of pending litigation, other than resolution of pending litigation related to a Portfolio Asset
pursuant to the foregoing clause (B), in the ordinary course of business with respect to any entity formed by the Subsidiaries of the Company with VFC Member LLC, Värde
Partners, Inc., any of its controlled Affiliates, VFC Partners 5 LLC or VFC Properties 5 LLC;
(xiv) enter
into any "non-compete" or similar agreement that could reasonably be expected to materially restrict the businesses of the Surviving Corporation
following the Effective Time or that would in any way restrict the businesses of Parent or its Affiliates (excluding the Surviving
Corporation) or take any action that may impose new or additional material regulatory requirements on any Affiliate of Parent (excluding the Surviving Corporation);
(xv) fail
to use reasonable best efforts to maintain the Company's current insurance policies;
(xvi) fail
to file on a timely basis all applications and other documents necessary to maintain, renew or extend any material Authorizations or any other approval required
by any Governmental Authority for the continuing operation of its business;
(xvii) (A)
enter into, renew, modify, amend or terminate any Material Contract to which the Company or any of its Subsidiaries is or is to be a party other than with
Värde Partners, Inc., any of its controlled Affiliates, VFC Partners 5 LLC or VFC Properties 5 LLC, or waive, delay the exercise of, release or assign any material
rights or claims thereunder except in connection with a Divestment Transaction as permitted herein or in the ordinary course of business consistent with past practice or (B) enter into or amend
in any material manner any contract, agreement or commitment with any former or present director, officer or employee of the Company or any of its Subsidiaries or with any Affiliate or associate (as
defined under the Exchange Act) of any of the foregoing Persons except to the extent permitted under paragraph (i) above;
(xviii) adopt
any stockholder rights plan or similar arrangement;
(xix) take,
cause to be taken or omit to take any action that is intended or could reasonably be expected to, individually or in the aggregate, result in any of the
representations or warranties contained herein becoming untrue or inaccurate in any material respect or result in any of the conditions set forth in
Article VII
not being satisfied or satisfaction
of those conditions being materially delayed in violation of any provision of this Agreement;
(xx) settle,
compromise or otherwise resolve any Legal Proceeding other than a settlement, compromise or resolution that (A) involves only the payment of money in an
amount no greater than $50,000, (B) is disclosed in
Section 6.2
of the Company's Disclosure Letter or (C) is otherwise in the
ordinary course of business consistent with past practice and, in all cases, that does not involve or result in any other obligation, admission or remedy of any kind, including any admission of
liability or guilt by the Company or any of its Subsidiaries, any imposition of equitable, declaratory, injunctive or similar relief or any restrictions on the business or operations of the Company or
any of its Subsidiaries; or
(xxi) agree
in writing or otherwise to do any of the foregoing.
Except
as otherwise contemplated in connection with existing agreements between Värde Partners, Inc., any of its controlled Affiliates, VFC Partners 5 LLC or
VFC Properties 5 LLC on the one hand and the Company and its Subsidiaries on the other hand, nothing contained in this
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Agreement
shall give Parent, directly or indirectly, rights to control or direct the operations of the Company or any of its Subsidiaries prior to the Effective Time. Prior to the Effective Time, the
Company shall exercise, consistent with the terms and conditions of this Agreement, complete control and supervision of its operations and the operations of its Subsidiaries.
(b) During
the Interim Period and except (i) as may be otherwise required by applicable Law, or (ii) as expressly contemplated or permitted by this Agreement,
Parent and Merger Subsidiary shall take no action which is intended to or which would reasonably be expected to adversely affect or delay the ability of any of the parties hereto from obtaining any
necessary approvals of any regulatory agency or other Governmental Authority required for the transactions contemplated hereby, performing its covenants and agreements under this Agreement or
consummating the transactions contemplated hereby or otherwise delay or prohibit consummation of the Merger or other transactions contemplated hereby.
(c) Parent
and Merger Subsidiary acknowledge and agree that the provisions of
Section 6.2
shall in no manner apply to
or restrict the Company's actions with respect to the divestiture of interests in the Divestment Transactions, in each case, on substantially the same terms, as set forth or described in
Section 6.2(c)
of the Company's Disclosure Letter,
provided
, that if the consideration to be
received by the Company and its Subsidiaries in any such transaction shall be less than the amount as set forth or described in
Section 6.2(c)
of
the Company's Disclosure Letter, the Company shall promptly notify Parent in writing of such circumstances and shall not enter into any agreement with respect to or consummate such transaction without
the prior written consent of Parent.
6.3
No Solicitation.
(a) From
and after the date hereof, except as specifically permitted in this
Section 6.3
, (1) the Company shall
not, and shall cause each of its Subsidiaries not to, and (2) the Company shall not, and shall cause each of its Subsidiaries not to, authorize or permit any of its or their Representatives to,
directly or
indirectly: (i) solicit, initiate, knowingly facilitate or knowingly encourage the submission or announcement of any Acquisition Proposal or any inquiries with respect to the submission or
announcement of any Acquisition Proposal; (ii) participate in discussions or negotiations regarding, or furnish any non-public information relating to, the Company or any of its
Subsidiaries with respect to, or otherwise cooperate in any way with, any effort or attempt by any Person (other than Parent or its Affiliates) to make an inquiry in respect of or make any proposal or
offer that constitutes, or may reasonably be expected to lead to, any Acquisition Proposal; (iii) except for confidentiality agreements entered into pursuant to and in accordance with the
proviso set forth in
clause (d)(iv)(A)
of this
Section 6.3
, enter into a letter of intent,
memorandum of understanding or other agreement with any Person, other than Parent or its Affiliates, relating to an Acquisition Proposal; or (iv) waive any Standstill Agreement (as defined
below) or voting restriction contained in the organizational or governing documents of the Company or any of its Subsidiaries, in each case except (A) to the extent necessary to permit the
Company to take an action it is otherwise permitted to take under
Section 6.3(d)
in full compliance with such provision or (B) to the
extent that the Company has duly effected a Change of Board Recommendation in accordance with the terms hereof with respect to a proposal by the third party subject to such Standstill Agreement. The
Company shall ensure that its Representatives are aware of the provisions of this
Section 6.3
, and any violation of the restrictions contained in
this
Section 6.3
by the Company's Board of Directors (including any committee thereof) or any director, officer or employee of the Company or any
of its Subsidiaries shall be deemed to be a breach of this
Section 6.3
by the Company;
provided
that for all purposes of this Agreement, the Company shall not have violated any of its covenants contained in this
Section 6.3
in the event that
a non-officer employee of the Company or any of its Subsidiaries violates a covenant contained in this
Section 6.3
and such violation
does not lead to or result in an Acquisition Proposal.
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(b) The
Company shall, and shall cause each of its Subsidiaries and instruct its Representatives to, (i) immediately cease and terminate any existing solicitations,
discussions, negotiations or other activity with any Person (other than Parent or its Affiliates) being conducted with respect to any Acquisition Proposal or inquiry that may reasonably be expected to
lead to, any Acquisition Proposal on the date hereof, (ii) promptly request that each Person (other than Parent or its Affiliates) that has received confidential information in connection with
a possible Acquisition Proposal return to the Company or destroy all confidential information heretofore furnished to such Person by or on behalf of the Company or any of its Subsidiaries and
(iii) use reasonable best efforts to enforce, and not amend, terminate, modify or grant any waiver under, any confidentiality, standstill or other agreement to which the Company is a party
(such agreement, a "
Standstill Agreement
"), except as otherwise contemplated by
Section 6.3(a)(iv)(A)
or
Section 6.3(a)(iv)
(B)
.
(c) From
and after the date hereof, the Company shall notify Parent as soon as practicable (but in any event within forty-eight (48) hours) after receipt of
(i) any Acquisition Proposal or indication that any Person is considering making an Acquisition Proposal, (ii) any request for non-public information relating to the Company
or any of its Subsidiaries or (iii) any request for access to the properties, assets or the books and records of the Company or its Subsidiaries that the Company reasonably believes is
reasonably likely to lead to an Acquisition Proposal. The Company shall provide Parent promptly with the identity of such Person, a description of the material terms of such
Acquisition Proposal, indication or request and a copy of such Acquisition Proposal, if in writing. The Company shall keep Parent informed on a reasonably current basis of the status and the material
terms of any such Acquisition Proposal, indication or request and shall notify Parent promptly (but in any event within forty-eight (48) hours) of any material change in the terms of any such
Acquisition Proposal, indication or request (including whether such Acquisition Proposal, indication or request has been withdrawn or rejected and of any material change to the terms thereof) and
concurrently provide a copy of any document received from or on behalf of the Person making such Acquisition Proposal, indication or request relating to any such material development.
(d) Notwithstanding
the foregoing provisions of
Section 6.3(a)
and
Section 6.3(b)
, prior to the Effective Time, the Company or its Board of Directors may engage in
discussions or negotiations with, or furnish or
disclose any information relating to the Company or any of its Subsidiaries or give access to the properties, assets or the books and records of the Company or any of its Subsidiaries to, a Person in
response to an unsolicited, bona fide, written third party proposal with respect to an Acquisition Proposal that is submitted to the Company by such Person (and not withdrawn) if (i) none of
the Company, any of its Subsidiaries nor any Representatives of the Company and any of its Subsidiaries shall have breached any of the provisions set forth in this
Section 6.3
in any respect,
(ii) such Person is not a party to any Standstill Agreement with the Company or any of its Subsidiaries
(except as otherwise contemplated by
Section 6.3(a)(iv)(A)
or
Section 6.3(a)(iv)(B)
),
(iii) the Board of Directors of the Company shall have determined in good faith (after consultation with the Company's legal and financial advisors) that such Acquisition Proposal could
reasonably be expected to result in a Superior Proposal and (after consultation with the Company's legal advisor) that the failure to take such action could reasonably be expected to result in a
breach of the directors' fiduciary obligations to the stockholders of the Company under applicable Laws, and (iv) the Company (A) shall have entered into a confidentiality agreement on
terms no more favorable to such Person than those contained in the Confidentiality Agreement and provided a copy of such agreement to Parent and (B) shall concurrently disclose or make
available the same information to Parent as it makes available to such Person to the extent such information was not previously disclosed to Parent.
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(e) Neither
the Board of Directors of the Company nor any committee thereof shall, except as provided in this
Section 6.3(e)
or
Section 6.3(f)
,
(i) withdraw, change, amend, modify or qualify,
or publicly propose to withdraw, change, amend, modify or qualify, in a manner adverse to Parent or Merger Subsidiary, the Company Board Recommendation, (ii) approve, endorse or recommend or
publicly propose to approve, endorse or recommend any Acquisition Proposal (any action or failure to act described in
clause (i)
or
clause (ii)
of this
Section 6.3(e)
, being a "
Change of Board
Recommendation
") or (iii) approve or publicly propose to approve, endorse or recommend or cause the Company or any of its Subsidiaries to enter into, any letter of
intent, agreement in principle or other agreement relating to any Acquisition Proposal (other than a confidentiality agreement permitted by
Section 6.3(d)(iv)(A)
). Notwithstanding the immediately
preceding sentence, if, at any time prior to the date on which the Required Company Vote
is obtained for the Merger, the Board of Directors of the Company determines in good faith (after consultation with the Company's legal and financial advisors) that an Acquisition Proposal constitutes
a Superior Proposal, the Board of Directors of the Company may (x) effect a Change of Board Recommendation in response to the Superior Proposal and/or (y) if the Effective Time has not
occurred, terminate this Agreement in accordance with
Section 8.1(c)(ii)
and simultaneously enter into a definitive agreement with respect to
such Superior Proposal, but only if (A) the Company's Board of Directors determines in good faith (after consultation with the Company's legal advisors) that the failure to take such action
would reasonably be expected to result in a breach of its fiduciary duties to the stockholders of the Company under applicable Laws, (B) the Board of Directors of the Company provides Parent
with at least three (3) Business Days' advance written notice of the actions described in
clauses (x)
and
(y)
of this
Section 6.3(e)
that it intends to take and specifying the material events giving rise
thereto and providing to Parent copies of the drafts of the relevant proposed transaction agreements with the Person making the Superior Proposal and other material documents related to such Superior
Proposal (
provided
, that after the giving of such notice, in the event that the applicable Superior Proposal is materially amended, changed or modified
(it being understood that any amendment, change or modification to the consideration offered or the conditions to the consummation of the transactions contemplated by such Acquisition Proposal would
be deemed to be a material amendment, change or modification), then, upon each such occasion, the Company shall provide prompt notice to Parent describing such material amendment, change or
modification (and a copy of any document from or on behalf of the Person making the Superior Proposal relating to such amendment, change or modification) and a new advance notice period of
twenty-four (24) hours shall be applicable;
provided further
that in no event shall the initial three (3) Business Day period
be shortened to a period less than three (3) Business Days) and (C) during such three (3) Business Day period (or later twenty-four (24) hour period), the
Company and its Representatives shall, if requested by Parent, negotiate in good faith with Parent and its Representatives to amend this Agreement so as to enable the Board of Directors of the Company
to determine that the Superior Proposal no longer constitutes a Superior Proposal (after taking into account any agreed modifications to the terms of this Agreement) and at the end of such
three (3) Business Day period (or later twenty-four (24) hour period), the Board of Directors of the Company maintains its determination that the Superior Proposal
constitutes a Superior Proposal (after taking into account any agreed modifications to the terms of this Agreement). The Company shall not submit to the vote of its stockholders any Acquisition
Proposal or Superior Proposal prior to the termination of this Agreement.
(f) Notwithstanding
the first sentence of
Section 6.3(e)
, if, at any time prior to the date on which the Required
Company Vote is obtained for the Merger, the Board of Directors of the Company determines in good faith (after consultation with the Company's legal advisors) that the failure to take such action
would reasonably be expected to result in a breach of its fiduciary duties to the stockholders of the Company under applicable Laws, the Board of Directors of the
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Company
may at any time prior to the date on which the Required Company Vote is obtained for the Merger in response to an Intervening Event effect a Change of Board Recommendation;
provided
,
however
, that the Board of Directors of the Company may not effect such a Change of Board
Recommendation unless (i) the Board of Directors of the Company shall have provided Parent with at
least three (3) Business Days' advance written notice of its intent to effect a Change of Board Recommendation specifying the material events giving rise thereto, (ii) during such
three (3) Business Day period, the Company and its Representatives shall have, if requested by Parent, negotiated in good faith with Parent and its Representatives to amend this Agreement so as
to enable the Board of Directors to determine that failure to effect such Change of Board Recommendation no longer would reasonably be expected to result in a breach of its fiduciary duties to the
stockholders of the Company under applicable Laws, and (iii) Parent shall not have, during such three (3) Business Day period made an offer to amend this Agreement that would, upon the
Company's acceptance, be binding on Parent and that after due consideration of such offer in good faith, and (after consultation with the Company's legal advisors) resulted in the Board of Directors
of the Company concluding that failure to effect such Change of Board Recommendation would not reasonably be expected to result in a breach of its fiduciary duties to the stockholders of the Company
under applicable Laws;
provided
, that the Board of Directors of the Company shall not be permitted to effect a Change of Board Recommendation pursuant
to this
Section 6.3(f)
with respect to or in connection with any Acquisition Proposal (which shall be covered by and solely subject in all
respects to
Section 6.3(e)
).
(g) Nothing
contained in this
Section 6.3
shall prohibit the Board of Directors of the Company from disclosing to the
stockholders of the Company a position with respect to an Acquisition Proposal required by Rule 14e-2(a), Item 1012(a) of Regulation M-A or
Rule 14d-9 promulgated under the Exchange Act;
provided
,
however
, that any disclosure
other than a "stop, look and listen" or similar communication of the type contemplated by Rule 14d-9(f) under the Exchange Act, an express rejection of any applicable Acquisition
Proposal or an express reaffirmation of its recommendation to its stockholders in favor of the Merger shall be deemed to be a Change of Board Recommendation.
(h) Parent
and Merger Subsidiary acknowledge and agree that the provisions of this
Section 6.3
shall in no manner
apply to or restrict the Company's actions with respect to the divestiture of interests in the Divestment Transactions, in each case, on substantially the same terms, as set forth or described in
Section 6.2(c)
of the Company's Disclosure Letter,
provided
, that if the consideration to be
received by the Company and its Subsidiaries in any such transaction shall be less than the amount as set forth or described in
Section 6.2(c)
of
the Company's Disclosure Letter, the Company shall promptly notify Parent in writing of such circumstances and shall not enter into any agreement with respect to or consummate such transaction without
the prior written consent of Parent.
6.4
Notices of Certain Events; Consultation.
(a) The
Company shall as promptly as reasonably practicable notify Parent of: (i) any notice or other communication of which the Company has Knowledge from any Person
alleging that the consent of such Person (or another Person) is or may be required in connection with the transactions contemplated by this Agreement; (ii) any notice or other communication of
which the Company has Knowledge from any Governmental Authority in connection with the transactions contemplated by this Agreement; (iii) any actions, suits, claims, investigations or
proceedings commenced or, to the Knowledge of the Company, threatened against, relating to or involving or otherwise affecting the Company or any of its Subsidiaries that, if pending on the date of
this Agreement, would have been
required to have been disclosed pursuant to
Section 4.12
or which relate to the consummation of the transactions contemplated by this Agreement;
and (iv) any fact or occurrence between the date of this Agreement and the Effective Time of which it has
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Knowledge
which makes any of its representations contained in this Agreement untrue in any material respect or causes any material breach of its obligations under this Agreement.
(b) Each
of Parent and Merger Subsidiary shall as promptly as reasonably practicable notify the Company of: (i) any notice or other communication of which Parent has
Knowledge from any Person alleging that the consent of such Person (or other Person) is or may be required in connection with the transactions contemplated by this Agreement; (ii) any notice or
other communication of which Parent has Knowledge from any Governmental Authority in connection with the transactions contemplated by this Agreement; (iii) any actions, suits, claims,
investigations or proceedings commenced or, to the Knowledge of Parent, threatened against, Parent or any of its Subsidiaries which relate to the consummation of the transactions contemplated by this
Agreement; and (iv) any fact or occurrence between the date of this Agreement and the Effective Time of which it becomes aware which makes any of its representations contained in this Agreement
untrue in any material respect or causes any material breach of its obligations under this Agreement.
(c) The
Company shall consult with Parent prior to making its financial results for any period publicly available after the date of this Agreement and prior to filing any of
the Company's SEC Reports after the date of this Agreement.
6.5
Financing.
(a) Subject
to the terms and conditions of this Agreement, each of Parent and Merger Subsidiary shall use its reasonable best efforts to obtain the Equity Financing on the
terms and conditions described in the Equity Commitment Letter, including using its reasonable best efforts to (i) comply with its obligations under the Equity Commitment Letter and
(ii) satisfy on a timely basis all conditions applicable to Parent and Merger Subsidiary contained in the Equity Commitment Letter (or any definitive agreements related thereto) that are within
its reasonable control. Notwithstanding anything to the contrary in the immediately preceding sentence, subject to the terms and conditions of this
Agreement, each of Parent and Merger Subsidiary shall, and shall cause each of its Subsidiaries to, use its reasonable best efforts to take all actions necessary to maintain in effect the Equity
Commitment Letter in accordance with the terms and subject to the conditions thereof. Parent shall not, without the prior written consent of the Company, amend, modify, supplement or waive any of the
conditions or contingencies to funding or consummation, as applicable, contained in the Equity Commitment Letter (or any definitive agreements related thereto) or any other provision of, or remedies
under, the Equity Commitment Letter (or any definitive agreements related thereto).
(b) In
the event all conditions applicable to the Equity Commitment Letter have been satisfied and all conditions to the Merger are satisfied or waived, Parent shall use its
reasonable best efforts to cause each of the Sponsors to fund the Equity Financing to the extent required to consummate the Merger and the transactions contemplated hereunder. Any reference in this
Agreement to (A) "Equity Financing" shall include the financing contemplated by the Equity Commitment Letter as amended or modified in compliance with this
Section 6.5
and (B) "Equity
Commitment Letter" shall include such documents or parties as amended, modified, substituted or replaced in
compliance with this
Section 6.5.
(c) Parent
and Merger Subsidiary acknowledge and agree that the Company and its Affiliates and their respective Representatives shall not have any responsibility for, or
incur any liability to any Person under or in connection with, the arrangement of the Equity Financing or any alternative financing that Parent or Merger Subsidiary may raise in connection with the
transactions contemplated by this Agreement.
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6.6
Parent Guarantee.
(a) Parent
will take all action necessary (i) to cause Merger Subsidiary to perform its obligations under this Agreement and to consummate the Merger on the terms and
conditions set forth in this Agreement and (ii) to ensure that, prior to the Effective Time, Merger Subsidiary shall not conduct any business or make any investments other than as specifically
contemplated by this Agreement. Parent shall not, and shall not permit Merger Subsidiary to, take any action that would result in the breach of any representation and warranty of Parent hereunder such
that the Company would have the right to terminate this Agreement pursuant to
Section 8.1(c)
.
(b) Parent
hereby waives diligence, presentment, demand of performance, filing of any claim, any right to require any proceeding first against Merger Subsidiary or the
Surviving Corporation, as applicable, protest, notice and all demands whatsoever in connection with the performance of its obligations set forth in this
Section 6.6
.
6.7
Director and Officer Liability.
(a) From
and after the Effective Time, Parent and, when applicable, the Surviving Corporation, shall indemnify, defend and hold harmless to the fullest extent permitted by
Law the current and former officers and directors of the Company and its Subsidiaries (the "
Indemnified Parties
") against all losses, claims, damages,
fines, penalties and liabilities in respect of acts or omissions occurring at or prior to the Effective Time, including, but not limited to, amounts paid in settlement or compromise with the approval
of Parent (which approval shall not be unreasonably withheld, delayed or conditioned). Parent
and Merger Subsidiary agree that all rights to exculpation, indemnification and advancement of expenses for acts or omissions occurring prior to the Effective Time now existing in favor of the
Indemnified Parties as provided in the Company's Certificate of Incorporation or Bylaws or any agreement set forth in
Section 6.7
of the
Company's Disclosure Letter, in each case in effect as of the date hereof, shall survive the Merger and shall continue in full force and effect in accordance with their terms and without amendment
thereof. If any Indemnified Party is or becomes involved in any Legal Proceeding in connection with any matter subject to indemnification hereunder, then Parent and, when applicable, the Surviving
Corporation, shall advance, to the extent not prohibited by Law, any costs, expenses (including, but not limited to, reasonable attorneys' fees) and all other disbursements or expenses of the types
customarily incurred by any Indemnified Party arising out of, relating to or incurred in connection with such Legal Proceeding. Such advanced expenses, however, shall be made within twenty
(20) days after the receipt by Parent and, when applicable, the Surviving Corporation, of a statement or statements requesting such advances (which shall include invoices received by any
Indemnified Party in connection with such expenses) and shall not include amounts paid in settlement by any Indemnified Party or the amount of judgments or fines against any Indemnified Party.
Advances shall be unsecured and interest free. The Surviving Corporation shall not settle, compromise or consent to the entry of any judgment in any Legal Proceeding pending or threatened in writing
to which an Indemnified Party is a party (and in respect of which indemnification could be sought by such Indemnified Party hereunder), unless such settlement, compromise or consent includes an
unconditional release of such Indemnified Party from all liability arising out of such Legal Proceeding or the Indemnified Party otherwise consents.
(b) From
the Effective Time through the sixth (6
th
) anniversary of the Effective Time, Parent will cause, including, without limitation, by providing any
necessary funds to meet the obligations of this
Section 6.7
, Merger Subsidiary to, and Surviving Corporation will, without any lapse in coverage,
provide officers' and directors' liability insurance (the "
D&O Insurance
") in respect of acts or omissions occurring prior to the Effective Time
(including in connection with the negotiation and execution of this Agreement and the consummation of the transactions contemplated by this Agreement) covering each Indemnified Party on terms with
respect to
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coverage
and amount no less favorable than those of the Company's officers' and directors' liability insurance policy in effect on the date hereof;
provided
, that Parent and the Surviving Corporation shall not
be obligated to expend a total premium during such period in excess of 300% of the per
annum rate of the aggregate annual premium currently paid by the Company for such insurance on the date of this Agreement (and the Company represents and warrants that such current premium amount is
the amount set forth in
Section 6.7
of the Company's Disclosure Letter);
provided further
, that
if the amount of the total premium for such insurance shall exceed such 300%, Parent and the Surviving Corporation shall, jointly and severally, be obligated to obtain a policy with the greatest
coverage available for a cost not exceeding such amount;
provided further
, that in the event Parent or the Surviving Corporation shall prior to the
sixth anniversary of the Effective Time, directly or indirectly, (i) consolidate with or merge
into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfer all or substantially all of its properties and assets
or capital stock of the Surviving Corporation to any Person, then proper provision shall be made so that such continuing or surviving corporation or entity or transferee of such assets, as the case
may be, shall assume the obligations set forth in this
Section 6.7
. True and complete copies of all current D&O Insurance policy(ies) have been
provided or made available to Parent. The provisions of the first sentence of this
Section 6.7(b)
shall be deemed to have been satisfied if a
prepaid (or "tail") D&O Insurance policy(ies) has been obtained by the Company at any time prior to the Effective Time, which policy(ies) provides such directors and officers with coverage for an
aggregate period of six (6) years with respect to claims arising from facts or events that occurred on or before the Effective Time, including, without limitation, in respect of the
transactions contemplated by this Agreement. If such prepaid (or "tail") policy(ies) has been obtained prior to the Effective Time, the Surviving Corporation shall, and Parent shall cause, including,
without limitation, by providing any necessary funds to meet the obligations of this
Section 6.7
, the Surviving Corporation to maintain such
policy(ies) in full force and effect in accordance with the terms and conditions set forth in this
Section 6.7
, and continue to honor the
obligations thereunder. Parent shall cause the Surviving Corporation to reimburse all expenses, including reasonable attorney's fees, incurred by any Person to enforce the obligations of Parent and
Surviving Corporation under this
Section 6.7
.
(c) The
obligations under this
Section 6.7
shall not be terminated or modified in such a manner as to materially alter
the indemnification(s) provided for under this
Section 6.7
of any Indemnified Party to whom this
Section 6.7
applies without the consent of such
affected Indemnified Party (it being expressly agreed that the Indemnified Parties to whom this
Section 6.7
applies shall be third party beneficiaries of this
Section 6.7
).
6.8
Access and Information.
(a) From
the date hereof until the Effective Time, each of the Company and Parent will, and will cause its Subsidiaries to, (i) afford to the other and its
Representatives appropriate access, at reasonable times upon reasonable prior notice, to the officers, employees, agents, properties, offices and other facilities of the other and to its books,
records, contracts and documents and (ii) furnish promptly to the other and its Representatives such information concerning its business, properties, contracts, records and personnel (including
financial, operating and other data and information) as may be reasonably requested, from time to time, by or on behalf of the other party;
provided
however
, that such access shall not include the right to do any intrusive or destructive testing including any sampling of environmental media without the prior written consent
of the affected party.
(b) Information
obtained by the Company, Parent and their respective Subsidiaries pursuant to
Section 6.8(a)
shall be
subject to the provisions of the Confidentiality Agreement.
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6.9
Meeting of the Company's Stockholders.
The
Company shall take all action necessary in accordance with the DGCL and its Certificate of Incorporation and Bylaws to establish a record date for, duly call, give notice of, convene
and hold a meeting of the Company's stockholders for the purpose of obtaining the Required Company Vote (the "
Stockholders Meeting
") as promptly as
practicable following the date of this Agreement. At the Stockholders Meeting, all of the Shares then owned by Parent, Merger Subsidiary or any other Subsidiary of Parent shall be voted to adopt this
Agreement (subject to applicable Law). Unless the Board of Directors of the Company has withdrawn or modified its recommendation in accordance with the provisions of
Section 6.3
, the Board of
Directors of the Company shall recommend that the Company's stockholders vote to adopt this Agreement, shall use its
reasonable best efforts to solicit from stockholders of the Company proxies in favor of the Merger and shall take all other action in its judgment reasonably necessary and appropriate to secure the
vote of stockholders required by the DGCL to effect the Merger. Unless this Agreement is validly terminated in accordance with
Article VIII
, the
Company shall establish a record date for, duly call, give notice of, convene and hold the Stockholders Meeting at which it shall submit this Agreement to its stockholders even if the Board of
Directors of the Company shall have withdrawn, modified or qualified its recommendation thereof or otherwise effected a Change of Board Recommendation or proposed or announced any intention to do so.
The Company shall in no event propose, recommend or allow to be included at such Stockholders Meeting a proposal for the stockholders to act on any Acquisition Proposal or Superior Proposal, and the
Company shall not permit the stockholders to propose any business to be transacted at such Stockholders Meeting. Notwithstanding anything to the contrary contained in the provisions of this
Section 6.9
, the Company may not adjourn or postpone the Stockholders Meeting without the prior written consent of Parent, which shall not be
unreasonably withheld or delayed, except: (i) to the extent necessary by applicable Law to ensure that any supplement or amendment to the Proxy Statement, the Schedule 13E-3
or any other Company Disclosure Document that is required by applicable Law is timely provided to the Company's stockholders; (ii) if as of the time for which the Stockholders Meeting is
originally scheduled (as set forth in the Proxy Statement) there are insufficient Shares represented (either in person or by proxy) to constitute a quorum necessary to conduct the business to be
conducted at the Stockholders Meeting; (iii) if additional time is reasonably required to solicit proxies in favor of the adoption of this Agreement; or (iv) if any notice period with
respect to
Section 6.3(e)
or
Section 6.3(f)
is ongoing on the date of the Stockholders
Meeting and the Company has complied, and continues to comply, with its obligations under
Section 6.3
;
provided
, that if the events described in
either
clause (ii)
or
(iii)
of this
Section 6.9
have occurred, then upon the written request of
Parent, which shall be
limited to only one occasion, the Company shall adjourn or postpone the Stockholders Meeting. The Company shall, upon the request of Parent, advise Parent at least on a daily basis on each of the last
seven (7) Business Days prior to the scheduled date of the Stockholder Meeting as to the aggregate tally of affirmative proxies received by the Company.
6.10
Proxy Statement and Schedule 13E-3.
As
soon as practicable after the date of this Agreement, the Company shall prepare the Proxy Statement and the Company and Parent shall jointly prepare the
Schedule 13E-3, file them with the SEC under the Exchange Act, and use all reasonable best efforts to have the Proxy Statement and the Schedule 13E-3 cleared by
the SEC. Parent and Merger Subsidiary shall promptly furnish to the Company all information concerning Parent and Merger Subsidiary that may be required or reasonably requested in connection with any
action contemplated by this
Section 6.10
. Parent, Merger Subsidiary and the Company shall cooperate with each other in the preparation of the
Proxy Statement and the Schedule 13E-3, and the Company shall notify Parent of the receipt of any comments of the SEC with respect to the Proxy Statement, the
Schedule 13E-3 and of any requests by the SEC for any amendment or supplement thereto or for additional information and shall provide to Parent promptly copies of all correspondence
between the Company or any Representative of the Company and the
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SEC.
The Company shall give Parent and its counsel a reasonable opportunity to review the Proxy Statement, the Schedule 13E-3 and any other Company Disclosure Documents prior to
such document being filed with the SEC and shall give Parent and its counsel a reasonable opportunity to review all amendments and supplements to the Proxy Statement, the
Schedule 13E-3, or any other Company Disclosure Documents and all responses to requests for additional information and replies to comments prior to their being filed with, or sent
to, the SEC. Each of the Company, Parent and Merger Subsidiary agrees to use its reasonable best efforts, after consultation with the other parties hereto, to respond promptly to all such comments of
and requests by the SEC in connection with the Proxy Statement, the Schedule 13E-3 or any other Company Disclosure Documents. As promptly as practicable after the Proxy Statement,
the Schedule 13E-3 and any other Company Disclosure Documents have been cleared by the SEC, the Company shall mail the Proxy Statement, the Schedule 13E-3 and any
other Company Disclosure Documents to the stockholders of the Company. The Proxy Statement shall include the recommendation by the Board of Directors of the Company that the Company's stockholders
vote to adopt this Agreement unless the Board of Directors of the Company has withdrawn or modified its recommendation in accordance with
Section 6.3
.
6.11
Efforts.
(a) Subject
to the terms and conditions set forth in this Agreement, each of the parties hereto shall use its reasonable best efforts to take, or to cause to be taken, all
actions, to file, or cause to be filed, all documents and to do, or to cause to be done, and to assist and to cooperate with the other parties in doing, all things necessary, proper or advisable to
consummate and make effective, as promptly as practicable, the Merger and the other transactions contemplated hereby, including (i) the obtaining of all necessary actions or nonactions,
waivers, consents, clearances, approvals, and expirations or terminations of waiting periods, including the Company Approvals, which Parent, Merger Subsidiary and the Company shall cooperate with each
other in obtaining such Company Approvals, and Parent Approvals, from Governmental Authorities and the making of all necessary registrations and filings and the taking of all steps as may be necessary
to obtain an approval, clearance, or waiver from, or to avoid an action or proceeding by, any Governmental Authorities, (ii) the obtaining of all necessary consents, approvals or waivers from
third parties, (iii) the giving of notice, if required, under real property leases, (iv) the defending of any lawsuits or other Legal Proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the Merger and the other transactions contemplated hereby and (v) the execution and delivery of any additional instruments reasonably necessary
to consummate the transactions contemplated hereby. In furtherance of the foregoing, the Company may, but in no event shall the Company or any of its Subsidiaries be required to, pay prior to the
Effective Time any fee, penalties or other consideration to any third party to obtain any consent or approval required for the consummation of the Merger. No party hereto shall take any action that
would reasonably be expected to prevent or materially delay or impede the receipt of any necessary actions or nonactions, waivers, consents, clearances, approvals, and expirations or terminations of
waiting periods, including the Company Approvals and Parent Approvals, from Governmental Authorities.
(b) Subject
to the terms and conditions herein provided and without limiting the foregoing, if required under the HSR Act, the Company and Parent shall (i) promptly,
but in no event later than the fifteenth (15
th
) Business Day after the date of this Agreement, file any and all Notification and Report Forms required under the HSR Act with respect to
the Merger and the other transactions contemplated hereby, and use reasonable best efforts to cause the expiration or termination of any applicable waiting periods under the HSR Act, (ii) use
reasonable best efforts to cooperate with each other in (x) determining whether any filings are required to be made with, or consents, permits, Authorizations, waivers, clearances, approvals,
and expirations or terminations of waiting periods are required to be obtained from, any third parties or other Governmental
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Authorities
in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and (y) timely making all such filings and timely
obtaining all such consents, permits, Authorizations or approvals, (iii) supply to any Governmental Authority as promptly as practicable any additional information or documentary material that
may be requested pursuant to any Regulatory Law or by such Governmental Authority and (iv) use reasonable best efforts to take, or cause to be taken, all other actions and do, or cause to be
done, all other things necessary, proper or
advisable to consummate and make effective the Merger and the other transactions contemplated hereby.
(c) Each
of Parent and the Company shall, upon request by the other, furnish the other with all information concerning itself, its Subsidiaries, directors, officers and
equityholders, and such other matters as may be reasonably necessary or advisable in connection with any statement, filing, notice or application made by or on behalf of Parent, the Company or any of
their respective Subsidiaries to any third party and/or any Governmental Authority in connection with the Merger and the transactions contemplated by this Agreement. Subject to applicable legal
limitations and the instructions of any Governmental Authority, the Company and Parent shall keep each other apprised of the status of matters relating to the completion of the Merger and the other
transactions contemplated by this Agreement, including promptly furnishing the other with copies of notices or other communications received by the Company or Parent, as the case may be, or any of
their respective Subsidiaries or Affiliates, from any third party and/or any Governmental Authority with respect to such Merger or transactions. The Company and Parent shall provide counsel for the
other party a reasonable opportunity to review in advance, and consider in good faith the views of the other party in connection with, any proposed written communication to any Governmental Authority.
Each of the Company and Parent agrees not to participate in any substantive meeting or discussion, either in person or by telephone, with any Governmental Authority in connection with the proposed
transactions unless it consults with the other party in advance and, to the extent not prohibited by such Governmental Authority, gives the other party the opportunity to attend and participate.
(d) In
furtherance and not in limitation of the covenants of the parties contained in this
Section 6.11
, if any
administrative or judicial action or proceeding, including any proceeding by a private party, is instituted (or threatened to be instituted) challenging the Merger or any other transaction
contemplated by this Agreement as violative of any Regulatory Law, each of the Company and Parent shall cooperate in all respects with each other and shall use its respective reasonable best efforts
to contest and resist any such action or proceeding and to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other Order, whether temporary, preliminary or permanent,
that is in effect and that prohibits, prevents or restricts consummation of the Merger or any other transaction contemplated hereby.
(e) For
purposes of this Agreement, "
Regulatory Law
" means any and all state, federal and foreign statutes, rules,
Regulations, orders, decrees, administrative and judicial doctrines and other Laws requiring notice to, filings with, or the consent, clearance or approval of, any Governmental Authority, or that
otherwise may cause any restriction, in connection with the Merger and the transactions contemplated thereby, including, without limitation, (i) the Sherman Act of 1890, the Clayton Antitrust
Act of 1914, the HSR Act, the Federal Trade Commission Act of 1914 and all other Laws that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of
monopolization or restraint of trade or lessening competition through merger or acquisition, (ii) any Law governing the direct or indirect ownership or control of any of the operations or
assets of the Company and its Subsidiaries or (iii) any Law with the purpose of protecting the national security or the national economy of any nation. Notwithstanding anything to the contrary
in this Agreement, in connection with the receipt of any necessary approvals or clearances of a Governmental Entity (including under the HSR Act), neither Parent nor the
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Company
(nor any of their respective Subsidiaries or Affiliates) shall be required to (and, without Parent's prior consent, the Company shall not) sell, hold separate or otherwise dispose of or
conduct their business in a specified manner, or offer or agree to sell, hold separate or otherwise dispose of or conduct their businesses in a specified manner, enter into or offer or agree to enter
into a voting trust arrangement, proxy arrangement, "hold separate" agreement or arrangement or similar agreement or arrangement with respect to the assets, operations or conduct of their business in
a specified manner, or permit the sale, holding separate or other disposition of, any assets of Parent, the Company or their respective Subsidiaries or Affiliates.
6.12
Public Announcements.
Until
the Effective Time, Parent and the Company will consult with each other before issuing any press release or making any public statement with respect to this Agreement and the
transactions contemplated hereby and, except as may be required by applicable Law or any listing agreement with the Stock Exchange will not issue any such press release or make any such public
statement prior to such consultation except as may be required by applicable Law or by obligations pursuant to any listing agreement with any national securities exchange, in which case the party
required to make the release or announcement shall use its reasonable best efforts to allow each other party reasonable time to comment on such release or announcement in advance of such issuance.
6.13
Stock Exchange De-listing.
Parent
and the Company shall use their reasonable best efforts to cause the Shares to be de-listed from the Stock Exchange and de-registered under the Exchange
Act promptly following the Effective Time.
6.14
Defense of Litigation.
The
Company shall control, and the Company shall give Parent the opportunity to participate in the defense of any litigation brought by stockholders of the Company against the Company
and/or its directors relating to the transactions contemplated by this Agreement;
provided
,
however
,
that the Company shall not settle or offer to settle any claim, action, suit, charge, investigation or proceeding against the Company, any of its Subsidiaries or any of their respective directors or
officers by any stockholder of the Company arising out of or relating to this Agreement or the transactions contemplated by this Agreement without the prior written consent of Parent. The Company
shall not cooperate with any Person that may seek to restrain, enjoin, prohibit or otherwise oppose the transactions contemplated by this Agreement, and the Company shall cooperate with Parent and
Merger Subsidiary in resisting any such effort to restrain, enjoin, prohibit or otherwise oppose such transactions.
6.15
State Takeover Statutes.
(a) Each
of Parent, Merger Subsidiary and the Company and their respective Boards of Directors shall take all reasonable action necessary to ensure that no restriction of
any takeover statute or Law is or becomes applicable to this Agreement, the Support Agreement, the Merger or the transactions contemplated by this Agreement or therein.
(b) If
any State takeover statute or similar Law is or becomes applicable to this Agreement, the Support Agreement, the Merger or the transactions contemplated by this
Agreement or therein, each of Parent and the Company and their respective Boards of Directors shall (i) take all reasonable action to ensure that such transactions may be consummated as
promptly as practicable upon the terms and subject to the conditions set forth in this Agreement and the Support Agreement, and (ii) otherwise act to eliminate or minimize the effects of such
takeover statute or Law.
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6.16
Employee Matters.
(a) Parent
shall, or shall cause the Surviving Corporation to, through the period beginning at the Effective Time and ending on the one year anniversary of the Effective
Time, cause each Continuing Employee to be provided compensation (including wages and cash and equity incentive compensation opportunities) and employee benefits substantially no less favorable in the
aggregate than the
compensation and employee benefits, respectively, to which they were entitled immediately before the Effective Time;
provided
, that in no event shall
Parent cause a reduction in the severance benefits to which Continuing Employees are entitled during the period ending on the one year anniversary of the Effective Time below the level of entitlement
in effect immediately before the Effective Time.
(b) For
all purposes under each Benefit Plan maintained by Parent, any Parent Subsidiary or any of their Affiliates in which Continuing Employees become eligible to
participate after the Effective Time (the "
Parent Benefit Plans
"), the Continuing Employees shall be given credit for all service with the Company or a
Company Subsidiary, as applicable, to the same extent as if such services had been rendered to Parent or any of its Affiliates for a similar purpose;
provided
,
however
, that in no event shall any Continuing Employee be given credit under this
Section 6.16(b)
for purposes of benefit accrual under any Parent Benefit Plan.
(c) As
to the plan years then in place at the Effective Time under Parent Benefit Plans, Parent shall, or shall cause the Surviving Corporation to, use all reasonable best
efforts to (i) waive all limitations as to pre-existing conditions, exclusions, evidence of insurability requirements and waiting periods with respect to participation and coverage
requirements applicable to the Continuing Employees under any welfare or fringe benefit plan in which the Continuing Employees may be eligible to participate after the Effective Time to the extent
such conditions were satisfied under a corresponding Company Benefit Plan immediately prior to the Effective Time, and (ii) provide each Continuing Employee with credit under any welfare plan
or fringe benefit plan in which the Continuing Employee becomes eligible to participate after the Effective Time for any co-payments and deductibles paid by and out of pocket requirements
satisfied by such Continuing Employee under the corresponding Company Benefit Plan immediately prior to the Effective Time.
(d) Notwithstanding
the preceding provisions of this
Section 6.16
, this
Section 6.16
is not intended to and shall not (i) create any third party rights,
(ii) amend any Company Benefit Plan or Parent
Benefit Plan, (iii) require Parent to continue any Company Benefit Plan beyond the time when it otherwise lawfully could be terminated or modified or (iv) provide any Continuing Employee
with any rights to continued employment, severance pay or similar benefits following any termination of employment.
6.17
Amendment of Stock Options and Stock Awards.
As
soon as practicable following the date hereof, the Company shall use its reasonable best efforts to cause each issued and outstanding Company Stock Option and Company Restricted Share
granted under the Company Stock Plans to be amended to permit the acceleration and vesting of such Company Stock Option and Company Restricted Shares immediately prior to the Effective Time in a
manner and consistent with the provisions of
Section 3.3
hereof to the extent such Company Stock Options and Company Restricted Shares do not
permit such treatment.
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6.18
Rule 16b-3.
Parent,
Merger Subsidiary and the Company shall each take all such reasonable steps as may be required to cause the transactions contemplated by
Article III
and any other dispositions of Equity Securities
of the Company (including Company Stock Options and Company Restricted Shares) by
each individual who is a director or executive officer of the Company or at the Effective Time will become a director or executive officer of Parent to be exempt under Rule 16b-3
promulgated under the Exchange Act.
6.19
FIRPTA Certificate.
Prior
to the Effective Time, the Company shall use its reasonable best efforts to deliver to Parent an executed affidavit, in accordance with Treasury Regulation
Section 1.897-2(h) certifying that an interest in the Company is not a United States real property interest within the meaning of Section 897(c) of the Code and that sets
forth the Company's name, address, and taxpayer identification number.
6.20
Future Transactions.
Prior
to the Effective Time, the Company shall use its reasonable best efforts to cause FCBL and ABL to enter into a definitive agreement with CSFC relating to the sale by FCBL of all of
the capital stock of ABL to CSFC on terms and conditions substantially similar in all material respects to the terms and conditions for such transaction contemplated by that certain letter of intent
dated October 3, 2012 by and among CSFC, ABL and FCBL (and in any event, the cash consideration to be paid to FCBL shall not be less than the amount of such consideration contemplated by such
letter of intent).
ARTICLE VII.
CONDITIONS TO THE MERGER
7.1
Conditions to the Obligations of Each Party.
The
obligations of the Company, Parent and Merger Subsidiary to consummate the Merger are subject to the satisfaction or waiver of the following conditions at or prior to the Closing
Date:
(a) the
Required Company Vote shall have been obtained;
(b) the
applicable waiting periods under the HSR Act in respect of the transactions contemplated by this Agreement shall have expired or been terminated; and
(c) no
provision of any applicable Law or Order of any Governmental Authority of competent jurisdiction which has the effect of making the Merger illegal or shall otherwise
restrain or prohibit the consummation of the Merger shall be in effect (each party agreeing to use its reasonable best efforts, including appeals to higher Courts, to have any Order vacated).
7.2
Conditions to the Obligations of the Parent and Merger Subsidiary.
The
obligations of the Parent and Merger Subsidiary to consummate the Merger are subject to the satisfaction or waiver by Parent of the following conditions:
(a) The
representations and warranties of the Company set forth in (i)
Section 4.4
,
Section 4.8(a)
,
Section 4.19
or
Section 4.21
shall be true and correct in all respects as of the date of this Agreement and as of immediately prior to the Closing Date as if
made at and as of such time (other than such representations and warranties that by their terms address matters only as of another specified time, which shall be true and correct in all respects only
as of such time), (ii) the representations and warranties of the Company set forth in
Section 4.3
or
Section 4.7
, without giving effect to
materiality or "Company Material Adverse Effect" qualifications, shall be true and correct in all material
respects as of the date of this Agreement and at and as of immediately prior
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to
the Closing Date as if made at and as of such time (other than such representations and warranties that by their terms address matters only as of another specified time, which shall be true and
correct in all material respects only as of such time), except that the representations and warranties set forth in
Section 4.3
shall be true and
correct other than any de minimis inaccuracies and (iii) all of the remaining representations and warranties of the Company set forth in this Agreement, without giving effect to materiality or
"Company Material Adverse Effect" qualifications shall be true and correct as of the date of this Agreement and at and as of immediately prior to the Closing Date as if made at and as of such time
(other than such representations and warranties that by their terms address matters only as of another specified time, which shall be true and correct only as of such time) except, with respect to
this
clause (iii)
, where the failure of such representations and warranties to be so true and correct has not had and would not reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse Effect.
(b) The
Company shall have performed in all material respects all of its covenants or obligations to be performed or complied with by it under this Agreement at or prior to
the Closing Date.
(c) Since
the date of this Agreement until the Closing Date, there shall not have occurred any fact(s), circumstance(s), event(s), change(s), effect(s) or occurrence(s)
that, individually or in the aggregate, has had or would reasonably be expected to have a Company Material Adverse Effect.
(d) The
Company shall have delivered to Parent a certificate signed by an executive officer of the Company dated as of the Closing Date certifying that the conditions
specified in
Sections 7.2(a)
and
7.2(b)
have been satisfied.
7.3
Conditions to the Obligations of the Company.
The
obligations of the Company to consummate the Merger are subject to the satisfaction or waiver by the Company of the following conditions:
(a) The
representations and warranties of Parent and Merger Subsidiary set forth in (i)
Section 5.2
, or
Section 5.11
shall be true and correct in
all respects as of the date of this Agreement and as of immediately prior to the Closing Date as if
made at and as of such time (other than such representations and warranties that by their terms address matters only as of another specified time, which shall be true and correct in all respects only
as of such time), (ii) all of the remaining representations and warranties of Parent and Merger Subsidiary set forth in this Agreement, without giving effect to materiality qualifications shall
be true and correct as of the date of this Agreement and at and as of immediately prior to the Closing Date as if made at and as of such time (other than such representations and warranties that by
their terms address matters only as of another specified time, which shall be true and correct only as of such time) except, with respect to this clause (ii), where the failure of such
representations and warranties to be so true and correct has not, and would not reasonably be expected to, individually or in the aggregate, materially impair the ability of Parent and Merger
Subsidiary, taken as a whole, to consummate the transactions contemplated by this Agreement.
(b) Parent
and Merger Subsidiary shall have performed in all material respects all of their covenants or obligations to be performed or complied with by them under this
Agreement at or prior to the Closing Date.
(c) Parent
shall have delivered to the Company a certificate signed by an executive officer of Parent dated as of the Closing Date certifying that the conditions specified
in
Sections 7.3(a)
and
7.3(b)
have been satisfied.
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7.4
Frustration of Closing Conditions.
Neither
the Company, Merger Subsidiary nor Parent may rely, either as a basis for not consummating the Merger or terminating this Agreement and abandoning the Merger, on the failure of
any condition set forth in
Sections 7.1
,
7.2
or
7.3
as the case may be, to be satisfied if such failure
was caused in any material respect by such party's breach of any provision of this Agreement or
failure to use such efforts to consummate the Merger and the other transactions contemplated hereby as required by
Section 6.11
.
ARTICLE VIII.
TERMINATION
8.1
Termination.
This
Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time (notwithstanding any adoption of this Agreement by the stockholders of the
Company or by Parent as the sole stockholder of Merger Subsidiary):
(a) by
mutual written consent of the Company and Parent;
(b) by
either the Company or Parent if:
(i) the
Effective Time shall not have occurred on or prior to July 31, 2013 (the "
End Date
");
(
provided
, that the right to terminate this Agreement under this clause (b)(i) shall not be available to any party whose breach or failure to
fulfill any of its material obligations under this Agreement has been the cause of the failure of the Effective Time to occur by such date); or
(ii) if
there shall be any applicable Law that makes consummation of the Merger illegal or otherwise prohibited or if any Order of a Governmental Authority of competent
jurisdiction shall restrain or
prohibit prior to the Effective Time, the consummation of the Merger, and such Order shall have become final and nonappealable (
provided
, that the right
to terminate this Agreement under this
clause (b)(ii)
shall not be available to any party who has not used its reasonable best efforts to have
such Order vacated and shall not be available to any party whose breach of any provision of this Agreement results in any applicable Law making the consummation of the Merger illegal or otherwise
prohibited or the imposition of any Order of a Governmental Authority of competent jurisdiction that restrains or prohibits the consummation of the Merger);
(c) by
the Company prior to the Effective Time if:
(i) Parent
or Merger Subsidiary shall have (x) breached or failed to perform in any material respect any of its covenants or obligations required to be performed by
it under this Agreement or (y) breached any of its representations or warranties set forth in this Agreement in any material respect, or any such representation or warranty shall have become
untrue in any material respect, which breach or failure is either incurable or, if curable, is not cured by Parent and/or Merger Subsidiary by the earlier of (A) thirty (30) days
following receipt by Parent of written notice of such breach or failure and (B) the End Date;
provided
, at the time of the delivery of such
written notice, the Company shall not be in material breach of its obligations under this Agreement;
(ii) (x)
the Company has not violated any of its covenants contained in
Section 6.3
, (y) the Company has
received a Superior Proposal and has complied with
Section 6.3(e)
, and (z) the Board of Directors has approved the termination of this
Agreement and the Company promptly enters into a definitive agreement providing for the implementation of the Superior Proposal;
provided
,
however
, that
any such termination under this
Section 8.1(c)(ii)
shall be null
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and
void unless the Company shall prior to or concurrently with such termination make the payments required under
Section 8.3(b)
; or
(iii) if
(A) the conditions set forth in
Sections 7.1
and
7.2
(other than those conditions that by their nature are to be satisfied by actions taken at the Closing and which were, at the time of termination, capable of being satisfied) shall have been satisfied
or waived on or prior to the date of such termination, (B) the Company shall have given Parent at least three (3) Business Days' written notice prior to such termination stating
the Company's intention to terminate this Agreement pursuant to this
Section 8.1(c)(iii)
, and (C) Parent and Merger Subsidiary fail to
effect the Merger by the earlier of (i) the
close of business on the third Business Day provided in the notice pursuant to
clause (B)
of this
Section 8.1(c)(iii)
, and (ii) the End Date
(unless such failure was a result of the Company's failure to perform any of its obligations
under this Agreement); or
(d) by
Parent prior to the Effective Time, if:
(i) the
Company shall have breached any representations or warranties set forth in this Agreement or any representation or warranty of the Company shall have become untrue,
in either case such that the condition set forth in
Section 7.2(a)
would not be satisfied or would be incapable of being satisfied by the earlier
of (A) thirty (30) days following receipt by the Company of written notice of such breach and (B) the End Date;
provided
, that at
the time of the delivery of such written notice, neither Parent nor Merger Subsidiary shall be in material breach of its obligations under this Agreement;
(ii) the
Company shall have breached its covenants or agreements hereunder and any such breaches remain uncured, or is incapable of being cured, such that the conditions set
forth in
Section 7.2(b)
would not be satisfied or would be incapable of being satisfied by the earlier of (A) thirty (30) days
following receipt by the Company of written notice of such breach and (B) the End Date;
provided
, that at the time of the delivery of such
written notice, neither Parent nor Merger Subsidiary shall be in material breach of its obligations under this Agreement; or
(iii) (A)
a Change of Board Recommendation shall have occurred (whether or not in compliance with
Section 6.3
),
(B) the Company or the Board of Directors of the Company (or any committee thereof) shall approve, endorse or recommend or execute or enter into, or allow the Company or any of its Subsidiaries
to enter into, any letter of intent, agreement in principle, acquisition or other agreement relating to any Acquisition Proposal (other than a confidentiality agreement permitted by
Section 6.3(d)(iv)(A)
), (C) any tender offer or exchange offer is commenced by any Person other than Parent, Merger Subsidiary or any
Subsidiary of Parent with respect to the outstanding Shares and the Board of Directors of the Company shall not have recommended that the Company's stockholders reject such tender offer or exchange
offer and not tender their Shares into such tender offer or exchange offer within ten (10) Business Days after commencement of such tender offer or exchange offer, (D) the Company shall
have breached
Section 6.3
in any material respect, (E) the Company shall have failed to include the Company Board Recommendation in the
Company Disclosure Documents, or (F) the Company or the Board of Directors of the Company (or any committee thereof) shall authorize or publicly propose to do any of the actions specified in
clause (A)
,
(B)
,
(C)
,
(D)
or
(E)
of this
Section 8.1(d)(iii)
.
The
right of any party hereto to terminate this Agreement pursuant to this
Section 8.1
shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any party hereto, any Person controlling any such party or any of their respective officers, directors, Representatives or agents,
whether prior to or after the execution of this Agreement.
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8.2
Effect of Termination.
If
this Agreement is terminated pursuant to
Section 8.1
, the party desiring to terminate shall give written notice to the other
party or parties, specifying the provisions pursuant to which termination is made and the basis therefor described in reasonable detail, and this Agreement shall become void and of no effect with no
liability on the part of any party to the other party hereto immediately upon delivery of such written notice to the other party;
provided
,
however
, that
no termination of this Agreement shall relieve any party from liability or damages incurred or suffered by a party, to the extent such
liabilities or damages were the result of fraud or any willful and material breach of
Section 6.3
in connection with this Agreement or the
transactions contemplated by this Agreement;
provided further
,
however
, that notwithstanding the
foregoing or anything else in this Agreement to the contrary, the provisions of the Confidentiality Agreement, this
Section 8.2
,
Section 8.3
and
Article IX
shall survive any termination hereof. When used in this
Agreement, the term "
willful and material breach
" shall mean a material breach of this Agreement that is a consequence of an act or a failure to act of
a breaching party having actual knowledge that the taking of the act or failure to act would, or would reasonably be expected to, cause or constitute a breach of this Agreement.
8.3
Termination Fees; Expenses.
(a) Except
as otherwise provided in this
Section 8.3
, whether or not the Merger is consummated, all Expenses incurred
in connection with this Agreement shall be paid by the party incurring such cost or expense.
(b) In
the event that:
(i) (A)
an Acquisition Proposal shall have been made known to the Company, the Board of Directors, or senior management of the Company, or shall have been made directly to
the stockholders of the Company or any Person shall have publicly announced an intention (not subsequently withdrawn prior to the date of such termination) to make an Acquisition Proposal and
(B) following the occurrence of an event described in the preceding
clause (A)
, this Agreement is terminated by the Company or Parent
pursuant to
Section 8.1(b)(i)
(
Failure to close by End Date
),
Section 8.1(d)(i)
(
Company breach of representation or warranty
) or
Section 8.1(d)(ii)
(
Company breach of covenant
) and (C) within
twelve
(12) months of the date this Agreement is terminated the Company (1) enters into a definitive agreement to engage in a transaction that constitutes an Acquisition Proposal or
(2) consummates an Acquisition Proposal (
provided
, that for purposes of this
Section 8.3(b)(i)
, the references to "15%" in the definition of
Acquisition Proposal shall be deemed to be references to "50%"); or
(ii) this
Agreement is terminated by the Company pursuant to
Section 8.1(c)(ii)
(
Company
receipt of Superior Proposal
); or
(iii) this
Agreement is terminated by Parent pursuant to
Section 8.1(d)(iii)
(
Company change
in recommendation
);
then,
the Company shall (i) pay to Parent or an Affiliate of Parent designated in writing by Parent ("
Payee
") a termination fee of $2,000,000 in
cash (the "
Termination Fee
"), it being understood that in no event shall the Company be required to pay the Termination Fee on more than one occasion
and (ii) reimburse Parent and Merger Subsidiary for all of their Expenses, up to a maximum of $1,000,000 (not later than two (2) Business Days after submission of statements providing
reasonable evidence thereof), it being understood that in no event shall the Company be required to reimburse Parent's and Merger Subsidiary's Expenses on more than one occasion. Such payments shall
be made by wire transfer of immediately available funds to an account to be designated by Parent or Merger Subsidiary.
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(c) Any
payment required to be made pursuant to
clause (i)
of
Section 8.3(b)
shall be made to Payee on the date of the first to occur of the events
referred to in
clauses (1)
and
(2)
of
Section 8.3(b)(i)(C)
; any payment required to be made
pursuant to
clause (ii)
of
Section 8.3(b)
shall be made to Payee prior to or concurrently with such termination; any payment required to be made
pursuant to
clause (iii)
of
Section 8.3(b)
shall be made to Payee within two (2) Business Days
of notice of the occurrence thereof to the Company; and, in each case, such payment shall be made by wire transfer of immediately available funds to an account to be designated by Parent.
(d) In
the event that the Company shall terminate this Agreement pursuant to (i)
Section 8.1(c)(i)
(
Parent breach of representation or covenant
) and the breach by Parent or Merger Subsidiary giving rise to the right of the Company to terminate this
Agreement under such Section is the principal factor in the failure of the Merger to be consummated, or (ii)
Section 8.1(c)(iii)
(
Merger Subsidiary failure to consummate the Merger
), then within two (2) Business Days of notice thereof, Parent shall (i) pay to the
Company a termination fee of $5,000,000 in cash (the "
Parent Termination Fee
"), it being understood that in no event shall Parent be required to pay the
Parent Termination Fee on more than one occasion and (ii) reimburse the Company for all of its Expenses, up to a maximum of $1,000,000 (not later than two (2) Business Days after
submission of statements providing reasonable evidence thereof), it being
understood that in no event shall Parent be required to reimburse the Company's Expenses on more than one occasion. Such payments shall be made by wire transfer of immediately available funds to an
account to be designated by the Company.
(e) Each
of the parties hereto acknowledges that (i) the agreements contained in this
Section 8.3
are an
integral part of the transactions contemplated by this Agreement, (ii) the damages resulting from termination of this Agreement under circumstances where a Termination Fee or a Parent
Termination Fee is payable are uncertain and incapable of accurate calculation and therefore, the amounts payable pursuant to
Section 8.3(b)
and
Section 8.3(d)
are not a penalty, but rather are a reasonable amount that will compensate Parent and Merger Subsidiary, with respect to
Section 8.3(b)
, and the Company, with respect to
Section 8.3(d)
, for the efforts and
resources expended and opportunities foregone while negotiating this Agreement and in reliance on this Agreement and on the expectation of the consummation of the transactions contemplated hereby,
which amount would otherwise be impossible to calculate with precision, and (iii) without the agreements contained in this
Section 8.3
,
the Parties would not have entered into this Agreement. Accordingly, if the Company fails to promptly pay any amount due pursuant to
Section 8.3(b)
and, in order to obtain such payment, Parent
commences a suit that results in a judgment against the Company for the amount set
forth in
Section 8.3(b)
or any portion thereof, the Company shall pay to Parent the Expenses incurred by the prevailing Party and its Affiliates
in connection with such suit, together with interest on the amount of such amount or portion thereof at a rate equal to the prime rate reported in The Wall Street Journal on the date such payment was
required to be made through the date of payment. Likewise, if Parent fails to promptly pay any amount due pursuant to
Section 8.3(d)
and, in
order to obtain such payment, the Company commences a suit that results in a judgment against Parent for the amount set forth in
Section 8.3(d)
or any portion thereof, Parent shall pay to the Company the Expenses incurred by the Company in connection with such suit, together with interest on the amount of such amount or portion thereof at a
rate equal to the prime rate reported in The Wall Street Journal on the date such payment was required to be made through the date of payment.
(f)
Limitation on Remedies.
(i) Notwithstanding
anything to the contrary in this Agreement, except (a) for the remedy of specific performance to the extent permitted in
Section 9.11
and (b) with respect to liabilities or damages that
were the result of fraud on the part of Parent or Merger Subsidiary in
connection with this Agreement or the transactions contemplated by this Agreement, the
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Company's
sole and exclusive remedy (whether at law, in equity, in contract, in tort or otherwise) against Parent, Merger Subsidiary, the Sponsors, Värde Partners, Inc. and their
respective Affiliates and any of their respective former, current and future direct or indirect equity holders, controlling persons, stockholders, directors, officers, employees, agents or other
Representatives, members, or other financing sources, managers, general or limited partners or assignees (collectively, the "
Parent Related Parties
")
for all losses and damages that arise out of the failure of the transactions under this Agreement to be consummated or any breach or failure to perform as required hereunder or otherwise, shall be to
terminate this Agreement in accordance with
Section 8.1
and, to the extent and only to the extent provided in this
Section 8.3
, to receive
payment of the Parent Termination Fee and any Expenses payable pursuant to
Section 8.3(d)
, and upon payment in full of such amounts, neither the Company nor any other Person shall have any rights
or claims against any of
the Parent Related Parties under or relating to this Agreement, the Guarantee, or the Equity Commitment Letter in respect of any oral representations made or alleged to be made in connection herewith
or therewith or the transactions contemplated thereby, nor shall the Company or any other Person be entitled to bring or maintain any other Legal Proceeding against any of the Parent Related Parties
arising out of this Agreement, the Guarantee or the Equity Commitment Letter, in respect of any oral representations made or alleged to be made in connection herewith or therewith or the transactions
contemplated thereby, nor shall any of the Parent Related Parties have any further liability or obligation relating to or arising out of this Agreement, the Guarantee, or the Equity Commitment Letter
in respect of any oral representations made or alleged to be made in connection herewith or therewith or the transactions contemplated thereby. The Company acknowledges that both Parent and Merger
Subsidiary are newly-formed companies and do not have any material assets except in connection with this Agreement or the Equity Commitment Letter as expressly set forth herein and therein. The
provisions of this
Section 8.3(f)(i)
are intended to be for the benefit of, and shall be enforceable by, each of the Parent Related Parties. For
the avoidance of doubt, while the Company may pursue both specific performance as permitted by
Section 9.11
and the payment of the Parent
Termination Fee and Expenses payable pursuant to
Section 8.3(d)
, (i) in no event shall the Company be entitled to specific performance of
this Agreement, the Guarantee or the Equity Commitment Letter from and after such time as the Company has received the Parent Termination Fee and Expenses payable pursuant to
Section 8.3(d)
and
(ii) under no circumstances shall the Company be entitled to receive both (A) a grant of specific performance
pursuant to
Section 9.11
to effect the consummation of the Merger and (B) the Parent Termination Fee and any Expenses payable pursuant to
Section 8.3(d)
.
(ii) Notwithstanding
anything to the contrary in this Agreement, except (a) for the remedy of specific performance to the extent permitted under
Section 9.11
and (b) with respect to liabilities or damages
that were the result of fraud in connection with this Agreement or the
transactions contemplated by this Agreement on the part of the Company or any willful and material breach of
Section 6.3
of this Agreement on the
part of the Company, Parent's and Merger Subsidiary's sole and exclusive remedy (whether at law, in equity, in contract, in tort or otherwise) against the Company and its respective Affiliates and any
of their respective former, current and future direct or indirect equity holders, controlling persons, stockholders, directors, officers, employees, agents or other Representatives, members, or other
financing sources, managers, general or limited partners or assignees (collectively, the "
Company Related Parties
") for all losses and damages that
arise out of the failure of the
transactions under this Agreement to be consummated or any breach or failure to perform as required hereunder or otherwise shall be to terminate this Agreement in accordance with
Section 8.1
and,
to the extent and only to the extent provided in
Section 8.3
,
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to
receive payment of the Termination Fee and any Expenses payable pursuant to this
Section 8.3(b)
, and upon payment in full of such amounts,
neither Parent nor Merger Subsidiary nor any other Person shall have any rights or claims against any of the Company Related Parties under or relating to this Agreement in respect of any oral
representations made or alleged to be made in connection herewith or therewith or the transactions contemplated hereby, nor shall Parent or Merger Subsidiary or any other Person be entitled to bring
or maintain any other Legal Proceeding against any of the Company Related Parties arising out of this Agreement in respect of any oral representations made or alleged to be made in connection herewith
or therewith or the transactions contemplated hereby, nor shall any of the Company Related Parties have any further liability or obligation relating to or arising out of this Agreement or the
transactions contemplated hereby. The Parent's and Merger Subsidiary's sole and exclusive remedy (whether at law, in equity, in contract, in tort or otherwise) against the Company and any of the
Company Related Parties for any willful and material breach of
Section 6.3
of this Agreement shall be limited to actual losses and damages
reasonably incurred by Parent and Merger Subsidiary (including reasonable attorneys' fees), and the Company and the Company Related Parties shall not be liable or otherwise responsible for any other
losses and damages including, but not limited to, exemplary, punitive, consequential, incidental, indirect or special damages or lost profits, loss of future revenue or loss of business reputation or
opportunity that arise from any breach of any covenant or agreement in this Agreement under any and all theories of liability. For the avoidance of doubt, while Parent and Merger Subsidiary may pursue
both specific performance (as permitted by
Section 9.11
) and the payment of the Termination Fee and Expenses payable pursuant to
Section 8.3(b)
,
(i) in no event shall Parent be entitled to specific performance of this Agreement from and after such time as Parent has
received the Termination Fee and Expenses and (ii) under no circumstances shall Parent or Merger Subsidiary be entitled to receive both (A) a grant of specific performance pursuant to
Section 9.11
to effect the consummation of the Merger and (B) the Termination Fee and any Expenses payable pursuant to
Section 8.3(b)
.
ARTICLE IX.
MISCELLANEOUS
9.1
Notices.
All
notices and other communications under this Agreement shall be in writing and shall be deemed given (i) when delivered personally by hand (with written confirmation of
receipt), (ii) on the date sent by facsimile or by email of a PDF document (with written confirmation of transmission) if sent during the normal business hours of the recipient and the next
Business Day if sent after the normal business hours of the recipient, or (iii) one Business Day following the day sent by nationally recognized overnight courier (with written confirmation of
receipt), in each case at the following addresses and facsimile numbers (or to such other address or facsimile number as a party may have specified by notice given to the other party pursuant to this
provision).
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(a) if
to Parent or Merger Subsidiary, to:
Hotspurs
Holdings LLC
8500 Normandale Lake Blvd., Suite 1500
Minneapolis, MN 55437
Attn: Jeff Thuringer
Phone: 952-646-2071
Fax: 952-893-9613
E-Mail: jthuringer@varde.com
with
a required copy (which shall not constitute notice) to:
Mayer
Brown LLP
71 South Wacker Drive
Chicago, IL 60606
Attn: Andrew J. Noreuil
Phone: 312-782-0600
Fax: 312-701-7711
E-Mail: anoreuil@mayerbrown.com
(b) if
to the Company, to:
FirstCity
Financial Corporation
6400 Imperial Drive
Waco, TX 76712
Attn: James Sartain
Telephone: 254-761-2800
Facsimile: 254-761-2950
E-Mail: jsartain@fcfc.com
with
a required copy (which shall not constitute notice) to:
Haynes
and Boone, LLP
201 Main Street
Suite 2200
Fort Worth, TX 76102-3126
Attn: Brian D. Barnard
Telephone: 817-347-6605
Facsimile: 817-348-2303
E-Mail: brian.barnard@haynesboone.com
or
such other address or telecopy number as such party may hereafter specify for the purpose by notice to the other parties hereto.
9.2
Survival of Representations and Warranties and Agreements.
The
representations and warranties contained herein and in any certificate or other writing delivered pursuant hereto shall not survive the Effective Time. This
Section 9.2
shall not limit any covenant
or agreement of the parties to this Agreement which, by its terms, contemplates performance after the
Effective Time.
9.3
Amendments; No Waivers.
(a) Any
provision of this Agreement may be amended or waived prior to the Effective Time if, and only if, such amendment or waiver is in writing and signed, in the case of
an amendment, by the Company, Parent and Merger Subsidiary or, in the case of a waiver, by the party against
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whom
the waiver is to be effective;
provided
, that any waiver or amendment shall be effective against a party only if the Board of Directors of such
party approves such waiver or amendment.
(b) No
failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by Law.
9.4
Successors and Assigns.
The
provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns;
provided
, that no party may assign, delegate or otherwise
transfer any of its rights or obligations under this Agreement without the consent of the
other parties hereto (and which transfer shall not relieve Parent and Merger Subsidiary of their obligations hereunder in the event of a breach by their transferee).
9.5
Governing Law, Jurisdiction, Etc.
(a) This
Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under
applicable principles of conflict of law hereof.
(b) The
parties hereto, on their behalf and on behalf of their respective Affiliates, irrevocably submit to the exclusive jurisdiction of the Court of Chancery of the State
of Delaware (or, if such Court or the Delaware Supreme Court determines that the Court of Chancery does not have or should not exercise subject matter jurisdiction over such matter, the Superior Court
of the State of Delaware) and the federal Courts of the United States of America located in the State of Delaware (and of the
appropriate appellate Courts therefrom) in connection with any dispute arising out of, in connection with, in respect of, or in any way relating to:
(i) the
negotiation, execution and performance of this Agreement and the transactions contemplated hereby;
(ii) the
interpretation and enforcement of the provisions of this Agreement and the documents referred to in this Agreement; or
(iii) any
actions of or omissions by any Covered Party (as defined below) in any way connected with, related to or giving rise to any of the foregoing matters (the foregoing
clauses (i)
,
(ii)
and
(iii)
collectively, the
"
Covered Matters
");
and
hereby waive, and agree not to assert as a defense in any Legal Proceeding with regard to or involving a Covered Matter, that such Legal Proceeding may not be brought or is not maintainable in
said Courts or that venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such Courts, and the parties hereto, on their behalf and on behalf of
their respective Affiliates, irrevocably agree that all claims with respect to such Legal Proceeding shall be heard and determined exclusively by such a Delaware state or federal Court. The parties
hereto, on their behalf and on behalf of their respective Affiliates, hereby consent to and grant any such Court jurisdiction over the person of such parties and over the subject matter of such
dispute and agree that mailing of process or other papers in connection with such Legal Proceeding in the manner provided in
Section 9.1
or in
such other manner as may be permitted by law shall be valid and sufficient service thereof.
(c) In
addition, by entering into this Agreement, each party hereto, on their behalf and, to the fullest extent permissible by applicable Law, on behalf of their respective
equityholders, partners, members, directors, Affiliates, officers or agents, as the case may be, covenants, agrees
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and
acknowledges, that it shall not bring any Legal Proceeding (regardless of the legal theory or claim involved or the procedural nature of any such Legal Proceeding) with regard to any Covered
Matter against any Covered Party, other than the parties hereto.
(d) The
parties hereto acknowledge and agree that (i) the agreements contained in this
Section 9.5
are an
integral part of this Agreement and the transactions contemplated hereby, and that, without these agreements, the parties would not enter into this Agreement, (ii) any breach of this
Section 9.5
would result in irreparable harm and that monetary damages would not be a sufficient remedy for any such breach and (iii) that
any breach of this
Section 9.5
will be deemed a material breach of this Agreement. Accordingly, each Covered Party shall be entitled to equitable
relief, including injunction and specific performance, as a remedy for any such breach by a party (or any affiliate of such party) and in case of any such breach, the non-breaching party
shall be excused from its performance obligations under this Agreement.
For
the purposes of this
Section 9.5
, "
Covered Party
" shall mean (i) any
party hereto, (ii) any such parties' officers, directors, managers, agents, employees, or Affiliates or (iii) any officer, director, agent, or employee of any such Person, all of whom
are intended third party beneficiaries of this
Section 9.5
.
9.6
Counterparts; Effectiveness.
This
Agreement may be signed in any number of counterparts (including by facsimile), each of which shall be an original, with the same effect as if the signatures thereto and hereto were
upon the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto.
9.7
Entire Agreement.
This
Agreement, the Support Agreement, the Company's Disclosure Letter, the Guarantee, the Confidentiality Agreement and the Equity Commitment Letter constitute the entire agreement
between the parties with respect to the subject matter hereof and supersede all prior agreements, understandings and negotiations, both written and oral, between the parties with respect to the
subject matter of this Agreement. No representation, inducement, promise, understanding, condition or warranty not set forth herein has been made or relied upon by either party hereto. Neither this
Agreement nor any provision hereof is intended to confer upon any Person other than the parties hereto any rights or remedies hereunder except for the provisions of
Section 6.7
, which are intended
for the benefit of the Company's former and present officers and directors, and
Section 9.5
, which is intended for the benefit of the Covered Parties. Except as otherwise expressly provided in this
Agreement (including
pursuant to
Sections 6.5, 9.5(c)
and
9.11
hereof), this Agreement may be enforced only against,
and any claims or causes of action that may be based upon, arise out of or relate to this Agreement, or the negotiation, execution or performance of this Agreement may be made only against the
entities that are expressly identified as parties hereto and no past, present or future Affiliate, director, officer, employee, incorporator, member, manager, partner, equityholder, agent, attorney or
representative of any party hereto shall have any liability for any obligations or liabilities of the parties to this Agreement or for any claim based on, in respect of, or by reason of, the
transactions contemplated hereby or any claim related to tort or contract theories of Law.
9.8
Headings.
The
table of contents and headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.
9.9
Severability.
If
any term or other provision of this Agreement is invalid, illegal or unenforceable, all other terms and provisions of this Agreement shall remain in full force and effect so long as
the economic or legal
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substance
of the transactions contemplated hereby is not affected in any manner materially adverse to any party.
9.10
Waiver of Jury Trial.
EACH
OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
9.11
Specific Performance.
(a) The
parties hereto agree that irreparable damage would occur in the event any of the provisions of this Agreement were not performed in accordance with the terms hereof
on a timely basis or were otherwise breached. It is accordingly agreed that, subject to the provisions of this
Section 9.11
, the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in the Delaware Court of Chancery (and if the
Delaware Court of Chancery shall be unavailable, in the Federal Court of the United States of America sitting in the State of Delaware), without proof of actual damages or otherwise. This right is in
addition to any other remedy at law or in equity. This right shall include the right of the Company to cause Parent and Merger Subsidiary to cause the Merger and the transactions contemplated by the
Merger to be consummated on the terms and subject to the conditions thereto set forth in this Agreement. The parties further agree not to assert that a remedy of specific enforcement is unenforceable,
invalid, contrary to law or inequitable for any reason, nor to assert that a remedy of monetary damages would provide an adequate remedy.
(b) By
way of amplification and not limitation of the provisions of
Section 8.3(f)(ii)
, while Parent and Merger
Subsidiary may concurrently seek specific performance or other equitable relief and monetary damages under no circumstances shall Parent or Merger Subsidiary be permitted or entitled to receive both a
grant of specific performance or other equitable relief to effect the consummation of the Merger and a payment of monetary damages, including the Termination Fee. By way of amplification and not
limitation of the provisions of
Section 8.3(f)(i)
, while the Company may concurrently seek specific performance or other equitable relief and
monetary damage, under no circumstances shall the Company be permitted or entitled to receive both a grant of a specific performance or other equitable relief to effect the consummation of the Merger
and payment of monetary damages including the Parent Termination Fee. Subject only to the possible entitlement to specific performance as set forth in this
Section 9.11
or as permitted pursuant to
Section 8.3(f)
, in no event shall any Parent
Related Party have any liability under or in respect of this Agreement, the Guarantee, the Equity Commitment Letter or in respect of any oral representations made or alleged to be made in connection
herewith or therewith or in respect of the transactions contemplated hereby or thereby in excess of an aggregate amount equal to the Parent Termination Fee and the maximum amount of Expenses for which
Parent may be liable pursuant to
Section 8.3(d)(ii)
.
(c) For
the avoidance of doubt, in no event shall Parent be entitled to specific performance of this Agreement from and after such time as Parent has (i) terminated
this Agreement pursuant to
Section 8.3(b)
and (ii) received the Termination Fee and Expenses payable pursuant to
Section 8.3(b)
. For the
avoidance of doubt, in no event shall the Company be entitled to specific performance of this Agreement from and after
such time as the Company has terminated this Agreement pursuant to
Section 8.3(d)
and received the Parent Termination Fee and Expenses payable
pursuant to
Section 8.3(d)
.
(d) The
right of specific enforcement is an integral part of the transactions contemplated by this Agreement and the Merger and each party hereto hereby agrees not to raise
any objections to the availability of the equitable remedy of specific performance to prevent or restrain breaches of
A-67
this
Agreement by such party when expressly available pursuant to the terms of this Agreement, and to specifically enforce the terms and provisions of this Agreement when expressly available pursuant
to the terms of this Agreement to prevent breaches or threatened breaches of, or to enforce compliance with, the covenants and obligations of such party under this Agreement all in accordance with the
terms of this
Section 9.11
. Any party hereto seeking an injunction or injunctions to prevent breaches of this Agreement when expressly available
pursuant to the terms of this Agreement and to enforce specifically the terms and provisions of this Agreement when expressly available pursuant to the terms of this Agreement shall not be required to
provide any bond or other security in connection with such Order or injunction all in accordance with the terms of this
Section 9.11
.
(e) Notwithstanding
anything to the contrary in this Agreement (including
Section 9.5(c)
,
Section 9.7
and this
Section 9.11
), it is explicitly agreed that the Company shall be
entitled to specific performance of Parent's obligation to cause the Equity Financing to be funded;
provided
, that such right shall only be available in
the event that (i) all of the conditions set forth in
Sections 7.1
and
7.2
(other than
those conditions that by their nature are to be satisfied or waived at Closing, but subject to the satisfaction or waiver of those conditions at such time) shall have been satisfied or waived as of
the time when the Closing would have occurred pursuant to
Section 2.1
but for the failure of the Equity Financing to be funded,
(ii) Parent and Merger Subsidiary fail to effect the Closing in accordance with
Section 2.1
and (iii) the Company has irrevocably
confirmed it will seek to effect the Closing so long as specific performance under this
Section 9.11
is granted and the Equity Financing is
funded.
9.12
Limitations on Warranties.
(a) Except
for the representations and warranties contained in this Agreement, the Company's Disclosure Letter and any agreements or certificates delivered pursuant to this
Agreement, the Company makes no other express or implied representation or warranty to Parent or Merger Subsidiary. Parent and Merger Subsidiary each acknowledge that, in entering into this Agreement,
it has not relied on any representations or warranties of the Company other than the representations and warranties of the Company set forth in this Agreement, the Company's Disclosure Letter or any
agreements or certificates delivered pursuant to this Agreement.
(b) Except
for the representations and warranties contained in this Agreement and any agreements or certificates delivered pursuant to this Agreement, Parent and Merger
Subsidiary make no other express or implied representation or warranty to the Company. The Company acknowledges that, in entering into this Agreement, it has not relied on any representations or
warranties of Parent and Merger Subsidiary other than the representations and warranties of Parent and Merger Subsidiary set forth in this Agreement or any agreements or certificates delivered
pursuant to this Agreement.
9.13
No Waiver.
This
Agreement shall not constitute a waiver of any right that Värde Partners, Inc., any of its Affiliates, VFC Partners 5 LLC or VFC Properties 5 LLC
may have under any agreement, including the letter agreement, dated as of May 11, 2012, among the Company, FC Imperial Holdings, LLC, Värde Investment
Partners, L.P., VFC Member LLC and the other limited liability companies party thereto, as amended by that certain letter agreement, dated as of June 6, 2012, and the letter
agreement, dated as of June 6, 2012, among WHFC Holdings S.à r.l., HmcS Gesellschaft für Forderungsmanagement GmbH, Wert Investment Holdings
S.à r.l., CVI GVF Luxembourg Thirteen S.à r.l. and FirstCity International Corporation.
[Signature
Page Follows]
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IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
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HOTSPURS HOLDINGS LLC
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By:
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/s/ JASON R. SPAETH
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Name:
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Jason R. Spaeth
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Title:
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President and Chief Executive Officer
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HOTSPURS ACQUISITION CORPORATION
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By:
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/s/ JASON R. SPAETH
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Name:
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Jason R. Spaeth
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Title:
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President
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FIRSTCITY FINANCIAL CORPORATION
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By:
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/s/ JAMES T. SARTAIN
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Name:
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James T. Sartain
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Title:
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President and Chief Executive Officer
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A-69
EXHIBIT A
FORM OF
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
FIRSTCITY FINANCIAL CORPORATION
FIRST. The name of the corporation is FIRSTCITY FINANCIAL CORPORATION ("Corporation").
SECOND. The address of the registered office of the Corporation in the state of Delaware is National Registered Agents, Inc. The
name of the
registered agent of the Corporation in the State of Delaware at such address is 160 Greentree Drive, Suite 101, in the City of Dover, Delaware.
THIRD. The nature of the business or purpose to be conducted or promoted is to engage in any lawful act or activity for which
corporations may be
organized under the General Corporation Law of the State of Delaware (the "DGCL").
FOURTH. The total number of shares of stock which the Corporation shall have authority to issue is one thousand (1,000) shares of
common stock, $0.01
par value per share.
FIFTH. The Corporation is to have perpetual existence.
SIXTH. In furtherance and not in limitation of the powers conferred by statute, the board of directors of the Corporation is expressly
authorized to
make, adopt, alter, amend or repeal the By-laws of the corporation.
SEVENTH. Meetings of the stockholders may be held within or without the State of Delaware, as the By-laws may provide. The books of the
Corporation may be kept (subject to any provision contained in the DGCL) outside the State of Delaware at such place or places as may be designated from time to time by the board of directors of the
Corporation or in the By-laws of the corporation. Elections of directors of the Corporation need not be by written ballot unless the By-laws of the corporation shall so
provide.
EIGHTH. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, in the
manner now or hereafter prescribed by the DGCL, and all rights conferred upon stockholders herein are granted subject to this reservation.
NINTH. (a) A director of the Corporation shall not be personally liable either to the Corporation or to any stockholder for
monetary damages
for breach of fiduciary duty as a director, except (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders; (ii) for acts or omissions which are not
in good faith or which involve intentional misconduct or knowing violation of the law; (iii) for any matter in respect of which such director shall be liable under Section 174 of Title 8
of the DGCL or any amendment thereto or successor provision thereto; or (iv) for any transaction from which the director shall have derived an improper personal benefit. Neither amendment nor
repeal of this paragraph (a) nor the adoption of any provision of this Second Amended and Restated Certificate of Incorporation inconsistent with this paragraph (a) shall eliminate or
reduce the effect of this paragraph (a) in respect of any matter occurring, or any cause of action, suit or claim that, but for this paragraph (a) of this Article, would accrue or arise,
prior to such amendment, repeal or adoption of an inconsistent provision.
(b) The
Corporation shall indemnify any person who was or is a party or is threatened to be made a party to, or testifies in, any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative in nature, by reason of the fact that such
A-70
person
is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, employee
benefit plan, trust, or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding to the full extent permitted by law, and the Corporation may adopt by-laws or enter into agreements with any such person for the purpose of providing
for such indemnification.
(c) To
the extent that a director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in
paragraph (b) of this Article, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection therewith.
(d) Expenses
incurred by an officer or director in defending or testifying in a civil, criminal, administrative or investigative action, suit or proceeding may be paid by
the Corporation in advance of
the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such officer or director to repay such amount if it shall ultimately be determined that such
director or officer is not entitled to be indemnified by the Corporation against such expenses as authorized by this Article, and the Corporation may adopt by-laws or enter into agreements
with such persons for the purpose of providing for such advances.
(e) The
indemnification permitted by this Article shall not be deemed exclusive of any other rights to which any person may be entitled, or any agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding an office, and shall continue as to a
person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such person.
(f) Notwithstanding
any provision in this Article to the contrary, the Corporation shall not indemnify or advance expenses to any person who was or is a party or is
threatened to be made a party to, or testifies in, any threatened, pending or completed action, suit or proceeding if such action, suit or proceeding is based upon or arises out of or is in connection
with an event, act or omission occurring prior to October 31, 1992.
(g) The
Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, employee benefit plan trust or other enterprise
against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power
to indemnify such person against such liability under the provisions of this Article or otherwise.
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Table of Contents
Annex B
[LETTERHEAD OF LAZARD MIDDLE MARKET LLC]
December 20, 2012
The
Board of Directors
FirstCity Financial Corporation
6400 Imperial Drive
Waco, Texas 76712
Dear
Board of Directors:
We
understand that FirstCity Financial Corporation, a Delaware corporation ("FirstCity"), Hotspurs Holdings LLC ("Parent"), a Delaware limited liability company and wholly owned
subsidiary of Värde Partners, Inc., a Delaware corporation ("Värde"), and Hotspurs Acquisition Corporation, a Delaware corporation and wholly owned subsidiary of
Parent ("Merger Subsidiary"), propose to enter into an Agreement and Plan of Merger (the "Agreement") pursuant to which Värde will acquire FirstCity (the "Transaction"). Pursuant to the
Agreement, Merger Subsidiary will be merged with and into FirstCity and each outstanding share of the common stock, par value $0.01 per share, of FirstCity ("FirstCity Common Stock"), other than
shares of FirstCity Common Stock held by holders who are entitled to and properly demand an appraisal of their shares of FirstCity Common Stock ("Dissenting Shares"), will be converted into the right
to receive $10.00 per share in cash (the "Consideration"). The terms and conditions of the Transaction are more fully set forth in the Agreement.
You
have requested our opinion as of the date hereof as to the fairness, from a financial point of view, to holders of FirstCity Common Stock (other than Värde, Parent,
Merger Subsidiary, and their respective affiliates and holders of Dissenting Shares, collectively, "Excluded Holders") of the Consideration to be paid to such holders in the Transaction.
In
connection with this opinion, we have:
-
(i)
-
Reviewed
the financial terms and conditions of a draft, dated December 20, 2012, of the Agreement;
-
(ii)
-
Reviewed
certain publicly available historical business and financial information relating to FirstCity;
-
(iii)
-
Reviewed
various financial forecasts and other estimates and data provided to us by FirstCity relating to the business of FirstCity and discussed certain
sensitivities to such financial forecasts and other estimates and data with senior management of FirstCity, in each case as approved for our use by the Board of Directors of FirstCity;
-
(iv)
-
Held
discussions with members of senior management of FirstCity with respect to the business and prospects of FirstCity;
-
(v)
-
Reviewed
public information with respect to certain other companies in lines of business we believe to be generally relevant in evaluating the business of
FirstCity;
-
(vi)
-
Reviewed
the financial terms of certain business combinations involving companies in lines of business we believe to be generally relevant in evaluating
the business of FirstCity;
-
(vii)
-
Reviewed
historical stock prices and trading volumes of FirstCity Common Stock; and
-
(viii)
-
Conducted
such other financial studies, analyses and investigations as we deemed appropriate.
B-1
Table of Contents
The
Board of Directors
FirstCity Financial Corporation
December 20, 2012
Page 2
We
have assumed and relied upon the accuracy and completeness of the foregoing information, without independent verification of such information. We have not conducted any independent
valuation or appraisal of any of the assets or liabilities (contingent or otherwise) of FirstCity or concerning the solvency or fair value of FirstCity, and we have not been furnished with any such
valuation or appraisal. With respect to the financial forecasts and other estimates and data (including sensitivities thereto) utilized in our analyses, we have assumed, with the consent of FirstCity,
that they have been reasonably prepared on bases reflecting the best currently available estimates and judgments as to the future financial performance of FirstCity. We assume no responsibility for
and express no view as to any forecasts, estimates or data or the assumptions on which they are based. In addition, we have relied, at the direction of FirstCity, on the assessments of the management
of FirstCity and the Board of Directors of FirstCity as to (i) the liquidity needs of and capital resources available to FirstCity to fund its operations and potential for new investments and
(ii) the planned divestitures by FirstCity or its affiliates of certain assets and the expected timing of and proceeds to be received from such divestitures. We are not experts in the
evaluation of loan and lease portfolios or allowances for losses with respect thereto and we have not been requested to, and we have not, conducted a review of individual credit files or made an
analysis of, nor do we express any opinion or view as to, the adequacy or sufficiency of FirstCity's or any other entity's allowances for losses or any other matters with respect thereto.
Further,
our opinion is necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to us as of, the date hereof. We assume
no responsibility for updating or revising our opinion based on circumstances or events occurring after the date hereof. We do not express any opinion as to the price at which shares of FirstCity
Common Stock may trade at any time subsequent to announcement of the Transaction. Our opinion does not address the relative merits of the Transaction as compared to any other transaction or business
strategy in which FirstCity might engage or the merits of the underlying decision by FirstCity to engage in the Transaction.
In
rendering our opinion, we have assumed, with the consent of FirstCity, that the Transaction will be consummated on the terms described in the Agreement, without any waiver or
modification of any material terms or conditions. Representatives of FirstCity have advised us, and we have assumed, that the Agreement, when executed, will conform to the draft reviewed by us in all
material respects. We also have assumed, with the consent of FirstCity, that obtaining the necessary governmental, regulatory or third party approvals and consents for the Transaction will not have an
adverse effect on FirstCity or the Transaction. We do not express any opinion as to any tax or other consequences that might result from the Transaction, nor does our opinion address any legal, tax,
regulatory or accounting matters, as to which we understand that FirstCity obtained such advice as it deemed necessary from qualified professionals. We express no view or opinion as to any terms or
other aspects (other than the Consideration to the extent expressly specified herein) of the Transaction, including, without limitation, the form or structure of the Transaction or any terms, aspects
or implications of any support agreements or other agreements or arrangements entered into in connection with, or contemplated by, the Transaction. In addition, we express no view or opinion as to the
fairness of the amount or nature of, or any other aspects relating to, the compensation to any officers, directors or employees of any parties to the Transaction, or class of such persons, relative to
the Consideration or otherwise.
B-2
Table of Contents
The
Board of Directors
FirstCity Financial Corporation
December 20, 2012
Page 3
Lazard
Middle Market LLC ("LMM") is acting as financial advisor to FirstCity in connection with the Transaction and has received and will receive a fee for such services, portions
of which were payable during the course of LMM's engagement, a portion of which is payable upon the rendering of this opinion and the principal portion of which is contingent upon the consummation of
the Transaction. Certain of our affiliates, including Lazard Frères & Co. LLC, the parent of LMM ("Lazard"), in the past have provided, currently are providing and
in the future may provide investment banking services to Värde and certain of its portfolio companies unrelated to the Transaction, for which services compensation has been and may be
received, including acting as financial advisor to Värde in connection with the debt restructuring of and acquisition of a majority interest in Crest Nicholson plc in 2011 and as
placement agent and/or financial advisor to Värde and certain of its portfolio companies for various other transactions. In addition, an executive of an affiliate of Lazard is Chairman
of the Board of Directors of Crest Nicholson plc. In the ordinary course of their respective businesses, Lazard, LFCM Holdings LLC (an entity indirectly owned in large part by current
and former managing directors of Lazard) and certain of their and LMM's respective affiliates may actively trade securities of FirstCity and certain of its affiliates or certain affiliates and/or
portfolio companies of Värde for their own accounts and for the accounts of their customers and, accordingly, may at any time hold a long or short position in such securities, and also
may trade and hold securities on behalf of FirstCity, Värde and certain of their respective affiliates and/or portfolio companies. The issuance of this opinion was approved by the
Opinion Committee of LMM.
Our
engagement and the opinion expressed herein are for the benefit of the Board of Directors of FirstCity (in its capacity as such) and our opinion is rendered to the Board of Directors
of FirstCity in connection with its evaluation of the Transaction. Our opinion is not intended to and does not constitute a recommendation to any stockholder as to how such stockholder should vote or
act with respect to the Transaction or any matter relating thereto.
Based
on and subject to the foregoing, we are of the opinion that, as of the date hereof, the Consideration to be paid to holders of FirstCity Common Stock (other than Excluded Holders)
in the Transaction is fair, from a financial point of view, to such holders.
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Very truly yours,
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LAZARD MIDDLE MARKET LLC
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By:
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/s/ NICHOLAS J. SHEUMACK
Nicholas J. Sheumack
Managing Director
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Annex C
SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
§ 262.
Appraisal rights.
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(a)
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Any
stockholder of a corporation of this State who holds shares of stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through the effective date of the merger or consolidation, who has otherwise complied with subsection (d) of this section
and who has neither voted in favor of the merger or consolidation nor consented thereto in writing pursuant to § 228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of the stockholder's shares of stock under the circumstances described in subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a corporation; the words "stock" and "share" mean and include what is ordinarily meant by those words; and the words "depository receipt" mean a
receipt or other instrument issued by a depository representing an interest in 1 or more shares, or fractions thereof, solely of stock of a corporation, which stock is deposited with the depository.
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(b)
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Appraisal
rights shall be available for the shares of any class or series of stock of a constituent corporation in a merger or consolidation to be effected
pursuant to § 251 (other than a merger effected pursuant to § 251(g) of this title), § 252, § 254, § 255,
§ 256, § 257, § 258, § 263 or § 264 of this title:
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(1)
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Provided,
however, that no appraisal rights under this section shall be available for the shares of any class or series of stock, which stock, or depository
receipts in respect thereof, at the record date fixed to determine the stockholders entitled to receive notice of the meeting of stockholders to act upon the agreement of merger or consolidation, were
either (i) listed on a national securities exchange or (ii) held of record by more than 2,000 holders; and further provided that no appraisal rights shall be available for any shares of
stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the stockholders of the surviving corporation as provided in
§ 251(f) of this title.
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(2)
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Notwithstanding
paragraph (b)(1) of this section, appraisal rights under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the terms of an agreement of merger or consolidation pursuant to §§ 251, 252, 254, 255, 256,
257, 258, 263 and 264 of this title to accept for such stock anything except:
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a.
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Shares
of stock of the corporation surviving or resulting from such merger or consolidation, or depository receipts in respect thereof;
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b.
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Shares
of stock of any other corporation, or depository receipts in respect thereof, which shares of stock (or depository receipts in respect thereof) or
depository receipts at the effective date of the merger or consolidation will be either listed on a national securities exchange or held of record by more than 2,000 holders;
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c.
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Cash
in lieu of fractional shares or fractional depository receipts described in the foregoing paragraphs (b)(2)a. and b. of this section; or
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d.
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Any
combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional depository receipts described in the
foregoing paragraphs (b)(2)a., b. and c. of this section.
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(3)
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In
the event all of the stock of a subsidiary Delaware corporation party to a merger effected under § 253 or § 267 of
this title is not owned by the parent immediately prior to the merger, appraisal rights shall be available for the shares of the subsidiary Delaware corporation.
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(c)
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Any
corporation may provide in its certificate of incorporation that appraisal rights under this section shall be available for the shares of any class or
series of its stock as a result of an amendment to its certificate of incorporation, any merger or consolidation in which the corporation is a constituent corporation or the sale of all or
substantially all of the assets of the corporation. If the certificate of incorporation contains such a provision, the procedures of this section, including those set forth in subsections (d)
and (e) of this section, shall apply as nearly as is practicable.
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(d)
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Appraisal
rights shall be perfected as follows:
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(1)
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If
a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall notify each of its stockholders who was such on the record date for notice of such meeting (or such members who
received notice in accordance with § 255(c) of this title) with respect to shares for which appraisal rights are available pursuant to subsection (b) or (c) of this
section that appraisal rights are available for any or all of the shares of the constituent corporations, and shall include in such notice a copy of this section and, if 1 of the constituent
corporations is a nonstock corporation, a copy of § 114 of this title. Each stockholder electing to demand the appraisal of such stockholder's shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a written demand for appraisal of such stockholder's shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such stockholder's shares. A proxy or vote against the merger or consolidation shall
not constitute such a demand. A stockholder electing to take such action must do so by a separate written demand as herein provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each stockholder of each constituent corporation who has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has become effective; or
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(2)
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If
the merger or consolidation was approved pursuant to § 228, § 253, or § 267 of this title, then
either a constituent corporation before the effective date of the merger or consolidation or the surviving or resulting corporation within 10 days thereafter shall notify each of the holders of
any class or series of stock of such constituent corporation who are entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are available for any or all
shares of such class or series of stock of such constituent corporation, and shall include in such notice a copy of this section and, if 1 of the constituent corporations is a nonstock corporation, a
copy of § 114 of this title. Such notice may, and, if given on or after the effective date of the merger or consolidation, shall, also notify such stockholders of the effective date
of the merger or consolidation. Any stockholder entitled to appraisal rights may, within 20 days after the date of mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby
to demand the appraisal of such holder's shares. If such notice did not notify stockholders of the effective date of the merger or consolidation, either (i) each such constituent corporation
shall send a second notice before the effective date of the merger or consolidation notifying each of the holders of any class or series of stock of such constituent corporation that are entitled to
appraisal rights of the effective date of the merger or consolidation or (ii) the surviving or resulting corporation shall send such a second notice
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to
all such holders on or within 10 days after such effective date; provided, however, that if such second notice is sent more than 20 days following the sending of the first notice,
such second notice need only be sent to each stockholder who is entitled to appraisal rights and who has demanded appraisal of such holder's shares in accordance with this subsection. An affidavit of
the secretary or assistant secretary or of the transfer agent of the corporation that is required to give either notice that such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the stockholders entitled to receive either notice, each constituent corporation may fix, in advance, a record date that shall be not
more than 10 days prior to the date the notice is given, provided, that if the notice is given on or after the effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to the effective date, the record date shall be the close of business on the day next preceding the day on which the notice is
given.
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(e)
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Within
120 days after the effective date of the merger or consolidation, the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) of this section hereof and who is otherwise entitled to appraisal rights, may commence an appraisal proceeding by filing a petition in the Court of Chancery
demanding a determination of the value of the stock of all such stockholders. Notwithstanding the foregoing, at any time within 60 days after the effective date of the merger or consolidation,
any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party shall have the right to withdraw such stockholder's demand for appraisal and to accept the
terms offered upon the merger or consolidation. Within 120 days after the effective date of the merger or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) of this section hereof, upon written request, shall be entitled to receive from the corporation surviving the merger or resulting from the consolidation a
statement setting forth the aggregate number of shares not voted in favor of the merger or consolidation and with respect to which demands for appraisal have been received and the aggregate number of
holders of such shares. Such written statement shall be mailed to the stockholder within 10 days after such stockholder's written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for delivery of demands for appraisal under subsection (d) of this section hereof, whichever is later.
Notwithstanding subsection (a) of this section, a person who is the beneficial owner of shares of such stock held either in a voting trust or by a nominee on behalf of such person may, in such
person's own name, file a petition or request from the corporation the statement described in this subsection.
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(f)
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Upon
the filing of any such petition by a stockholder, service of a copy thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery in which the petition was filed a duly verified list containing the names and addresses of all stockholders who
have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached by the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a duly verified list. The Register in Chancery, if so ordered by the Court, shall give notice of the time and place fixed
for the hearing of such petition by registered or certified mail to the surviving or resulting corporation and to the stockholders shown on the list at the addresses therein stated. Such notice shall
also be given by 1 or more publications at least 1 week before the day of the hearing, in a newspaper of general circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication shall be approved by the Court, and the costs thereof shall be borne by the surviving or resulting corporation.
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(g)
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At
the hearing on such petition, the Court shall determine the stockholders who have complied with this section and who have become entitled to appraisal
rights. The Court may require the stockholders who have demanded an appraisal for their shares and who hold stock represented by certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder.
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(h)
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After
the Court determines the stockholders entitled to an appraisal, the appraisal proceeding shall be conducted in accordance with the rules of the Court
of Chancery, including any rules specifically governing appraisal proceedings. Through such proceeding the Court shall determine the fair value of the shares exclusive of any element of value arising
from the accomplishment or expectation of the merger or consolidation, together with interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. Unless the Court in its discretion determines otherwise for good cause shown, interest from the effective date of the merger through the date of
payment of the judgment shall be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between
the effective date of the merger and the date of payment of the judgment. Upon application by the surviving or resulting corporation or by any stockholder entitled to participate in the appraisal
proceeding, the Court may, in its discretion, proceed to trial upon the appraisal prior to the final determination of the stockholders entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to subsection (f) of this section and who has submitted such stockholder's certificates of stock to the Register in Chancery,
if such is required, may participate fully in all proceedings until it is finally determined that such stockholder is not entitled to appraisal rights under this section.
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(i)
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The
Court shall direct the payment of the fair value of the shares, together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Payment shall be so made to each such stockholder, in the case of holders of uncertificated stock forthwith, and the case of holders of shares represented by
certificates upon the surrender to the corporation of the certificates representing such stock. The Court's decree may be enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of any state.
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(j)
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The
costs of the proceeding may be determined by the Court and taxed upon the parties as the Court deems equitable in the circumstances. Upon application of
a stockholder, the Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorney's fees
and the fees and expenses of experts, to be charged pro rata against the value of all the shares entitled to an appraisal.
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(k)
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From
and after the effective date of the merger or consolidation, no stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive payment of dividends or other distributions on the stock (except dividends or other distributions payable to
stockholders of record at a date which is prior to the effective date of the merger or consolidation); provided, however, that if no petition for an appraisal shall be filed within the time provided
in subsection (e) of this section, or if such stockholder shall deliver to the surviving or resulting corporation a written withdrawal of such stockholder's demand for an appraisal and an
acceptance of the merger or consolidation, either within 60 days after the effective date of the merger or consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery shall be
dismissed as to any stockholder without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just; provided,
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however
that this provision shall not affect the right of any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party to withdraw such stockholder's demand
for appraisal and to accept the terms offered upon the merger or consolidation within 60 days after the effective date of the merger or consolidation, as set forth in subsection (e) of
this section.
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(l)
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The
shares of the surviving or resulting corporation to which the shares of such objecting stockholders would have been converted had they assented to the
merger or consolidation shall have the status of authorized and unissued shares of the surviving or resulting corporation.
C-5
SPECIAL MEETING OF STOCKHOLDERS OF
FIRSTCITY FINANCIAL CORPORATION
MAY 17, 2013
TELEPHONE
-Call toll-free
1-800-PROXIES
(1-800-776-9437) in the United States or
1-718-921-8500
from foreign countries from any touch-tone telephone and follow the instructions. Have your proxy card available when you call.
Vote by phone until 11:59 PM EST the day before the meeting.
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MAIL
-Sign, date and mail your proxy card in the envelope provided as soon as possible.
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COMPANY NUMBER
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ACCOUNT NUMBER
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IN PERSON
-You may vote your shares in person by attending the Special Meeting.
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GO GREEN
e-Consent makes it easy to go paperless. With e-Consent, you can quickly access your proxy material, statements and other eligible documents online, while reducing costs, clutter and paper waste. Enroll today via www.amstock.com to enjoy online access.
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Important Notice Regarding the Availability of Proxy Materials for
the Special Meeting of Stockholders to be Held on May 17, 2013
The Proxy Statement is available at: http://www.fcfc.com/proxy/2013/proxy.htm
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Please detach along perforated line and mail in the envelope provided
IF
you are not voting via telephone.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE
x
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FOR
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AGAINST
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ABSTAIN
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1.
To adopt the Agreement and Plan of Merger, dated as of December 20, 2012 (as it may be amended from time to time, the Merger Agreement), by and among FirstCity Financial Corporation, a Delaware corporation (the Company), Hotspurs Holdings LLC, a Delaware limited liability company, and Hotspurs Acquisition Corporation, a Delaware corporation (Merger Subsidiary).
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2.
To approve, on an advisory (non-binding) basis, the compensation to be paid to the Companys named executive officers in connection with the merger of Merger Subsidiary with and into the Company.
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3.
To adjourn the special meeting, if necessary or appropriate, to solicit additional proxies in the event there are insufficient votes at the time of the special meeting or any adjournment or postponement thereof to adopt the Merger Agreement.
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4.
To consider and act upon such other business as may properly come before the special meeting or any adjournment or postponement thereof.
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Please complete, sign, date and return this card promptly in the envelope provided.
MARK X HERE IF YOU PLAN TO ATTEND THE MEETING.
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To change the address on your account, please check the box at right and indicate your new address in the space above. Please note that changes to the registered name(s) on the account may not be submitted via this method.
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Signature of
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Signature of
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Stockholder
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Date:
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Stockholder
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Date:
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Note:
Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.
FIRSTCITY FINANCIAL CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING TO BE HELD ON MAY 17, 2013
The undersigned stockholder hereby appoints Mark B. Horrell and Lotte Bostick as proxies and attorneys-in-fact of the undersigned, each with the power to act without the other and with the power of substitution, and hereby authorizes them to represent and vote all shares of common stock of FirstCity Financial Corporation (the Company) that the undersigned is entitled to vote, with all powers which the undersigned would possess if present at the Special Meeting of Stockholders of the Company to be held at
the Companys principal executive offices located at 6400 Imperial Drive, Waco, Texas 76712
, on May 17, 2013 at 9:00 a.m. local time, or at any adjournment or postponement thereof.
This proxy, when properly executed, will be voted in the manner directed by the undersigned stockholder. If no direction is indicated, the shares will be voted FOR proposals 1, 2 and 3. In their discretion, the proxies are authorized to vote upon such other business as may properly come before the special meeting.
(Continued and to be signed on the reverse side)
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