0000950147-01-501707.txt : 20011010
0000950147-01-501707.hdr.sgml : 20011010
ACCESSION NUMBER: 0000950147-01-501707
CONFORMED SUBMISSION TYPE: SC 13D
PUBLIC DOCUMENT COUNT: 1
FILED AS OF DATE: 20011005
FILED BY:
COMPANY DATA:
COMPANY CONFORMED NAME: HILTON STEVEN J
CENTRAL INDEX KEY: 0001030513
STANDARD INDUSTRIAL CLASSIFICATION: []
FILING VALUES:
FORM TYPE: SC 13D
BUSINESS ADDRESS:
STREET 1: 6613 NORTH SCOTTSDALE RD
CITY: SCOTTSDALE
STATE: AZ
ZIP: 85250
MAIL ADDRESS:
STREET 1: 6613 N SCOTTSDALE RD
CITY: SCOTTSDALE
STATE: AZ
ZIP: 85250
SUBJECT COMPANY:
COMPANY DATA:
COMPANY CONFORMED NAME: MERITAGE CORP
CENTRAL INDEX KEY: 0000833079
STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531]
IRS NUMBER: 860611231
STATE OF INCORPORATION: MD
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: SC 13D
SEC ACT: 1934 Act
SEC FILE NUMBER: 005-40306
FILM NUMBER: 1752534
BUSINESS ADDRESS:
STREET 1: 6613 N SCOTTSDALE RD
STREET 2: STE 200
CITY: SCOTTSDALE
STATE: AZ
ZIP: 85250
BUSINESS PHONE: 6029988700
MAIL ADDRESS:
STREET 1: 6613 NORTH SCOTTSDALE ROAD
STREET 2: SUITE200
CITY: SCOTTSDALE
STATE: AZ
ZIP: 85250
FORMER COMPANY:
FORMER CONFORMED NAME: EMERALD MORTGAGE INVESTMENTS CORP
DATE OF NAME CHANGE: 19900502
FORMER COMPANY:
FORMER CONFORMED NAME: HOMEPLEX MORTGAGE INVESTMENTS CORP
DATE OF NAME CHANGE: 19920703
FORMER COMPANY:
FORMER CONFORMED NAME: MONTEREY HOMES CORP
DATE OF NAME CHANGE: 19970113
SC 13D
1
e-7567.txt
SCHEDULE 13D FOR STEVE HILTON
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------
SCHEDULE 13D
(AMENDMENT NO. 2)
(RULE 13D-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
TO RULE 13D-1(A) AND AMENDMENTS THERETO FILED PURSUANT TO
RULE 13D-2(A)
MERITAGE CORPORATION
(Name of Issuer)
Common Stock, $0.01 par value per share
(Title of Class of Securities)
59001A102
(CUSIP Number)
Larry W. Seay
Meritage Corporation
6613 North Scottsdale Road, Suite 200
Scottsdale, Arizona 85250
(480) 998-8700
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
September 21, 2001
(Date of Event Which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition that is the subject of this Schedule 13D, and is filing
this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the
following box [ ].
NOTE. Schedules filed in paper format shall include a signed original and
five copies of the schedule, including all exhibits. SEE Rule 13d-7(b) for other
parties to whom copies are to be sent.
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CUSIP NO. 59001A102 SCHEDULE 13D Page 2 of 7 Pages
--------------------- -----------------
1 NAMES OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Steve J. Hilton
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
Not applicable
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e) [ ]
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6 CITZENSHIP OR PLACE OF ORGANIZATION
United States
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7 SOLE VOTING POWER
779,448
(16,800 of which shares are subject to a forward
sale agreement and pledge agreement. See Item 4(a))
NUMBER OF ---------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY 0
OWNED BY ---------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 779,448
PERSON (16,800 of which shares are subject to a forward
WITH sale agreement and pledge agreement. See Item 4(a))
---------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
---------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
779,448
--------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ]
--------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
14.58% (See Item 5)
--------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
--------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
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CUSIP NO. 59001A102 SCHEDULE 13D Page 3 of 7 Pages
--------------------- -----------------
ITEM 1. SECURITY AND ISSUER.
This Amendment No. 2 to Schedule 13D ("Amendment") relates to the Common
Stock, par value $0.01 per share (the "Common Stock"), of Meritage Corporation,
a Maryland corporation (the "Company"), whose principal executive offices are
located at 6613 North Scottsdale Road, Suite 200, Scottsdale, Arizona 85250.
ITEM 2. IDENTITY AND BACKGROUND.
The name, address, and background information for the person filing this
Amendment is as follows:
(a) Name: Steven J. Hilton
(b) Business Address: c/o Meritage Corporation
6613 North Scottsdale Road, Suite 200
Scottsdale, Arizona 85250
(c) Principal Employment: Co-Chairman and Co-Chief Executive Officer of
the Company. The Company is engaged in the business of designing,
building, and selling single-family homes. The address of the Company
is set forth in (b) above.
(d) Mr. Hilton has not been convicted in a criminal proceeding in the past
five years (excluding traffic or similar misdemeanors).
(e) During the past five years, Mr. Hilton has not been a party to a civil
proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding has not been and is
not subject to judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject to,
federal or state securities laws or finding any violation with respect
to such laws.
(f) Citizenship: United States
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
Not applicable.
ITEM 4. PURPOSE OF TRANSACTION.
(a) On September 21, 2001, the terms of a disposition of Common Stock
pursuant to a Stock Purchase Agreement, dated August 30, 2001, between
Mr. Hilton and UBS Warburg LLC (the "Broker") were established. On
September 26, 2001, Mr. Hilton received a payment of $715,430.70 from
the Broker. This sum represents the product of (i) 16,800 (the number
of shares of Common Stock sold short by the Broker during the initial
hedging period ended September 14, 2001, i.e. the "Base Amount"), (ii)
$49.2314 (the volume weighted average of the per share prices of the
shares sold short during the initial hedging period, i.e. the "Initial
Share Price"), and (iii) 86.50%.
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CUSIP NO. 59001A102 SCHEDULE 13D Page 4 of 7 Pages
--------------------- -----------------
In return, Mr. Hilton has agreed to deliver to the Broker a number of
shares of Common Stock equal to the Base Amount multiplied by the
Settlement Ratio on September 24, 2004 (the "Settlement Date"). The
Settlement Ratio is determined as follows:
(i) if the closing price per share of the Common Stock on September
21, 2004 (the "Settlement Price") is less than $64.0008 (the
"Threshold Appreciation Price") but greater than $49.2314 (the
"Downside Protection Threshold Price"), the Settlement Ratio will
be equal to the Downside Protection Threshold Price divided by
the Settlement Price;
(ii) if the Settlement Price is equal to or greater than the Threshold
Appreciation Price, the Settlement Ratio will be equal to a
fraction, the numerator of which will be the sum of (A) the
Downside Protection Threshold Price and (B) the excess, if any,
of the Settlement Price over the Threshold Appreciation Price,
and the denominator of which will be the Settlement Price; and
(iii) if the Settlement Price is equal to or less than the Downside
Protection Threshold Price, the Settlement Ratio will be 1.
The financial terms described above, including the Base Amount, are
subject to adjustment in the event of certain corporate transactions,
including subdivisions and reclassifications of the Common Stock, the
payment of dividends on the Common Stock, repurchases of the Common
Stock by the Company and other similar events that may have a dilutive
or concentrative effect on the Common Stock.
Under a Pledge Agreement entered into in connection with the Stock
Purchase Agreement, 16,800 shares of the Common Stock beneficially
owned by Mr. Hilton were pledged to UBS AG, Stamford Branch (the
"Collateral Agent"). See Item 7 below.
Except as noted above with respect to the Stock Purchase Agreements,
Mr. Hilton has no plans or proposals that relate to or would result in
the acquisition by any person of additional securities of the Company,
or the disposition of securities of the Company.
(b) Mr. Hilton presently has no plans or proposals that relate to or would
result in an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Company or any of its
subsidiaries.
(c) Mr. Hilton presently has no plans or proposals that relate to or would
result in a sale or transfer of a material amount of the assets of the
Company or any of its subsidiaries.
(d) Mr. Hilton presently has no plans or proposals that relate to or would
result in any change in the present board of directors or management
of the Company.
(e) Mr. Hilton presently has no plans or proposals that relate to or would
result in any material change in the present capitalization or
dividend policy of the Company.
(f) Mr. Hilton presently has no plans or proposals that relate to or would
result in any other material change in the Company's business or
corporate structure.
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CUSIP NO. 59001A102 SCHEDULE 13D Page 5 of 7 Pages
--------------------- -----------------
(g) Mr. Hilton presently has no plans or proposals that relate to or would
result in changes in the Company's charter, bylaws or instruments
corresponding thereto or other actions which may impede the
acquisition of control of the Company by any person.
(h) Mr. Hilton presently has no plans or proposals that relate to or would
result in causing a class of securities of the Company to be delisted
from a national securities exchange or to cease to be authorized to be
quoted in an inter-dealer quotation system of a registered national
securities association.
(i) Mr. Hilton presently has no plans or proposals that relate to or would
result in a class of equity securities of the Company becoming
eligible for termination of registration pursuant to Section 12(g)(4)
of the Securities Exchange Act of 1934, as amended.
(j) Mr. Hilton presently has no plans or proposals that relate to or would
result in any action similar to any of those enumerated in (b) through
(i) above.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) Mr. Hilton is the beneficial owner of 779,448, or 14.58%, of the
outstanding shares of Common Stock. Mr. Hilton's percentage ownership
is based on 5,345,746 shares reported outstanding as of August 10,
2001 in the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2001.
(b) Mr. Hilton has sole power to vote and dispose of all of the shares
that he beneficially owns.
(c) On August 17, 2001, Mr. Hilton exercised an option to purchase 40,000
shares of the Common Stock at a price of $5.25 per share and
simultaneously sold such shares in a transaction with a broker at a
price of $48.23 per share.
(d) No person has any right to receive or the power to direct the receipt
of dividends from or the proceeds from the sale of the shares.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
SECURITIES OF THE ISSUER.
STOCK PURCHASE AGREEMENT
On August 30, 2001, Mr. Hilton entered into a Stock Purchase Agreement with
the Broker, the financial terms of which were established on September 21, 2001.
Pursuant to the Stock Purchase Agreement, Mr. Hilton received a payment of
$715,430.70 from the Broker and assumed the obligation to deliver to the Broker,
on September 24, 2004, a number of shares of Common Stock to be determined in
accordance with the formula described in Item 4(a) above.
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CUSIP NO. 59001A102 SCHEDULE 13D Page 6 of 7 Pages
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PLEDGE AGREEMENT
In connection with the Stock Purchase Agreement, Mr. Hilton also entered
into a Pledge Agreement with the Broker and the Collateral Agent to secure
performance of his obligations under the Stock Purchase Agreement. Under the
Pledge Agreement, Mr. Hilton has assigned and pledged to the Collateral Agent
16,800 shares of Common Stock.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
The following documents are filed as exhibits herewith:
Exhibit A Stock Purchase Agreement, dated as of August 30, 2001,
between Steven J. Hilton and UBS Warburg LLC
Exhibit B Pricing Schedule to the Stock Purchase Agreement, dated as
of September 21, 2001
Exhibit C Pledge Agreement, dated as of August 30, 2001, among Steven
J. Hilton, UBS Warburg LLC, and UBS AG, Stamford Branch, as
Collateral Agent
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CUSIP NO. 59001A102 SCHEDULE 13D Page 7 of 7 Pages
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Amendment is true, complete and
correct.
Dated: October 3, 2001 /s/ Steven J. Hilton
-----------------------------------
Steven J. Hilton
Exhibit A
STOCK PURCHASE AGREEMENT
dated as of
August 30, 2001
Between
Steven J. Hilton and
UBS WARBURG LLC
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of August 30, 2001 between the Seller (as defined
herein) and UBS WARBURG LLC, a Delaware limited liability company ("BUYER").
WHEREAS, Seller owns shares of common stock (the "COMMON STOCK"), of the
Company (as defined herein), or security entitlements in respect thereof;
WHEREAS, Seller has agreed, pursuant to the Pledge Agreement (as defined
herein) to grant Buyer a security interest in certain Common Stock to secure the
obligations of Seller hereunder;
WHEREAS, Seller and Buyer are willing to sell and purchase such shares of
Common Stock, or security entitlements in respect thereof at the time and on the
terms set forth herein;
NOW, THEREFORE, in consideration of their mutual covenants herein
contained, the parties hereto, intending to be legally bound, hereby mutually
covenant and agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1. DEFINITIONS. As used herein, the following words and phrases
shall have the following meanings:
"ACCELERATION AMOUNT" has the meaning provided in Section 8.1.
"ACCELERATION AMOUNT NOTICE" has the meaning provided in Section 8.1.
"ACCELERATION DATE" has the meaning provided in Section 8.1.
"ACCELERATION VALUE" has the meaning provided in Section 8.1.
"BANKRUPTCY CODE" has the meaning provided in Section 6.7.
"BASE AMOUNT" means the maximum number of shares of Common Stock that
Seller agrees to sell, and Buyer agrees to purchase, pursuant to this Agreement,
and shall equal the number of shares of Common Stock sold in Initial Short Sales
pursuant to Section 2.2(b). The Base Amount shall be subject to adjustment in
connection with Potential Adjustment Events and Merger Events as provided in
Article 7.
"BUSINESS DAY" means any day on which commercial banks are open for
business in New York City and the New York Stock Exchange is not closed.
"CLOSING PRICE" means, for any security for any Trading Day (the "Reference
Date"), (i) the last reported executed trade price (regular way) of such
security on the principal trading market for such security on the Reference
Date; (ii) if no regular way executed trade price for such security is reported
on the principal trading market for such security on the Reference Date, the
average of the closing bid and offered prices for such security as reported by
the principal trading market for such security on the Reference Date; (iii) if
no regular way executed trade price or closing bid and offered prices for such
2
security are reported on the principal trading market for such security on the
Reference Date, the Closing Price (as determined in accordance with clause (i)
or (ii)) for the next succeeding Trading Day (if any) within the two scheduled
Trading Days immediately succeeding the Reference Date on which the Closing
Price may be so determined; or (iv) if the Closing Price may not be determined
in accordance with clause (i) or (ii) on either of such two immediately
succeeding Trading Days, the price determined in good faith by Buyer to be the
fair market price of such security as of the close of business on the Reference
Date; provided that if such security is no longer listed or admitted to trading
on any exchange or in the over-the-counter market on the Reference Date, the
Closing Price shall be the average of the closing bid and offered prices for the
Reference Date as furnished by a member firm of the most recent principal
trading market for such security. The Closing Price shall be subject to
adjustment in certain events as provided in Article 7.
"COLLATERAL AGENT" has the meaning provided in the Pledge Agreement.
"COMPANY" means Meritage Corporation, a Maryland corporation.
"DOWNSIDE PROTECTION THRESHOLD PRICE" has the meaning provided in Section
2.2(d). The Downside Protection Threshold Price shall be subject to adjustment
in connection with Potential Adjustment Events and Merger Events as provided in
Article 7.
"EVENT OF DEFAULT" has the meaning provided in Section 8.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"HEDGING PERIOD" has the meaning provided in Section 2.2(b).
"INITIAL SHARE PRICE" has the meaning provided in Section 2.2(d).
"INITIAL SHORT POSITION" has the meaning provided in Section 2.2(d).
"INTERPRETIVE LETTER" means the interpretive letter from the SEC to
Goldman, Sachs & Co. dated December 20, 1999.
"INSOLVENCY" has the meaning provided in Section 7.2(b).
"LIEN" means any lien, mortgage, security interest, pledge, charge or
encumbrance of any kind.
"MARKET VALUE" means, as of any date with respect to any share of Common
Stock, the Closing Price per share of Common Stock for the Trading Day prior to
such date.
"MATURITY DATE" has the meaning provided in Section 2.2(d).
"MERGER DATE" has the meaning provided in Section 7.2.
"MERGER EVENT" has the meaning provided in Section 7.2.
"NATIONALIZATION" has the meaning provided in Section 7.2(b).
"NOTICE DATE" has the meaning provided in Section 2.2(c).
3
"PAYMENT DATE" has the meaning provided in Section 2.2(d).
"PLEDGE AGREEMENT" means the Pledge Agreement dated as of the date hereof
among Seller, Buyer, the Securities Intermediary and the Collateral Agent, as
amended from time to time.
"POTENTIAL ADJUSTMENT EVENT" has the meaning provided in Section 7.1.
"PRICING SCHEDULE" has the meaning provided in Section 2.2(c).
"PURCHASE PRICE" has the meaning provided in Section 2.2(d).
"RULE 144" means Rule 144 under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES INTERMEDIARY" has the meaning provided in the Pledge Agreement.
"SELLER" means, Steven J. Hilton, an Arizona resident individual.
"SETTLEMENT DATE" means the third Business Day immediately following the
Maturity Date.
"SETTLEMENT PRICE" means the Closing Price per share of Common Stock on the
Maturity Date.
"SETTLEMENT RATIO" has the meaning provided in Section 2.2(f).
"TERMINATION AMOUNT" has the meaning provided in Section 7.3.
"TERMINATION AMOUNT NOTICE" has the meaning provided in Section 7.3(b).
"TERMINATION DATE" has the meaning provided in Section 7.3(b).
"TERMS OF SALE" has the meaning provided in Section 2.2(b).
"THRESHOLD APPRECIATION PRICE" has the meaning provided in Section 2.2(d).
The Threshold Appreciation Price shall be subject to adjustment in connection
with Potential Adjustment Events and Merger Events as provided in Article 7.
"TRADING DAY" means, with respect to any security, a day on which the
principal trading market for such security is open for trading or quotation.
"TRANSFER RESTRICTION" means, with respect to any share of Common Stock (or
security entitlements in respect thereof) or other item of collateral pledged
under the Pledge Agreement, any condition to or restriction on the ability of
the holder thereof to sell, assign or otherwise transfer such share of Common
Stock (or security entitlements in respect thereof) or other item of collateral
or to enforce the provisions thereof or of any document related thereto whether
set forth in such item of Collateral itself or in any document related thereto,
4
including, without limitation, (i) any requirement that any sale, assignment or
other transfer or enforcement of such share of Common Stock (or security
entitlements in respect thereof) or other item of collateral be consented to or
approved by any Person, including, without limitation, the issuer thereof or any
other obligor thereon, (ii) any limitations on the type or status, financial or
otherwise, of any buyer, pledgee, assignee or transferee of such share of Common
Stock (or security entitlements in respect thereof) or other item of collateral,
(iii) any requirement of the delivery of any certificate, consent, agreement,
opinion of counsel, notice or any other document of any Person to the issuer of,
any other obligor on or any registrar or transfer agent for, such share of
Common Stock (or security entitlements in respect thereof) or other item of
collateral, prior to the sale, pledge, assignment or other transfer or
enforcement of such share of Common Stock (or security entitlements in respect
thereof) or other item of collateral and (iv) any registration or qualification
requirement or prospectus delivery requirement for such share of Common Stock
(or security entitlements in respect thereof) or other item of collateral
pursuant to any federal, state or foreign securities law (including, without
limitation, any such requirement arising as a result of Rule 144 or Rule 145
under the Securities Act); provided that the required delivery of any
assignment, instruction or entitlement order from the seller, pledgor, assignor
or transferor of such share of Common Stock (or security entitlements in respect
thereof) or other item of collateral, together with any evidence of the
corporate or other authority of such Person, shall not constitute a "TRANSFER
RESTRICTION".
"UNRESTRICTED STOCK" means Common Stock (or security entitlements in
respect thereof) that is not subject to any Transfer Restriction in the hands of
Seller immediately prior to delivery to Buyer (other than any Transfer
Restriction referred to in clause (iv) of the definition of Transfer Restriction
arising solely as a result of Seller's status as an affiliate (as such term is
defined in Rule 144) of the Company) and would not be subject to any Transfer
Restriction in the hands of Buyer upon delivery to Buyer.
ARTICLE 2
SALE AND PURCHASE
SECTION 2.1. SALE AND PURCHASE. Upon the terms and subject to the
conditions of this Agreement, Seller agrees to sell to Buyer, and Buyer agrees
to purchase and acquire from Seller, the number of shares of Common Stock (or
security entitlements in respect thereof) equal to the product of the Base
Amount and the Settlement Ratio.
SECTION 2.2. PAYMENT AND TERMS OF SALE.
(a) PAYMENT. Upon the terms and subject to the conditions of this
Agreement, Buyer shall deliver to Seller the Purchase Price on the Payment Date
at the offices of Buyer, 677 Washington Blvd., Stamford, CT 06901, or at such
other place as shall be agreed upon by Buyer and Seller, paid by certified or
official bank check or checks duly endorsed to, or payable to the order of,
Seller, or by wire transfer to an account designated by Seller, in New York
Clearing House Funds.
(b) ESTABLISHING THE TERMS OF SALE. Buyer shall determine the Purchase
Price, the Payment Date, the Base Amount, the Initial Share Price, the Downside
Protection Threshold Price, the Threshold Appreciation Price and the Maturity
Date (collectively, the "TERMS OF SALE") based on the amounts and prices at
which and dates on which it effects short sales (the "INITIAL SHORT SALES") of
shares of Common Stock in establishing Buyer's Initial Short Position (the dates
on which such short sales are effected being collectively referred to as the
"HEDGING PERIOD") and otherwise in accordance with the respective formulas for
5
such Terms of Sale set forth below; PROVIDED that, if at any time after the date
hereof Seller becomes aware of any material non-public information regarding the
Company, Seller shall immediately notify Buyer that it cannot make the
representation and warranty set forth in Section 3.1(k) and shall direct Buyer
immediately to cease effecting any further hedging activities related to the
Common Stock including, without limitation, the Initial Short Sales.
(c) PRICING SCHEDULE. Within two Business Days after the Initial Short
Position has been established, Buyer shall deliver to Seller the pricing
schedule (the "PRICING SCHEDULE"), substantially in the form attached hereto as
Exhibit A, setting forth the Terms of Sale. The date of delivery of the Pricing
Schedule shall be referred to as the "NOTICE DATE".
(d) RELATED DEFINITIONS. As used herein, the following words and phrases
have the following meanings:
(i) "PURCHASE PRICE" means, as set forth in the Pricing Schedule, an
amount equal to the product of (i) the Base Amount, (ii) the Initial Share
Price, and (iii) 86.50% (rounded upward or downward to the nearest cent or
if there is not a nearest cent, to the next lower cent).
(ii) "PAYMENT DATE" means, as set forth in the Pricing Schedule, the
third Business Day following the Notice Date.
(iii) "INITIAL SHARE PRICE" means, as set forth in the Pricing
Schedule, the volume weighted average of the per share prices (rounded
upward or downward to the nearest 1/10,000th or, if there is not a nearest
1/10,000th, to the next lower 1/10,000th) at which Buyer sells short shares
of Common Stock in establishing Buyer's Initial Short Position.
(iv) "INITIAL SHORT POSITION" means the number of shares of Common
Stock that Buyer sells short on or after the date hereof but prior to
September 14, 2001 to establish its initial hedge of the price and market
risk undertaken by Buyer under this Agreement, provided that the Initial
Short Position shall not exceed 100,000 shares of Common Stock.
(v) "DOWNSIDE PROTECTION THRESHOLD PRICE" means, as set forth in the
related Pricing Schedule, the Initial Share Price multiplied by 100.00%
(rounded upward or downward to the nearest 1/10,000th or, if there is not a
nearest 1/10,000th, to the next lower 1/10,000th), as adjusted on account
of any Potential Adjustment Event in accordance with the provisions of
Article 7.
(vi) "THRESHOLD APPRECIATION PRICE" means the Initial Share Price
multiplied by 130.00% (rounded upward or downward to the nearest 1/10,000th
or, if there is not a nearest 1/10,000th, to the next lower 1/10,000th), as
adjusted on account of any Potential Adjustment Event in accordance with
the provisions of Article 7.
(vii) "MATURITY DATE" means the date designated as the Maturity Date
in the Pricing Schedule, which shall be a date falling on the third
anniversary of the Payment Date.
(e) DELIVERY ON SETTLEMENT DATE. On the Settlement Date, Seller agrees to
deliver to Buyer a number of shares of Unrestricted Stock equal to the product
of (A) the Base Amount and (B) the Settlement Ratio, rounded down to the nearest
6
whole number, and cash in an amount equal to the value (based on the Settlement
Price) of any fractional share not delivered as a result of such rounding. If
(x) by 10:00 A.M., New York City time on the Settlement Date, Seller has not
otherwise effected such delivery of Common Stock (or security entitlements in
respect thereof) and (y) the Common Stock and security entitlements in respect
thereof then held by the Securities Intermediary as collateral under the Pledge
Agreement is Unrestricted Stock, then the delivery provided by this Section
2.2(e) shall be effected by delivery by the Securities Intermediary to Buyer of
a number of shares of Unrestricted Stock then held by the Securities
Intermediary as collateral under the Pledge Agreement equal to the number
thereof required to be delivered by Seller to Buyer pursuant to this Section
2.2(e)..
(f) SETTLEMENT RATIO. The "SETTLEMENT RATIO" shall be determined in
accordance with the following formula, and is subject to adjustment as a result
of certain events as provided in Article 7: (i) if the Settlement Price is less
than the Threshold Appreciation Price but greater than the Downside Protection
Threshold Price, the Settlement Ratio shall be a ratio (rounded upward or
downward to the nearest 1/10,000th or, if there is not a nearest 1/10,000th, to
the next lower 1/10,000th) equal to the Downside Protection Threshold Price
divided by the Settlement Price, (ii) if the Settlement Price is equal to or
greater than the Threshold Appreciation Price, the Settlement Ratio shall be a
ratio (rounded upward or downward to the nearest 1/10,000th or, if there is not
a nearest 1/10,000th, to the next lower 1/10,000th) equal to a fraction with a
numerator equal to the sum of (A) the Downside Protection Threshold Price and
(B) the excess, if any, of the Settlement Price over the Threshold Appreciation
Price, and a denominator equal to the Settlement Price, and (iii) if the
Settlement Price is equal to or less than the Downside Protection Threshold
Price, the Settlement Ratio shall be one (1).
(g) INTERPRETIVE LETTER. Seller and Buyer intend that, upon the execution
of this Agreement, this Agreement shall constitute a "Preliminary Agreement"
within the meaning of the Interpretive Letter and that, upon the execution of
the Pricing Schedule, this Agreement shall constitute a "Final Agreement" within
the meaning of the Interpretive Letter.
(h) RULE 10B5-1. At the time Seller no longer exercises investment
discretion and the terms of sale contemplated by this Agreement are fixed, this
program shall be deemed to be a plan qualifying under Rule 10b5-1 under the
Exchange Act.
SECTION 2.3. Intentionally Omitted.
SECTION 2.4. EARLY TERMINATION. With the prior written consent of Buyer,
Seller may terminate this Agreement in whole or in part at any time prior to the
Settlement Date upon such terms as Buyer and Seller may agree in writing.
SECTION 2.5. TRANSACTIONS INVOLVING COMMON STOCK. To hedge its exposure to
the Common Stock under this Agreement, Buyer or an affiliate thereof may from
time to time effect purchases, long sales or short sales (including without
limitation the Initial Short Sales) of shares of Common Stock or options or
other derivatives in respect thereof (or combinations of such transactions).
Except as set forth in Section 2.2(b) and (d), all such hedging transactions
shall be effected by Buyer or any of its affiliates solely for their benefit and
Seller shall not have any financial interest in, or any right to direct the
timing or amount of, any such transactions.
7
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
SECTION 3.1. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents
and warrants to Buyer and the Agent that:
(a) Seller (if a natural person), is a natural person residing in the State
of Arizona; (if a corporation) has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its jurisdiction of
incorporation; (if a partnership) is validly existing as a partnership under the
laws of its formation; (if a trust) has been duly created and is validly
existing as a trust under the laws of its formation.
(b) Each of this Agreement, the Pledge Agreement and each other document
relating hereto or thereto to which Seller is a party or that Seller is required
to deliver is (if Seller is a corporation, partnership or trust) within its
corporate, partnership, trust powers (as applicable), has been duly authorized,
executed and delivered by or on behalf of Seller and is a valid and binding
agreement of Seller, enforceable against Seller in accordance with its terms,
subject to applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally and equitable principles of general applicability.
(c) The execution and delivery by Seller of, and the performance by Seller
of its obligations under, this Agreement and the Pledge Agreement (i) will not
contravene or constitute a default under any provision of applicable law or
regulation, the applicable constitutive documents of Seller (if any), any
agreement or other instrument binding upon Seller or any of its subsidiaries (if
any) or assets or any judgment, order or decree of any governmental body,
agency, official or court having jurisdiction over Seller, whether foreign or
domestic, and (ii) do not require any consent, approval, authorization or order
of, or filing or qualification with, any governmental body, agency, official,
self-regulatory organization or court or other tribunal, whether foreign or
domestic.
(d) Seller is acting for its own account and has made its own independent
decisions to enter into this Agreement and the Pledge Agreement and as to
whether this Agreement or the Pledge Agreement is appropriate or proper for
Seller based upon its own judgment and upon advice from such advisers as Seller
has deemed necessary. Seller is not relying on any communication (written or
oral) of Buyer, or any of its affiliates, officers or employees as investment
advice or as a recommendation to enter into this Agreement or the Pledge
Agreement; it being understood that information and explanations related to the
terms and conditions of this Agreement or the Pledge Agreement shall not be
considered investment advice or a recommendation to enter into this Agreement or
the Pledge Agreement. No communication (written or oral) received from Buyer, or
any of its affiliates, officers or employees shall be deemed to be an assurance
or guarantee as to the expected results of this Agreement.
(e) Seller is capable of assessing the merits of and understanding (on its
own behalf or through independent professional advice), and understands and
accepts, the terms, conditions and risks of this Agreement and the Pledge
Agreement.
(f) Seller understands that Buyer, its affiliates, officers or employees
are not acting as a fiduciary for or an adviser to Seller in respect of this
Agreement or the Pledge Agreement.
(g) Seller has not, without the written consent of Buyer, sold any shares
of Common Stock (or security entitlements in respect thereof) or hedged (through
swaps, options, short sales or otherwise) any long position in the Common Stock
(or security entitlements in respect thereof) at any time during the period
8
beginning on the date three months prior to the date hereof and ending on the
date hereof, except that Seller sold 3,800 shares of Common Stock on or about
June 13, 2001 and 40,000 shares of Common Stock on or about August 17, 2001. For
purposes of this Section and Section 6.6, Common Stock shall be deemed to
include securities convertible into or exchangeable or exercisable for Common
Stock.
(h) Seller does not know or have any reason to believe that the Company has
not complied with the reporting requirements contained in Rule 144(c)(1) under
the Securities Act.
(i) Delivery of shares of Common Stock (or security entitlements in respect
thereof) by Seller pursuant to this Agreement will pass to Buyer title to such
shares (or security entitlements) free and clear of any Liens, except for those
created pursuant to the Pledge Agreement.
(j) Seller has a valid business purpose for entering into this Agreement,
and the transaction contemplated hereby is consistent with Seller's overall
investment strategy.
(k) Seller is not on the date hereof, and will not be on any day during the
Hedging Period, in possession or aware of any material non-public information
regarding the Company and, to the extent Seller is an officer, director or
employee of the Company, Seller is currently able to sell Common Stock and enter
into this Agreement in accordance with the Company's policies for trading in the
Common Stock applicable to Seller and Seller has obtained the approval of
counsel for the Company to enter into this Agreement.
(l) As of the date hereof, Seller is not the beneficial owner (as defined
in Rule 13d-3 under the Exchange Act, but treating any securities beneficially
owned by Seller that are convertible, exchangeable or exercisable into or for
equity securities of the Company as if they had been converted, exchanged or
exercised) of more than seventeen percent of the outstanding shares of any class
or series of equity securities issued by the Company. For purposes of this
representation, Seller shall be deemed to have beneficial ownership of any
securities beneficially owned by Seller within the meaning of said Rule 13d-3
whether such beneficial ownership is direct or indirect and whether it is based
on securities individually owned by Seller or securities owned as a member of a
"group" within the meaning of Rule 13d-5(b) under the Exchange Act.
(m) Seller acknowledges and agrees that Buyer and its affiliates may engage
in proprietary trading for their own accounts and the accounts of their
affiliates in the shares of Common Stock or in securities that are convertible,
exercisable or exchangeable into or for shares of Common Stock (including such
trading as Buyer or its affiliates deem appropriate in their sole discretion to
hedge its or their market risk in any transaction whether between Buyer and
Seller or with other third parties) and that such trading may affect the value
of the shares of Common Stock.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
SECTION 4.1. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
warrants to Seller as follows:
(a) This Agreement has been duly authorized, executed and delivered by
Buyer and is a valid and binding agreement of Buyer, enforceable against Buyer
in accordance with its terms, subject to applicable bankruptcy, insolvency or
similar laws affecting creditors' rights generally and equitable principles of
general applicability.
9
(b) The execution and delivery by Buyer of, and the performance by Buyer of
its obligations under, this Agreement (i) will not contravene or constitute a
default under any provision of applicable law or regulation or any constitutive
document of Buyer or any agreement or other instrument binding upon Buyer or any
of its assets or any judgment, order or decree of any governmental body, agency,
official or court having jurisdiction over Buyer, whether foreign or domestic,
and (ii) do not require any consent, approval, authorization order of or
qualification with any governmental body, agency, official, self-regulatory
organization or court or other tribunal, whether foreign or domestic.
(c) Buyer has a valid business purpose for entering into this Agreement,
and the transaction contemplated hereby is consistent with Buyer's overall
investment strategy.
(d) Buyer will conduct the Initial Short Sales as described in Section
2.2(b) in accordance with the Interpretive Letter, it being understood that
Buyer will introduce into the public market a quantity of securities of the same
class equal to the maximum number of shares deliverable on settlement of this
Agreement in a manner consistent with the manner-of-sale conditions described in
Rule 144(f) and (g) under the Securities Act.
ARTICLE 5
CONDITIONS TO BUYER'S OBLIGATIONS
SECTION 5.1. CONDITIONS. The obligation of Buyer to deliver the Purchase
Price on the Payment Date is subject to the satisfaction of the following
conditions:
(a) The representations and warranties of Seller contained in Article 2 and
Article 3 and in the Pledge Agreement shall be true and correct as of the
Payment Date.
(b) The Pledge Agreement shall have been executed by the parties thereto,
and Seller shall have delivered to the Securities Intermediary in accordance
therewith the collateral required to be delivered pursuant to Section 1(b)
thereof.
(c) Seller shall have performed all of the covenants and obligations to be
performed by it hereunder and under the Pledge Agreement on or prior to the
Payment Date.
(d) Seller shall have filed, or shall have caused to be filed, in the
manner contemplated by Rule 144(h) under the Securities Act, a notice on Form
144 relating to the transactions contemplated hereby in form and substance
acceptable to Buyer.
ARTICLE 6
COVENANTS
SECTION 6.1. TAXES. Seller shall pay any and all documentary, stamp,
transfer or similar taxes and charges that may be payable in respect of the
entry into this Agreement and the transfer and delivery of any Common Stock (or
security entitlements in respect thereof) pursuant hereto. Seller further agrees
to make all payments in respect of this Agreement free and clear of, and without
withholding or deduction for or on account of, any present or future taxes,
duties, fines, penalties, assessments or other governmental charges of
whatsoever nature (or interest on any taxes, duties, fines, penalties,
assessments or other governmental charges of whatsoever nature) imposed, levied,
10
collected, withheld or assessed by, within or on behalf of (a) the United States
or any political subdivision or governmental authority thereof or therein having
power to tax or (b) any jurisdiction from or through which payment on the
Agreement is made by Seller, or any political subdivision or governmental
authority thereof or therein having power to tax. In the event such withholding
or deduction is imposed, Seller agrees to indemnify Buyer for the full amount of
such withholding or deduction, as well as any liability (including penalties,
interest and expenses) arising therefrom or with respect thereto.
SECTION 6.2. FORWARD CONTRACT. Seller hereby agrees that: (i) it will not
treat this Agreement, any portion of this Agreement, or any obligation hereunder
as giving rise to any interest income or other inclusions of ordinary income;
(ii) it will not treat the delivery of any portion of the shares of Common Stock
(or security entitlements in respect thereof) or cash to be delivered pursuant
to this Agreement as the payment of interest or ordinary income; (iii) it will
treat this Agreement in its entirety as a forward contract for the delivery of
such shares of Common Stock (or security entitlements in respect thereof) or
cash; and (iv) it will not take any action (including filing any tax return or
form or taking any position in any tax proceeding) that is inconsistent with the
obligations contained in (i) through (iii). Buyer agrees that it will not file
any United States tax return or take any position in a United States tax
proceeding that is inconsistent with the Seller's obligations in clauses (i)
through (iii) of the preceding sentence. Notwithstanding the foregoing, a party
may take any action or position required by law, provided that such party
delivers to the other party an unqualified opinion of counsel, reasonably
acceptable to such other party, to the effect that such action or position is
required by a statutory change or a Treasury regulation or applicable court
decision published after the date of this Agreement.
SECTION 6.3. NOTICES. Seller will cause to be delivered to Buyer:
(a) Immediately upon the occurrence of any Event of Default hereunder or
under the Pledge Agreement (or any event that with the giving of notice, the
lapse of time or both would constitute an Event of Default hereunder or under
the Pledge Agreement), or upon Seller (or any officer of Seller, if any)
obtaining knowledge that any of the conditions or events described in paragraph
(a) or (b) of Section 7.1 shall have occurred with respect to the Company,
notice of such occurrence; and
(b) In case at any time prior to the Settlement Date Seller receives
notice, (or any officer of Seller, if any) obtains knowledge, that any event
requiring that an adjustment be calculated pursuant to Section 7.1 or 7.2 hereof
or any Merger Event, Nationalization or Insolvency shall have occurred or be
pending, then Seller shall promptly cause to be delivered to Buyer a notice
identifying such event and stating, if known to Seller, the date on which such
event occurred or is to occur and, if applicable, the record date relating to
such event. Seller shall cause further notices to be delivered to Buyer if
Seller shall subsequently receive notice, or Seller (or any officer of Seller,
if any) shall obtain knowledge, of any further or revised information regarding
the terms or timing of such event or any record date relating thereto.
SECTION 6.4. FURTHER ASSURANCES. From time to time from and after the date
hereof through the Settlement Date, each of the parties hereto shall use its
reasonable best efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper and advisable to consummate and
make effective as promptly as practicable the transactions contemplated by this
Agreement in accordance with the terms and conditions hereof, including (i)
using reasonable best efforts to remove any legal impediment to the consummation
of such transactions and (ii) the execution and delivery of all such deeds,
agreements, assignments and further instruments of transfer and conveyance
11
necessary, proper or advisable to consummate and make effective the transactions
contemplated by this Agreement in accordance with the terms and conditions
hereof.
SECTION 6.5. Intentionally Omitted.
SECTION 6.6. NO SALES OF COMMON STOCK. Seller shall not, without the prior
written consent of Buyer, sell any shares of Common Stock or hedge (through
swaps, options, short sales or otherwise) any long position in the Common Stock
(i) from the date hereof until the Notice Date, and (ii) until three months
after the Notice Date.
SECTION 6.7. SECURITIES CONTRACT. The parties hereto agree and acknowledge
that (a) Buyer is a "financial institution" as such term is defined in Section
101(22) of Title 11 of the United States Code (the "BANKRUPTCY CODE") and (b)
this Agreement is a "securities contract" as such term is defined in Section
741(7) of the Bankruptcy Code, and the parties hereto are entitled to the
protections afforded by, among other Sections, sections 362(b)(6) and 555 of the
Bankruptcy Code.
SECTION 6.8. SEC FILINGS. On the date hereof, Seller shall file, or shall
cause to be filed, in the manner contemplated by Rule 144(h) under the
Securities Act, a notice on Form 144 relating to the transactions contemplated
hereby in form and substance acceptable to Buyer.
SECTION 6.9. Intentionally Omitted.
ARTICLE 7
ADJUSTMENTS
SECTION 7.1. DILUTION ADJUSTMENTS. Following the declaration by the Company
of the terms of any Potential Adjustment Event, (a) Buyer will determine whether
such Potential Adjustment Event would have a diluting or concentrative effect on
the theoretical value of the Common Stock and, if so, Buyer will (i) in good
faith, calculate the corresponding adjustment, if any, to be made to any one or
more of the Base Amount, the Settlement Ratio, the Threshold Appreciation Price,
the Downside Protection Threshold Price, any Closing Price and any other
variable relevant to the settlement terms of this Agreement (including, without
limitation, the amount or type of property to be delivered hereunder) as Buyer
determines appropriate to account for that diluting or concentrative effect and
(ii) determine the effective date of that adjustment. Buyer may (but need not)
determine the appropriate adjustment by reference to the adjustment in respect
of such Potential Adjustment Event made by an options exchange to options on the
Common Stock traded on that options exchange or, if there are no options on the
Common Stock traded on any options exchange, by reference to the rules of and
precedents set by any such options exchange.
For these purposes, "POTENTIAL ADJUSTMENT EVENT" means the declaration by
the Company of the terms of any of the following:
(a) a subdivision, consolidation or reclassification of shares of Common
Stock (other than a Merger Event), or a free distribution or dividend of any
shares of Common Stock to existing holders of Common Stock by way of bonus,
capitalization or similar issue;
12
(b) a distribution or dividend to existing holders of Common Stock of (i)
shares of Common Stock or (ii) other share capital or securities granting the
right to payment of dividends and/or the proceeds of liquidation of the Company
equally or proportionately with such payments to holders of Common Stock; or
(iii) any rights or warrants to purchase securities described in (i) or (ii) of
the paragraph (b) for payment (cash or other) at less than the prevailing market
price as determined by Buyer;
(c) a dividend or distribution consisting of cash and/or any other property
(other than securities of a type described in paragraph (b) of this Section
7.1);
(d) a call in respect of shares of Common Stock that are not fully paid;
(e) a repurchase by the Company of shares of Common Stock, whether out of
profits or capital and whether the consideration for such repurchase is cash,
securities or otherwise; or
(f) any other similar event that may have a diluting or concentrative
effect on the theoretical value of the Common Stock.
SECTION 7.2. MERGER EVENTS, NATIONALIZATION, OR INSOLVENCY.
(a) If any Merger Event shall occur prior to the Settlement Date, and the
consideration for the shares of Common Stock in respect of that Merger Event
consists solely of cash and/or any securities (other than shares that are listed
on a national securities exchange or quoted on The NASDAQ Stock Market) or
assets (whether or not the offeror or a third party) (such consideration called,
"Other Consideration"), this Agreement shall be terminated as of the Merger
Date, unless agreed otherwise by the parties hereto, and Seller shall make a
payment to Buyer as provided in Section 7.3.
If any Merger Event shall occur prior to the Settlement Date and the
consideration for the shares of Common Stock in respect of that Merger Event
consists (or, at the option of the holder of such shares, may consist) solely of
shares (whether of the offeror or a third party) that are listed on a national
securities exchange or quoted on The NASDAQ Stock Market) (such consideration
called, "New Shares"), then on or after the relevant Merger Date, the number of
New Shares to which a holder of the number of shares of Common Stock equal to
the Base Amount would be entitled upon consummation of the Merger Event will be
deemed the Base Amount and the New Shares and their issuer will be deemed the
shares of Common Stock and the Company, respectively, and, if necessary, the
Buyer will adjust any relevant terms accordingly.
If any Merger Event shall occur prior to the Settlement Date and the
consideration for the shares of Common Stock in respect of that Merger Event
consists of New Shares in combination with Other Consideration, a proportion of
the transaction the subject of this Agreement will be terminated (the "Relevant
Proportion"), and Seller shall make a payment to Buyer as provided in Section
7.3. The Relevant Proportion shall equal the proportion of the Other
Consideration to the total consideration paid to the holders of a Base Amount of
shares of Common Stock in respect of the Merger Event. In addition, in respect
of the proportion of the transaction the subject of this Agreement which is not
so terminated, then on or after the relevant Merger Date, the number of New
Shares to which a holder of the number of shares of Common Stock equal to the
Base Amount would be entitled upon consummation of the Merger Event will be
deemed the Base Amount and the New Shares and their issuer will be deemed the
shares of Common Stock and the Company, respectively, and, if necessary, the
Buyer will adjust any relevant terms accordingly.
13
"MERGER EVENT" means any (A) reclassification, change or other offer of or
for the Common Stock that results in a transfer of or an irrevocable commitment
to transfer 20% or more of the outstanding shares of Common Stock or (B)
consolidation, amalgamation or merger of the Company with or into another entity
(other than a consolidation, amalgamation or merger in which the Company is the
continuing entity and which results in reclassification or change of less than
20% of the outstanding shares of Common Stock).
"MERGER DATE" means, in respect of any Merger Event, the date upon which
holders of the necessary number of shares of Common Stock to constitute a Merger
Event have agreed or have irrevocably become obligated to transfer their shares
of Common Stock.
(b) If, prior to the Settlement Date, (i) all the outstanding shares of
Common Stock or all the assets or substantially all the assets of the Company
are nationalized, expropriated or are otherwise required to be transferred to
any governmental agency, authority or entity (a "NATIONALIZATION"); or (ii) by
reason of the voluntary or involuntary liquidation, bankruptcy or insolvency of
or any analogous proceeding affecting the Company (an "INSOLVENCY"): (A) all of
the outstanding shares of Common Stock are required to be transferred to a
trustee, liquidator or other similar official; or (B) holders of shares of
Common Stock become legally prohibited from transferring them, then, in any such
event, Buyer shall have the right, upon becoming aware of such event, to notify
Seller of such event and terminate this Agreement as of a date set forth in such
notice, following which Seller shall make a payment to Buyer as provided in
Section 7.3.
SECTION 7.3. PAYMENTS ON TERMINATION. Following termination of this
Agreement as a result of any Merger Event, Nationalization or Insolvency as
provided in Section 7.2, Seller and Buyer shall agree as to the amount (the
"TERMINATION AMOUNT") of the cash payment to be made by Seller to Buyer in
settlement of this Agreement. If Seller and Buyer shall not so agree prior to
5:00 P.M., New York City time, on the Business Day following the termination of
this Agreement, the Termination Amount shall equal the Acceleration Value
(calculated, for purposes of this Section 7.3, as if the Termination Date were
the Acceleration Date, calculated on the basis of, in addition to the factors
indicated in Section 8.1, a value ascribed to the Common Stock equal to the
consideration, if any, paid in respect of the Common Stock at the time of the
Merger Event, Nationalization or Insolvency). As promptly as reasonably
practicable after reaching agreement with Seller as to the Termination Amount or
after calculation of the Acceleration Value, as the case may be, Buyer shall
deliver to Seller a notice (the "TERMINATION AMOUNT NOTICE") specifying the
Termination Amount. Not later than three Business Days following delivery of a
Termination Amount Notice by Buyer, Seller shall make a cash payment, by wire
transfer of immediately available funds to an account designated by Buyer, to
Buyer in an amount equal to the Termination Amount.
"TERMINATION DATE" means (i) in respect of a Nationalization, the date of
the first public announcement of a firm intention to nationalize, (ii) in
respect of an Insolvency, the earlier of the date the shares of Common Stock are
required to be transferred to a trustee, liquidator or other similar official
and the date the holders of shares of Common Stock become legally prohibited
from transferring the Common Stock that, in the case of a Nationalization or an
Insolvency (whether or not amended or on the terms originally announced), leads
to the Nationalization or the Insolvency, as the case may be, in each case as
determined by Buyer, and (iii) in the case of a Merger Event, the Merger Date.
14
SECTION 7.4. Intentionally Omitted.
SECTION 7.5. MISCELLANEOUS. For the avoidance of doubt, for the purposes of
this Section, Article 7 generally and Section 8.1(f), without limitation as to
applicability to any other provision of this Agreement or the Pledge Agreement,
unless the context otherwise requires, (i) any reference to Common Stock shall
be deemed to apply severally to any class of securities, cash or other property
which shall have been distributed with respect to the Common Stock or into which
Common Stock shall have been converted or otherwise exchanged (whether as a
result of a Potential Adjustment Event, a Merger Event or otherwise) and any
such other class of securities, cash or other property resulting from the
successive application of this sentence and (ii) should any reference to the
Common Stock be deemed to apply under clause (i) to other property, any
reference to the Company shall be deemed to apply accordingly to the issuer(s)
(as applicable) of such Common Stock. ARTICLE 8 ACCELERATION
SECTION 8.1. ACCELERATION. If one or more of the following events (each an
"EVENT OF DEFAULT") shall occur:
(a) any legal proceeding shall have been instituted or any other event
shall have occurred or condition shall exist that in Buyer's judgment could have
a material adverse effect on the financial condition of Seller or on Seller's
ability to perform Seller's obligations hereunder, or that calls into question
the validity or binding effect of any agreement of Seller hereunder or under the
Pledge Agreement;
(b) Seller makes an assignment for the benefit of creditors, files a
petition in bankruptcy, is adjudicated insolvent or bankrupt, petitions or
applies to any tribunal for any receiver of or any trustee for Seller or any
substantial part of Seller's property, commences any proceeding relating to
Seller under any reorganization, arrangement, readjustment of debt, dissolution
or liquidation law or statute of any jurisdiction, whether now or hereafter in
effect, or there is commenced against or with respect to Seller or any
substantial portion of its property any such proceeding and an order for relief
is issued or such proceeding remains undismissed for a period of 30 days;
(c) any representation made or repeated or deemed to have been made or
repeated by Seller under this Agreement or the Pledge Agreement or any
certificate delivered pursuant hereto or thereto would be incorrect or
misleading in any material respect if made or repeated as of the date made or
repeated or deemed to have been made;
(d) Seller fails to fulfill or discharge when due any of its obligations,
covenants or agreements under or relating to this Agreement or the Pledge
Agreement, including Seller's obligations to deliver shares of Common Stock (or
security entitlements in respect thereof) or cash on the Settlement Date;
(e) due to the adoption of, or any change in, any applicable law after the
date hereof, or due to the promulgation of, or any change in, the interpretation
by any court, tribunal or regulatory authority with competent jurisdiction of
any applicable law after the date hereof, it becomes unlawful for Seller to
perform any absolute or contingent obligation to make payment or delivery
hereunder or to comply with any other material provision of this Agreement or
the Pledge Agreement;
15
(f) in the reasonable judgment of Buyer, it becomes impracticable to freely
trade (long or short) in the market for the Common Stock (or security
entitlements in respect thereof) or any other securities deliverable hereunder
as a result of the application of Article 7 or borrow on reasonable terms the
Common Stock (or security entitlements in respect thereof) or any other
securities deliverable hereunder as a result of the application of Article 7;
(g) a Collateral Event of Default within the meaning of the Pledge
Agreement shall occur; or
(h) if Seller is partnership, corporation or trust, Seller is dissolved,
liquidated terminated or takes any action to effect its dissolution, liquidation
or termination, then, upon notice to Seller from Buyer at any time following an
Event of Default, an "ACCELERATION DATE" shall occur, and Seller shall become
obligated to deliver immediately upon receipt of the Acceleration Amount Notice
(as defined below) a number of shares of Unrestricted Stock equal to the
Acceleration Amount; provided that if the Collateral Agent proceeds to realize
upon any collateral pledged under the Pledge Agreement and to apply the proceeds
of such realization as provided in paragraph second of Section 10(d) thereof,
then, to the extent of such application of proceeds, Seller's obligation to
deliver Unrestricted Stock pursuant to this paragraph shall be deemed to be an
obligation to deliver an amount of cash equal to the aggregate Market Value of
such Unrestricted Stock on the Acceleration Date. The "ACCELERATION AMOUNT"
means the quotient obtained by dividing: (i) the Acceleration Value, as defined
below, by (ii) the Market Value per share of the Common Stock on the
Acceleration Date. Upon the occurrence of an Acceleration Date, no further
payments or deliveries under Section 2.2(e) of this Agreement will be required
to be made without prejudice to the other provisions of this Agreement and the
Pledge Agreement. Any payment or delivery required in respect of an Acceleration
Date will be determined pursuant to this Section 8.1.
The "ACCELERATION VALUE" means an amount determined by Buyer representing
the fair value to Buyer of an agreement with terms that would preserve for Buyer
the economic equivalent of the payments and deliveries that Buyer would, but for
the occurrence of the Acceleration Date, have been entitled to receive after the
Acceleration Date under Article 2 (taking into account any adjustments pursuant
to Section 7.1 that may have been calculated on or prior to the Acceleration
Date). Buyer shall calculate such amount based on the following factors (and
such other factors as it deems appropriate): (i) the volatility of the Common
Stock, (ii) dividends on the Common Stock and (iii) prevailing interest rates.
As promptly as reasonably practicable after calculation of the Acceleration
Value, Buyer shall deliver to Seller a notice (the "ACCELERATION AMOUNT NOTICE")
specifying the Acceleration Amount of shares of Common Stock (or security
entitlements in respect thereof) required to be delivered by Seller.
Buyer and Seller agree that the Acceleration Value is a reasonable
pre-estimate of loss and not a penalty. Such amount is payable for the loss of
bargain and, if Seller delivers the Acceleration Amount in the manner provided
above, Buyer will not be entitled to recover any additional damages as a
consequence of loss resulting from an Event of Default, a Nationalization, an
Insolvency or a Merger Event that results in a termination of the Agreement
pursuant to the first paragraph of Section 7.2(a) of this Agreement.
16
ARTICLE 9
MISCELLANEOUS
SECTION 9.1. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard forms of telecommunication. Notices to Buyer shall
be directed to 677 Washington Blvd., Stamford, CT 06901, Telecopy No. (203)
719-8980; Attention: Gerard Lionetti with copies to the attention: High Net
Worth Derivatives (Telecopy: 203-326-2756) and Legal Affairs (Equities)
(Telecopy: 203-719-7317); notices to Seller shall be directed to it at 6613 N
Scottsdale Road, #200, Scottsdale, AZ 85250; Telecopy No. 480-998-9162; Attn: Mr
Steven J. Hilton.
SECTION 9.2. GOVERNING LAW; SEVERABILITY; SUBMISSION TO JURISDICTION;
WAIVER OF JURY TRIAL.
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of New York (without reference to choice of law doctrine).
(b) To the extent permitted by law, the unenforceability or invalidity of
any provision or provisions of this Agreement shall not render any other
provision or provisions herein contained unenforceable or invalid.
(c) EACH PARTY HERETO IRREVOCABLY SUBMITS TO THE EXTENT PERMITTED UNDER
APPLICABLE LAW TO THE NON-EXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE COURTS
LOCATED IN THE BOROUGH OF MANHATTAN, STATE OF NEW YORK.
(d) EACH PARTY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR THE PLEDGE AGREEMENT. EACH PARTY
CERTIFIES (I) THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO
ENFORCE THE FOREGOING WAIVER IN THE EVENT OF ANY SUCH SUIT, ACTION OR PROCEEDING
AND (II) ACKNOWLEDGES THAT IT AND THE OTHER PARTY HAVE ENTERED INTO THIS
AGREEMENT AND THE PLEDGE AGREEMENT, AS APPLICABLE, IN RELIANCE ON, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 9.3. SERVICE OF PROCESS. The parties irrevocably consent to service
of process given in the manner provided for notices in Section 9.1. Nothing in
this Agreement will affect the right of either party to serve process in any
other manner permitted by law.
SECTION 9.4. ENTIRE AGREEMENT. Except as expressly set forth herein, this
Agreement constitutes the entire agreement and understanding among the parties
with respect to its subject matter hereof and supersedes all oral communications
and prior writings with respect thereto.
SECTION 9.5. AMENDMENTS, WAIVERS. Any provision of this Agreement may be
amended or waived if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by Buyer and Seller or, in the case of a
waiver, by the party against whom the waiver is to be effective. No failure or
delay by either 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.
17
SECTION 9.6. NO THIRD PARTY RIGHTS, SUCCESSORS AND ASSIGNS. This Agreement
is not intended and shall not be construed to create any rights in any person
other than Seller, Buyer and their respective successors and assigns and no
other person shall assert any rights as third party beneficiary hereunder.
Whenever any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party. All the covenants
and agreements herein contained by or on behalf of Seller and Buyer shall bind,
and inure to the benefit of, their respective successors and assigns whether so
expressed or not, and shall be enforceable by and inure to the benefit of Buyer
and its successors and assigns.
SECTION 9.7. ASSIGNMENT.
(a) Except as expressly provided herein, neither this Agreement nor any
interest herein or obligation hereunder may be transferred by Buyer without the
prior written consent of Seller (other than pursuant to a consolidation or
amalgamation with, or merger with or into, or transfer of all or substantially
all of Buyer's assets to, another entity) and any purported transfer without
such consent will be void. Buyer may transfer this Agreement or any of its
interests herein or obligations hereunder to another of Buyer's offices,
branches or affiliates on one Business Days' prior written notice to Seller. In
the event of any transfer by Buyer of this Agreement or any of Buyer's interests
herein or obligations hereunder to any such entity (an "ASSIGNEE"), (i) UBS
Warburg LLC shall act as Seller's "agent" with respect to such transfer and
"agent" for Assignee and Seller within the meaning of Rule 15a-6 under the
Exchange Act upon such assignment, (ii) Assignee shall appoint UBS Warburg LLC,
as process agent to receive for it and on its behalf, service of process in any
action, suit or other proceeding arising out of this Agreement or any
transaction contemplated hereby and (ii) UBS Warburg LLC shall act as the United
States contact on behalf of Assignee if Assignee is located outside the United
States.
(b) Neither this Agreement nor any interest herein or obligation hereunder
may be transferred by Seller without the prior written consent of Buyer and any
purported transfer without such consent will be void.
SECTION 9.8. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and all such counterparts taken together shall be deemed to
constitute one and the same agreement.
[SIGNATURE PAGE FOLLOWS]
18
IN WITNESS WHEREOF, the parties have signed this Agreement as of the date
and year first above written.
SELLER:
Steven J. Hilton
By:
-------------------------------------
Name: Steven J. Hilton
BUYER:
UBS WARBURG LLC
By:
-------------------------------------
By:
-------------------------------------
19
EXHIBIT A
[FORM OF PRICING SCHEDULE]
UBS Warburg LLC
677 Washington Boulevard
Stamford, CT 06901
[Notice Date]
Steven J. Hilton
6613 N Scottsdale Road, #200,
Scottsdale, AZ 85250
Telecopy No. 480-998-9162
Ladies and Gentlemen:
This Pricing Schedule is the Pricing Schedule within the meaning of Section
2.2(c) of the Stock Purchase Agreement dated as of August 30, 2001 (the "STOCK
PURCHASE AGREEMENT") between Steven J. Hilton and UBS Warburg LLC. Capitalized
terms used herein have the meanings set forth in the Stock Purchase Agreement.
For all purposes under the Stock Purchase Agreement, the Terms of Sale for
the Base Amount of Common Stock shall be as follows:
1. BASE AMOUNT: ___________.
2. PURCHASE PRICE: ___________.
3. PAYMENT DATE: ___________, being the third Business Day following the
Notice Date.
4. INITIAL SHARE PRICE: ____________.
5. DOWNSIDE PROTECTION THRESHOLD PRICE: __________.
6. THRESHOLD APPRECIATION PRICE: __________.
20
7. MATURITY DATE: ___________.
Very truly yours,
UBS WARBURG LLC
By:
-------------------------------------
By:
-------------------------------------
Acknowledged and Confirmed:
Steven J. Hilton
By:
----------------------------
Name: Steven J. Hilton
EXHIBIT B
PRICING SCHEDULE
UBS Warburg LLC
677 Washington Boulevard
Stamford, CT 06901
September 21, 2001
Steven J. Hilton
6613 N Scottsdale Road, #200,
Scottsdale, AZ 85250
Telecopy No. 480-998-9162
Ladies and Gentlemen:
This Pricing Schedule is the Pricing Schedule within the meaning of Section
2.2(c) of the Stock Purchase Agreement dated as of August 30, 2001 (the "STOCK
PURCHASE AGREEMENT") between Steven J. Hilton and UBS Warburg LLC. Capitalized
terms used herein have the meanings set forth in the Stock Purchase Agreement.
For all purposes under the Stock Purchase Agreement, the Terms of Sale for
the Base Amount of Common Stock shall be as follows:
1. BASE AMOUNT: $827,087.52
2. PURCHASE PRICE: $715,430.70
3. PAYMENT DATE: September 26, 2001
4. INITIAL SHARE PRICE: $49.2314
5. DOWNSIDE PROTECTION THRESHOLD PRICE: $49.2314
6. THRESHOLD APPRECIATION PRICE: $64.0008
7. MATURITY DATE: September 21, 2004
Very truly yours,
UBS WARBURG LLC
By:
-----------------------------------------
By:
-----------------------------------------
Acknowledged and Confirmed:
Steven J. Hilton
By:
------------------------------
Name: Steven J. Hilton
Exhibit C
PLEDGE AGREEMENT
dated as of
August 30, 2001
among
Steven J. Hilton
UBS WARBURG LLC,
UBS AG, STAMFORD BRANCH, as Collateral Agent
and
the other parties
named herein
PLEDGE AGREEMENT
THIS AGREEMENT is made as of August 30, 2001, among Steven J. Hilton (the
"PLEDGOR"), UBS AG, STAMFORD BRANCH, as collateral agent (the "COLLATERAL
AGENT") hereunder for the benefit of UBS WARBURG LLC ("SECURED PARTY"), and (if
a financial institution shall have executed this Agreement as a Securities
Intermediary as defined in the UCC (as defined below), such institution in its
capacity as Securities Intermediary ("SECURITIES INTERMEDIARY").
WHEREAS, pursuant to the Stock Purchase Agreement (as amended from time to
time, the "STOCK PURCHASE AGREEMENT") dated as of the date hereof between
Pledgor and Secured Party, Pledgor has agreed to sell and Secured Party has
agreed to purchase shares of common stock (the "COMMON STOCK"), of Meritage
Corporation (the "COMPANY") (or security entitlements in respect thereof), or
cash in lieu thereof, subject to the terms and conditions of the Stock Purchase
Agreement;
WHEREAS, it is a condition to the obligations of Secured Party under the
Stock Purchase Agreement that Pledgor, the Securities Intermediary, the
Collateral Agent and Secured Party enter into this Agreement and that Pledgor
grant the pledge provided for herein;
NOW, THEREFORE, in consideration of their mutual covenants contained herein
and to secure the performance by Pledgor of its obligations under the Stock
Purchase Agreement and the observance and performance of the covenants and
agreements contained herein and in the Stock Purchase Agreement, the parties
hereto, intending to be legally bound, hereby mutually covenant and agree as
follows:
SECTION 1. THE SECURITY INTERESTS. In order to secure the full and punctual
observance and performance of the covenants and agreements contained herein and
in the Stock Purchase Agreement:
(a) Pledgor hereby assigns and pledges to the Collateral Agent, as agent of
for the benefit of Secured Party, security interests in and to, and a lien upon
and right of set-off against, and transfers to the Collateral Agent, as agent of
and for the benefit of Secured Party, as and by way of a security interest
having priority over all other security interests, with power of sale, all of
its right, title and interest in and to (i) the Pledged Items described in
paragraph (b); (ii) all additions to and substitutions for such Pledged Items
(including, without limitation, any securities, instruments or other property
delivered or pledged pursuant to Section 7(a) or 8(b)); (iii) all income,
proceeds and collections received or to be received, or derived or to be
derived, now or any time hereafter (whether before or after the commencement of
any proceeding under applicable bankruptcy, insolvency or similar law, by or
against Pledgor, with respect to Pledgor) from or in connection with the Pledged
Items (including, without limitation, any shares of capital stock issued by the
Company in respect of any Common Stock (or security entitlements in respect
thereof) constituting Collateral or any cash, securities or other property
distributed in respect of or exchanged for any Common Stock (or security
entitlements in respect thereof) constituting Collateral, or into which any such
Common Stock (or security entitlements in respect thereof) is converted, in
connection with any Merger Event, and any security entitlements in respect of
any of the foregoing); and (iv) all powers and rights now owned or hereafter
acquired under or with respect to the Pledged Items (such Pledged Items,
additions, substitutions, proceeds, collections, powers and rights being herein
collectively called the "COLLATERAL"). The Collateral Agent shall have all of
the rights, remedies and recourses with respect to the Collateral afforded a
secured party by the UCC, in addition to, and not in limitation of, the other
rights, remedies and recourses afforded to the Collateral Agent by this
Agreement.
(b) On or prior to the date hereof, Pledgor shall deliver to the Collateral
Agent in pledge hereunder a number of shares of Common Stock equal to 100,000
(the "INITIAL PLEDGED ITEMS"), in the manner provided in Section 8(c). As of the
Payment Date, such Initial Pledged Items shall include, as Eligible Collateral,
2
at least the Base Amount of shares of Common Stock, free of all Transfer
Restrictions (other than any Existing Transfer Restrictions, but with no legends
thereon relating to such Existing Transfer Restrictions).
(c) In the event that the Company at any time issues to Pledgor in respect
of any Common Stock (or security entitlements in respect thereof) constituting
Collateral hereunder any additional or substitute shares of capital stock of any
class (or any security entitlements in respect thereof), Pledgor shall
immediately pledge and deliver to the Collateral Agent in accordance with
Section 8(c) all such shares and security entitlements as additional Collateral
hereunder.
(d) The Security Interests are granted as security only and shall not
subject the Collateral Agent or Secured Party to, or transfer or in any way
affect or modify, any obligation or liability of Pledgor or the Company with
respect to any of the Collateral or any transaction in connection therewith.
(e) If any delivery is required to be made on a day on which the financial
institution or clearing facility through which a delivery is to be effected is
not open for business, such delivery shall instead be required to be made on the
first following Business Day on which such financial institution or clearing
facility is open for business.
(f) The Securities Intermediary and the other parties hereto expressly
agree that all rights, assets and property held at any time in the Securities
Account shall be treated as financial assets within the meaning of Sections
8-102(a)(9) and 8-103 of the UCC.
(g) The parties hereto hereby agree that (i) the Securities Account is a
"securities account" within the meaning of Section 8-501 of the UCC and (ii) the
Securities Intermediary's jurisdiction (within the meaning of Section 8-110(e)
of the UCC) in respect of the Securities Account is New York and each such party
represents that it has not and agrees that it will not enter into any agreement
to the contrary.
SECTION 2. DEFINITIONS. Capitalized terms used and not otherwise defined
herein shall have the meanings ascribed to them in the Stock Purchase Agreement.
As used herein, the following words and phrases shall have the following
meanings:
"AUTHORIZED OFFICER" of Pledgor means any officer as to whom Pledgor shall
have delivered notice to the Collateral Agent that such officer is authorized to
act hereunder on behalf of Pledgor.
"COLLATERAL" has the meaning provided in Section 1(a).
"COLLATERAL AGENT" means the financial institution identified as such in
the preliminary paragraph hereof, or any successor appointed in accordance with
Section 11.
"COLLATERAL EVENT OF DEFAULT" has the meaning provided in Section 8(d).
"DEFAULT SETTLEMENT DATE" has the meaning provided in Section 10(a).
"DIVIDEND PROCEEDS" has the meaning provided in Section 9(a).
"ELIGIBLE COLLATERAL" means Common Stock or security entitlements in
respect thereof, provided that Pledgor has good and marketable title thereto,
free of all Liens (other than the Security Interests) and Transfer Restrictions
(other than, on any date on or prior to the Notice Date, the Existing Transfer
Restrictions) and that the Collateral Agent has a valid, first priority
perfected security interest therein, a first lien thereon and control with
3
respect thereto, and provided further that to the extent the number of Shares of
Common Stock or security entitlements in respect thereof pledged hereunder
exceeds at any time the Maximum Deliverable Number thereof, such excess shares
shall not be Eligible Collateral.
"EVENT OF DEFAULT" has the meaning provided in the Stock Purchase
Agreement.
"EXISTING TRANSFER RESTRICTIONS" means the Transfer Restrictions on the
shares of Common Stock or security entitlements in respect thereof pledged
hereunder imposed by Rule 144 under the Securities Act as a result of such
shares of Common Stock being "control securities" as defined in Rule 144 under
the Securities Act.
"INITIAL PLEDGED ITEMS" has the meaning provided in Section 1(b).
"LOCATION" means, with respect to any party, the place such party is
"deemed located" within the meaning of Section 9-103(3)(d) of the UCC.
"MAXIMUM DELIVERABLE NUMBER" means initially the number of shares of Common
Stock included in the Initial Pledged Items, and on any date after the Notice
Date, a number of shares of Common Stock or security entitlements in respect
thereof equal to the Base Amount multiplied successively by each adjustment that
shall have been calculated on or prior to such date pursuant to Article 7 of the
Stock Purchase Agreement.
"OTHER SECURITIES INTERMEDIARY LIENS" has the meaning set forth in Section
5(d).
"PERSON" means an individual, a corporation, a partnership, an association,
a trust or any other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"PLEDGED ITEMS" means, as of any date, any and all securities and
instruments delivered by Pledgor to be held by the Collateral Agent under this
Agreement as Collateral.
"SECURITIES ACCOUNT" means the account in the name of Pledgor or the
Collateral Agent, as the case may be, at the Securities Intermediary in or to
which certain of the Collateral is to be deposited or credited in accordance
with this agreement.
"SECURITY INTERESTS" means the security interests in the Collateral created
hereby.
"SECURITIES INTERMEDIARY" means the financial institution or clearing
facility identified as such in the preliminary paragraph hereof, or any
successor appointed by the Collateral Agent.
"UCC" means the Uniform Commercial Code as in effect in the State of New
York.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PLEDGOR. Pledgor hereby
represents and warrants to the Collateral Agent and Secured Party that:
(a) Pledgor (i) acquired and made full payment for all shares of Common
Stock pledged hereunder (or in respect of which security entitlements are
pledged hereunder) on or before December 31, 1996, (ii) owns and, at all times
prior to the release of the Collateral pursuant to the terms of this Agreement,
will own the Collateral free and clear of any Liens (other than the Security
Interests) or Transfer Restrictions (other than the Existing Transfer
Restrictions) and (iii) is not and will not become a party to or otherwise bound
by any agreement, other than this Agreement, that (x) restricts in any manner
4
the rights of any present or future owner of the Collateral with respect thereto
or (y) provides any person other than Pledgor, the Collateral Agent, Secured
Party or any securities intermediary (including the Securities Intermediary)
(but, in the case of any such securities intermediary, only with respect to
Collateral held through it) with control (as defined in Section 8-106 of the
UCC) with respect to any Collateral.
(b) Other than financing statements or other similar or equivalent
documents or instruments with respect to the Security Interests, no financing
statement, security agreement or similar or equivalent document or instrument
covering all or any part of the Collateral is on file or of record in any
jurisdiction in which such filing or recording would be effective to perfect a
Lien on such Collateral.
(c) All shares of Common Stock at any time pledged hereunder (or in respect
of which security entitlements are pledged hereunder) are and will be issued by
an issuer organized under the laws of the United States, any State thereof or
the District of Columbia and (i) certificated (and the certificate or
certificates in respect of such shares of Common Stock are and will be located
in the United States) and registered in the name of Pledgor or held through a
securities intermediary whose securities intermediary's jurisdiction (within the
meaning of Section 8-110(e) of the UCC) is located in the United States or (ii)
uncertificated and either registered in the name of Pledgor or held through a
securities intermediary whose securities intermediary's jurisdiction (within the
meaning of Section 8-110(e) of the UCC) is located in the United States.
(d) Upon (i) the delivery of certificates evidencing any Common Stock to
the Collateral Agent in accordance with Section 8(c)(A), (ii) or in the case of
uncertificated Common Stock, registration of such Common Stock in the name of
the Securities Intermediary or its nominee in accordance with Section 8(c)(B) or
(iii) the crediting of any Common Stock in respect of which the Pledgor has a
security entitlement to a securities account maintained by the Securities
Intermediary at another securities intermediary in accordance with Section
8(c)(C) and in each case the crediting of any such Common Stock to the
Securities Account in accordance with Section 8(c)(C), the Collateral Agent will
have, for the benefit of Secured Party, a valid and, so long as the Securities
Intermediary retains possession of such certificates or such uncertificated
Common Stock remains so registered and such Common Stock continues to be
credited to the Securities Account, perfected security interest in a securities
entitlement in respect thereof, in respect of which the Collateral Agent will
have control subject to no prior Lien.
(e) No registration, recordation or filing with any governmental body,
agency or official is required in connection with the execution and delivery of
this Agreement or necessary for the validity or enforceability hereof or for the
perfection or enforcement of the Security Interests.
(f) Pledgor has not performed and will not perform any acts that might
prevent the Collateral Agent from enforcing any of the terms of this Agreement
or that might limit the Collateral Agent in any such enforcement.
(g) The Location of Pledgor is the address set forth in Section 13(d), and
under the Uniform Commercial Code as in effect in such Location, no local filing
is required to perfect a security interest in collateral consisting of general
intangibles.
SECTION 4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COLLATERAL
AGENT. The Collateral Agent represents and warrants to, and agrees with, Pledgor
and Secured Party that:
(a) The Collateral Agent is a corporation, duly formed, validly existing
and in good standing under the laws of the jurisdiction of its formation, and
has all powers and all material governmental licenses, authorizations, consents
and approvals required to enter into, and perform its obligations under, this
Agreement.
(b) The execution, delivery and performance by the Collateral Agent of this
Agreement have been duly authorized by all necessary action on the part of the
Collateral Agent and do not and will not violate, contravene or constitute a
default under any provision of applicable law or regulation or of the
5
certificate of formation or by-laws of the Collateral Agent or of any material
agreement, judgment, injunction, order, decree or other instrument binding upon
the Collateral Agent.
(c) This Agreement constitutes a valid and binding agreement of the
Collateral Agent enforceable against the Collateral Agent in accordance with its
terms.
(d) The Collateral Agent has not and will not enter into any agreement
pursuant to which any person other than Pledgor, the Collateral Agent, Secured
Party or any securities intermediary through whom any Collateral is held (but in
the case of any such securities intermediary only in respect of Collateral held
through it) has or will have control (within the meaning of Section 8-106 of the
UCC) with respect to any Collateral.
(e) The Collateral Agent hereby agrees that all liens, pledges and other
security interests of any kind or nature held by it (other than liens, pledges
and security interests arising hereunder) in any of the Collateral securing any
obligation to the Collateral Agent (either in such capacity or in any other
capacity) (collectively, "Other Liens") shall be subordinate and junior to the
liens, pledges and security interests in the Collateral arising hereunder and
that the Collateral Agent will take no action to enforce any Other Liens so long
as any obligation under the Stock Purchase Agreement or hereunder (whether or
not then due) should remain unsatisfied.
SECTION 5. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE SECURITIES
INTERMEDIARY. The Securities Intermediary represents and warrants to, and agrees
with, each of the Collateral Agent, Secured Party and Pledgor that:
(a) the Securities Intermediary is a corporation, duly incorporated,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to enter into, and
perform its obligations under, this Agreement;
(b) the execution, delivery and performance by the Securities Intermediary
of this Agreement have been duly authorized by all necessary corporate action on
the part of the Securities Intermediary (no action by the shareholders of the
Securities Intermediary being required) and do not and will not violate,
contravene or constitute a default under any provision of applicable law or
regulation or of the charter or by-laws of the Securities Intermediary or of any
material agreement, judgment, injunction, order, decree or other instrument
binding upon the Securities Intermediary;
(c) this Agreement constitutes a valid and binding agreement of the
Securities Intermediary enforceable against the Securities Intermediary in
accordance with its terms;
(d) the Securities Intermediary hereby agrees that (i) all liens, pledges
and other security interests of any kind or nature held by it in any of the
Collateral securing any obligation to the Securities Intermediary (either in
such capacity or in any other capacity), other than liens securing the
obligations of Pledgor to it hereunder (collectively, "OTHER SECURITIES
INTERMEDIARY LIENS") shall be subordinate and junior to the liens, pledges and
security interest in the Collateral arising hereunder and that the Securities
Intermediary will take no action to enforce any Other Securities Intermediary
Liens so long as any obligation under the Stock Purchase Agreement or hereunder
(whether or not then due) should remain unsatisfied and (ii) its obligations in
respect of any Collateral will not be subject to deduction, set-off, recoupment,
banker's lien or any other right in respect of obligations owed by Pledgor or
any other person to the Securities Intermediary;
(e) the Securities Intermediary is not and will not become a party to or
otherwise bound by any agreement, other than this Agreement, that provides any
person with control (as defined in Section 8-106 of the UCC) with respect to any
of the Collateral; and
6
(f) the Securities Intermediary is a "securities intermediary" within the
meaning of Section 8-102(14) of the UCC and is acting in such capacity in
respect of the Securities Account and all Collateral held therein or credited
thereto.
SECTION 6. ENTITLEMENT ORDERS.
(a) The Securities Intermediary agrees that it will comply with entitlement
orders originated by the Collateral Agent in respect of the Securities Account
and any Collateral or other assets or property held therein or credited thereto
without further consent from Pledgor or any other person. Pledgor hereby
consents to the foregoing agreement.
(b) The Securities Intermediary agrees that it will not comply with
entitlement orders originated by the Pledgor or any other Person (other than the
Collateral Agent or Secured Party) in respect of the Securities Account and any
Collateral or other assets or property held therein or credited thereto until it
shall have received written notice from the Collateral Agent that it may comply
with such entitlement orders.
SECTION 7. CERTAIN COVENANTS OF PLEDGOR. Pledgor agrees that, so long as
any of its obligations under the Stock Purchase Agreement remain outstanding:
(a) Pledgor shall ensure at all times that a Collateral Event of Default
shall not occur, and shall pledge additional Collateral in the manner described
in Sections 8(b) and 8(c) as necessary to cause such requirement to be met.
(b) Pledgor shall, at the expense of Pledgor and in such manner and form as
Secured Party or the Collateral Agent may require, give, execute, deliver, file
and record any financing statement, notice, instrument, document, agreement or
other documents as may be necessary or desirable in order to create, preserve,
perfect, substantiate or validate any security interest granted pursuant hereto
or to enable the Collateral Agent to exercise and enforce its rights and the
rights of Secured Party hereunder with respect to such security interest. To the
extent permitted by applicable law, Pledgor hereby authorizes the Collateral
Agent to execute and file, in the name of Pledgor or otherwise, UCC financing or
continuation statements (which may be, or may attach, carbon, photographic,
photostatic or other reproductions of this Agreement or of a financing statement
relating to this Agreement) that the Collateral Agent in its sole discretion may
deem necessary or appropriate to further perfect, or maintain the perfection of,
the Security Interests.
(c) Pledgor shall warrant and defend its title to the Collateral, subject
to the rights of the Collateral Agent and Secured Party, against the claims and
demands of all persons. The Collateral Agent and Secured Party (or, as they may
agree, one of them) may elect, but without an obligation to do so, to discharge
any Lien of any third party on any of the Collateral.
(d) Pledgor agrees that it shall not change (1) its name, identity or
corporate structure in any manner or (2) its Location, unless in either case (A)
it shall have given the Collateral Agent not less than 30 days' prior notice
thereof and (B) such change shall not cause any of the Security Interests to
become unperfected or subject any Collateral to any other Lien.
7
(e) Pledgor agrees that it shall not (1) create or permit to exist any Lien
(other than the Security Interests) or any Transfer Restriction (other than, on
any date on or prior to the Notice Date, the Existing Transfer Restrictions)
upon or with respect to the Collateral, (2) sell or otherwise dispose of, or
grant any option with respect to, any of the Collateral or (3) enter into or
consent to any agreement pursuant to which any person other than Pledgor, the
Collateral Agent, Secured Party and any securities intermediary (including the
Securities Intermediary) through whom any of the Collateral is held (but in the
case of any such securities intermediary only in respect of Collateral held
through it) has or will have control (within the meaning of Section 8-106 of the
UCC) in respect of any Collateral.
SECTION 8. ADMINISTRATION OF THE COLLATERAL AND VALUATION OF THE
SECURITIES.
(a) The Collateral Agent shall determine on each Business Day whether a
Collateral Event of Default shall have occurred.
(b) Pledgor may pledge additional Collateral hereunder at any time.
Concurrently with the delivery of any additional Eligible Collateral, Pledgor
shall deliver to the Collateral Agent a certificate of an Authorized Officer of
Pledgor substantially in the form of Exhibit A hereto and dated the date of such
delivery, (A) identifying the additional items of Eligible Collateral being
pledged and (B) certifying that with respect to such items of additional
Eligible Collateral the representations and warranties contained in paragraphs
(a) (excluding (a)(i)), (b), (c), (d) and (e) of Section 3 are true and correct
with respect to such Eligible Collateral on and as of the date thereof. Pledgor
hereby covenants and agrees to take all actions required under Section 8(c) and
any other actions necessary to create for the benefit of the Collateral Agent a
valid, first priority, perfected security interest in, and a first lien upon,
such additional Eligible Collateral.
(c) Any delivery of Common Stock (or security entitlement in respect
thereof) as Collateral to the Collateral Agent by Pledgor shall be effected (A)
in the case of Collateral consisting of certificated Common Stock registered in
the name of Pledgor, by delivery of certificates representing such Common Stock
to the Securities Intermediary, accompanied by any required transfer tax stamps,
and in suitable form for transfer by delivery or accompanied by duly executed
instruments of transfer or assignment in blank, with signatures appropriately
guaranteed, all in form and substance satisfactory to the Collateral Agent, (B)
in the case of Collateral consisting of uncertificated Common Stock registered
in the name of Pledgor, by transmission by Pledgor of an instruction to the
issuer of such Common Stock instructing such issuer to register such Common
Stock in the name of the Securities Intermediary or its nominee, accompanied by
any required transfer tax stamps, and the issuer's compliance with such
instructions and the crediting of such Common Stock to the Securities Account or
(C) in the case of Common Stock in respect of which security entitlements are
held by Pledgor through a securities intermediary, by the crediting of such
Common Stock, accompanied by any required transfer tax stamps, to a securities
account of the Securities Intermediary at such securities intermediary or, at
the option of the Collateral Agent and the Securities Intermediary, at another
securities intermediary satisfactory to the Collateral Agent and the Securities
Intermediary and the crediting of such Common Stock to the Securities Account.
Upon delivery of any such Pledged Item under this Agreement, the Securities
Intermediary shall examine such Pledged Item and any certificates delivered
pursuant to Section 8(b) or otherwise pursuant to the terms hereof in connection
therewith to determine that they comply as to form with the requirements for
Eligible Collateral.
(d) If on any Business Day the Collateral Agent determines that a
Collateral Event of Default shall have occurred, the Collateral Agent shall
promptly notify Pledgor of such determination by telephone call to an Authorized
Officer of Pledgor followed by a written confirmation of such call. A
"COLLATERAL EVENT OF DEFAULT" shall mean, at any time, the occurrence of either
8
of the following: (A) failure of the Collateral to include, as Eligible
Collateral, at least the Maximum Deliverable Number of shares of Common Stock or
(B) failure at any time of the Security Interests to constitute valid and
perfected security interests in all of the Collateral, subject to no prior or
equal Lien, or assertion of such by Pledgor in writing.
(e) If on any Business Day the Collateral Agent determines that no Event of
Default or failure by Pledgor to meet any of its obligations under Sections 7 or
8 hereof has occurred and is continuing, Pledgor may obtain the release of the
Security Interests with respect to any Collateral upon delivery to the
Collateral Agent of a written notice from an Authorized Officer of Pledgor
indicating the items of Collateral to be released so long as, after such
release, no Collateral Event of Default shall have occurred.
(f) On the Settlement Date, unless (i) Pledgor shall have otherwise
effected the deliveries required by Section 2.2(e) of the Stock Purchase
Agreement or (ii) the Common Stock (or security entitlements in respect thereof)
then held by the Collateral Agent hereunder (whether or not through the
Securities Account) is not Unrestricted Stock, the Collateral Agent shall
deliver or instruct the Securities Intermediary to deliver (and Pledgor hereby
irrevocably instructs the Collateral Agent to deliver or instruct the Securities
Intermediary to deliver, in whole or partial, as the case may be, satisfaction
of Pledgor's obligations to deliver shares of Common Stock (or security
entitlements in respect thereof) to Secured Party on the Settlement Date
pursuant to the Stock Purchase Agreement) to Secured Party shares of Common
Stock (or security entitlements in respect thereof) then held by it hereunder
representing the number of shares of Common Stock (or security entitlements in
respect thereof) required to be delivered under the Stock Purchase Agreement on
the Settlement Date. Upon any such delivery, Secured Party shall hold such
shares of Common Stock (or security entitlements in respect thereof) absolutely
and free from any claim or right whatsoever (including, without limitation, any
claim or right of Pledgor).
(g) The Collateral Agent may at any time or from time to time, in its sole
discretion, cause any or all of the Common Stock pledged hereunder (or in
respect of which security entitlements are pledged hereunder) registered in the
name of Pledgor or held through a securities intermediary in the name of the
Pledgor or its nominee, to be transferred of record into, or held through a
securities intermediary in, the name of the Collateral Agent or its nominee.
Pledgor shall promptly give to the Collateral Agent copies of any notices or
other communications received by Pledgor with respect to the Common Stock (or
security entitlements in respect thereof) pledged hereunder registered, or held
through a securities intermediary, in the name of Pledgor or its nominee and the
Collateral Agent shall promptly give to Pledgor copies of any notices and
communications received by the Collateral Agent with respect to the Common Stock
(or security entitlements in respect thereof) pledged hereunder registered, or
held through a securities intermediary, in the name of the Collateral Agent or
its nominee.
(h) Pledgor agrees that it shall forthwith upon demand pay to the
Collateral Agent: (i) the amount of any taxes that the Collateral Agent or
Secured Party may have been required to pay by reason of the Security Interests
or to free any of the Collateral from any Lien thereon, and (ii) the amount of
any and all out-of-pocket expenses, including the fees and disbursements of
counsel and of any other advisors or experts, that the Collateral Agent or
Secured Party may incur in connection with (A) the enforcement of this
Agreement, including such expenses as are incurred to preserve the value of the
Collateral and the validity, perfection, rank and value of the Security
Interests, (B) the collection, sale or other disposition of any of the
Collateral, (C) the exercise by the Collateral Agent of any of the rights
conferred upon it hereunder or (D) any Event of Default. Any such amount not
paid on demand shall bear interest (computed on the basis of a year of 360 days
and payable for the actual number of days elapsed) at a rate per annum equal to
2% plus the rate announced from time to time by The Chase Manhattan Bank in New
York City as its prime rate.
9
(i) Intentionally Omitted.
SECTION 9. INCOME AND VOTING RIGHTS IN COLLATERAL.
(a) The Collateral Agent shall have the right to receive and retain as
Collateral hereunder (i) all proceeds (other than ordinary cash dividends
("DIVIDEND PROCEEDS")) of the Collateral and (ii) upon the occurrence and during
the continuance of an Event of Default, all proceeds of the Collateral,
including without limitation all proceeds consisting of Dividend Proceeds, and
Pledgor shall take all such action as the Collateral Agent shall deem necessary
or appropriate to give effect to such right. All such proceeds including,
without limitation, all dividends and other payments and distributions that are
received by Pledgor shall be received in trust for the benefit of the Collateral
Agent and Secured Party and, if the Collateral Agent so directs (but only, in
the case of Dividend Proceeds, upon the occurrence and during the continuance of
an Event of Default), shall be segregated from other funds of Pledgor and shall,
forthwith upon demand by the Collateral Agent (but only, in the case of Dividend
Proceeds, during the continuance of an Event of Default), to be paid over to the
Collateral Agent as Collateral in the same form as received (with any necessary
endorsement). After all Events of Default have been cured, the Collateral
Agent's right to retain Dividend Proceeds under this Section 9(a) shall cease
and the Collateral Agent shall pay over to Pledgor any such Collateral
consisting of Dividend Proceeds retained by it during the continuance of an
Event of Default. Unless an Event of Default shall have occurred and be
continuing, Pledgor shall have the right, from time to time, to vote and to give
consents, ratifications and waivers with respect to the Collateral, and the
Collateral Agent shall, upon receiving a written request from Pledgor
accompanied by a certificate of an Authorized Officer of Pledgor stating that no
Event of Default has occurred and is continuing, deliver to Pledgor or as
specified in such request such proxies, powers of attorney, consents,
ratifications and waivers in respect of any of the Collateral that is
registered, or held through a securities intermediary, in the name of the
Collateral Agent or its nominee as shall be specified in such request and shall
be in form and substance satisfactory to the Collateral Agent.
(b) If an Event of Default shall have occurred and be continuing, the
Collateral Agent shall have the right, to the extent permitted by law, and
Pledgor shall take all such action as may be necessary or appropriate to give
effect to such right, to vote and to give consents, ratifications and waivers,
and to take any other action with respect to any or all of the Collateral with
the same force and effect as if the Collateral Agent were the absolute and sole
owner thereof.
SECTION 10. REMEDIES UPON EVENTS OF DEFAULT.
(a) If any Event of Default shall have occurred and be continuing, the
Collateral Agent may exercise on behalf of Secured Party all the rights of a
secured party under the Uniform Commercial Code (whether or not in effect in the
jurisdiction where such rights are exercised) and, in addition, without being
required to give any notice, except as herein provided or as may be required by
mandatory provisions of law, shall: (i) deliver, or instruct the Securities
Intermediary to deliver, all Collateral consisting of shares of Common Stock (or
security entitlements in respect thereof) (but not in excess of the number
thereof deliverable under the Stock Purchase Agreement at such time) to Secured
Party on the date of the Acceleration Amount Notice relating to such Event of
Default (the "DEFAULT SETTLEMENT DATE") in satisfaction of Pledgor's obligations
to deliver Common Stock (or security entitlements in respect thereof) under the
Stock Purchase Agreement, whereupon Secured Party shall hold such shares of
Common Stock (or security entitlements in respect thereof) absolutely free from
any Lien, claim or right of any kind, including any equity or right of
redemption of Pledgor that may be waived or any other right or claim of Pledgor,
and Pledgor, to the extent permitted by law, hereby specifically waives all
rights of redemption, stay or appraisal that it has or may have under any law
now existing or hereafter adopted; and (ii) if such delivery shall be
insufficient to satisfy in full all of the obligations of Pledgor under the
Stock Purchase Agreement or hereunder, sell all of the remaining Collateral, or
10
such lesser portion thereof as may be necessary to generate proceeds sufficient
to satisfy in full all of the obligations of Pledgor under the Stock Purchase
Agreement or hereunder, at public or private sale or at any broker's board or on
any securities exchange, for cash, upon credit or for future delivery, and at
such price or prices as the Collateral Agent may deem satisfactory. Pledgor
covenants and agrees that it will execute and deliver such documents and take
such other action as the Collateral Agent deems necessary or advisable in order
that any such sale may be made in compliance with law. Upon any such sale the
Collateral Agent shall have the right to deliver, assign and transfer to the
buyer thereof the Collateral so sold. Each buyer at any such sale shall hold the
Collateral so sold absolutely and free from any Lien, claim or right of any
kind, including any equity or right of redemption of Pledgor that may be waived
or any other right or claim of Pledgor, and Pledgor, to the extent permitted by
law, hereby specifically waives all rights of redemption, stay or appraisal that
it has or may have under any law now existing or hereafter adopted. The notice
(if any) of such sale required by Section 9-504 of the UCC shall (1) in case of
a public sale, state the time and place fixed for such sale, (2) in case of sale
at a broker's board or on a securities exchange, state the board or exchange at
which such sale is to be made and the day on which the Collateral, or the
portion thereof so being sold, will first be offered for sale at such board or
exchange, and (3) in the case of a private sale, state the day after which such
sale may be consummated. Any such public sale shall be held at such time or
times within ordinary business hours and at such place or places as the
Collateral Agent may fix in the notice of such sale. At any such sale the
Collateral may be sold in one lot as an entirety or in separate parcels, as the
Collateral Agent may determine. The Collateral Agent shall not be obligated to
make any such sale pursuant to any such notice. The Collateral Agent may,
without notice or publication, adjourn any public or private sale or cause the
same to be adjourned from time to time by announcement at the time and place
fixed for the sale, and such sale may be made at any time or place to which the
same may be so adjourned. In case of any sale of all or any part of the
Collateral on credit or for future delivery, the Collateral so sold may be
retained by the Collateral Agent until the selling price is paid by the buyer
thereof, but the Collateral Agent shall not incur any liability in case of the
failure of such buyer to take up and pay for the Collateral so sold and, in case
of any such failure, such Collateral may again be sold upon like notice. The
Collateral Agent, instead of exercising the power of sale herein conferred upon
it, may proceed by a suit or suits at law or in equity to foreclose the Security
Interests and sell the Collateral, or any portion thereof, under a judgment or
decree of a court or courts of competent jurisdiction.
(b) Pledgor hereby irrevocably appoints the Collateral Agent its true and
lawful attorney, with full power of substitution, in the name of Pledgor, the
Collateral Agent or Secured Party or otherwise, for the sole use and benefit of
the Collateral Agent and Secured Party, but at the expense of Pledgor, to the
extent permitted by law, to exercise, at any time and from time to time while an
Event of Default has occurred and is continuing, all or any of the following
powers with respect to all or any of the Collateral:
(i) to demand, sue for, collect, receive and give acquittance for any
and all monies due or to become due upon or by virtue thereof,
(ii) to settle, compromise, compound, prosecute or defend any action
or proceeding with respect thereto,
(iii) to sell, transfer, assign or otherwise deal in or with the same
or the proceeds or avails thereof, as fully and effectually as if the
Collateral Agent were the absolute owner thereof (including, without
limitation, the giving of instructions and entitlement orders in respect
thereof), and
(iv) to extend the time of payment of any or all thereof and to make
any allowance and other adjustments with reference thereto;
provided that the Collateral Agent shall give Pledgor not less than one day's
prior written notice of the time and place of any sale or other intended
disposition of any of the Collateral, except any Collateral that (A) threatens
to decline speedily in value, including, without limitation, equity securities,
or (B) is of a type customarily sold on a recognized market. The Collateral
11
Agent and Pledgor agree that such notice (if any is required) constitutes
"reasonable notification" within the meaning of Section 9-504(3) of the UCC.
(c) Upon any delivery or sale of all or any part of any Collateral made
either under the power of delivery or sale given hereunder or under judgment or
decree in any judicial proceedings for foreclosure or otherwise for the
enforcement of this Agreement, the Collateral Agent is hereby irrevocably
appointed the true and lawful attorney of Pledgor, in the name and stead of
Pledgor, to make all necessary deeds, bills of sale, instruments of assignment,
transfer or conveyance of the property, and all instructions and entitlement
orders in respect of the property thus delivered or sold. For that purpose the
Collateral Agent may execute all such documents, instruments, instructions and
entitlement orders. This power of attorney shall be deemed coupled with an
interest, and Pledgor hereby ratifies and confirms that which its attorney
acting under such power, or such attorney's successors or agents, shall lawfully
do by virtue of this Agreement. If so requested by the Collateral Agent, by
Secured Party or by any buyer of the Collateral or a portion thereof, Pledgor
shall further ratify and confirm any such delivery or sale by executing and
delivering to the Collateral Agent, to Secured Party or to such buyer or buyers
at the expense of Pledgor all proper deeds, bills of sale, instruments of
assignment, conveyance or transfer, releases, instructions and entitlement
orders as may be designated in any such request.
(d) In the case of an Event of Default, the Collateral Agent may proceed to
realize upon the security interest in the Collateral against any one or more of
the types of Collateral, at any time, as the Collateral Agent shall determine in
its sole discretion subject to the foregoing provisions of this Section 10. The
proceeds of any sale of, or other realization upon, or other receipt from, any
of the Collateral shall be applied by the Collateral Agent in the following
order of priorities:
FIRST, to the payment to the Collateral Agent of the expenses of such sale
or other realization, including reasonable compensation to the Collateral
Agent and its agents and counsel, and all expenses, liabilities and
advances incurred or made by the Collateral Agent in connection therewith,
including brokerage fees in connection with the sale by the Collateral
Agent of any Collateral;
SECOND, to the payment to Secured Party of an amount equal to the aggregate
Market Value of a number of shares of Common Stock equal to (i) the number
of shares of Common Stock (or security entitlements in respect thereof)
that would be required to be delivered under Section 8.1 of the Stock
Purchase Agreement on the Default Settlement Date without giving effect to
the proviso therein minus (ii) the number of shares of Common Stock (or
security entitlements in respect thereof) delivered by the Collateral Agent
to Secured Party on the Default Settlement Date as described in Section
10(a);
FINALLY, if all of the obligations of Pledgor hereunder and under the Stock
Purchase Agreement have been fully discharged or sufficient funds have been
set aside by the Collateral Agent at the request of Pledgor for the
discharge thereof, any remaining proceeds shall be released to Pledgor.
SECTION 11. THE COLLATERAL AGENT.
(a) Secured Party hereby irrevocably appoints and authorizes the Collateral
Agent to take such action as agent on its behalf and to exercise such powers
under this Agreement as are delegated to the Collateral Agent by the terms
hereof, together with all such powers as are reasonably incidental thereto.
(b) The obligations of the Collateral Agent hereunder are only those
expressly set forth in this Agreement.
(c) The Collateral Agent may consult with legal counsel, independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts.
12
(d) Neither the Collateral Agent nor any of its directors, officers, agents
or employees shall be liable for any action taken or not taken by it in
connection with this Agreement (1) with the consent or at the request of Secured
Party or (2) in the absence of its own gross negligence or willful misconduct.
The Collateral Agent shall not incur any liability by acting in reliance upon
any notice, consent, certificate, statement, or other writing (which may be a
bank wire, telex or similar writing) believed by it to be genuine or to be
signed by the proper party or parties.
(e) Pledgor shall indemnify the Collateral Agent against any cost, expense
(including counsel fees and disbursements), claim, demand, action, loss or
liability (except such as result from the Collateral Agent's gross negligence or
willful misconduct) that the Collateral Agent may suffer or incur in connection
with this Agreement or any action taken or omitted by the Collateral Agent
hereunder.
(f) Beyond the exercise of reasonable care in the custody thereof, the
Collateral Agent shall have no duty as to any Collateral in its possession or
control or in the possession or control of any agent, bailee, clearing
corporation or securities intermediary or any income thereon or as to the
preservation of rights against prior parties or any other rights pertaining
thereto. The Collateral Agent shall be deemed to have exercised reasonable care
in the custody and preservation of the Collateral if the Collateral is accorded
treatment substantially equal to that which it accords its own property, and
shall not be liable or responsible for any loss or damage to any of the
Collateral, or for any diminution in the value thereof, by reason of the act or
omission of any agent, bailee, clearing corporation or securities intermediary
selected by the Collateral Agent in good faith (or selected by an agent, bailee,
clearing corporation or securities intermediary so selected by the Collateral
Agent or by any agent, bailee, clearing corporation or securities intermediary
selected in accordance with this parenthetical phrase).
(g) Any corporation or association into which the Collateral Agent may be
converted or merged, or with which it may be consolidated, or to which it may
sell or transfer its agency business or assets as a whole or substantially as a
whole, or any corporation or association resulting from any such conversion,
sale, merger, consolidation or transfer to which it is a party, shall, subject
to the prior written consent of Secured Party, be and become a successor
Collateral Agent hereunder and vested with all of the title to the Collateral
and all of the powers, discretions, immunities, privileges and other matters as
was its predecessor without, except as provided above, the execution or filing
of any instrument or any further act, deed or conveyance on the part of any of
the parties hereto, anything herein to the contrary notwithstanding.
SECTION 12. THE SECURITIES INTERMEDIARY.
(a) Secured Party hereby irrevocably appoints and authorizes the Securities
Intermediary to take such action as agent on its behalf and to exercise such
powers under this Agreement as are delegated to the Securities Intermediary by
the terms hereof, together with all such powers as are reasonably incidental
thereto.
(b) The obligations of the Securities Intermediary hereunder are only those
expressly set forth in this Agreement.
(c) The Securities Intermediary may consult with legal counsel, independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken by it in good faith in accordance with
the advice of such counsel, accountants or experts.
(d) Neither the Securities Intermediary nor any of its directors, officers,
agents or employees shall be liable for any action taken or not taken by it in
connection with this Agreement (1) with the consent or at the request of Secured
Party or (2) in the absence of its own gross negligence or willful misconduct.
The Securities Intermediary shall not incur any liability by acting in reliance
upon any notice, consent, certificate, statement, or other writing (which may be
13
a bank wire, telex or similar writing) believed by it to be genuine or to be
signed by the proper party or parties.
(e) Pledgor shall indemnify the Securities Intermediary against any cost,
expense (including counsel fees and disbursements), claim, demand, action, loss
or liability (except such as result from the Securities Intermediary's gross
negligence or willful misconduct) that the Securities Intermediary may suffer or
incur in connection with this Agreement or any action taken or omitted by the
Securities Intermediary hereunder.
(f) Beyond the exercise of reasonable care in the custody thereof, the
Securities Intermediary shall have no duty as to any Collateral in its
possession or control or in the possession or control of any agent, bailee,
clearing corporation or securities intermediary or any income thereon or as to
the preservation of rights against prior parties or any other rights pertaining
thereto. The Securities Intermediary shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral if the
Collateral is accorded treatment substantially equal to that which it accords
its own property, and shall not be liable or responsible for any loss or damage
to any of the Collateral, or for any diminution in the value thereof, by reason
of the act or omission of any agent, bailee, clearing corporation or securities
intermediary selected by the Securities Intermediary in good faith (or selected
by an agent, bailee, clearing corporation or securities intermediary so selected
by the Securities Intermediary or by any agent, bailee, clearing corporation or
securities intermediary selected in accordance with this parenthetical phrase).
(g) Any corporation or association into which the Securities Intermediary
may be converted or merged, or with which it may be consolidated, or to which it
may sell or transfer its agency business or assets as a whole or substantially
as a whole, or any corporation or association resulting from any such
conversion, sale, merger, consolidation or transfer to which it is a party,
shall, subject to the prior written consent of Secured Party, be and become a
successor Securities Intermediary hereunder and vested with all of the title to
the Collateral and all of the powers, discretions, immunities, privileges and
other matters as was its predecessor without, except as provided above, the
execution or filing of any instrument or any further act, deed or conveyance on
the part of any of the parties hereto, anything herein to the contrary
notwithstanding.
SECTION 13. MISCELLANEOUS.
(a) Whenever any of the parties hereto is referred to, such reference shall
be deemed to include the successors and assigns of such party. All the covenants
and agreements herein contained by or on behalf of Pledgor and the Collateral
Agent and the Securities Intermediary shall bind, and inure to the benefit of,
their respective successors and assigns whether so expressed or not, and shall
be enforceable by and inure to the benefit of Secured Party and its successors
and assigns.
(b) To the extent permitted by law, the unenforceability or invalidity of
any provision or provisions of this Agreement shall not render any other
provision or provisions herein contained unenforceable or invalid.
(c) Any provision of this Agreement may be amended or waived if, and only
if, such amendment or waiver is in writing and signed, in the case of an
amendment, by Pledgor, the Collateral Agent, Secured Party and, if the rights
and duties of the Securities Intermediary are affected thereby, the Securities
Intermediary or, in the case of a waiver, by the party against whom the waiver
is to be effective. No failure or delay by either 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.
14
(d) All notices and other communications hereunder shall be in writing and
shall be deemed to have been duly given if mailed or transmitted by any standard
forms of telecommunication. Notices to Pledgor shall be directed to it at 6613 N
Scottsdale Road, #200, Scottsdale, AZ 85250; Telecopy No. 480-998-9162; Attn: Mr
Steven J. Hilton; notices to the Collateral Agent shall be directed to it at 677
Washington Blvd., Stamford, CT 06901, Telecopy No. 203-719-8980, Attention:
Collateral Management; notices to Secured Party shall be directed to 677
Washington Blvd., Stamford, CT 06901, Telecopy No. 203-719-8980, Attention:
Gerard Lionetti, with, in each case a copy at the above address to the attention
of High Net Worth Derivatives (Telecopy: 203-326-2756) and Legal Affairs
(Equities) (Telecopy: 203-719-7317); notices to the Securities Intermediary
shall be directed to it at the address last notified to the Collateral Agent,
Secured Party and the Pledgor.
(e) This Agreement shall in all respects be construed in accordance with
and governed by the laws of the State of New York (without reference to choice
of law doctrine); provided that as to Pledged Items located in any jurisdiction
other than the State of New York, the Collateral Agent on behalf of Secured
Party shall, in addition to any rights under the laws of the State of New York,
have all of the rights to which a secured party is entitled under the laws of
such other jurisdiction. The parties hereto hereby agree that the Collateral
Agent's jurisdiction, within the meaning of Section 8-110(e) of the UCC, insofar
as it acts as a securities intermediary hereunder or in respect hereof, is the
State of New York. To the extent permitted by law, the unenforceability or
invalidity of any provision or provisions of this Agreement shall not render any
other provision or provisions herein contained unenforceable or invalid.
(f) Each party hereto irrevocably submits, to the extent permitted under
applicable law, to the non-exclusive jurisdiction of the federal and state
courts located in the Borough of Manhattan, State of New York.
(g) Each party waives, to the fullest extent permitted by applicable law,
any right it may have to a trial by jury in respect of any suit, action or
proceeding relating to this Agreement or the Stock Purchase Agreement. Each
party certifies (i) that no representative, agent or attorney of the other party
has represented, expressly or otherwise, that such other party would not seek to
enforce the foregoing waiver in the event of any such suit, action or proceeding
and (ii) acknowledges that it and the other party have entered into this
Agreement and the Stock Purchase Agreement, as applicable, in reliance on, among
other things, the mutual waivers and certifications in this Section.
(h) This Agreement may be executed, acknowledged and delivered in any
number of counterparts and all such counterparts taken together shall be deemed
to constitute one and the same agreement.
SECTION 14. ASSIGNMENT. This Pledge Agreement may not be assigned, nor may
any obligation hereunder be delegated, by Pledgor without the prior written
consent of Secured Party, and any purported assignment, or delegation, without
such consent shall be null and void. Secured Party may and shall transfer its
rights and obligations hereunder to any person to whom Secured Party transfers
its interests and obligations under the Stock Purchase Agreement upon the same
terms and conditions applicable to such assignments therein.
SECTION 15. TERMINATION OF PLEDGE AGREEMENT. This Agreement and the rights
hereby granted by Pledgor in the Collateral shall cease, terminate and be void
upon fulfillment of all of the obligations of Pledgor under the Stock Purchase
Agreement and hereunder. Upon written confirmation by Secured Party of such
fulfillment by Pledgor, any Collateral remaining at the time of such termination
shall be fully released and discharged from the Security Interests and delivered
to Pledgor by the Collateral Agent (or by the Securities Intermediary upon the
instructions of the Collateral Agent), all at the request and expense of
Pledgor.
SECTION 16. RE-LEGENDING OF SHARES OF COMMON STOCK UPON RELEASE TO PLEDGOR.
Collateral Agent shall not release to Pledgor any shares of Common Stock (or
security entitlements in respect thereof) that have been pledged hereunder
unless it first transmits such shares of Common Stock (or security entitlements
in respect thereof) to the share transfer agent of the Company for possible
re-legending.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have signed this Agreement as of the date
and year first above written.
PLEDGOR:
Steven J. Hilton
By:
-------------------------------------
Name: Steven J. Hilton
COLLATERAL AGENT:
UBS AG, STAMFORD BRANCH,
as Collateral Agent
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
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SECURED PARTY:
UBS WARBURG LLC
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
SECURITIES INTERMEDIARY:
----------------------------------------,
as Securities Intermediary
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
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Exhibit A to Pledge Agreement
CERTIFICATE FOR ADDITIONAL COLLATERAL
The undersigned, Steven J. Hilton ("PLEDGOR"), hereby certifies, pursuant
to Section 8(b) of the Pledge Agreement, dated as of August 30, 2001, among
Pledgor, UBS AG, Stamford Branch, as Collateral Agent,
___________________________, as the Securities Intermediary, and Secured Party
(the "PLEDGE AGREEMENT"; terms defined in the Pledge Agreement being used herein
as defined therein), that:
1. Pledgor is delivering, or causing to be delivered in accordance
with Section 8(c) of the Pledge Agreement, the following securities (or
security entitlements in respect thereof) to the Collateral Agent to be
held by the Collateral Agent as additional Collateral (the "ADDITIONAL
COLLATERAL"):
2. Pledgor hereby represents and warrants to the Collateral Agent that
the Additional Collateral is Eligible Collateral and that the
representations and warranties contained in paragraphs (a)(excluding
(a)(i)), (b), (c), (d), and (e) of Section 3 of the Pledge Agreement are
true and correct with respect to the Additional Collateral on and as of the
date hereof.
This Certificate may be relied upon by Secured Party as fully and to the
same extent as if this Certificate had been specifically addressed to Secured
Party.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this ___
day of __________, 200_.
Steven J. Hilton
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