EXHIBIT 99.1
________________________________
TRANSACTION AGREEMENT
________________________________
between
CREDIT SUISSE FIRST BOSTON (USA), INC.,
and
THE BANK OF NEW YORK COMPANY, INC.
Dated as of January 7, 2003
1
Table of Contents
Page
Article I
DEFINITIONS
SECTION 1.01. Certain Defined Terms 2
SECTION 1.02. Definitions 9
Article II
PURCHASE AND SALE
SECTION 2.01. Purchase and Sale of the Equity Interests
and the Transferred Assets 11
SECTION 2.02. Purchase Price; Earnout 11
SECTION 2.03. Closing 11
SECTION 2.04. Closing Deliveries by the Seller 13
SECTION 2.05. Closing Deliveries by the Purchaser 13
SECTION 2.06. Adjustment of Purchase Price 13
Article III
REPRESENTATIONS AND WARRANTIES
OF THE SELLER
SECTION 3.01. Organization, Authority and Qualification of the Seller 15
SECTION 3.02. Organization, Authority and Qualification of
the Pershing Companies 15
SECTION 3.03. Capital Stock of the Company and the Sister Companies;
Ownership of the Shares and the LLC Interests 16
SECTION 3.04. Subsidiaries 17
SECTION 3.05. No Interests 17
SECTION 3.06. Corporate Books and Records; Internal Controls 18
SECTION 3.07. No Conflict 18
SECTION 3.08. Consents and Approvals 19
SECTION 3.09. Financial Information 19
SECTION 3.10. No Undisclosed Liabilities 19
SECTION 3.11. Conduct in the Ordinary Course; Absence of Certain Changes,
Events and Conditions 19
SECTION 3.12. Litigation 21
SECTION 3.13. Registrations 21
SECTION 3.14. Compliance with Laws 21
SECTION 3.15. Material Contracts 23
SECTION 3.16. Real Property 24
SECTION 3.17. Intellectual Property 25
SECTION 3.18. Assets 25
2
SECTION 3.19. Employee Benefit Plans; Labor Matters 26
SECTION 3.20. Taxes 29
SECTION 3.21. Brokers 30
SECTION 3.22. No Other Representations 30
SECTION 3.23. Customer Clearing Agreements 30
SECTION 3.24. Insurance 30
SECTION 3.25. Derivatives; etc. 31
Article IV
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
SECTION 4.01. Organization and Authority of the Purchaser 31
SECTION 4.02. No Conflict 31
SECTION 4.03. Governmental Consents and Approvals 32
SECTION 4.04. Investment Purpose 32
SECTION 4.05. Financing 32
SECTION 4.06. Litigation 32
SECTION 4.07. Brokers 32
Article V
ADDITIONAL AGREEMENTS
SECTION 5.01. Conduct of Business Prior to the Closing 32
SECTION 5.02. Access to Information 33
SECTION 5.03. Confidentiality 34
SECTION 5.04. Regulatory and Other Authorizations; Notices and Consents 34
SECTION 5.05. CSFB, Inc. Joint and Several Liability 35
SECTION 5.06. Investigation 35
SECTION 5.07. Use of Names 36
SECTION 5.08. Release of Indemnity Obligations 36
SECTION 5.09. Other Agreements 37
SECTION 5.10. Leases 38
SECTION 5.11. Conversion 38
SECTION 5.12. Further Action 38
SECTION 5.13. Intercompany Accounts 38
SECTION 5.14. Transfer of Assets 38
SECTION 5.15. Notification of Certain Matters 39
SECTION 5.16. Non-Compete 39
Article VI
EMPLOYEE MATTERS
SECTION 6.01. General 40
3
SECTION 6.02. Service Recognition 40
SECTION 6.03. WARN 40
SECTION 6.04. Welfare Benefit Plans 41
SECTION 6.05. Purchaser Savings Plan 41
SECTION 6.06. Underfunded Liability in the Scheme 41
SECTION 6.07. Employee Compensation and Benefits 43
Article VII
TAX MATTERS
SECTION 7.01. Tax Indemnities 43
SECTION 7.02. Refunds and Tax Benefits 44
SECTION 7.03. Contests 45
SECTION 7.04. Cooperation and Exchange of Information 46
SECTION 7.05. Conveyance Taxes 46
SECTION 7.06. Miscellaneous 47
Article VIII
CONDITIONS TO CLOSING
SECTION 8.01. Conditions to Obligations of the Seller 48
SECTION 8.02. Conditions to Obligations of the Purchaser 49
Article IX
INDEMNIFICATION
SECTION 9.01. Survival of Representations and Warranties 51
SECTION 9.02. Indemnification 51
SECTION 9.03. Third Party Claims 53
Article X
TERMINATION AND WAIVER
SECTION 10.01. Termination 54
SECTION 10.02. Effect of Termination 54
SECTION 10.03. Waiver 54
Article XI
GENERAL PROVISIONS
SECTION 11.01. Expenses 55
SECTION 11.02. Notices 55
SECTION 11.03 Public Announcements 56
4
SECTION 11.04. Headings 56
SECTION 11.05. Severability 56
SECTION 11.06. Entire Agreement 56
SECTION 11.07. Assignment 56
SECTION 11.08. No Third Party Beneficiaries 56
SECTION 11.09. Amendment 56
SECTION 11.10. Governing Law 57
SECTION 11.11. Waiver Of Jury Trial 57
SECTION 11.12. Counterparts 57
SECTION 11.13. Specific Performance 57
1
TRANSACTION AGREEMENT, dated as of January 7, 2003, between
CREDIT SUISSE FIRST BOSTON (USA), INC., a corporation organized under the
laws of the State of Delaware (the "Seller") and THE BANK OF NEW YORK
COMPANY, INC., a corporation organized under the laws of the State of New
York (the "Purchaser").
WHEREAS, the Seller owns, directly or indirectly, all of the
issued and outstanding shares of common stock of ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇ Securities Corporation (the "Company"), Pershing Ltd. ("Pershing
Ltd.") and iNautix Technologies, Inc. ("Tech" and, together with Pershing
Ltd., the "Sister Companies"; all of the issued and outstanding shares of
common stock of the Sister Companies being referred to herein as the
"Shares");
WHEREAS, the Seller owns indirectly a one percent general
partnership interest (the "Partnership Interest") in Pershing Trading
Company L.P. ("Pershing Trading"), a Subsidiary (as defined below) of the
Company, with the remaining 99% limited partnership interest being held by
the Company;
WHEREAS, the Company, the Sister Companies and Pershing Trading,
together with their Subsidiaries, are engaged in the Business (as defined
below);
WHEREAS, certain assets of the Pershing Companies that are not
used in the Business will be transferred by the Pershing Companies to the
Seller or one of its Affiliates (as defined below) prior to the Closing (as
defined below) as more fully set forth herein, and certain Transferred
Assets (as defined below) of the Seller and its Affiliates that are used in
the Business will be sold by the Seller and such Affiliates to the
Purchaser at the Closing;
WHEREAS, prior to the Closing, the Seller intends to effect the
conversion of the Company into a limited liability company (the "LLC")
pursuant to Section 266 of the Delaware General Corporation Law and Section
18-214 of the Delaware Limited Liability Company Act (the "Conversion");
WHEREAS, after the Conversion, all of the membership interests of
the Company, and, if the Seller elects to cause the conversion of Tech into
a limited liability company pursuant to Section 266 of the Delaware General
Corporation Law and Section 18-214 of the Delaware Limited Liability
Company Act, all the membership interests of Tech's successor limited
liability company (the "LLC Interests"), shall be owned by the Seller and
references to the "Company," and, as applicable, Tech, will be to such
successor limited liability company or its predecessor corporation, as the
context requires;
WHEREAS, the Seller wishes to sell, or cause its applicable
Subsidiaries to sell, to the Purchaser, and the Purchaser wishes to
purchase from the Seller or such applicable Subsidiaries, the Shares, the
Partnership Interest and the LLC Interests, as well as the Transferred
Assets;
WHEREAS, in connection with the sale to the Purchaser of the
Equity Interests (as defined below) and the Transferred Assets, the Seller
and certain of its Affiliates and the Purchaser shall enter into certain
Ancillary Agreements (as defined below) providing for an ongoing
relationship between the Seller or such Affiliates and the Purchaser;
2
WHEREAS, the Employment Agreements (as defined below) have been
entered into; and
NOW, THEREFORE, in consideration of the premises and the mutual
agreements and covenants hereinafter set forth, the Purchaser and the
Seller hereby agree as follows:
Article I
DEFINITIONS
Section 1.01. Certain Defined Terms
As used in this Agreement, the following terms shall have the
following meanings:
"Action" means any claim, action, suit, arbitration, inquiry,
proceeding or investigation by or before any Governmental Authority.
"Affiliate" means, with respect to any specified Person, any
other Person that, directly or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control
with, such specified Person.
"Agreement" or "this Agreement" means this Transaction
Agreement, dated as of January 7, 2003, between the Seller and the
Purchaser (including the Exhibits, Annexes and Schedules hereto and the
Disclosure Schedule) and all amendments hereto made in accordance with the
provisions of Section 11.09.
"Ancillary Agreements" means the Transition Services Agreement,
the Clearing Agreement, the Cross License Agreement, and the Stock Loan
Agreement.
"Business" shall mean the business of providing brokerage,
execution, clearing, settlement, data processing and investment products
and services to financial organizations as conducted by the Pershing
Companies immediately prior to the date hereof.
"Business Day" means any day that is not a Saturday, a Sunday or
other day on which banks are required or authorized by law to be closed in
The City of New York.
"Clearing Agreement" means the agreement to be entered into by
the Seller (or one of its Affiliates), and the Company prior to the Closing
in accordance with Section 5.09, under which the Company will, for a period
of six years following the Closing Date, provide to the Seller or such
Affiliate, and the Seller or such Affiliate will take to the same degree
and extent, securities clearing, execution and related services that are
substantially similar to the services being provided by the Business to the
Company in respect of the private client service business of the Company on
the date hereof; provided that (i) the fee schedule under such agreement
will be adjusted annually so that the fee schedule in respect of such
services is no less favorable to the Seller or such Affiliate than the fee
schedule for any other introducing customer of the Company at such time for
similar services in light of volumes, business mix and revenue, (ii)
following the expiration of such agreement, none of the Seller or any of
its Affiliates will enter into an agreement with a third party under which
substantially similar services to those provided under the Clearing
Agreement would be
3
provided to the Seller or such Affiliates by such third party without first
offering to the Company the right to provide such services to the Seller or
such Affiliates on terms that are at least as favorable to the Seller or
such Affiliates as those offered by such third party, and (iii) the
standard of services to be provided by the Company under such agreement
will be customary for similar agreements and at least commensurate with the
level of such services being provided by the Company in respect of the
Excluded Assets on the date hereof.
"Code" means the Internal Revenue Code of 1986, as amended
through the date hereof.
"Company Intellectual Property" means all Intellectual Property
in and to which the Pershing Companies hold, or have a right to hold,
right, title and interest, and all Intellectual Property licensed or
sublicensed to the Pershing Companies from a third party (including the
Seller and its Affiliates), but excluding any Intellectual Property
included in the Excluded Assets and the Retained Names and Marks.
"Company IP Licenses" means those (a) licenses of Intellectual
Property by each of the Pershing Companies to third parties (including the
Seller and its Affiliates), (b) licenses of Intellectual Property by third
parties (including the Seller and its Affiliates) to the Pershing Companies
and (c) agreements between the Pershing Companies, on the one hand, and
third parties (including the Seller and its Affiliates), on the other hand,
relating to the development or use of Intellectual Property, the
development or transmission of data, or the use, modification, framing,
linking advertisement, or other practices with respect to Internet
websites, in each case, that are used in connection with the Business.
"Company Shares" means all the issued and outstanding shares of
the Company.
"Confidentiality Agreement" means the letter agreement dated as
of October 18, 2002, between the Company and the Purchaser.
"control" (including the terms "controlled by" and "under common
control with"), with respect to the relationship between or among two or
more Persons, means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the affairs or
management of a Person, whether through the ownership of voting securities,
as trustee or executor, by contract or otherwise, including the ownership,
directly or indirectly, of securities having the power to elect a majority
of the board of directors or similar body governing the affairs of such
Person.
"Controlled Group Liability" means any Liability (i) under Title
IV of ERISA, (ii) under Section 302 of ERISA, (iii) under Sections 412 and
4971 of the Code or (iv) as a result of failure to comply with the
continuation coverage requirements of Section 601 et seq. of ERISA and
Section 4980B of the Code, in each case, the occurrence of which does not
relate to, or arise from, any action or inaction by any director, officer,
employee, agent or representative of the Pershing Companies who is a
fiduciary of any Company Benefit Plan or trust related thereto if such
action or inaction occurs with respect to a Company Benefit Plan or trust
related thereto that is maintained solely for the benefit of current or
former employees of any of the Pershing Companies.
4
"Correspondent" means any Person to which any Pershing Company
provides services in connection with the Business pursuant to any Customer
Clearing Agreement.
"Customer Clearing Agreement" means the contracts to which any
Pershing Company is a party with a Correspondent listed on Annex A,
together with all amendments, supplements, schedules and exhibits thereto.
"Disclosure Schedule" means the Disclosure Schedule attached
hereto, dated as of the date hereof, and forming a part of this Agreement.
"Employee" means an employee of any of the Pershing Companies who
is employed in the United States.
"Employment Agreements" means, collectively, the employment
agreements entered into on or prior to the date hereof, between the
Purchaser or one or more Affiliates of the Purchaser and the several
officers and employees identified in Annex B.
"Encumbrance" means any security interest, pledge, mortgage, lien
(including environmental and Tax liens), charge, encumbrance, adverse
claim, preferential arrangement or restriction of any kind, including any
restriction on the use, voting, transfer, receipt of income or other
exercise of any attributes of ownership.
"Equity Interests" means the Shares, the Partnership Interest and
the LLC Interests.
"Equity Value" means the total equity of the Business, calculated
on a basis substantially consistent with the calculation of the total
equity on the Interim Balance Sheet and the other Financial Statements.
"Excluded Actions" means any Action or any portion of any Action
commenced before or after the date hereof against any of the Pershing
Companies to the extent relating exclusively to the Legacy Business,
including, without limitation, those Actions set forth on Section 1.01 of
the Disclosure Schedule.
"Excluded Assets" means the assets and liabilities set forth in
Section 5.14(c) of the Disclosure Schedule to be transferred to the Seller
or one of its Affiliates prior to the Closing pursuant to Section 5.14(c).
"FSA" means the Financial Services Authority located in the
United Kingdom, which assumes its full powers and responsibilities under
the Financial Services and ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇.
"Governmental Authority" means any United States federal, state
or local or any non-United States government, governmental, regulatory or
administrative authority, agency or commission, including the SEC, any SRO,
any National Securities Exchange, the FSA, the LSE, or any court, tribunal,
or judicial or arbitral body.
5
"Governmental Order" means any order, writ, judgment, injunction,
decree, stipulation, determination or award entered by or with any
Governmental Authority.
"HSR Act" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act
of 1976, as amended, and the rules and regulations promulgated thereunder.
"Indebtedness" means, with respect to any Person, (a) all
indebtedness of such Person, whether or not contingent, for borrowed money,
(b) all obligations of such Person evidenced by notes, bonds, debentures or
other similar instruments, (c) all indebtedness created or arising under
any conditional sale, sale leaseback or other title retention agreement
with respect to property acquired by such Person (even though the rights
and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), (d) all
obligations of such Person as lessee under leases that have been or should
be, in accordance with U.S. GAAP, recorded as capital leases, (e) all
obligations, contingent or otherwise, of such Person under acceptance,
letter of credit or similar facilities, (f) all obligations of such Person
to purchase, redeem, retire, defease or otherwise acquire for value any
capital stock of such Person or any warrants, rights or options to acquire
such capital stock, valued, in the case of redeemable preferred stock, at
the greater of its voluntary or involuntary liquidation preference plus
accrued and unpaid dividends, and (g) all Indebtedness of others referred
to in clauses (a) through (f) above guaranteed directly or indirectly in
any manner by such Person or in effect guaranteed directly or indirectly by
such Person.
"Intellectual Property" means all foreign and domestic rights in,
to and concerning (a) inventions and discoveries, whether patentable or
not, and all patents, patent applications and statutory invention
registrations, including, without limitation, renewals, extensions,
continuations, continuations-in-part, and renewal applications, including
renewals, extensions and reissues of patents ("Patents"), (b) trademarks,
service marks, trade dress, logos, trade names, corporate names and other
source identifiers, registrations and applications for registration
thereof, and the goodwill of the business symbolized thereby, including all
extensions, modifications and renewals of same (collectively,
"Trademarks"), (c) published and unpublished works of authorship and
copyrights therein, and copyright registrations and applications for
registration thereof and all renewals, extensions, restorations and
reversions thereof (collectively, "Copyrights"), (d) software, data,
databases and compilations of information, and (e) confidential and
proprietary information, trade secrets and know-how, including processes,
schematics, business methods, formulae, drawings, prototypes, models,
designs, customer lists and supplier lists, in each case, to the extent a
jurisdiction provides property rights therein (collectively, "Trade
Secrets").
"IRS" means the Internal Revenue Service of the United States.
"knowledge" means, with respect to the Seller, the actual
knowledge of any of the individuals set forth on Annex C.
"Law" means any material federal, state, local or foreign
statute, law, ordinance, regulation, rule, code or order promulgated by a
Governmental Authority.
6
"Leased Real Property" means the real property leased by the
Pershing Companies or any Affiliate thereof, as tenant, and used in
connection with the Business, together with, to the extent leased by the
Pershing Companies or any Affiliate thereof, all buildings and other
structures, facilities or improvements currently or hereafter located
thereon, all fixtures, systems, equipment and items of personal property of
the Pershing Companies or any Affiliate thereof attached or appurtenant
thereto and all easements, licenses, rights and appurtenances relating to
the foregoing.
"Legacy Business" means any business conducted by any of the
Pershing Companies prior to the Closing Date other than the Business.
"Liabilities" means any and all debts, liabilities and
obligations, whether accrued or fixed, absolute or contingent, matured or
unmatured or determined or determinable, including those arising under any
Law, Action or Governmental Order and those arising under any contract,
agreement, arrangement, commitment or undertaking.
"LSE" means the London Stock Exchange.
"Material Adverse Effect" means any circumstance, change, event
or effect, taken as a whole, that is materially adverse to, or any
development that would be reasonably expected to result in a material
adverse effect on the Business, results of operations, assets or financial
condition of the Pershing Companies taken as a whole, except for any
circumstance, change in or effect on, the Pershing Companies, arising out
of or attributable to (i) changes or effects that generally affect the
industries in which the Pershing Companies operate, to the extent that such
effect is not substantially more severe in the case of the Pershing
Companies than in the case of similar companies, (ii) changes in general
economic, legal, regulatory or political conditions in the U.S., (iii) any
actions taken or omitted to be taken pursuant to the terms of this
Agreement or (iv) any effects resulting from the announcement of the
transactions contemplated by this Agreement.
"NASD" means The National Association of Securities Dealers, Inc.
and its wholly owned subsidiary, NASD Regulation, Inc.
"National Securities Exchange" means any national securities
exchange regulated under the Securities Exchange Act of 1934, as amended.
"NYSE" means The New York Stock Exchange, Inc.
"Order" means the entry in any judicial or administrative
proceeding brought under any Law by any Governmental Authority or any other
Person of any permanent or preliminary injunction or other order.
"Permitted Encumbrances" means such of the following as to which
no enforcement, collection, execution, levy or foreclosure proceeding shall
have been commenced: (a) liens for taxes, assessments and governmental
charges or levies that are not yet due and payable or that are being
contested in good faith in proper proceedings if adequate reserves with
respect thereto are maintained in accordance with generally accepted
accounting principles; (b) imposed by Law, such as materialmen's,
mechanics', carriers',
7
workmen's and repairmen's liens and other similar liens arising in the
ordinary course of business securing obligations that are (i) not overdue
for a period of more than 30 days and (ii) not in excess of $100,000 in the
case of a single property or $500,000 in the aggregate at any time; (c)
pledges or deposits to secure obligations under workers' compensation laws
or similar legislation or to secure public or statutory obligations; and
(d) minor survey exceptions, reciprocal easement agreements and other
customary encumbrances on title to real property that (i) were not incurred
in connection with any Indebtedness and (ii) do not, individually or in the
aggregate, materially adversely affect the value or use of such property
for its current and anticipated purposes.
"Pershing Companies" means the Company, other than with respect
to the Excluded Assets, the Sister Companies and their respective
Subsidiaries.
"Pershing Securities" means Pershing Securities Ltd.
"Pershing Shares" means the Shares and the Company Shares.
"Person" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity, as well as
any syndicate or group that would be deemed to be a person under Section
13(d)(3) of the Securities Exchange Act of 1934, as amended.
"Pre-Closing Liabilities" means (a) any and all claims (and
related Damages) against, and Liabilities (and related Damages) of, any of
the Pershing Companies arising prior to the Closing Date, and (b) any
claims (and related Damages, which shall include, without limitation,
licensing fees payable after the Closing Date relating thereto) by a third
party and Liabilities (and related Damages) in respect thereof, including
those set forth in Section 3.17(b) of the Disclosure Schedule, that the use
of the Company Intellectual Property in existence on the Closing Date and
owned by any of the Pershing Companies infringes any U.S. patent of such
third party issued prior to the Closing Date, except for Liabilities (and
related Damages) (i) accrued or reserved for on the Closing Balance Sheet,
(ii) arising from actions taken by the Pershing Companies prior to the
Closing Date in the ordinary course of business consistent with past
practice (none of which results from, arises out of or relates to any
breach of contract, tort or violation of Law), or (iii) set forth on the
Disclosure Schedule (other than those matters set forth in items 1, 2, 3,
5, 6, 9, 11, 23, 27, 28, 32, 38, and 40 of Section 3.12 of the Disclosure
Schedule), except in the case of clauses (ii) and (iii), arising from any
breach of duty by Seller or any of the Pershing Companies constituting
gross negligence, recklessness or bad faith.
"Prime Brokerage Customer" means any Person who meets the
description of a Prime Brokerage Customer and satisfies the requirements
applicable to Prime Brokerage Customers in the United States Securities and
Exchange Commission's no-action letter dated January 25, 1994 to the Prime
Broker Committee of the Securities Industry Association.
"Purchase Price Bank Account" means a bank account in the United
States to be designated by the Seller in a written notice to the Purchaser
at least five Business Days before the Closing.
"Purchaser's Accountants" means Ernst & Young LLP, independent
accountants of the Purchaser.
8
"Regulations" means the Treasury Regulations (including Temporary
Regulations) promulgated by the United States Department of Treasury with
respect to the Code or other federal tax statutes.
"SEC" means the United States Securities and Exchange Commission.
"Seller's Accountants" means KPMG LLP, independent accountants of
the Seller.
"SRO" means a Self-Regulatory Organization registered under the
Securities Exchange Act of 1934, as amended, including the NYSE and the
NASD.
"Stock Loan Agreement" means the agreement to be entered into by
the Seller (or one of its Affiliates), and the Company prior to the Closing
in accordance with Section 5.09, under which (1) the Seller and its
Affiliates would, for a period of three years following the Closing Date,
have sole and direct access on market terms and conditions, including fees,
for lending purposes to the stock held by the Company and all its customers
who have given authority for such transactions, including for purposes of
covering the internal short positions of customers of the Company and the
Company; provided that the Company would receive annual payments of at
least $10 million in respect of such services, (2) at the request of the
Company, the Seller or one of its Affiliates would lend securities to the
Company on customary terms and conditions, including rates and
availability, and (3) at the request of the Company, the Seller or one of
its Affiliates would make non-purpose cash loans to the Company
collateralized by securities acceptable to the Seller or such Affiliate and
otherwise on customary terms and conditions, except that the Seller or such
Affiliates would not be obligated to make such loans to the Company unless
the net assets of the Company in respect of the lending/borrowing
transactions under such agreement exceed $150 million; provided however
that (i) at the option of the Company, it may terminate such agreement at
any time following the first anniversary of the Closing Date, (ii) the
Seller shall have reasonable access to the books, records and personnel of
the Company during the term of such agreement for purposes of verifying
compliance by the Company with such agreement, (iii) the Company would
agree to charge customers of the Company rates that are not less than the
market rates charged by major bulge bracket firms at such time to customers
that are similarly situated to the customers of the Company for services
similar to those to be provided to such customers by the Seller or its
Affiliates under such agreement, and (iv) such agreement would provide
that (u) the Company would have the legal right of offset with respect to
the obligations of the Seller or such Affiliate under such agreement, (v)
the term of the transactions under such agreement would be the same, (w)
the obligations of the Seller or such Affiliate and the Company under such
agreement to repay borrowed securities would be collateralized with cash,
(x) the Seller or such Affiliate and the Company would agree to enter into
a master net settlement agreement that would provide for the net settlement
of all contracts through a single payment with a single currency on a daily
basis of all transactions under such agreement, (y) the terms of the
agreement between the Seller or such Affiliate and its customers would
provide that such customers would have recourse only to the Seller or such
Affiliate (and not the Company) in the event of the bankruptcy of the
Seller or such Affiliate, and (z) until the first anniversary of the
Closing Date, none of the Seller or any of its Affiliates could borrow from
the Company securities with a value greater than the value of the
securities lent to the Company under such agreement plus $250 million.
9
"Subordinated Debenture" means the Subordinated Debenture dated
as of January 16, 1995, as amended, between the Company and the Seller.
"Subsidiaries" means any and all corporations, partnerships,
limited liability companies, joint ventures, associations or other entities
controlled by the Company and/or the Sister Companies directly or
indirectly through one or more intermediaries other than those
corporations, partnerships, limited liability companies, joint ventures,
associations or other entities which are Excluded Assets.
"Tax" or "Taxes" means any and all taxes, fees, levies, duties,
tariffs, imposts, and other charges of any kind (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any government or taxing authority, including:
taxes or other charges on or with respect to income, franchises, windfall
or other profits, gross receipts, property, sales, use, capital stock,
payroll, employment, social security, workers' compensation, unemployment
compensation, or net worth; taxes or other charges in the nature of excise,
withholding, ad valorem, stamp, transfer, value added, or gains taxes;
license, registration and documentation fees; and customs duties, tariffs,
and similar charges.
"U.S. GAAP" means United States generally accepted accounting
principles and practices as in effect from time to time and applied
consistently throughout the periods involved.
Section 1.02. Definitions. The following terms have the meanings
set forth in the Sections set forth below:
Definition Location
"2003 Statement of Income" 2.02(b)(i)
"Adjusted Underfunded Liability" 6.06
"Allocations" 7.06(f)
"Assets" 3.18
"Benefit" 3.19(h)(iii)
"▇▇▇▇ of Sale" 5.14(a)
"Broker-Dealer" 3.13
"Claim" 9.03(a)
"Closing" 2.03
"Closing Balance Sheet" 2.06(a)
"Closing Date" 2.03
"Company" Recitals
"Company Benefit Plans" 3.19(a)
"Company Trade Secrets" 3.17(c)
"Competing Business" 5.16
"Contest" 7.03(b)
"Conversion" Recitals
"CP Waiver Date" 2.03
"Cross License Agreement" 5.09(b)
"CSFB Agreement" 5.05
10
"Damages" 9.02(a)
"Deductible Amount" 9.02(a)
"Deposit" 2.03
"Discretionary Payment Pool" 6.07
"Earnout Payment" 2.02(b)(ii)
"Earnout Revenues" 2.02(b)(ii)
"ERISA" 3.19(a)
"Financial Statements" 3.09
"Financing Event" 2.03
"Foreign Benefit Plans" 3.19(h)(i)
"Indemnitee" 9.03(a)
"Indemnitor" 9.03(a)
"Index" 6.06
"Independent Accounting Firm" 2.06(b)
"Insurance Policies" 3.24
"Interim Balance Sheet" 2.06(a)
"Interim Balance Sheet Date" 2.06(a)
"Investment Adjustment" 6.06
"Last Valuation" 3.19(h)(vii)
"Leased Assets" 5.14(b)
"Leasing Entity" 3.20(d)
"LLC" Recitals
"LLC Interests" Recitals
"Material Contracts" 3.15(a)
"NYSE" 3.14(b)
"Owned Assets" 5.14(a)
"Partnership Inteest" Recitals
"Pershing Ltd." Recitals
"Pershing Trading" Recitals
"Plans" 3.19(a)
"Post-Closing Retention
Compensation Plan" 6.07
"Pricing Event" 2.03
"Purchase Price" 2.02
"Purchaser" Preamble
"Purchaser Welfare Plans" 6.04
"Purchaser's Savings Plan" 6.05
"Relevant Liabilities" 7.06(f)
"Retained Names and Marks" 5.07(a)
"Scheme" 3.19(h)(iii)
"Seller" Preamble
"Seller's Savings Plan" 6.05
"Services" 3.23(a)
"Shares" Recitals
"Sister Companies" Recitals
11
"Specialist" 3.14(b)
"Straddle Period" 7.01(a)
"Subsidiaries Shares" 3.05
"Tax Benefit" 6.06
"Tech" Recitals
"Transferred Assets" 5.14(b)
"Transition Services Agreement" 5.09(a)
"Trustee's Demand" 6.06
"Underfunded Liability" 6.06
"WARN Act" 6.03
Article I
PURCHASE AND SALE
SECTION 2.01. Purchase and Sale of the Equity Interests and the
Transferred Assets.
Upon the terms and subject to the conditions of this Agreement,
at the Closing, the Seller shall sell, or cause its applicable Subsidiaries
to sell, to the Purchaser, and the Purchaser shall purchase from the Seller
or such Subsidiaries, as applicable, the Equity Interests set forth in
Section 2.01 of the Disclosure Schedule and the Transferred Assets.
SECTION 2.02. Purchase Price, Earnout.
(a)(i) The purchase price for the Equity Interests and the
Transferred Assets shall be $2,000 million (the "Purchase Price"), subject
to the adjustments set forth in Section 2.02(b), Section 2.06 and,
if applicable, Section 9.02.
(b)(i) Not later than March 1, 2004, the Purchaser will provide
to the Seller a copy of the statement of income of the Business for the six
months ended December 31, 2003, which statement of income will be prepared
in accordance with U.S. GAAP and in a manner substantially consistent with
the preparation of the Financial Statements (the "2003 Statement of
Income").
(ii) If the aggregate revenues (net of interest expense) of
the Business that have been generated from all customers of the Business,
other than customers of the Purchaser's or its subsidiaries' clearing
businesses on the date of this Agreement listed on Exhibit 2.02(b)(ii)(A)
or prospective customers of the Purchaser's or its subsidiaries' clearing
businesses listed on Exhibit 2.02(b)(ii)(B), during the period commencing
on July 1, 2003, and ending on December 31, 2003, as reflected in the 2003
Statement of Income (the "Earnout Revenues"), exceed $455 million, the
Purchaser will make an additional payment to the Seller, equal to the
product of (i) the excess of such revenues over $455 million, and (ii) 2.5
(the "Earnout Payment"); provided that 50% of the revenues generated from
the prospective customer of the Purchasers' and the Subsidiaries' clearing
businesses marked with an asterisk on Exhibit 2.06(a)(ii)(B) will be
included in revenues for purposes of calculating the Earnout Payment. In
no event will the Earnout Payment exceed $50 million.
12
(iii) The Seller may dispute the amount of the Earnout
Revenues, but only on the basis that the 2003 Statement of Income was not
prepared in accordance with U.S. GAAP and in a manner substantially
consistent with the preparation of the Financial Statements. In the event
of such a dispute, the provisions of Section 2.06(b) will apply mutatis
mutandi.
(iv) Within three Business Days of the 2003 Statement of
Income being declared final in accordance with clause (iii), the Purchaser
will pay to the Seller any Earnout Payment payable under this Section
2.02(b) by wire transfer of immediately available funds to a bank account
designated by the Seller.
SECTION 2.03. Closing.
Upon the terms and subject to the conditions of this Agreement,
the sale and purchase of the Equity Interests and the Transferred Assets
contemplated by this Agreement shall take place at a closing (the
"Closing") to be held at the offices of Shearman & Sterling, ▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ at 10:00 A.M. New York time on the first
Business Day of the month immediately following the month in which all
conditions to the obligations of the parties set forth in Article VIII have
been satisfied or waived; provided that if such first Business Day occurs
fewer than five Business Days following the satisfaction or waiver of such
conditions, the Closing will be on the first Business Day of the
immediately succeeding month (the day on which the Closing takes place
being the "Closing Date"); provided further that the Purchaser may, at its
option, by written notice to the Seller, elect to postpone the Closing Date
until the date that is the earlier of (a) September 1, 2003, (b) the first
Business Day of the month immediately succeeding the month in which the
Bloomberg volume weighted average price of the common stock of the
Purchaser is equal to at least $27.50 (as adjusted for stock splits, stock
dividends or similar events occurring after the date hereof) for five
consecutive NYSE trading days, each of which occurs after the CP Waiver
Date (a "Pricing Event"), and (c) the first Business Day of the month
immediately succeeding the month in which the Purchaser has closed one
or more offerings of equity securities or asset dispositions the result of
which is that the common equity of the Purchaser (excluding retained
earnings) is increased by at least $1,100,000,000 (a "Financing Event");
provided that if the first Business Day referred to in clause (b) or (c)
above occurs fewer than five Business Days following a Pricing Event or
Financing Event, as applicable, the Closing Date will be the first Business
Day of the immediately succeeding month; provided however that if the
Purchaser so elects to postpone the Closing Date, (i) the Seller will
deliver to the Purchaser a certificate dated as of the CP Waiver Date
signed by a duly authorized officer of the Seller to the effect that the
representations and warranties of the Seller contained in this Agreement
shall have been true and correct as of the date of this Agreement and are
true and correct as of the date of such certificate with the same force and
effect as if made as of such date (other than such representations and
warranties as are made as of another date, which shall be true and correct
as of such date), except, in either case, where the failure to be so true
and correct would not, individually or in the aggregate, have a Material
Adverse Effect, (ii) assuming delivery of the certificate referred to in
clause (i), the Purchaser shall be deemed to have irrevocably waived all of
the conditions to its obligations set forth in Section 8.02, other than
those contained in Sections 8.02(a)(ii), 8.02(a)(iii) (as to matters set
forth in Section 8.02(a)(ii)), 8.02(c)(i) and 8.02(d), as of the date that
would have been the Closing Date pursuant to this Section 2.03 in the
absence of such election by the Purchaser (such date, the "CP Waiver
Date"); provided, however that the Purchaser will not be deemed to have
waived any condition pursuant to this clause (ii) if (x) the subsequent
failure of such condition has resulted
13
from, or been caused by, the failure of the Seller to fulfill any of its
obligations under this Agreement or (y) the condition contained in Section
8.02(a)(i) shall not have been satisfied as of the CP Waiver Date
notwithstanding the delivery by the Seller of the certificate referred to
in clause (i) of the immediately preceding proviso, and (iii) within two
Business Days of the date on which the Purchaser so elects to postpone the
Closing Date, the Purchaser will pay to a mutually satisfactory escrow
agent $150 million, as a refundable prepayment of the Purchase Price (and
not as liquidated damages) (the "Deposit") by wire transfer of immediately
available funds to the Purchase Price Bank Account; provided further
however that the Purchaser may not so elect to delay the Closing if prior
to the date on which all the conditions to the obligations of the parties
set forth in Article VIII have been satisfied or waived, a Financing Event
has occurred. Such escrow agent will hold the Deposit pursuant to an
escrow agreement that will provide that all interest on the amount of the
Deposit will be paid to the Seller, reflect the terms of this Agreement,
where applicable, and otherwise be in form and substance reasonably
satisfactory to the Seller and the Purchaser. The Purchaser shall promptly
advise the Seller in writing of the occurrence of any Financing Event and
shall provide reasonable details to the Seller of any computations in
respect thereof, including any changes to the common equity (excluding
retained earnings) of the Purchaser as a result thereof.
Section 2.04. Closing Delivers by the Seller.
At the Closing, the Seller shall deliver or cause to be delivered
to the Purchaser:
(a) evidence of the registration of the sale of the LLC Interests
and the Partnership Interest;
(b) the ▇▇▇▇ of Sale;
(c) stock certificates evidencing the Shares duly endorsed in
blank or accompanied by stock powers and transfer forms duly executed in
blank;
(d) a receipt for the Purchase Price; and
(e) the certificates and other documents required to be delivered
pursuant to Section 8.02.
SECTION 2.05. Closing Deliveries by the Purchaser
At the Closing, the Purchaser shall deliver to the Seller:
(a) the Purchase Price, less, if applicable, the amount of the
Deposit and the amount contemplated by Section 8.02(i), by wire transfer in
immediately available funds to the Purchase Price Bank Account;
(b) an amount equal to the principal (in the amount of $480
million) plus accrued interest outstanding under the Subordinated Debenture
by wire transfer in immediately available funds to the Purchase Price Bank
Account; and
(c) the certificates and other documents required to be delivered
pursuant to Section 8.01.
14
SECTION 2.06. Adjustment of Purchase Price.
The Purchase Price shall be subject to adjustment after the
Closing as specified in this Section 2.06:
(a) Closing Balance Sheet. As promptly as practicable, but in
any event within 75 days following the Closing, the Purchaser shall deliver
to the Seller a balance sheet (the "Closing Balance Sheet") with respect to
the Business as of 11:59 p.m. on the day immediately preceding the Closing
Date, together with a certificate of the Purchaser certifying that the
Closing Balance Sheet (i) has been prepared in accordance with U.S. GAAP
and on a basis substantially consistent with the preparation of the balance
sheet of the Business dated as of October 31, 2002 (a copy of which is
attached hereto as Exhibit 2.06(a)) (the "Interim Balance Sheet"; the date
as of which the Interim Balance Sheet is prepared being referred to herein
as the "Interim Balance Sheet Date") and the other Financial Statements,
and (ii) reflects, among other things, an accrual for incentive performance
bonuses payable to employees of the Pershing Companies with respect to the
period commencing on January 1, 2003, and ending on the Closing Date that
is consistent with the past practice of the Business and, in any event (x)
with respect to those employees with the title of vice president or more
senior, at least equal to that calculated for such employees for such
period in accordance with the calculation set forth in Exhibit 2.06(b), and
(y) with respect to such employees with the title of assistant vice
president or more junior, at a rate equal to at least $1.5 million per
month (or portion thereof) during such period.
(b) Disputes. The Seller may dispute any amounts reflected on
the Closing Balance Sheet, but only on the basis that the Closing Balance
Sheet has not been prepared in accordance with U.S. GAAP or on a basis
substantially consistent with the preparation of the Interim Balance Sheet
and the other Financial Statements; provided, however, that the net effect
of such disputed amounts in the aggregate would affect the Equity Value
reflected on the Closing Balance Sheet by more than $100,000; provided
further, however, that the Seller shall have notified the Purchaser in
writing of each disputed item, specifying the amount thereof in dispute and
setting forth, in reasonable detail, the basis for such dispute, within 30
Business Days of the Purchaser's delivery of the Closing Balance Sheet to
the Seller. With respect to any portions of the Closing Balance Sheet that
are not in dispute, a purchase price adjustment shall be made in accordance
with Section 2.06(c). In the event of such a dispute, the Seller and the
Purchaser shall attempt to reconcile their differences, and any resolution
by them as to any disputed amounts shall be final, binding and conclusive
on the Seller and the Purchaser. If the Seller and the Purchaser are
unable to reach a resolution with such effect within 30 Business Days after
receipt by the Purchaser of the Seller's written notice of dispute, the
Seller and the Purchaser shall submit the items remaining in dispute for
resolution to an independent accounting firm of international reputation
mutually acceptable to the Purchaser and the Seller or, if no such firm is
agreed upon, PricewaterhouseCoopers(the "Independent Accounting Firm"),
which shall, within 30 Business Days after such submission, determine and
report to the Purchaser and the Seller upon such remaining disputed items,
and such report shall be final, binding and conclusive on the Seller and
the Purchaser. The fees and disbursements of the Independent Accounting
Firm shall be allocated between the Seller and the Purchaser in the same
proportion that the aggregate amount of such remaining disputed items so
submitted to the
15
Independent Accounting Firm that are unsuccessfully disputed by each such
party (as finally determined by the Independent Accounting Firm) bears to
the total amount of such remaining disputed items so submitted. In acting
under this Agreement, the Independent Accounting Firm shall be entitled to
the privileges and immunities of arbitrators.
(c) Purchase Price Adjustment. The Closing Balance Sheet shall
be deemed final for the purposes of this Section 2.06 upon the earliest of
(i) the failure of the Seller to notify the Purchaser of a dispute within
30 Business Days of the Purchaser's delivery of the Closing Balance Sheet
to the Seller, (ii) the resolution of all disputes, pursuant to Section
2.06(b), by the Purchaser and the Seller and (iii) the resolution of all
disputes, pursuant to Section 2.06(b), by the Independent Accounting Firm.
Within three Business Days of the Closing Balance Sheet being deemed final,
a Purchase Price adjustment shall be made as follows:
(i) in the event that the Equity Value as reflected on the
Closing Balance Sheet is less than $600 million, then the Purchase Price
shall be adjusted downward in an amount equal to such deficiency, and the
Seller shall, within three Business Days of such determination, pay the
amount of such deficiency to the Purchaser by wire transfer in immediately
available funds to an account designated by the Purchaser; or
(ii) in the event that the Equity Value reflected on the Closing
Balance Sheet exceeds $600 million, then the Purchase Price shall be
adjusted upward in an amount equal to such excess, and the Purchaser shall,
within three Business Days of such determination, pay the amount of such
excess to the Seller by wire transfer in immediately available funds to an
account designated by the Seller.
(d) Prior to the Closing Date, the Seller and the Purchaser shall
consult with each other in good faith regarding the appropriate Equity
Value on the Closing Date, with a view to minimizing the amount of such
Equity Value to the extent that such minimization would not have any
adverse effect on either the Seller or the Purchaser.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE SELLER
As an inducement to the Purchaser to enter into this Agreement,
the Seller hereby represents and warrants to the Purchaser as follows:
SECTION 3.01. Organization, Authority and Qualification of the
Seller.
The Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has all
necessary power and authority to enter into this Agreement, to carry out
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and each of the
Ancillary Agreements, when executed, by the Seller, the performance by the
Seller of its obligations hereunder and the consummation by the Seller of
the transactions contemplated hereby have been or will have been, as
applicable,
16
duly authorized by all requisite action on the part of the Seller. This
Agreement has been duly executed and delivered by the Seller and (assuming
due authorization, execution and delivery by the Purchaser) this Agreement
and each of the Ancillary Agreements, when executed, constitutes or will
constitute, as applicable, a legal, valid and binding obligation of the
Seller enforceable against the Seller in accordance with its terms.
SECTION 3.02. Organization, Authority and Qualification of the
Pershing Companies.
(a) Subject to Section 3.02(b) with respect to the Company, each
of the Pershing Companies is a corporation duly organized, validly existing
and, to the extent applicable, in good standing under the laws its
jurisdiction of incorporation. Each of the Pershing Companies has all
necessary power and authority to own, operate or lease the properties and
assets now owned, operated or leased by it and to carry on its business as
it has been and is currently conducted. Each of the Pershing Companies is
duly licensed or qualified to do business and, to the extent applicable, is
in good standing in each jurisdiction in which the properties owned or
leased by it or the operation of its business makes such licensing or
qualification necessary other than in such jurisdictions where the failure
to be so qualified or licensed would not, individually or in the aggregate,
have a Material Adverse Effect. All corporate actions taken by each of the
Pershing Companies have been duly authorized, and none of the Pershing
Companies has taken any action that in any respect conflicts with,
constitutes a default under, or results in a violation of, any provision of
its certificate of incorporation or bylaws. True and correct copies of the
certificate of incorporation and bylaws of each of the Pershing Companies,
each as in effect on the date hereof, have been delivered by the Seller to
the Purchaser.
(b) As of the Closing Date, (i)the Company shall be a limited
liability company duly formed, validly existing and in good standing under
the laws of the State of Delaware and shall have all necessary power and
authority to own, operate or lease the properties and assets owned,
operated or leased by it and to carry on its business as it has been and is
then conducted, (ii)all corporate actions taken by the Company shall have
been duly authorized, and the Company shall not have taken any action that
in any respect conflicts with, constitutes a default under or results in a
violation of any provision of its organizational documents, and (iii)true
and correct copies of the organizational documents of the Company, as in
effect on the Closing Date, shall have been delivered by the Seller to the
Purchaser.
SECTION 3.03. Capital Stock of the Company and the Sister
Companies; Ownership of the Shares and the LLC Interests.
(a)Subject to Section 3.03(b) with respect to the Company, the
authorized capital stock, the number of Pershing Shares issued and
outstanding and ownership of each of the Company and the Sister Companies
is as set forth in Section 3.03 of the Disclosure Schedule, and all the
Pershing Shares are validly issued, fully paid and nonassessable. None of
the Pershing Shares was issued in violation of any preemptive rights.
Except for the transactions contemplated by this Agreement, there are no
options, warrants, convertible securities or other rights, agreements,
arrangements or commitments of any character relating to the capital stock
of the Company and the Sister Companies or obligating the Seller or the
Company and the Sister Companies to issue, transfer or sell any Pershing
Shares, shares of capital stock of, or any other interest in, the Company
and the Sister Companies. Except for the transactions contemplated by this
Agreement, there are no outstanding contractual obligations of the Company
or the Sister Companies to repurchase, redeem or otherwise acquire any
Pershing Shares or, except in connection with the financing of customer
positions in the ordinary course of
17
business, to provide funds to, or make any investment (in the form of a
loan, capital contribution or otherwise) in, any other Person. Subject to
Section 3.03(b) with respect to the Company, the Pershing Shares constitute
all the issued and outstanding capital stock of the Company and the Sister
Companies and are owned of record and beneficially, directly or indirectly,
solely by the Seller, free and clear of all Encumbrances. There are no
voting trusts, stockholder agreements, proxies or other agreements or
understandings in effect with respect to the voting of any of the Pershing
Shares.
(b)As of the Closing Date, (i)all of the LLC Interests will be
owned beneficially and of record by the Seller, free and clear of all
Encumbrances, (ii)except for the transactions contemplated by this
Agreement and except as set forth in Section 3.03 of the Disclosure
Schedule, there will be no options, warrants, convertible securities or
other rights, agreements, arrangements or commitments of any character
relating to the LLC Interests or obligating the Seller or the Company to
issue or sell any LLC Interests, (iii)there will be no outstanding
contractual obligations of the Company to repurchase, redeem or otherwise
acquire any LLC Interests or, except in connection with the financing of
customer positions in the ordinary course of business, to provide funds to,
or make any investment (in the form of a loan, capital contribution or
otherwise) in, any other Person, and (iv)there will be no voting trusts,
proxies or other agreements or understandings in effect with respect to the
voting of any of the LLC Interests. Upon consummation of the transactions
contemplated by this Agreement and registration of the LLC Interests in the
name of the Purchaser in the records of the Company, the Purchaser,
assuming it shall have purchased the LLC Interests for value in good faith
and without notice of any adverse claim, will own all of the LLC Interests,
representing 100% of the interests in the Company, free and clear of all
Encumbrances.
SECTION 3.04. Subsidiaries.
Section 3.04 of the Disclosure Schedule sets forth a true and complete list
of all the Subsidiaries. The authorized capital stock, number of shares of
common stock issued and outstanding (the "Subsidiaries Shares") and
partnership interests of each of the Subsidiaries and ownership of each of
the Subsidiaries is as set forth in Section 3.04 of the Disclosure
Schedule, and all of the Subsidiaries Shares are validly issued, fully paid
and nonassessable. None of the Subsidiaries Shares or Subsidiary
partnership interests was issued in violation of any preemptive rights.
Except as set forth in Section 3.04 of the Disclosure Schedule, there are
no options, warrants, convertible securities or other rights, agreements,
arrangements or commitments of any character relating to the capital stock
of the Subsidiaries or obligating the Seller or any of the Pershing
Companies to issue or sell any shares of capital stock of, or any other
interest in, the Subsidiaries. There are no outstanding contractual
obligations of the Subsidiaries to repurchase, redeem or otherwise acquire
any Subsidiaries Shares or other interests or, except in connection with
the financing of customer positions in the ordinary course of business, to
provide funds to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any other Person. The equity interests set
forth in Section 3.04 of the Disclosure Schedule constitute all the issued
and outstanding equity interests in the Subsidiaries and are owned of
record and beneficially, directly or indirectly, solely by the Company
and/or the Sister Companies, free and clear of all Encumbrances. There are
no voting trusts, stockholder agreements, proxies or other agreements or
understandings in effect with respect to the voting of any such interests.
18
SECTION 3.05. No Interests. Except as set forth in Section 3.05
of the Disclosure Schedule, there are no corporations, partnerships, joint
ventures, associations or other entities in which any of the Pershing
Companies own, of record or beneficially, any direct or indirect equity or
other interest or any right (contingent or otherwise) to acquire the same.
Except as set forth in Section 3.05 of the Disclosure Schedule, none of the
Pershing Companies is a member of (nor is any part of any of their
businesses conducted through) any partnership. Except as set forth in
Section 3.05 of the Disclosure Schedule, none of the Pershing Companies is
a participant in any joint venture or similar arrangement.
SECTION 3.06. Corporate Books and Records; Internal Controls.
(a) The minute books of each of Pershing Companies contain
accurate records of all meetings and accurately reflect all other actions
taken by the stockholders, the members and the board of directors (or
equivalent body) of each of the Pershing Companies and all the committees
of the board of directors of each of the Pershing Companies. Except as set
forth in Section 3.06 of the Disclosure Schedule, since December 31, 2000,
none of the records, systems, controls, data or information of any of the
Pershing Companies are recorded, stored, maintained, operated or otherwise
wholly or partly dependent on or held by any means (including any
electronic, mechanical or photographic process, whether computerized or
not) that (including all means of access thereto and therefrom) is not
under the exclusive ownership and control of any of the Pershing Companies,
accountants retained by any of the Pershing Companies or the Seller.
(b) The books and records of each Pershing Company have been
fully, properly and accurately maintained in reasonable detail all material
respects, and there are no material inaccuracies or discrepancies of any
kind contained or reflected therein. Each Pershing Company has devised and
maintained a system of internal accounting controls sufficient to provide
reasonable assurances that (A) transactions are executed in accordance with
management's general or specific authorizations, (B) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
accountability for assets, (C) access to assets is permitted only in
accordance with management's general or specific authorization, and (D) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
SECTION 3.07. No Conflict. Except as set forth in Section 3.07 of
the Disclosure Schedule, the execution, delivery and, assuming that all
consents, approvals, authorizations and other actions described in Section
3.08 have been obtained and all filings and notifications listed in Section
3.08 of the Disclosure Schedule have been made, the performance of this
Agreement by the Seller do not and will not (a) violate, conflict with or
result in the breach of any provision of the certificate of incorporation
or bylaws (or similar organizational documents) of the Seller or the
Pershing Companies, (b) conflict with or violate any Law or Governmental
Order applicable to the Seller or the Pershing Companies or any of their
respective assets, properties or businesses, or (c) conflict with, result
in any breach of, constitute a default (or event which with the giving of
notice or lapse of time, or both, would become a default) under, require
any consent under, or give to others any rights of termination, amendment,
acceleration, suspension, revocation or cancellation of, or result in the
creation of any
19
Encumbrance on any of the Equity Interests or on any of the assets or
properties of the Seller or the Pershing Companies pursuant to, any note,
bond, mortgage or indenture, contract, agreement, lease, sublease, license,
permit, franchise or other instrument or arrangement to which any of the
Seller or the Pershing Companies is a party or by which any of the Equity
Interests or any of such assets or properties is bound or affected, except,
in the case of clauses (b) and (c), as would not, individually or in the
aggregate, have a Material Adverse Effect.
SECTION 3.08. Consents and Approvals. The execution, delivery
and performance of this Agreement by the Seller do not and will not require
any consent, approval, authorization or other order of, action by, filing
with or notification to any Governmental Authority, except (a) as described
in Section 3.08 of the Disclosure Schedule, (b) the notification
requirements of the HSR Act, (c) the notification requirement of Rule 1017
of the NASD, (d) compliance with the notification requirements of NYSE Rule
312 and any further requests or directions received from the NYSE as a
result of such notification, (e) compliance with the notification
requirements of the FSA, (f) notification to the LSE, (g) where failure to
obtain such consent, approval, authorization or action, or to make such
filing or notification, would not, individually or in the aggregate, have a
Material Adverse Effect or (h) as may be necessary as a result of any facts
or circumstances relating solely to the Purchaser.
SECTION 3.09. Financial Information. The Seller has delivered to
the Purchaser true, complete and correct copies of (i) the Interim Balance
Sheet and the statement of income of the Business for the ten months ended
October 31, 2002 and (ii) the balance sheet of the Business as of December
31, 2001 and the statement of income of the Business for the year then
ended (collectively, together with the Interim Balance Sheet, referred to
herein as the "Financial Statements"). The Financial Statements present
fairly in all material respects the financial condition and results of
operations of the Business as of such dates or for the periods covered
thereby and have been prepared in accordance with U.S. GAAP with such
deviations from U.S. GAAP, if any, as are referred to in the notes thereto.
All accrued and unpaid liabilities for incentive performance bonuses owed
by any Pershing Company as of the respective dates of the Financial
Statements have been accrued and reserved for and are reflected in the
Financial Statements.
SECTION 3.10. No Undisclosed Liabilities. There are no
Liabilities of the Business, other than Liabilities (i) reflected or
reserved against on the Interim Balance Sheet, (ii) disclosed in Section
3.10 of the Disclosure Schedule or (iii) incurred since the Interim Balance
Sheet Date in the ordinary course of business, consistent with the past
practice, that would not, individually or in the aggregate, have a Material
Adverse Effect.
SECTION 3.11. Conduct in the Ordinary Course; Absence of Certain
Changes, Events and Conditions. Except as set forth in Section 3.11 of the
Disclosure Schedule, since the Interim Balance Sheet Date, the Business has
been conducted in the ordinary course and consistent with past practice.
As an amplification and not limitation of the foregoing, except as
contemplated by this Agreement or as set forth in Section 3.11 of the
Disclosure Schedule, and except as would not, individually or in the
aggregate, have a Material Adverse Effect, since the Interim Balance Sheet
Date, none of the Pershing Companies has:
20
(i) except in the ordinary course of business consistent with
past practice, permitted or allowed any of the assets or properties
(whether tangible or intangible) of the Pershing Companies to be subjected
to any Encumbrance, other than Permitted Encumbrances and Encumbrances that
will be released at or prior to the Closing;
(ii) except in the ordinary course of business consistent with
past practice, discharged or otherwise obtained the release of any
Encumbrance or paid or otherwise discharged any Liability, other than
current liabilities reflected on the Financial Statements and current
liabilities incurred in the ordinary course of business consistent with
past practice since the Interim Balance Sheet Date;
(iii) redeemed any of the capital stock or declared, made or paid
any dividends or distributions (whether in cash, securities or other
property) to the holders of capital stock of any of the Pershing Companies
or otherwise;
(iv) merged with, entered into a consolidation with or acquired an
interest of 5% or more in any Person or acquired a substantial portion of
the assets or business of any Person or any division or line of business
thereof, or otherwise acquired any material assets other than in the
ordinary course of business consistent with past practice;
(v) issued or sold any capital stock, notes, bonds or other
securities, or any option, warrant or other right to acquire the same, of,
or any other interest in, any of the Pershing Companies other than in the
ordinary course of business consistent with past practice;
(vi) other than in the ordinary course of business, consistent
with past practice, entered into any agreement, arrangement or transaction
with any of its directors, officers, employees or stockholders (or with any
relative, beneficiary or spouse living with such Person or Affiliate of
such Person);
(vii) made any material change in any method of accounting or
accounting practice or policy used by the Business, other than such changes
required by U.S. GAAP;
(viii) other than in the ordinary course of business consistent with
past practice, incurred any Indebtedness in excess of $500,000 individually
or $5,000,000 in the aggregate;
(ix) made any capital expenditure or commitment for any capital
expenditure in excess of $1,000,000 individually or $5,000,000 in the
aggregate;
(x) (A) granted or announced any increase in the wages, salaries,
compensation, bonuses, incentives, pension or other benefits payable by any
of the Pershing Companies to any of their employees, or (B) established,
increased or promised to increase any benefits under any Company Benefit
Plan, in any case, except as required by Law or pursuant to any employment
contract or arrangement or involving increases in the ordinary course of
business consistent with past practice of the Pershing Companies;
21
(xi) amended, modified or consented to the termination of any
Material Contract or any of the Pershing Companies' rights thereunder;
(xii) suffered any circumstance, change, event, effect or
development that would, individually or in the aggregate, constitute a
Material Adverse Effect; or
(xiii) agreed to take any of the actions specified in this Section
3.11.
SECTION 3.12. Litigation. Except as set forth in Section 3.12 of
the Disclosure Schedule, except for the Excluded Actions or except as would
not, individually or in the aggregate, have a Material Adverse Effect,
there are no Actions by or against any of the Pershing Companies or
affecting any of the Assets pending before any Governmental Authority or,
to the knowledge of the Seller, threatened to be brought by or before any
Governmental Authority. None of the matters disclosed in Section 3.12 of
the Disclosure Schedule could reasonably be expected to affect the
legality, validity or enforceability of this Agreement or the consummation
of the transactions contemplated hereby. Except as set forth in Section
3.12 of the Disclosure Schedule, none of the Pershing Companies or any of
their Assets is subject to any Governmental Order, nor, to the knowledge of
the Seller, are there any such Governmental Orders threatened to be imposed
by any Governmental Authority, that has or would, individually or in the
aggregate, have a Material Adverse Effect.
SECTION 3.13. Registrations. None of the Pershing Companies is
subject to registration under the Investment Company Act of 1940, as
amended, or similar Laws of any Governmental Authority. Each of the
Pershing Companies and each of its employees which are or who are required
to be registered as a broker-dealer (a "Broker-Dealer"), a registered
representative, a sales person or in a similar capacity with the SEC, the
securities commission of any state or foreign jurisdiction or any SRO are
duly registered as such and such registrations are in full force and
effect. All federal and state registration requirements have been complied
with in all material respects and such registrations as currently filed,
and all periodic reports required to be filed with respect thereto, are
accurate and complete in all material respects. Section 3.13 of the
Disclosure Schedule sets forth a list of all exchange seats and specialist
posts owned or leased as part of the Business.
Section 3.14. Compliance with Laws. (a) Except as would not,
individually or in the aggregate, have a Material Adverse Effect, each of
the Pershing Companies has conducted and continues to conduct its business
in accordance with all Laws and Governmental Orders applicable to each of
the Pershing Companies or any of the Assets, and none of the Pershing
Companies is in violation of any such Law or Governmental Order. Each of
the Pershing Companies holds all licenses, permits, authorizations, orders
and approvals from, and has made all filings, applications and
registrations with, each Governmental Authority necessary for the operation
of its business, except where the failure to make such filings,
applications or registrations would not, individually or in the aggregate,
have a Material Adverse Effect. All such licenses, permits,
authorizations, orders and approvals are in full force and effect and, to
the knowledge of the Seller, no suspension or cancellation of any of them
is threatened.
(b) Except as set forth on Section 3.14(b) of the Disclosure
Schedule, none of the Pershing Companies (i) has received, since December
31,
22
1997, any notification or communication from any Governmental Authority (A)
asserting that it or any of its directors, officers, employees, agents,
controlled Affiliates or representatives is not in compliance with any of
the statutes, regulations, ordinances or rules that a Governmental
Authority enforces or (B) threatening to revoke any license, franchise,
permit, or governmental authorization (nor, to the knowledge of the Seller,
do any grounds for any of the foregoing exist); (ii) is subject to any
cease-and-desist or other order issued by, or a party to any written
agreement, consent agreement or memorandum of understanding with, or a
party to any commitment letter or similar undertaking to, or subject to any
order or directive by, a recipient of any supervisory letter from or has
adopted any resolutions at the request of any Governmental Authority, or
been advised since December 31, 1997 by any Governmental Authority or SRO
that it is issuing or requesting any such order, agreement or other action;
or (iii) is, or any of its controlled Affiliates is, subject to a
"statutory disability" as defined in Section 3(a)(39) of the Exchange Act.
At all times when any of the Pershing Companies has controlled or been
under common control with, or had a division that functions as, a
specialist on the New York Stock Exchange ("NYSE") or another national
securities exchange (any such entity or division, a "Specialist"), each
such Pershing Company and such Specialist have operated in conformity with
information barriers under Rule 98 of the NYSE (or the analogous rule of
such other national securities exchange) that have been approved by the
NYSE (or such other national securities exchange).
(c) Section 3.14(c) of the Disclosure Schedule sets forth all
Governmental Authorities with which each of the Company, Pershing Trading,
Pershing Ltd. and Pershing Securities is registered as a Broker-Dealer.
The Company, Pershing Trading, Pershing Ltd. and Pershing Securities are
the only Pershing Companies with Broker-Dealer activities and, by virtue of
their Broker-Dealer activities, are not required to be registered in or
obtain a license or similar authorization from any other jurisdiction. The
Company, Pershing Trading, Pershing Ltd. and Pershing Securities, as
Broker-Dealers, have not exceeded the business activities in which they are
authorized by Governmental Authorities to engage enumerated in any
agreements with any Governmental Authority or any other limitations imposed
in connection with their registration forms (including Forms BD). Each of
the Pershing Companies has filed all reports, registrations and statements,
together with any amendments required to be made with respect thereto, that
it has been required to file since 1997 with any Governmental Authority.
All other reports and statements required to be filed by a Pershing Company
have been filed, including any report or statement required to be filed
pursuant to the laws, rules or regulations of the United States with
respect to the Company and Pershing Trading and of the United Kingdom with
respect to Pershing Ltd. and Pershing Securities, any state or any
Governmental Authority, and each of the Pershing Companies has paid all
fees and assessments due and payable in connection therewith. The
information contained in such registrations, forms and reports was true and
complete in all material respects as of the date of the filing thereof, and
timely amendments were filed, as necessary, to correct or update any
information reflected in such registrations, forms and reports. Each such
registration is in full force and effect. Except for normal examinations
conducted by an SRO in the regular course of the Company's or Pershing
Trading's business, no SRO has initiated any proceeding or investigation
into the business or operations of any Pershing Company. Except as set
forth in Section 3.14(c) of the Disclosure Schedule, there is no unresolved
violation or exception by any SRO with respect to any report or statement
relating to any examinations of the Company or Pershing Trading.
23
(d) Except for the Company, which is registered as an investment
advisor under the Investment Advisor Act of 1940, none of the Pershing
Companies is required to be registered as an investment advisor, including
registration under the Investment Advisor Act of 1940, as amended or
subject to regulation under the Investment Advisor Act.
(e) Except for the Company, which is (i) registered as a futures
commission merchant with the Commodity Futures Trading Commission, (ii) a
member of the National Futures Association and (iii) registered as a
municipal securities dealer, none of the Pershing Companies' activities
require any of them to be registered as an exchange or transfer agent, a
clearing agency, a municipal securities dealer, a government securities
dealer, a futures commission merchant, a commodity trading advisor or
commodity pool operator.
SECTION 3.15. Material Contracts. (a) Section 3.15(a) of the
Disclosure Schedule lists each of the following contracts and agreements of
the Pershing Companies (such contracts and agreements being "Material
Contracts"):
(i) all contracts and agreements relating to Indebtedness of the
Pershing Companies to a third party that individually are in excess of
$2,000,000;
(ii) all contracts and agreements with any Governmental Authority to
which any of the Pershing Companies is a party;
(iii) all contracts and agreements that limit or purport to limit the
ability of any of the Pershing Companies to compete in any line of business
or with any Person or in any geographic area or during any period of time;
(iv) all contracts and agreements between or among any of the Pershing
Companies and the Seller or any Affiliate of the Seller;
(v) all contracts and agreements, other than option and margin
agreements entered into in the ordinary course of business, to which any of
the Pershing Companies is a party requiring the payment of money in excess
of $1,000,000 during the 12 month period ending on the date hereof or that
would, on an annualized basis, have required such payment during such
period; provided, however, that with respect to those contracts and
agreements the terms of which prohibit the Seller from disclosing their
contents, the Seller shall only provide the Purchaser with a list of such
contracts and agreements;
(vi) all Company IP Licenses, other than shrink-wrap or click-through
licenses of computer software, contemplating an exchange of value in excess
of $1,000,000 during the 12 month period ending on the date hereof;
(vii) all contracts and agreements granting an Encumbrance, other than
Permitted Encumbrances, upon any property or asset of any Pershing Company;
(viii) all contracts and agreements obligating any Pershing Company to
pay to any Person any money as a result of the execution and delivery of
this Agreement or the consummation of the transactions contemplated herein;
24
(ix) all contracts and agreements providing for the acquisition or
disposition after the date of this Agreement of any Assets contemplating an
exchange of value in excess of $500,000;
(x) all contracts and agreements providing for a power of attorney on
behalf of any Pershing Company other than qualified service representative
agreements, stock powers of attorney and similar agreements; and
(xi) all leases and subleases in respect of Leased Real Property.
(b) Each Material Contract: (i) is valid and binding on each of
the Pershing Companies which is a party thereto, and, to the knowledge of
the Seller, the counterparties thereto, and is in full force and effect and
(ii) upon consummation of the transactions contemplated by this Agreement,
except to the extent that any consents set forth in Section 3.08 of the
Disclosure Schedule are not obtained, shall continue in full force and
effect without penalty or other adverse consequence. None of the Pershing
Companies is in breach of, or default under, any Material Contract, except
where such breach or default would not, individually or in the aggregate,
have a Material Adverse Effect, and to the knowledge of Seller, none of the
other parties thereto is in material default or material breach.
SECTION 3.16. REAL PROPERTY. (a) Section 3.16(a) of the
Disclosure Schedule lists all of the Leased Real Property. The Seller has
delivered to the Purchaser true and complete copies of all leases and
subleases relating to the Leased Real Property and any and all ancillary
documents pertaining thereto. Except as set forth in Section 3.16(a) of
the Disclosure Schedule, none of the Pershing Companies owns any real
property.
(b) Each parcel of Leased Real Property is leased free and clear
of all Encumbrances other than Permitted Encumbrances and is neither
subject to any governmental decree or order to be sold nor being condemned,
expropriated or otherwise taken by any public authority with or without
payment of compensation therefor, nor, to the knowledge of the Seller, has
any such condemnation, expropriation or taking been proposed, except, in
either case, as would not, individually or in the aggregate, have a
Material Adverse Effect.
(c) Except as set forth in Section 3.16(c) of the Disclosure
Schedule or except as would not have a Material Adverse Effect: (i) the
Pershing Companies and the Assets have complied at all times with all
Environmental Laws; (ii) no real property currently or formerly owned or
operated by the Pershing Companies has been contaminated with any substance
regulated under any Environmental Law; (iii) the Pershing Companies are not
subject to any Liability for off-site disposal or contamination; (iv) the
Pershing Companies and its Assets are not the subject of any Governmental
Orders, claims or notices alleging Liability under any Environmental Law;
and (v) to the knowledge of the Seller, there are no other circumstances or
conditions involving the Pershing Companies or the Assets that could
reasonably be expected to result in any Liabilities, or restrictions on the
ownership, use or transfer of any real property included in the Assets
under any Environmental Law.
25
As used herein, "Environmental Law" means any law, regulation,
Governmental Order, decree, common law or requirement of any Governmental
Authority relating to the protection of the environment or human health and
safety.
SECTION 3.17. Intellectual Property. (a) Section 3.17(a) of the
Disclosure Schedule sets forth a true and complete list of all (i) software
owned by any of the Pershing Companies, (ii) all patents and patent
applications, (iii) trademark registrations and applications, (iv)
copyright registrations and applications and (v) unregistered trademarks,
in each case, included in the Company Intellectual Property and, in the
case of (i), (iii), (iv) and (v), material to the operation of the
Business.
(b) Except as set forth in Section 3.17(b) of the Disclosure
Schedule, (i) to the knowledge of the Seller, the conduct of the Business
as currently conducted does not and will not, upon Closing, infringe,
misappropriate, violate or conflict with the Intellectual Property of any
third party (including the Seller and its Affiliates), and no written claim
has been asserted to the Seller or the Pershing Companies that the conduct
of the Business as currently conducted infringes or misappropriates the
Intellectual Property of any third party; (ii) to the knowledge of Seller,
no third party is infringing, misappropriating or violating any Company
Intellectual Property in any material respect; (iii) with respect to each
item of Company Intellectual Property owned by the Pershing Companies and
material to the Business, each of the Pershing Companies, as applicable, is
the owner of the entire unencumbered (other than licenses thereof) right,
title and interest in and to such Intellectual Property and is entitled to
use such Intellectual Property in the continued operation of its business;
(iv) with respect to each item of Company Intellectual Property licensed to
each of the Pershing Companies as licensee and material to the Business as
currently conducted, each of the Pershing Companies has the right to use
such Intellectual Property in the continued operation of its business as
currently conducted and as conducted as of Closing in accordance with the
terms of the Company IP License governing such Intellectual Property
without the need to pay any additional consideration; (v) to the knowledge
of Seller, the Company Intellectual Property is valid and enforceable and
has not been adjudged invalid or unenforceable in whole or part; (vi) in
connection with any registered or applied for Company Intellectual Property
owned by the Company and material to the operation of the Business, the
Company has taken commercially reasonable efforts to protect its validity,
including, without limitation, the payment of all renewal fees and
recordations of all assignments, transfers, name changes, and the like; and
(vii) to the knowledge of the Seller, no current or former Pershing Company
Employee or contractor is or was party to any valid agreement (directed to
non-disclosure, non-compete, exclusive services obligations or the like)
that restricts, restricted, forbids or forbade at any time during such
Employee or contractor's employment or engagement with the Pershing
Companies the activities or performance of duties of such Employee or
contractor for or on behalf of the Pershing Companies in connection with
the invention or creation of Intellectual Property for or on behalf of the
Pershing Companies.
(c) Except as set forth on Section 3.17(c) of the Disclosure
Schedule, the Pershing Companies have taken commercially reasonable
measures to protect the secrecy, confidentiality and value of all Trade
Secrets used in and material to the operation of the Business
(collectively, "Company Trade Secrets") (including without limitation
entering into appropriate confidentiality agreements with officers,
directors, employees, and other Persons with access to the Company Trade
Secrets).
26
SECTION 3.18. Assets. Except as would not, individually or in the
aggregate, have a Material Adverse Effect, each of the Pershing Companies
owns, leases or has the legal right to use all the properties and assets,
including Intellectual Property, used or intended to be used by the
Pershing Companies or otherwise owned, leased, licensed or used by the
Pershing Companies and, with respect to contract rights, is a party to and
enjoys the right to the benefits of all contracts, agreements and other
arrangements used or intended to be used by the Pershing Companies (all
such properties, assets and contract rights being the "Assets"). The
Assets, together with the Transferred Assets, the services to be provided
pursuant to the Transition Services Agreement, and the licenses to be
provided under the Cross License Agreement, constitute all the properties,
assets and rights forming a part of, used, held or intended to be used in,
and all such properties, assets and rights as are necessary in the conduct
of, the Business. At all times since the Interim Balance Sheet Date, the
Pershing Companies have caused the Assets to be maintained in accordance
with good business practice, and all the Assets are in good operating
condition and repair and are suitable for the purposes for which they are
used and intended. None of the Excluded Assets is necessary or desirable
for the conduct of the Business as currently conducted or intended to be
conducted by Seller.
SECTION 3.19. Employee Benefit Plans; Labor Matters. (a) Section
3.19 of the Disclosure Schedule contains a list of each "employee benefit
plan" as defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and each stock option, stock purchase,
fringe benefit, change in control, severance, retention, bonus and deferred
compensation plan, agreement and arrangement (collectively, the "Plans")
which are maintained or contributed to by the Seller or the Pershing
Companies with respect to any current or former Employee, officer or
director of the Pershing Companies or any beneficiary or dependent thereof
(collectively, the "Company Benefit Plans"), other than Company Benefit
Plans that are not material. With respect to each Company Benefit Plan,
the Seller has made available to the Purchaser a true and correct copy of
(i) the most recent annual report (Form 5500) filed with the IRS, (ii) such
Company Benefit Plan, (iii) each trust agreement relating to each Company
Benefit Plan maintained for Employees, (iv) the most recent summary plan
description for each Company Benefit Plan for which a summary plan
description is required, (v) the most recent actuarial report or valuation,
if any, relating to a Company Benefit Plan subject to Title IV of ERISA and
(vi) the most recent determination letter, if any, issued by the IRS with
respect to any Company Benefit Plan qualified under Section 401(a) of the
Code.
(b) With respect to the Company Benefit Plans, no event has
occurred and, to the knowledge of the Seller, there exists no condition or
set of circumstances in connection with which any of the Pershing Companies
could be subject to any actual or contingent liability under the terms of
such Company Benefit Plans, ERISA, the Code or any other applicable Law in
an amount that would be material.
(c) None of the Pershing Companies is a party to any collective
bargaining or other labor union contract applicable to any employee of the
Pershing Companies, and no collective bargaining agreement is being
negotiated by any of the Pershing Companies. As of the date hereof, there
is no labor dispute, strike or work stoppage against any of the Pershing
Companies pending or, to the knowledge of the Seller, threatened in writing
which may interfere with the respective business activities of any of the
Pershing Companies, except where such dispute, strike or work stoppage
would not be material. As of the date hereof, to the knowledge of the
Seller, none of the Pershing Companies or any of their respective
representatives or employees has committed any unfair labor practices in
connection with the operation of the Business, and there is no charge or
complaint against any of the Pershing Companies by the National Labor
Relations Board or any comparable government agency pending, or to the
knowledge of the Seller,
27
threatened in writing, except where such unfair labor practice, charge or
complaint would not have a Material Adverse Effect. Except as listed in
Section 3.19(c) of the Disclosure Schedule, there are no pending charges or
complaints alleging sexual or other harassment or other discrimination by
any of the Pershing Companies or any of their employees or agents pending
or, to the knowledge of the Seller, threatened in writing in each case
against Seller or the Pershing Companies. Each of Seller and the Pershing
Companies is, with respect to the Business, in substantial compliance with
all applicable laws relating to employment and employment practices, terms
and conditions of employment, wages and hours and affirmative action.
(d) Except with respect to arrangements or agreements the cost of
which will be borne by the Seller or its Affiliates (other than the
Pershing Companies), the Seller has listed in Section 3.19(d) of the
Disclosure Schedule and has made available to the Purchaser (i) copies of
all employment agreements with officers of the Pershing Companies (or
copies of forms of agreements setting forth representative employment terms
and conditions); (ii) copies of all retention and severance agreements,
programs and policies of the Pershing Companies with or relating to
employees, other than such agreements, programs and policies that are
required by applicable Law; and (iii) copies of all plans, programs,
agreements and other arrangements of the Pershing Companies with or
relating to employees which contain change in control provisions.
(e) Neither the execution of this Agreement, nor the consummation
of the transactions contemplated hereby will (i) entitle any employee to
severance pay becoming due under any Company Benefit Plan or any other
arrangement, other than such agreements, programs and policies that are
required by applicable Law, (ii) accelerate the time of payment or vesting
or trigger any payment or funding (through a grantor trust or otherwise) of
compensation or benefits under, increase the amount payable or trigger any
other obligation pursuant to, any of the Company Benefit Plans, or any
other arrangement, with respect to employees, other than such agreements,
programs and policies that are required by applicable Law, or (iii) result
in payments under any of the Company Benefit Plans which would not be
deductible for federal income Tax purposes by virtue of Section 280G of the
Code.
(f) Each Company Benefit Plan which is an "employee pension
benefit plan" within the meaning of Section 3(2) of ERISA and which is
intended to be qualified under Section 401(a) of the Code has received a
favorable determination letter from the Internal Revenue Service with
respect to all tax law changes prior to the Economic Growth and Tax Relief
Reconciliation Act of 2001 or has applied to the IRS for such favorable
determination letter within the applicable remedial amendment period and,
to the knowledge of the Seller , no circumstances exist that are reasonably
likely to result in the revocation or denial of any such favorable
determination letter.
(g) None of the Pershing Companies contribute to a "multiemployer
plan", as defined in Section 3(37) of ERISA, nor has it contributed to such
a plan within the past five calendar years.
28
(h) (i) All benefit and compensation plans, contracts, policies
or arrangements and deferred compensation, stock option, stock purchase,
stock appreciation rights, stock based, incentive and bonus plans covering
current or former employees based outside of the Untied States or
maintained outside of the United States that are subject to or governed by
the Law of any jurisdiction other than the United States (collectively, the
"Foreign Benefit Plans"), other than Foreign Benefit Plans that are not
material, are listed on Schedule 3.19(h)(i) of the Disclosure Schedule.
The Foreign Benefit Plans comply in all material respects with applicable
Law. All operating documents governing the Foreign Benefit Plans and all
employee communications and actuarial reports with respect to the Foreign
Benefit Plans made available to the Purchaser are complete and accurate in
all material respects.
(ii) Except as listed in Schedule 3.19(h)(ii) of the Disclosure
Schedule, the fair market value of the assets of each funded Foreign
Benefit Plan, the liability of each insurer for any Foreign Benefit Plan
funded through insurance or the book reserve established for any Foreign
Benefit Plan, together with any accrued contributions, is sufficient to
procure or provide for the accrued benefit obligations, calculated to the
Closing Date with respect to all current or former participants under such
Foreign Benefit Plan according to the actuarial assumptions and valuations
most recently used to determine employer contributions to such Foreign
Benefit Plan.
(iii) For purposes of this subsection 3.19(h), "Benefit" means any
pension, lump sum, indemnity, gratuity, deferred compensation, payment of
medical expenses or other like benefit given or to be given on or in
anticipation of or after leaving employment for any reason, including
death, or in connection with any change in the nature of the service of the
employee, or on retirement or death. "Scheme" means the Pershing Limited
Pension Plan established November 30, 1987.
(iv) Except pursuant to the Scheme or as listed on Schedule
3.19(h)(iv) of the Disclosure Schedule, none of the Pershing Companies has
paid, provided or contributed towards, nor is under any obligation or
commitment (whether or not legally enforceable) to pay, provide or
contribute towards, any Benefit for or in respect of any present or past
employee (or any spouse, child or dependent of any of them) of any Pershing
Company in the UK.
(v) The Scheme is approved as an exempt approved scheme (within
the meaning of section 592, UK Income and Corporation Taxes Act 1988) and
is contracted out of the UK second state pension, and, to the knowledge of
the Seller, there is no ground on which approval or contracted out status
may be reasonably expected to be withdrawn or cease to apply.
(vi) There is no litigation or dispute or, to the knowledge of
the Seller, threat of litigation in connection with the Scheme. To the
knowledge of the Seller, no investigation by the Pensions Ombudsman, the
Occupational Pensions Regulatory Authority or the Inland Revenue has been
or is being carried out in relation to the Scheme.
(vii) The last actuarial valuation of the Scheme was dated as of
April 1, 2002 (the "Last Valuation"). To the knowledge of the Seller, the
data and other information provided to the actuary for the Last Valuation
is complete and accurate in all material respects.
29
(viii) Except pursuant to the Foreign Benefit Plans or as
required by applicable Law, no Benefit is provided for any employee or
former employee who is employed by the Pershing Companies located in India.
SECTION 3.20. Taxes. (a) Except as would not have a Material
Adverse Effect, (i) all Tax returns required to be filed by each Pershing
Company or in which any Pershing Company is required to be included with
respect to Taxes for any period ending on or before the Closing Date,
taking into account any extension of time to file granted to or obtained on
behalf thereof, have been timely filed or will be timely filed, (ii) all
Taxes due and payable (including estimated Taxes) have been paid or will be
paid except to the extent the same are being contested in good faith, (iii)
all such Tax returns of each of the Pershing Companies are true, correct
and complete in all material respects, (iv) no deficiency for any material
amount of Tax has been asserted or assessed by a taxing authority against
any of the Pershing Companies, (v) none of the Internal Revenue Service or
any foreign, state or local taxing authority has proposed any adjustment to
any such Tax return that relates to the Business, (vi) no claim has been
made by any taxing authority or jurisdiction in which any Pershing Company
does not file Tax returns that any Pershing Company is subject to Tax by
that jurisdiction and (vii) there are no Tax liens with respect to any
assets of the Pershing Companies other than liens for Taxes not yet due and
payable.
(b) [Intentionally Omitted]
(c) [Intentionally Omitted]
(d) The LLC will be treated as a disregarded entity for U.S.
federal income Tax purposes immediately prior to and at the time of the
Closing and none of the Seller, the Company (prior to the LLC Conversion)
or the LLC (following the Conversion) or any of their respective Affiliates
will take any action or fail to take any action that would cause the LLC to
be treated as other than a disregarded entity for any such income Tax
purpose. Pershing Ltd., Cadogan Nominees Limited, ▇▇▇▇▇▇▇▇ ▇▇▇▇ Nominees
Limited and Pershing Nominees Limited are properly treated as disregarded
entities for U.S. federal income Tax purposes, and Pershing Trading is
treated as a partnership for such purposes. As of the date of this
Agreement, Pershing ICS Nominees Limited is treated as a partnership for
U.S. federal income Tax purposes but it is anticipated that on or prior to
the Closing Date, Pershing ICS Nominees Limited will be a disregarded
entity (and, if not a disregarded entity, Pershing ICS Nominees Limited
will remain a partnership). If regulatory approvals are obtained, Tech
will be a disregarded entity on the Closing Date, and, if established
pursuant to Section 5.01(a) and (b) of the Disclosure Schedule, the Leasing
Entity (as defined in such schedule) will be a disregarded entity on the
Closing Date.
(e) Except as would not have a Material Adverse Effect, (i) the
Pershing Companies or their agents have complied with all applicable
withholding Tax rules (including, without limitation, withholding on
payments from payments to Employees, beneficiaries of Qualified Plans and
customers), have deposited all amounts withheld pursuant to such rules in a
proper and timely manner, have obtained and maintained all records and
documents required by any withholding Tax or information reporting rules,
and have timely and properly sent to all recipients of all reportable
payments or amounts, and has filed with the Internal Revenue Service and
any state and local taxing authorities all reports on Forms 1099 or 1042-S,
or similar
30
reports, required to be so sent or filed in respect of any such amount paid
to such recipients on or prior to the Closing Date; (ii) all such records
are, as of the date hereof, true, complete and correct in all respects; and
(iii) the Pershing Companies or their agents have recorded in the
processing system any notice pursuant to Section 3406(a)(1)(B) or (C) of
the Code received with respect to any Person in connection with the
Business.
(f) [Intentionally Omitted]
(g) Pershing Securities Limited (QI EIN ▇▇-▇▇▇▇▇▇▇) is the only
Pershing Company that is a "Qualified Intermediary" for federal Tax
purposes and it has complied with all material requirements applicable to
Qualified Intermediaries.
SECTION 3.21. Brokers. Except for any fees and expenses for which
the Seller is solely responsible, no broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Seller.
SECTION 3.22. No Other Representations. Neither the Seller, the
Pershing Companies nor any of their respective directors, officers,
employees, agents or representatives has made, or shall be deemed to have
made, and neither the Seller nor any of the Pershing Companies is liable
for or bound in any manner by, any express or implied representations,
warranties, guaranties, promises or statements pertaining to the Pershing
Companies or any of their respective assets or businesses, except as
specifically set forth in this Article III.
SECTION 3.23. Customer Clearing Agreements. (a) Each Customer
Clearing Agreement is valid and binding on each of the Pershing Companies
which is a party thereto, and, to the knowledge of the Seller, the
counterparties thereto, and is in full force and effect. Except as set
forth in Section 3.23 of the Disclosure Schedule, neither the Seller nor
any Pershing Company has received any notice that any Correspondent listed
on Annex A (i) has ceased, or will cease prior to the Closing, to use the
services of the applicable Pershing Company (the "Services") or, after the
Closing, the services of the Purchaser as they relate to the Business, (ii)
has substantially reduced, or will substantially reduce prior to the
Closing, the use of Services or, after the Closing, the services of the
Purchaser as they relate to the Business, or (iii) has sought, or is
seeking to reduce, the price it will pay for the Services prior to the
Closing, or after the Closing, the services of the Purchaser as they relate
to the Business.
(b) Except as set forth in Section 3.23 of the Disclosure
Schedule, none of the Pershing Companies is party to a contract with any
Prime Brokerage Customer.
SECTION 3.24. Insurance. Section 3.24 of the Disclosure Schedule
sets forth a list of all of the insurance policies, binders, or bonds
maintained by the Pershing Companies ("Insurance Policies"). The Pershing
Companies are insured with reputable insurers against such risks and in
such amounts as the management of the Pershing Companies reasonably has
determined to be prudent in accordance with industry practices. All of the
Insurance Policies are in full force and effect; the Pershing Companies are
not in material default thereunder; and all claims thereunder have been
filed in due and timely fashion.
31
SECTION 3.25. Derivatives; etc. Except as set forth in Section
3.25 of the Disclosure Schedule, none of the Pershing Companies has entered
into any off balance sheet items, swaps, caps, floors, option agreements,
futures and forward contracts or other similar arrangements for its own
account and any such off balance sheet items, swaps, caps, floors, option
agreements, futures and forward contracts and other similar arrangements
entered into for the account of any customer of any Pershing Company have
been entered into in accordance with all applicable laws, rules,
regulations and regulatory policies and, to the extent required by U.S.
GAAP, have been disclosed in the Financial Statements.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
As an inducement to the Seller to enter into this Agreement, the
Purchaser and hereby represents and warrants to the Seller as follows:
SECTION 4.01. Organization and Authority of the Purchaser . The
Purchaser is a bank holding company duly organized, validly existing and in
good standing under the laws of the State of New York. The Purchaser has
all necessary corporate power and authority to enter into this Agreement,
to carry out its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the
Purchaser, the performance by the Purchaser of its obligations hereunder
and the consummation by the Purchaser of the transactions contemplated
hereby have been duly authorized by all requisite action on the part of the
Purchaser. This Agreement has been duly executed and delivered by the
Purchaser and (assuming due authorization, execution and delivery by the
Seller) this Agreement constitutes a legal, valid and binding obligation of
each of the Purchaser enforceable against the Purchaser in accordance with
its terms.
SECTION 4.02. No Conflict. The execution and delivery and,
assuming compliance with the notification requirements of the HSR Act and
the making and obtaining of all filings, notifications, consents,
approvals, authorizations and other actions referred to in Section 4.03,
except as may result from any facts or circumstances relating solely to the
Seller or any Pershing Company, the performance of this Agreement by the
Purchaser do not and will not (a) violate, conflict with or result in the
breach of any provision of the certificate of incorporation or bylaws or
equivalent organizational documents of the Purchaser, (b) conflict with or
violate any Law or Governmental Order applicable to the Purchaser or (c)
conflict with, result in any breach of, constitute a default (or event
which with the giving of notice or lapse or time, or both, would become a
default) under, require any consent under, give to others any rights of
termination, amendment, acceleration, suspension, revocation or
cancellation of, or result in the creation of any Encumbrance on any of the
assets or properties of the Purchaser pursuant to, any note, bond, mortgage
or indenture, contract, agreement, lease, sublease, license, permit,
franchise or other instrument or arrangement to which the Purchaser is a
party or by which any of such assets or properties are bound or affected
which would have a material adverse effect on the ability of the Purchaser
to perform its obligations under this Agreement or consummate the
transactions contemplated hereby.
32
SECTION 4.03. Governmental Consents and Approvals. The
execution, delivery and performance of this Agreement by the Purchaser do
not and will not require any consent, approval, authorization or other
order of, action by, filing with, or notification to, any Governmental
Authority, except (a) in cooperation with the Seller and the Pershing
Companies in seeking all approvals required by the Seller and the Pershing
Companies from Governmental Authorities in performance of this Agreement,
(b) (i) the approval of the Board of Governors of the Federal Reserve
System, (ii) the approval of the New York State Banking Department, (iii)
the approval of the NASD and (iv) the approval of the NYSE, (c) with
respect to Pershing Ltd., the approval of the FSA pursuant to the Financial
Services and ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇, Section 178 et seq., (d) the notification
requirements of the HSR Act and (e) such other filings, notifications,
approvals and consents under the merger control laws and regulations of any
country or transnational body as are considered by the Purchaser using its
reasonable judgment to be necessary or appropriate.
SECTION 4.04. Investment Purpose. The Purchaser is acquiring the
Equity Interests solely for the purpose of investment and not with a view
to, or for offer or sale in connection with, any distribution thereof.
SECTION 4.05. Financing. At the Closing Date, the Purchaser will
have available sufficient funds to pay the Purchase Price.
SECTION 4.06. Litigation. No claim, action, proceeding or
investigation is pending or, to the best knowledge of the Purchaser after
due inquiry, threatened, that seeks to delay or prevent the consummation
of, or that would be reasonably likely to materially adversely affect the
Purchaser's ability to consummate, the transactions contemplated by this
Agreement.
SECTION 4.07. Brokers. Except for any fees and expenses for
which the Purchaser is solely responsible, no broker, finder or investment
banker is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Purchaser.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Conduct of Business Prior to the Closing. (a) The
Seller covenants and agrees that, except as described in Section 5.01(a) of
the Disclosure Schedule, between the date hereof and the time of the
Closing, none of the Pershing Companies shall conduct its business other
than in the ordinary course and consistent with past practice. Without
limiting the generality of the foregoing, except as described in Section
5.01(a) of the Disclosure Schedule, the Seller shall cause each of the
Pershing Companies to (i) use its reasonable efforts to (A) preserve intact
its business organization and (B) preserve its current relationships with
its customers and other persons with which it has significant business
relationships; (ii) exercise, but only after notice to the Purchaser and
receipt of the Purchaser's prior written approval, any rights of renewal
pursuant to the terms of any leases or subleases that by their terms would
otherwise expire; (iii) not shorten or lengthen the customary payment
cycles for any of its payables or receivables, except as required pursuant
to Section 5.13; and (iv) not engage in any practice, take any action, fail
to take any action or
33
enter into any transaction which could cause any representation or warranty
of the Seller to be untrue or result in a breach of any covenant made by
the Seller in this Agreement; provided, however, that prior to the Closing,
subject to the provisions of Section 2.06, the Seller may, in its sole
discretion and without the consent of the Purchaser, cause to be
distributed to Seller any cash from the accounts of the Pershing Companies
as it deems desirable.
(b) Except as described in Section 5.01(b) of the Disclosure
Schedule, the Seller covenants and agrees that, prior to the Closing,
without the prior written consent of the Purchaser, not to be unreasonably
withheld, the Company will not do any of the things enumerated in the
second sentence of Section 3.11.
SECTION 5.02. Access to Information. (a) From the date hereof
until the Closing, upon reasonable notice, the Seller shall cause each of
the Pershing Companies and each of its officers, directors, employees,
agents, representatives, accountants and counsel to: (i) afford the
officers, employees and authorized agents, accountants, counsel, financing
sources and representatives of the Purchaser reasonable access, during
normal business hours, to the offices, properties, plants, other
facilities, books and records of the Pershing Companies (other than
privileged materials and subject to the applicable privacy laws) and to
those officers, directors, employees, agents, accountants and counsel of
the Pershing Companies who have any knowledge relating to the Pershing
Companies and (ii) furnish to the officers, employees and authorized
agents, accountants, counsel, financing sources and representatives of the
Purchaser such additional financial and operating data and other
information regarding the business, assets, properties, personnel and
goodwill of the Pershing Companies (or legible copies thereof) as the
Purchaser may from time to time reasonably request.
(b) In order to facilitate the resolution of any claims made
against or incurred by the Seller prior to the Closing, for a period of
seven years after the Closing, the Purchaser shall (i) retain the books and
records of the Pershing Companies relating to periods prior to the Closing
in a manner reasonably consistent with the Purchaser's practice and (ii)
upon reasonable notice, subject to applicable privacy laws and obligations,
afford the officers, employees and authorized agents and representatives of
the Seller reasonable access (including the right to make, at the Seller's
expense, photocopies), during normal business hours, to such books and
records.
(c) In order to facilitate the resolution of any claims made by
or against or incurred by the Purchaser or the Pershing Companies after the
Closing or for any other reasonable purpose, for a period of seven years
following the Closing, the Seller shall (i) retain the books and records of
the Seller that relate to the Pershing Companies and its operations for
periods prior to the Closing and that shall not otherwise have been
delivered to the Purchaser or the Pershing Companies in a manner reasonably
consistent with the Seller's practice and (ii) upon reasonable notice,
subject to applicable privacy laws and obligations, afford the officers,
employees and authorized agents and representatives of the Purchaser or the
Pershing Companies reasonable access (including the right to make
photocopies at the expense of the Purchaser or the Pershing Companies),
during normal business hours, to such books and records.
34
SECTION 5.03. Confidentiality. (a) The terms of the
Confidentiality Agreement are hereby incorporated herein by reference and
shall continue in full force and effect until the Closing, at which time
such Confidentiality Agreement and the obligations of the Purchaser under
this Section 5.03 shall terminate; provided, however, that the
Confidentiality Agreement shall terminate only in respect of that portion
of the Evaluation Material (as defined in the Confidentiality Agreement)
exclusively relating to the Business and the transactions contemplated by
this Agreement. If this Agreement is, for any reason, terminated prior to
the Closing, the Confidentiality Agreement shall continue in full force and
effect.
(b) The Seller agrees that it shall enforce any and all
confidentiality agreements entered into at any time with any Person (other
than the Purchaser) in connection with the potential sale of the Pershing
Companies, including by requesting, subject to the limitations set forth in
such confidentiality agreements, the return or the destruction of the
Evaluation Materials (as defined therein).
(c) The Seller agrees to keep confidential all nonpublic
information in its possession regarding the Business (including any
information made available to the Seller pursuant to Section 5.02(c));
provided, however, that the Seller will not be required to maintain as
confidential any information that (i) becomes generally available to the
public other than as a result of a disclosure by the Seller or (ii) is
required to be disclosed pursuant to the terms of a Governmental Order or
other legal requirement.
SECTION 5.04. Regulatory and Other Authorizations; Notices and
Consents. (a) Each of the Seller and the Purchaser shall use its
reasonable best efforts to promptly obtain all authorizations, consents,
orders and approvals of all Governmental Authorities that may be or become
necessary for the performance of its and the other party's obligations
pursuant to, and the consummation of the transactions contemplated by, this
Agreement. The Seller will, and will cause the Pershing Companies to,
cooperate with the Purchaser, and the Purchaser will cooperate with the
Seller, in promptly seeking to obtain all such authorizations, consents,
orders and approvals; provided, however, that neither the Purchaser nor the
Seller shall be required to pay any fees or other payments to any such
Governmental Authorities in order to obtain any such authorization,
consent, order or approval (other than normal filing fees that are imposed
by Law on the Purchaser or the Seller, as the case may be). Neither the
Seller nor the Purchaser shall knowingly take any action that would have
the effect of delaying, impairing or impeding the receipt of any required
approval. Notwithstanding the foregoing, nothing shall prevent the
Purchaser or any of its Affiliates from conducting their business in the
ordinary course. The Seller and the Purchaser each agree to make, or to
cause to be made, (i) an appropriate filing of a notification and report
form pursuant to the HSR Act and (ii) any other filing or notification
required by any other applicable Law, in each case, with respect to the
transactions contemplated by this Agreement within fifteen Business Days
after the date of this Agreement in the case of the HSR Act, and as
promptly as reasonably practicable in the case of any other filing or
notification, and to supply promptly any additional information and
documentary material that may be requested pursuant to the HSR Act or any
other applicable Law.
(b) Each party to this Agreement, to the extent permitted by
applicable Law, shall promptly notify the other party of any communication
it or any of its Affiliates receives from any Governmental Authority
relating to the matters that are the subject of this Agreement and, to the
extent
35
practicable, permit the other party to review in advance any such proposed
communication by such party to any Governmental Authority, other than
ordinary course filings. No party to this Agreement shall agree to
participate in any meeting with any Governmental Authority in respect of
any filings, investigation or other inquiry unless it consults with the
other party in advance and, to the extent permitted by such Governmental
Authority, gives the other party the opportunity to attend and participate
at such meeting except to the extent that such meeting, in the reasonable
judgment of such party, would involve confidential discussions with a bank
regulatory authority. Subject to the Confidentiality Agreement, each party
to this Agreement will coordinate and cooperate fully with the other
parties in exchanging such information and providing such assistance as
such other party may reasonably request in connection with the foregoing
and in seeking early termination of any applicable waiting periods under
the HSR Act. Subject to the Confidentiality Agreement, each party to this
Agreement will provide the other party with copies of all correspondence,
filings or communications between it or any of its representatives, on the
one hand, and any Governmental Authority or members of its staff, on the
other hand, with respect to this Agreement and the transactions
contemplated by this Agreement. The preceding provisions of this Section
5.04(b) apply only through the Closing Date or termination of this
Agreement; except that the foregoing provisions of this subparagraph (b)
shall continue to apply to the extent that a Governmental Authority
requires a filing or notification promptly following the Closing Date.
(c) Each party agrees to cooperate in obtaining any other
consents and approvals that may be required in connection with the
transactions contemplated by this Agreement.
SECTION 5.05. CSFB, Inc. Joint and Several Liability. The Seller
agrees that, prior to the Closing Date, CSFB, Inc., a Delaware corporation,
will agree to be jointly and severally liable with the Seller for the
obligations of the Seller hereunder, which form of agreement will be in
form and substance reasonably satisfactory to the Purchaser (the "CSFB
Agreement").
SECTION 5.06. Investigation. (a) The Purchaser acknowledges and
agrees that (i) it has made its own inquiry and investigation into, and,
based thereon, has formed an independent judgment concerning, the Business
and the Pershing Companies and (ii) neither the Seller, the Pershing
Companies nor any of their respective directors, officers, employees,
agents or representatives has made, or shall be deemed to have made, and
none of such persons or the Seller or the Pershing Companies shall be
liable for or bound in any manner by, any express or implied
representations, warranties, guaranties or promises pertaining to the
Business, the Pershing Companies or any of their assets, except as
specifically set forth in Article III of this Agreement.
(b) In connection with the Purchaser's investigation of the
Business, the Purchaser has received from the Seller certain estimates,
projections and other forecasts for the Business, and certain prospective
plan and budget information. The Purchaser acknowledges that there are
uncertainties inherent in attempting to make such projections, forecasts,
plans and budgets, that the Purchaser is familiar with such uncertainties,
that the Purchaser is taking full responsibility for making its own
evaluation of the adequacy and accuracy of all estimates, projections,
forecasts, prospective plans and budgets so furnished to it, and that the
36
Purchaser will not assert any claim against the Seller or any of its
directors, officers, employees, agents, stockholders, Affiliates,
consultants, counsel, accountants, investment bankers or representatives,
or hold the Seller or any such persons liable, with respect thereto.
Accordingly, the Seller makes no representation or warranty with respect to
any estimates, projections, forecasts, prospective plans or budgets
referred to in this Section 5.06(b).
SECTION 5.07. Use of Names. (a) Notwithstanding any other
provision of this Agreement to the contrary, no interest in or right to use
the names "Credit Suisse First Boston," "CSFB," "▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇" or "DLJ" or any confusingly similar derivation or modification
thereof or any trademark, servicemark, trade dress, logo, domain name, URL
(universal resource locator), trade name or corporate name of the Seller or
any of its Affiliates (collectively, the "Retained Names and Marks") is
being transferred to the Purchaser pursuant to the transactions
contemplated hereby and, the use of any Retained Names and Marks in
connection with the Business by the Purchaser or the Pershing Companies
shall cease as of the Closing Date. The Purchaser, promptly following the
Closing Date and in any event within three months thereafter, will, and
will cause the Pershing Companies and any of their Affiliates to, remove or
obliterate all the Retained Names and Marks from its signs, web sites,
labels, letterheads and other items and materials of the Business and
otherwise, and not put into use after the Closing Date any such items and
materials not in existence on the Closing Date that bear any Retained Name
or ▇▇▇▇ or any name, ▇▇▇▇ or logo similar thereto. The Purchaser agrees
that the Seller shall not have any responsibility for claims by third
parties arising out of, or relating to, the use after the Closing Date by
the Purchaser, the Pershing Companies or any Affiliate thereof of any
Retained Name or ▇▇▇▇.
(b) No later than two Business Days after the Closing Date, the
Purchaser shall cause the Pershing Companies to change their names so as to
eliminate any reference to any of the Retained Names and Marks.
SECTION 5.08. Release of Indemnity Obligations. The Seller and
the Purchaser will cooperate with each other with a view to enter into
arrangements effective as of the Closing whereby the Purchaser or its
Affiliates would be substituted for the Seller or its Affiliate in any
guarantees, letters of comfort, indemnities or similar arrangements entered
into by the Seller or its Affiliates for the benefit of the Pershing
Companies; provided, however, that if the Purchaser or its Affiliates
cannot enter into such arrangements, the Seller shall not terminate such
guaranty arrangements without the Purchaser's consent; provided, however,
that the Purchaser or any of its Affiliate shall enter into a separate
guaranty with the Seller or any of its Affiliate to guarantee the
performance of the obligations of the relevant Pershing Company pursuant to
the contract underlying such guaranty arrangements. Notwithstanding the
foregoing, to the extent that the Purchaser or any of its Affiliate is
substituted for the Seller or any of its Affiliate in any guaranty, letter
of comfort, indemnity or similar arrangement and such guaranty is made to
guaranty the performance of the Seller or any of its Affiliate (other than
a Pershing Company) under an Affiliate agreement or otherwise, the Seller
will indemnify the Purchaser or its Affiliate for any payments actually
made by the Purchaser or such Affiliate pursuant to such guaranty agreement
solely to the extent that such payment made by the Purchaser or such
Affiliate arises from the performance or nonperformance of the Seller or
its Affiliate (other than a Pershing Company) pursuant to such Affiliate
agreement.
37
SECTION 5.09. Other Agreements. (a) At the Closing, the Seller
and certain of its Affiliates shall enter into (i) a transition services
agreement with the Company and the Purchaser, if applicable, pursuant to
which (A) the Seller or one or more of its Affiliates will provide to the
Company or the Purchaser services reasonably required by the Company or the
Purchaser to enable it to conduct the Business substantially as conducted
prior to the Closing Date and (B) the Company will provide to the Seller
and its Affiliates services reasonably required by the Seller and its
Affiliates to enable them to conduct their business substantially as
conducted prior to the Closing Date, which services will, in each case, be
provided at prices determined on the basis of fairly allocated costs and
will include the continuation at market rates for a period of two years
following the Closing Date of services in respect of the options crossing
engine of the Seller (the "Transition Services Agreement"), (ii) the
Clearing Agreement and (iii) the Stock Loan Agreement, in each case in
accordance with the terms of this Agreement and otherwise in form and
substance reasonably acceptable to the Seller and the Purchaser. The
Seller and the Purchaser will negotiate in good faith the Transition
Services Agreement, the Clearing Agreement and the Stock Loan Agreement, in
each case with a view to reaching an agreement thereon before the 60th day
following the date hereof.
(b) At the Closing, the Seller and certain of its Affiliates, on
the one hand, and the Purchaser and certain of its Affiliates, on the other
hand, shall enter into a cross-license agreement (the "Cross License
Agreement"), to be negotiated in good faith, pursuant to which: (i) the
Seller and certain of its Affiliates shall grant to the Purchaser and
certain of its Affiliates a limited non-exclusive, "as-is" right and
license to use certain Intellectual Property, other than Trademarks
included in the Excluded Assets, for a limited period of time in connection
with the operation of the Business as operated immediately prior to the
Closing Date; and (ii) the Purchaser and certain of its Affiliates shall
grant to the Seller and certain of its Affiliates a limited non-exclusive,
"as-is" right and license to use Intellectual Property owned by or licensed
to the Company or transferred to or licensed to the Purchaser and certain
of its Affiliates as a result of the transactions contemplated hereby in
connection with the operation by the Seller and such Affiliates of their
respective businesses in substantially the same manner as such businesses
are operated immediately prior to the Closing Date.
(c) Promptly following the date hereof, the Seller and the
Purchaser will engage in good faith discussions with a view to promptly
entering into a mutually satisfactory clearing agreement under which the
Company would, prior to the Closing Date, provide securities clearing
execution and related services to the correspondents and other introducing
customers of BNY Clearing Services LLC.
(d) Promptly following the date hereof, the Seller and the
Purchaser will engage in good faith discussions with a view to entering
into at the Closing one or more mutually satisfactory agreements under
which the Company would continue to provide to each of Credit Suisse First
Boston (Europe) Limited and Credit Suisse Asset Management Securities, Inc.
services substantially similar to the services being provided by the
Company to such entities on the date hereof.
SECTION 5.10. Leases. With respect to the Leased Real Property,
the Seller will, and will cause its applicable Affiliate to, use its
commercially reasonable efforts to obtain such third party consents as are
necessary to assign the corresponding lease agreements to the Pershing
Companies. The
38
parties hereto agree that, in the event any such consent is not obtained
prior to Closing, the Seller will, subsequent to the Closing, cooperate
with the Purchaser and the Pershing Companies in attempting to obtain such
consent as promptly thereafter as practicable. Until and unless such
consent is obtained, the Seller shall use commercially reasonable efforts
to provide the Pershing Companies or the Purchaser with the rights and
benefits of the affected lease and, if the Seller provides such rights and
benefits, the Pershing Companies or the Purchaser shall assume the
obligations and burdens thereunder, all on terms substantially similar to
those set forth in such affected lease. The Purchaser will use reasonable
efforts to cooperate with the Seller in obtaining any of the foregoing
consents from third parties and, if applicable, in obtaining any of such
rights and benefits. In the event such consents, rights or benefits are
not obtained, the Purchaser will, and will cause the Pershing Companies to,
take all reasonable actions to mitigate any Losses arising from the failure
to obtain the foregoing.
SECTION 5.11. Conversion. Prior to the Closing Date, the Seller
shall, and shall cause certain of its Affiliates to, take all actions
necessary (including compliance with all applicable notification of the
NASD and the NYSE) to effect the Conversion. Upon completion of the
Conversion, the Company shall be a limited liability company wholly owned
by the Seller.
SECTION 5.12. Further Action. Each of the parties hereto shall
use all reasonable efforts to take, or cause to be taken, all appropriate
action, do or cause to be done all things necessary, proper or advisable
under applicable Law, and execute and deliver such documents and other
papers, as may be required to carry out the provisions of this Agreement
and the Ancillary Agreements and consummate and make effective the
transactions contemplated by this Agreement and the Ancillary Agreements.
SECTION 5.13. Intercompany Accounts. All intercompany accounts
between the Pershing Companies, on the one hand, and their Affiliates, on
the other hand, shall be settled at or prior to the Closing, and at the
Closing, the Purchaser shall repay to the Seller the amount of principal
(in the amount of $480 million) plus accrued interest outstanding under the
Subordinated Debenture.
SECTION 5.14. Transfer of Assets. (a) At or prior to the Closing,
the Seller shall cause all right, title and interest to the assets of the
Seller and its Affiliates used in the Business and described in Section
5.14(a) of the Disclosure Schedule (the "Owned Assets") to be transferred
to the Purchaser or its designee pursuant to a ▇▇▇▇ of sale and assignment
substantially in the form attached as Exhibit 5.14(a) hereto (the "▇▇▇▇ of
Sale").
(b) At or prior to the Closing, (i) the Seller shall cause all
right, title and interest to the assets of the Seller and its Affiliates
leased to the Pershing Companies and described in Section 5.14(b) of the
Disclosure Schedule (the "Leased Assets" and, together with the Owned
Assets, the "Transferred Assets") to be transferred to the Purchaser or its
designee pursuant to the ▇▇▇▇ of Sale.
(c) At or prior to the Closing, the Seller shall cause the
Company to transfer all right, title and interest to the Excluded Assets to
the Seller or one of its Affiliates pursuant to a ▇▇▇▇ of sale and
assignment substantially in the form attached as Exhibit 5.14(c) hereto.
39
SECTION 5.15. Notification of Certain Matters. (a) Each of the
Seller and the Purchaser shall give prompt notice to the other of any fact,
event or circumstance known to it that is reasonably likely, individually
or taken together with all other facts, events and circumstances known to
it, to result in a breach of any of its representations, warranties,
covenants or agreements contained herein such that any of the conditions
contained in Article VIII would not be satisfied.
(b) The Seller shall promptly notify the Purchaser, and the
Purchaser shall promptly notify the Seller of any notice or other
communication from any Person alleging that the consent of such Person is
or may be required as a condition to the completion of any of the
transactions contemplated hereunder except for such consents or notices
already indicated as being required as set forth in this Agreement or
attached Schedules that are a part of this Agreement.
SECTION 5.16. Non-Compete. Until the third anniversary of the
Closing Date, except as otherwise permitted in this Section 5.16, neither
the Seller nor any of its controlled Affiliates shall, and the Seller shall
use all reasonable efforts to cause its other Affiliates not to, commence
any new activities in the United States involving the direct or indirect
provision, for its own account or solely or jointly for the benefit of
others, of securities clearing and execution outsourcing services on a
"correspondent clearing" basis, as such term is understood in the
securities brokerage industry (a "Competing Business"). Notwithstanding
the foregoing, neither the Seller nor any of its Affiliates shall be
precluded from directly or indirectly (a) (i) acquiring some or all of the
interests in, being acquired by, merging with, or entering into any other
business combination with, an entity that includes a Competing Business and
(ii) following any of the foregoing, continuing to operate such Competing
Business, (b) providing clearing and execution services to the Seller or
any of its Affiliates except as otherwise provided in the Clearing
Agreement, or (c) engaging in any business or activity in which the Seller
or any of its Affiliates is engaged as of the date hereof (after giving
effect to the consummation of the transactions contemplated by this
Agreement). Due to the irreparable injury and damage to the Purchaser that
could result from a violation of this Section 5.16, the Purchaser shall be
entitled to injunctive relief against the violation by the Seller or any of
its Affiliates of this Section 5.16 in addition to any remedy otherwise
available to the Purchaser. If any court of competent jurisdiction shall
hold that the restrictions contained in this Section 5.16 are unreasonable,
such restrictions shall be deemed to be reduced, but only to the extent
necessary, in the opinion of such court, to make them reasonable.
ARTICLE VI
EMPLOYEE MATTERS
SECTION 6.01. General. The Purchaser hereby agrees that, for a
period of two years immediately following the Closing Date, it shall, or
shall cause the Pershing Companies to, provide the Employees with at least
the same level of base salary as in effect on the Closing Date and to
provide the Employees with benefits under employee benefit plans, programs,
contracts and arrangements for the benefit of active and former Employees
the value of which is substantially comparable in the aggregate to the
value of such benefits provided to such Employees under the employee
benefit plans, programs, contracts and arrangements (other than the value
of any retiree
40
health benefits or the special termination program in connection with the
Fall 2002 workforce reduction) of the Pershing Companies as in effect
immediately prior to the Closing Date. From and after the Closing Date,
the Purchaser shall honor, or shall cause the Pershing Companies to honor,
in accordance with their terms, all employment and severance agreements and
all severance, incentive and bonus plans as in effect immediately prior to
the Closing Date and listed on Section 3.19 of the Disclosure Schedule that
are applicable to any current or former employees or directors of the
Company (except for the special termination program in connection with the
Fall 2002 workforce reduction). Notwithstanding the foregoing, the
Purchaser agrees that, for a period of one year immediately following the
Closing Date, it shall, or shall cause the Pershing Companies to, provide
the Employees with at least the same level of benefits provided under the
special termination program in connection with the Fall 2002 Workforce
reduction as in effect immediately prior to the date hereof.
SECTION 6.02. Service Recognition. Employees shall receive for
purposes of eligibility to participate and vesting, (but not for the
purposes of benefit accrual) under any employee benefit plan, program or
arrangement established or maintained by the Purchaser or the Pershing
Companies credit for service accrued or deemed accrued on or prior to the
Closing Date with the Pershing Companies or any of their Affiliates.
Notwithstanding the above, Employees shall receive credit for purposes of
eligibility to receive benefits for purposes of vacation pay, early
retirement subsidy (if any), and any severance plan, program and
arrangement.
SECTION 6.03. WARN. The Purchaser shall be responsible for any
obligation with respect to employees of the Pershing Companies under the
Worker Adjustment Retraining and Notification Act of 1988 and any
applicable state or local Law equivalent (collectively, the "WARN Act")
arising or accruing on and after the Closing Date. The Seller shall be
responsible for any obligation with respect to employees of the Pershing
Companies under the WARN Act arising or accruing before the Closing Date.
The parties agree to cooperate in good faith to determine whether any
notification to employees of the Pershing Companies may be required
pursuant to the WARN Act before the Closing Date.
SECTION 6.04. Welfare Benefit Plans. With respect to the welfare
plans, programs and arrangements maintained, sponsored or contributed to by
the Purchaser (the "Purchaser Welfare Benefit Plans"), the Purchaser shall
(i) waive, or cause its insurance carriers to waive, all limitations as to
pre-existing and at-work conditions, if any, with respect to participation
and coverage requirements applicable to current Employees under any
Purchaser Welfare Benefit Plan, except short term and long term disability,
and (ii) provide credit to such Employees for any co-payments, deductibles
and out-of-pocket expenses paid by such Employees under the employee
benefit plans, programs and arrangements applicable to employees of the
Pershing Companies during the portion of the relevant plan year preceding
the Closing Date. Notwithstanding anything else to the contrary in this
Agreement, the Purchaser shall not provide retiree health benefits or
coverage to any current or former Employee, officer or director of any
Pershing Company or any beneficiary or dependent thereof except as required
under Section 4980B of the Code and Section 602, et seq. of ERISA. Seller
agrees to assume, and indemnify Purchaser for, any Liabilities with respect
to current or former employee, officer or director of any Pershing Company
or any beneficiary or
41
dependent thereof for retiree health benefits, other than as required under
Section 4980B of the Code and Section 602, et seq. of ERISA.
SECTION 6.05. Purchaser Savings Plan. The Purchaser shall permit the
plan(s) maintained by the Purchaser that is an eligible retirement plan,
pursuant to Section 401(a)(31)(D) of the Code (the "Purchaser's Savings
Plan") to accept an "eligible rollover contribution" (within the meaning of
Section 401(a)(31) of the Code) in cash of all or a portion of the account
balance distributed to an Employee under any defined contribution plan that
is qualified under Section 401(a) of the Code (the "Seller's Savings
Plan"), subject to the Seller's provision of evidence reasonably
satisfactory to Purchaser's Savings Plan that such Company Benefit Plan
which eligible rollover contribution was transferred is qualified under
Section 401(a) of the Code. To the extent not prohibited by applicable
Law, effective as of the day immediately following the Closing Date,
Purchaser shall make available to each Employee on a non-discriminatory
basis and on commercially reasonable terms, a short-term loan in an amount
equal to such Employee's aggregate unpaid loan balance with respect to any
outstanding loans under Seller's Savings Plan.
SECTION 6.06. Underfunded Liability in the Scheme. In respect of
the Scheme, the Seller agrees to pay the Purchaser an amount (the
"Underfunded Liability") equal to the excess (if any) of the projected
benefit obligations, calculated as of the Closing Date, with respect to all
current or former participants of the Scheme over the value of the assets
of the Scheme (together with any accrued contributions) as of the Closing
Date and on the assumption that no retrospective amendments are made to the
trust deed and rules of the Scheme as in effect immediately prior to the
Closing Date. The Underfunded Liability will then be adjusted by the
Investment Adjustment (as defined below) from and including the Closing
Date up to and including the date which is the last UK business day before
the date on which the Underfunded Liability is paid to the Purchaser (the
"Adjusted Underfunded Liability"). The Underfunded Liability and the
Investment Adjustment will be determined using the actuarial methods,
assumptions and factors to be agreed between the Seller and the Purchaser.
Seller and Purchaser agree to cooperate in determining the amount of the
Underfunded Liability and in preparing an estimate of the Adjusted
Underfunded Liability as soon as practicable after the Closing Date. If
the Seller and Purchaser are unable to determine the amount of the
Underfunded Liability or the amount of the Investment Adjustment on or
before the three-month anniversary of the Closing Date, the matter will be
referred to an independent actuary chosen by agreement between the parties
or, failing agreement, appointed by the President of the Institute of
Actuaries of England on the application of either the Seller or Purchaser.
That independent actuary will act as expert and not as arbitrator and his
decision (including any direction in relation to his costs) will be final
and binding and the fees and expenses of the independent actuary shall be
borne by the Seller and Purchaser equally or in such other proportions as
he directs. For the purposes of this Section 6.06, "Investment Adjustment"
means the notional investment return of the Scheme (if any) over the
relevant period specified in this section calculated by comparing the level
of the Index at close of business on the first day of such period with the
level of the Index at close of business on the last day of such period or,
if either of those days is not a day for which the indices comprising the
Index are quoted, the level of the Index at the close of business on the
previous day for which they are quoted is used and making reasonable
allowance for investment expenses. "Index" means an index agreed
by the Seller and the Purchaser as of the Closing Date comprising of the
same proportion and composition of investments in which the assets of the
Scheme
42
are invested as of the Closing Date. The Adjusted Underfunded Liability
shall be calculated and payable in UK pounds sterling.
If, in accordance with the trust deed and rules of the Scheme and
applicable Law, the trustees of the Scheme may, without the consent of any
other party, demand from the Purchaser and/or the Pershing Companies a
payment or payments in respect of the underfunding (if any) of the Scheme
on the Closing Date (disregarding for the purpose of determining such
underfunding any change in the investment policy or values on or after the
Closing Date or any retrospective amendments made to the trust deed and
rules of the Scheme after the Closing Date which have the effect of
increasing the underfunding of the Scheme on the Closing Date) (the
"Trustees' Demand") and if the Purchaser and/or any of the Pershing
Companies are, in accordance with the trust deed and rules of the Scheme
and applicable Law, obligated to pay the Trustees' Demand, the Seller shall
pay to the Purchaser the amount by which the Trustees' Demand exceeds the
Adjusted Underfunded Liability provided that the Purchaser shall have used
its best efforts to minimize the amount of the Trustees' Demand and to
procure that the Trustees' Demand is determined on or before the twelve
month anniversary of the Closing Date. The Purchaser shall or shall cause
the Pershing Companies to pay to the Scheme the full amount received from
the Seller pursuant to this Section 6.06.
If the Purchaser and/or the Pershing Companies obtain any Tax
Benefit as a result of contributing any amount which is received from the
Seller under this Section 6.06 to the Scheme, the Purchaser will reimburse
the Seller in an amount equal to the value of the Tax Benefit (if any).
The certificate of the auditors to the company appointed for the purposes
of the Companies Acts or other applicable Law which obtains the Tax Benefit
as to the fact that a Tax Benefit has or has not been obtained and the
amount of the Tax Benefit shall be final and binding on the Seller and the
Purchaser. For purposes of this Section 6.06, "Tax Benefit" means the
amount of a reduction in the tax liability of the Purchaser and/or the
Pershing Companies or a repayment of any tax to the Purchaser and/or the
Pershing Companies which is exclusively attributable to the contribution of
any amount which is received from the Seller under this Section 6.06 to the
Scheme.
SECTION 6.07. Employee Compensation and Benefits.
Notwithstanding any other provision of this Agreement, the Seller shall
retain and satisfy all Liabilities for unpaid compensation and employee
benefits payable to any employee of a Pershing Company in connection with
the Post-Closing Retention Compensation Plan, Discretionary Payment Pool,
Credit Suisse Group International Share Plan and any retention awards
granted in connection with the transaction between ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇ and Seller consummated on November 3, 2000, and for any other
unpaid compensation and employee benefits earned by such employees prior to
the Closing or as a result of or in connection with the transactions
contemplated hereby (including, without limitation, retention agreements),
to the extent not reflected on the Closing Balance Sheet. The Purchaser
shall indemnify the Seller for all unpaid compensation and employee
benefits payable to any employee of a Pershing Company to the extent
accrued on the Closing Balance Sheet. For purposes of this Agreement,
"Post-Closing Retention Compensation Plan" and "Discretionary Payment Pool"
shall have the meanings ascribed to them in Sections 5 and 6, respectively,
of the employment agreement among the Company, Credit Suisse First Boston,
Inc. and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, dated as of November 8, 2002.
43
ARTICLE VII
TAX MATTERS
SECTION 7.01. Tax Indemnities. (a) From and after the Closing
Date, the Seller shall indemnify and hold the Purchaser and each Pershing
Company and their respective officers, directors, employees and agents
harmless against any and all Taxes (except Taxes accrued on the Closing
Balance Sheet):
(i) imposed on or payable by any Pershing Company with respect to any
taxable period or portion thereof that ends on or before the Closing Date
(including, without limitation, any obligation to contribute to the payment
of Taxes determined on a consolidated, combined or unitary basis with
respect to a group of corporations that include any Pershing Company, and
Taxes resulting from any Pershing Company ceasing to be a member of the
Seller's affiliated group for US federal income Tax purposes); (ii) with
respect to taxable periods beginning before the Closing Date and ending
after the Closing Date (any such period, a "Straddle Period"), Taxes
imposed on any Pershing Company which are allocable, pursuant to Section
7.01(b), to the portion of such period ending on the Closing Date; (iii)
imposed on or payable by any Pershing Company with respect to any taxable
period or portion thereof that ends on or before the Closing Date,
including the pre-Closing portion of any Straddle Period because of a
breach by the Seller of the representations and warranties set forth in
Section 3.20(a) (in each case without giving effect to any qualifier
regarding materiality or Material Adverse Effect); (iv) imposed
because of a breach by the Seller of the representations and warranties set
forth in Section 3.20(d) or 3.20(g) (in each case without giving effect to
any qualifier regarding materiality or Material Adverse Effect); and (v)
imposed on or payable by any Pershing Company with respect to payments made
or information reporting obligations arising with respect to any payments
or other reportable transactions that occurred in a period or a portion
thereof that ends on or before the Closing Date because of a breach by the
Seller of the representations and warranties set forth in Section 3.20(e)
(without giving effect to any qualifier regarding materiality or Material
Adverse Effect), provided, however, that Purchaser, the LLC and their
respective Affiliates and successors shall fully cooperate with and take
such reasonable actions as the Seller may reasonably request or as are
otherwise reasonably necessary to mitigate the Seller's liability with
respect to this clause (v).
(b) For purposes of this Agreement, in the case of any Tax
imposed on any Pershing Company that is imposed on a periodic basis and is
payable for a taxable period that begins before the Closing Date and ends
after the Closing Date, the portion of such Taxes which is payable for the
portion of such taxable period ending on the Closing Date shall be (i) in
the case of any Tax other than a Tax based upon or measured by gross or net
income or receipts, the amount of such Tax for the entire taxable period
(or, in the case of such Taxes determined on an arrears basis, the amount
of such Tax for the immediately preceding period) multiplied by a fraction,
the numerator of which is the number of days in the portion of such taxable
period ending on the Closing Date and the denominator of which is the
number of days in the entire taxable period and (ii) in the case of Taxes
that are either based upon or measured by gross or net income or receipts,
the amount which would be payable if the relevant taxable period ended on
the Closing Date.
(c) Purchaser shall indemnify and hold the Seller and its
officers, directors, employees and agents harmless from and against any and
all Taxes and other costs that result from (i) the LLC being treated as
other
44
than a disregarded entity on the Closing Date for any income Tax purpose as
a
result of any action or failure to act by the LLC, Purchaser or any
Affiliate of either thereof (but, with respect to the LLC, only if such
action or failure to act occurs after the Closing) or (ii) with respect to
any Straddle Period, Taxes imposed on the LLC which are allocable to the
portion of such period beginning on the day after the Closing Date.
SECTION 7.02. Refunds and Tax Benefits. (a) Except to the extent
such refund was accrued as an asset on the Closing Balance Sheet, the
Purchaser shall promptly pay to the Seller the amount of any refund or
credit (including any interest paid or credited with respect thereto)
received or used, in the case of a credit, by the Purchaser or by any
Pershing Company of Taxes (i) relating to taxable periods of any Pershing
Company or portions thereof ending on or before the Closing Date or (ii)
attributable to an amount paid by the Seller under Section 7.01 hereof. The
Purchaser shall, if the Seller so requests and at the Seller's expense,
cause the relevant entity to file for and use its reasonable best efforts
to obtain and expedite the receipt of any refund to which the Seller
is entitled under this Section 7.02. The Purchaser shall permit the Seller
to participate in (at the Seller's expense) the prosecution of any such
refund claim. The Seller shall not be entitled to pursue any refund claim
if such claim would increase Taxes payable by any Pershing Company or
Purchaser after the Closing unless the Seller shall indemnify Purchaser for
such increased Taxes.
(b) Any amount otherwise payable by the Seller under
Section 7.01 shall be reduced by the estimated present value of any net Tax
benefit available to the Purchaser or its Affiliates in connection with the
payment of Taxes for which the Seller is responsible under Section 7.01,
and increased by the estimated present value of any Tax cost reasonably
expected to be incurred by the indemnified party or its Affiliates as the
result of the receipt of such indemnity payment. The estimated present
value of any net Tax benefit and the estimated present value of any Tax
costs referred to in this subsection (and in Section 9.02(e)) shall be
computed using the applicable federal rate for the appropriate time period
as defined in Section 1274(d)(1) of the Code as the discount rate and a Tax
rate for all relevant years of 40%.
SECTION 7.03. Contests. (a) After the Closing Date, the
Purchaser shall promptly, but in no event later than 30 days, notify the
Seller in writing of the commencement of any Tax audit or administrative or
judicial proceeding or of any demand or claim on the Purchaser or any
Pershing Company which, if determined adversely to the taxpayer or after
the lapse of time, would be grounds for indemnification by the Seller under
Section 7.01. Failure to provide such notice will not affect the Seller's
obligation of indemnity, except to the extent the Seller's ability to
contest the relevant claim is adversely effected to a meaningful extent.
Purchaser may at any time, in its sole discretion, upon written notice to
the Seller, assume sole responsibility for any such asserted liability and
waive all rights to and claims for indemnification from the Seller under
this Article VII with respect to any such asserted liability and any other
liability the contest of which may be adversely affected by the resolution
of such asserted liability, and, in such event, the Seller shall be deemed
to have waived its rights to participate in or object to the settlement or
compromise of such asserted liability; provided that the resolution of such
asserted liability or any such settlement or compromise could not
reasonably be expected to adversely affect the Seller.
45
(b) In the case of a Tax audit or administrative or judicial
proceeding (a "Contest") that relates to periods ending on or before the
Closing Date or otherwise to a matter for which the Seller is primarily
responsible under Section 7.01 or 7.02, subject to the immediately
following sentence, the Seller shall have the right, at its expense, to
control the conduct of such Contest, provided, however, that if such
Contest also is in respect of any taxable year or portion thereof beginning
after the Closing Date, then (i) the parties shall use all reasonable
efforts to separate such post-Closing portion of the contest and (ii) to
the extent that is not feasible, then whichever of the Purchaser or the
Seller would be liable for the greatest amount of Tax asserted in such
Contest (determined on a present value basis) shall be entitled to control
such contest. The parties shall use all reasonable efforts to permit such
contest, or the issues of such contest as involve Taxes potentially
indemnifiable hereunder to be dealt with separately from a contest
involving entities controlled by the Purchaser (other than Pershing
Companies or successors thereto); provided, further, however, that if it is
not possible to cause such contest or such issues to be dealt with in such
manner separately, the Purchaser shall be permitted to control such contest
but shall be required to consult with Seller in good faith with respect to
such contest or such issues and shall use its best efforts to minimize any
indemnifiable Tax. The Purchaser and the Seller agree to cooperate, and
the Purchaser agrees to cause the relevant Pershing Company to cooperate,
in the defense against or compromise of any claim in any audit or
proceeding for which the Seller is primarily responsible, including, by
executing appropriate powers of attorney empowering representatives of the
Seller.
(c) Neither Purchaser, the LLC nor the Seller shall enter into
any compromise or agree to settle any claim pursuant to any Tax audit or
proceeding which would be legally binding on the other party and which
would adversely affect the other party to a material extent without the
written consent of the other party, which consent may not be unreasonably
withheld. For the avoidance of doubt, this Section 7.03(c) shall not apply
to U.S. federal, state and city income and franchise Tax matters.
SECTION 7.04. Cooperation and Exchange of Information.
(a) The Seller and the Purchaser will provide each other with such
cooperation and information as either of them reasonably may request of the
other in filing any Tax return, amended return or claim for refund,
determining a liability for Taxes or a right to a refund of Taxes or
participating in or conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of
relevant Tax returns or portions thereof, together with accompanying
schedules and related work papers and documents relating to Tax matters of
the Pershing Companies. Each party shall make its employees reasonably
available on a mutually convenient basis to provide explanations of any
documents or information provided hereunder. Each party will retain all
returns, schedules and work papers and all material records or other
documents relating to Tax matters of all of the Pershing Companies for the
taxable period that includes the Closing Date and for all prior taxable
periods until the later of (i) the expiration of the statute of limitations
of the taxable periods to which such returns and other documents relate,
without regard to extensions except to the extent notified by the other
party in writing of such extensions for the respective Tax periods or (ii)
eight years following the due date (without extension) for such returns;
provided, however, that a party shall not dispose of any such materials if
at least 90 Business Days before the later of the end of either of the
periods described in clause (i) or (ii), the other party has notified the
disposing party of its desire to review such material, in which case such
other party shall be given an opportunity, at its cost and expense, to
remove and retain all or
46
any part of such materials. Any information obtained under this Section
7.04 shall be kept confidential, except as may be otherwise necessary in
connection with the filing of returns or claims for refund or in conducting
an audit or other proceeding.
(b) For Tax periods ending after the Closing Date, the
Purchaser shall timely prepare and file with the appropriate authorities
all Tax returns required to be filed in respect of the Pershing Companies
(including Tax returns required to be filed with respect to a Straddle
Period, which shall be prepared on a basis, including methods of
accounting, consistent with prior practice), provided that, with respect to
a Straddle Period, the Seller shall have the right to review the Tax return
and no such Tax return shall be filed without the Seller's consent, which
shall not be unreasonably withheld. For Tax periods ending on or before
the Closing Date, Seller shall timely prepare and file with the appropriate
authorities all Tax returns required to be filed with respect to the
Pershing Companies. For Straddle Periods, the Seller shall pay to
Purchaser the Seller's share of Taxes imposed with respect to a Straddle
Period (as determined in accordance with Section 7.01(a)(ii)) at least two
(2) Business Days prior to the date a Tax payment is due.
SECTION 7.05. Conveyance Taxes. All sales, transfer, stamp,
stock transfer, value added, use, real property transfer or gains and
similar Taxes that may be imposed upon, or payable or collectible or
incurred in connection with this Agreement and the transactions
contemplated hereby shall be borne 50% by the Seller and 50% by the
Purchaser. The Purchaser and Seller agree to cooperate in the execution and
delivery of all instruments and certificates necessary to enable the Seller
and/or Purchaser to comply with any pre-Closing filing requirements. The
parties shall prepare and file all necessary Tax returns and other
documentation with respect to all such Taxes and shall take such reasonable
steps as appropriate and as permitted by Law to reduce Taxes.
SECTION 7.06. Miscellaneous. (a) For Tax purposes, the parties
agree to treat all payments made under this Article VII, under any other
indemnity provisions contained in this Agreement, and for any
misrepresentations or breaches of warranties or covenants, as adjustments
to the Purchase Price, and shall be treated as such by the parties to the
extent permitted by law.
(b) This Article VII shall be the sole provision governing
indemnities or other reimbursements for Taxes under this Agreement.
(c) For purposes of this Article VII and Section 3.20 of this
Agreement, all references to the Purchaser and the Seller shall include
their successors, if any.
(d) Notwithstanding any provision in this Agreement to the
contrary, the covenants and agreements of the parties hereto contained in
this Article VII (including Section 7.01 and the applicable references to
Section 3.20 for purposes of Article VII) shall survive the Closing and
shall remain in full force and effect until 30 days after the expiration of
the applicable statutes of limitations (taking into account any extensions
or waivers thereof).
(e) All Tax sharing agreements or similar agreements with
respect to or involving any of the Pershing Companies shall be terminated
on or prior to the Closing Date and, after the Closing Date, none of the
Seller,
47
its Affiliates or any of the Pershing Companies shall be bound thereby or
have any liability thereunder, including with respect to any payable or
receivable thereunder.
(f) The Purchase Price shall be allocated among the Equity
Interests and the Transferred Assets as proposed by the Purchaser, subject
to review and consent by the Seller, which consent shall not be
unreasonably withheld; provided that the Seller and Purchaser hereby agree
that not less than $325,000,000 shall be allocated to "Class VI assets" as
defined in Treasury Regulation Section 1.338-6(b). In the case of each of
Pershing Ltd., Tech, and the Company, the sum of the Purchase Price
allocated to the relevant entity and the amount of liabilities (as
determined for federal income Tax purposes) (the "Relevant Liabilities") of
such entity shall be allocated among the assets of such entity as of the
Closing Date in accordance with the "residual method" as provided in the
Treasury Regulations promulgated under Sections 338 and 1060 of the Code as
proposed by the Purchaser (the "Allocations"), subject to review and
consent by the Seller, which consent shall not be unreasonably withheld.
Any subsequent adjustments to the sum of the Purchase Price and the
Relevant Liabilities shall be reflected in the allocations hereunder in a
manner consistent with the Allocations and with the Regulations. The
Seller and the Purchaser shall timely file Form 8594 (and any similar forms
required under state, local, or foreign Tax law) in accordance with the
requirements of Section 1060 of the Code (or state, local, or foreign Tax
law, as the case may be) and this Section 7.06(f), and shall timely amend
such Forms in the case of any subsequent adjustment to the Purchase Price
or Relevant Liabilities.
(g) Each party will provide the other with such Tax information
as may be required to comply with any applicable federal, state or local
Tax law or regulations. The Seller will be responsible for complying with
Tax reporting or withholding obligations as to any payments made by the
Seller; except that the Purchaser shall be responsible for complying with
end-of-year Tax reporting for all wages paid and other Tax reporting
matters with respect to the calendar year 2003 (provided that, with respect
to wages paid and other payments made prior to the Closing Date Purchaser
may rely on the information provided to Purchaser by the Seller) and, to
this end, the parties shall enter into the appropriate agreement pursuant
to Internal Revenue Service Revenue Procedure 96-60. Purchaser will be
responsible for complying with Tax reporting or withholding obligations
after the Closing Date.
(h) The Seller shall continue to comply with all Tax
obligations between the signing and the Closing Date, including all
withholding Tax obligations
(i) The Seller hereby agrees, subject to obtaining necessary
regulatory approvals, to convert Tech into a disregarded entity for all
applicable U.S. federal Tax purposes effective on or prior to the Closing
Date. In the event that the Seller is unable to do so, the Seller shall so
notify the Purchaser and the Seller agrees to join with the Purchaser in
making an election pursuant to Sections 338(g) and 338(h)(10) of the Code
(and in taking all steps necessary to effectuate the same) and any similar
election as may be available under applicable state or local laws and
specified by the Purchaser (unless the Purchaser notifies the Seller of its
intention not to make such election) and to indemnify the Purchaser for any
damages resulting from an election under Sections 338(g) and 338(h)(10) not
48
being effective, unless the ineffectiveness of such election is caused by
Purchaser's actions, inactions, negligence or change in law.
ARTICLE VIII
CONDITIONS TO CLOSING
SECTION 8.01. Conditions to Obligations of the Seller.
The obligations of the Seller to consummate, or cause the consummation of,
the transactions contemplated by this Agreement shall be subject to the
fulfillment, at or prior to the Closing, of each of the following
conditions:
(a) Representations, Warranties and Covenants.
(i) Each of the representations and warranties of the Purchaser
contained in this Agreement that is qualified by materiality shall have
been true and correct as of the date of this Agreement and shall be true
and correct as of the Closing and each of the representations and
warranties that is not so qualified shall have been true and correct in all
material respects as of the date of this Agreement and shall be true and
correct in all material respects as of the Closing, with the same force and
effect as if made as of the Closing Date (other than such representations
and warranties as are made as of another date, which shall be so true and
correct as of such date), (ii) the covenants and agreements contained in
this Agreement to be complied with by the Purchaser on or before the
Closing shall have been complied with in all material respects and (iii)
the Seller shall have received a certificate from the Purchaser as to the
matters set forth in clauses (i) and (ii) above signed by a duly authorized
officer of the Purchaser;
(b) HSR Act. Any waiting period (and any extension thereof)
under the HSR Act applicable to the purchase of the Equity Interests
contemplated hereby shall have expired or shall have been terminated;
(c) No Order. (i) No court of competent jurisdiction shall
have issued or entered any Order that is then in effect and that has the
effect of making any of the transactions contemplated by this Agreement or
the Ancillary Agreements illegal or otherwise prohibiting their
consummation and (ii) no proceeding seeking to prohibit or prevent the
Closing or materially diminish the benefits expected to be realized by the
Seller from the transactions contemplated hereby shall have been instituted
by any Governmental Authority and be pending;
(d) Receipt of Governmental Approvals. The Seller shall have
received all authorizations, consents, orders and approvals of all
Governmental Authorities which, if not received, would make any of the
transactions contemplated by this Agreement or the Ancillary Agreements
illegal or otherwise prohibit their consummation;
(e) Ancillary Agreements. The Purchaser shall have duly
executed and delivered to the Seller each of the Ancillary Agreements to
which it is a party.
SECTION 8.02. Conditions to Obligations of the Purchaser.
The obligations of the Purchaser to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment, at or
prior to the Closing, of each of the following conditions:
49
(a) Representations, Warranties and Covenants. (i) Each of the
representations and warranties of the Seller contained in this Agreement
shall have been true and correct as of the date of this Agreement and shall
be true and correct as of the Closing, with the same force and effect as if
made as of the Closing (other than such representations and warranties as
are made as of another date, which shall be true and correct as of such
date), except, in either case, where the failure to be so true and correct
would not, individually or in the aggregate, have a Material Adverse
Effect, (ii) the covenants and agreements contained in this Agreement to be
complied with by the Seller or any of its Subsidiaries on or before the
Closing shall have been complied with in all material respects and (iii)
the Purchaser shall have received a certificate of the Seller as to the
matters set forth in clauses (i) and (ii) above signed by a duly authorized
officer of the Seller; provided that if the Purchaser elects to postpone
the Closing Date in accordance with Section 2.03, the certificate to be
provided by the Seller hereunder with respect to the matters set forth in
clause (i) shall have been provided to the Purchaser in accordance with
Section 2.03;
(b) HSR Act. Any waiting period (and any extension thereof)
under the HSR Act applicable to the purchase of the Equity Interests
contemplated hereby shall have expired or shall have been terminated;
(c) No Order. (i) No court of competent jurisdiction shall
have issued or entered any Order that is then in effect, and, no
Governmental Authority shall have taken any action, that has, in either
case, the effect of making any of the transactions contemplated by this
Agreement or the Ancillary Agreements illegal or otherwise prohibiting
their consummation and (ii) no proceeding seeking to prohibit or prevent
the Closing or materially diminish the benefits expected to be realized by
the Purchaser from the transactions contemplated hereby shall have been
instituted by any Governmental Authority and be pending;
(d) Resignations of the Directors of the Company and the Sister
Companies. The Purchaser shall have received the resignations, effective
as of the Closing, of all the directors and officers of the Company and the
Sister Companies, except for such persons as shall have been designated in
writing prior to the Closing by the Purchaser to the Seller;
(e) Receipt of Governmental Approvals. The Purchaser shall
have received all authorizations, consents, orders and approvals of all
Governmental Authorities which, if not received, would make any of the
transactions contemplated by this Agreement or the Ancillary Agreements
illegal or otherwise prohibit their consummation; provided that no
Government Authority shall have imposed any condition or requirement on the
Purchaser in connection with any of the foregoing that would, in the
reasonable judgment of the Purchaser, have a material adverse effect on (i)
the Purchaser's ability to conduct its business and that of its
subsidiaries (including the Pershing Companies) taken as a whole following
the Closing in substantially the same manner as conducted prior to the
Closing, or (ii) the results of operations, assets or financial condition
of the business of the Purchaser and its subsidiaries (including the
Pershing Companies) taken as a whole following the Closing. Without
limiting the effect of the foregoing, the parties agree that the
requirements of this Section 8.02(e) shall not be satisfied unless the
Purchaser shall have obtained the approval of the NYSE and NASD of the
transactions contemplated hereby;
50
(f) Third Party Consents. All consents or approvals of all
Persons, other than Governmental Authorities, required for or in connection
with the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby to occur at the
Closing shall have been obtained and shall be in full force and effect,
unless the failure to obtain any such consent or approval would not,
individually or in the aggregate, have a Material Adverse Effect;
(g) Conversion. The Conversion shall have been completed and
any documents entered into or filed in connection with the Conversion shall
have been in form and substance reasonably satisfactory to the Purchaser;
(h) Ancillary Agreements. The Seller or any of its Affiliates
shall have duly executed and delivered to the Purchaser each of the
Ancillary Agreements to which it is a party, and CSFB, Inc. shall have
executed and delivered the CSFB Agreement; and
(i) Deutsche Bank Securities Inc. Clearing Agreement. The
Company and Deutsche Bank Securities Inc. shall have entered into the
Clearing Agreement contemplated by the Asset Acquisition Agreement between
the Company and Deutsche Bank Securities Inc. dated June 19, 2002, and
substantially all of the conversions contemplated by such clearing
agreement shall have occurred; provided, that, at the option of the Seller,
this condition shall be deemed to be satisfied if the Purchase Price is
reduced by the amount set forth in Section 8.02(i) of the Disclosure
Schedule.
ARTICLE IX
INDEMNIFICATION
SECTION 9.01. Survival of Representations and Warranties.
The representations and warranties set forth in Article III of this
Agreement or any certificate delivered pursuant hereto shall survive for a
period of eighteen months following the Closing Date and, thereafter, to
the extent a Claim is made prior to such date with respect to any breach of
any such representation or warranty, until such claim is finally determined
or settled; provided, however, that the representations and warranties set
forth in Section 3.03 shall survive until the 90th day following the
expiration of the applicable statute of limitations, the representations
and warranties contained in Section 3.19 shall survive for a period of
three years following the Closing Date and, thereafter, to the extent a
Claim is made prior to such date with respect to any breach of any such
representation or warranty, until such claim is finally determined or
settled, and the representations and warranties contained in Section 3.20
shall survive as set forth in Section 7.06(d). All covenants and
agreements contained herein shall survive the Closing and remain in full
force and effect for a period of eighteen months following the Closing
Date, except for those covenants and agreements that by their terms are to
be performed in whole or in part subsequent to the Closing, which shall
survive the Closing in accordance with their terms. Notwithstanding the
foregoing, the representation set forth in Section 3.17(b)(i) shall survive
for three years following the Closing Date. From and after the Closing,
the sole and exclusive remedy for any breach of any representation,
warranty, covenant or agreement shall be pursuant to Section 9.02, except
in the case of fraud. Except for amounts included in a third
51
party Claim indemnified hereunder, under no circumstances shall any party
be liable to the other parties for consequential, incidental or punitive
damages.
SECTION 9.02. Indemnification. (a) The Seller hereby
indemnifies the Purchaser and its respective officers, directors,
employees, agents and Affiliates against, and agrees to hold each of them
harmless from any loss due to third party claims or otherwise, any
liabilities, costs or expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages and amounts paid in settlement
(collectively, "Damages") relating to or arising from or in connection with
(i) any inaccuracy in any representation or the breach of any warranty (in
each case, without giving effect to any qualifier regarding materiality or
Material Adverse Effect) of the Seller under this Agreement (except as
contained in Section 3.03 and Section 3.20, it being understood that all
claims in respect of Section 3.20 are exclusively addressed in Article VII)
or any certificate delivered pursuant to this Agreement, (ii) any
inaccuracy in any representation or the breach of any warranty of
the Seller contained in Section 3.03, (iii) the failure of the Seller to
duly perform or observe any term, provision, covenant or agreement to be
performed or observed by the Seller pursuant to this Agreement, (iv) the
Excluded Assets, (v) the Excluded Actions, (vi) the Pre-Closing
Liabilities, (vii) the Controlled Group Liability, (viii) the Legacy
Business, whether arising prior to or after the Closing, and (ix) the
Adjusted Underfunded Liability. Notwithstanding anything herein to the
contrary, no claims by the Purchaser shall be asserted pursuant to Section
9.02(a)(i) unless and until the aggregate amount of Damages that would
otherwise be payable pursuant to Section 9.02(a)(i) exceeds $35,000,000
(the "Deductible Amount"), in which case the Purchaser shall be entitled to
receive only that amount in excess of the Deductible Amount. In
calculating the Deductible Amount or Damages hereunder, all Damages which
individually (which, for purposes of this limitation, shall mean any
related Damages or series of related Damages as a result of a common act or
omission) total less than $50,000 shall be excluded in their entirety, and
the Purchaser shall have no recourse for such Damages. Notwithstanding
anything herein to the contrary, the maximum aggregate liability of the
Seller under Section 9.02(a)(i) shall not exceed 15% percent of the
Purchase Price.
(b) From and after the Closing, the Seller shall be entitled to
assert claims against the Purchaser in respect of any Damages arising from
or in connection with (i) any inaccuracy in any representation or the
breach of any warranty of the Purchaser under this Agreement, (ii) the
failure of the Purchaser to duly perform or observe any term, provision,
covenant or agreement to be performed or observed by the Purchaser pursuant
to this Agreement or (iii) the conduct of the Business following the
Closing.
(c) Notwithstanding anything herein to the contrary, in the
event a party establishes prior to the Closing Date that any of the
representations and warranties to survive the Closing in accordance with
Section 9.01 are not true and correct as of the Closing Date, its sole and
exclusive remedy with respect to any such breach shall be to not close the
transaction if any such breach results in the nonsatisfaction of any of the
conditions contained in Article VIII.
(d) No action, claim or setoff for Damages under this
Section 9.02 shall be brought or made (i) with respect to claims for
Damages resulting from a breach of any covenant contained in this Agreement
after the date on which such covenant shall terminate pursuant Section 9.01
hereof; and (ii) with respect to claims for Damages resulting from a breach
of any representation or warranty, after the date on which such
representation or
52
warranty shall terminate pursuant to Section 9.01 hereof; provided,
however, that any claim made with reasonable specificity by the party
seeking to be indemnified within the time periods set forth above shall
survive until it is finally and fully resolved.
(e) For all purposes of this Article IX, "Damages" shall be net
of any insurance or other recoveries payable to the indemnified party or
its Affiliates in connection with the facts giving rise to the right of
indemnification net of any premium adjustment primarily attributable to
such recovery. In addition, any amount otherwise payable by the
indemnifying party under this Section 9.02 shall be reduced by the
estimated present value of any net Tax benefit available to the indemnified
party or its Affiliates in connection with the payments for which the
indemnifying party is responsible under this Section 9.02, and increased by
the estimated present value of any Tax cost reasonably expected to be
incurred by the indemnified party or its Affiliates as the result of the
receipt of such indemnity payment so that such indemnified party is put in
the same net after-tax position (applying the assumptions in the
immediately succeeding sentence) as if it had not incurred any such
Damages. The estimated present value of any net Tax benefit and the
estimated present value of any Tax costs referred to in this subsection
shall be computed using the applicable federal rate for the appropriate
time period as defined in Section 1274(d)(1) of the Code as
the discount rate and a tax rate for all relevant years of 40%. All
indemnification payments made pursuant to this Section 9.02 shall be
treated by the parties as an adjustment to the Purchase Price.
SECTION 9.03. Third Party Claims. (a) Upon receipt by the
party seeking to be indemnified pursuant to Section 9.02 (the "Indemnitee")
of notice of any action, suit, proceedings, audit, claim, demand or
assessment (each, a "Claim") against it which might give rise to a claim
for Damages, the Indemnitee shall give prompt written notice thereof (which
shall be within 20 days of receipt by the Indemnitee of such Claim) to the
party from which it seeks to be indemnified (the "Indemnitor") indicating
the nature of such Claim and the basis therefor; provided, however, that
any delay or failure by the Indemnitee to give notice to the Indemnitor
shall relieve the Indemnitor of its obligations hereunder only to the
extent, if at all, that it is materially prejudiced by reason of such delay
or failure.
(b) The Indemnitor shall have the right, at its option, to
assume the defense of, at its own expense and by its own counsel, any such
Claim. Assumption of the defense of any Claim by the Indemnitor shall not
prejudice the right of the Indemnitor to claim at a later date that such
Claim is not a proper matter for indemnification pursuant to this Article
IX. If the Indemnitor shall undertake to compromise or defend any such
Claim, it shall promptly notify the Indemnitee of its intention to do so,
and the Indemnitee agrees to cooperate fully with the Indemnitor and its
counsel in the compromise of, or defense against, any such Claim; provided,
however, that the Indemnitor shall not settle any such Claim without the
prior written consent of the Indemnitee (which consent will not be
unreasonably withheld) unless the relief consists solely of money damages
and includes a provision whereby the plaintiff or claimant in the matter
releases the Indemnitee from all liability with respect thereto.
Notwithstanding an election to assume the defense of such action or
proceeding, the Indemnitee shall have, upon giving prior written notice to
the Indemnitor, the right to employ separate counsel and to participate in
the defense of such action or proceeding, and the Indemnitor shall bear the
reasonable fees, costs and expenses of such separate counsel if (i) the
Indemnitor shall not have employed counsel
53
reasonably satisfactory to the Indemnitee to represent it within a
reasonable time after notice of the institution of such action or
proceeding, (ii) the Indemnitee shall have determined in good faith that an
actual or potential conflict of interest makes representation by the same
counsel or the counsel selected by the Indemnitor inappropriate, (iii) the
Indemnitor is not defending a Claim, or (iv) the Indemnitor shall have
authorized the Indemnitee to employ separate counsel at the Indemnitor's
expense, and in each such case the Indemnitee may defend such Claim on
behalf of and for the account and risk of the Indemnitor. In any event,
the Indemnitee and its counsel shall cooperate with the Indemnitor and its
counsel and keep such counsel informed of all developments relating to any
such Claims, provide copies of all relevant correspondence and
documentation relating thereto, and shall not assert any position in any
proceeding inconsistent with that asserted by the Indemnitor. All costs
and expenses incurred in connection with the Indemnitee's cooperation shall
be borne by the Indemnitor. In any event, the Indemnitee shall have, upon
giving prior written notice to the Indemnitor, the right at its own expense
to participate in the defense of such asserted liability. In no event
shall the Indemnitee consent to any judgment or entry into any settlement
without the written consent of the Indemnitor (which consent will not be
unreasonably withheld).
ARTICLE X
TERMINATION AND WAIVER
SECTION 10.01. Termination. This Agreement may be terminated
at any time prior to the Closing:
(a) by either the Seller or the Purchaser if the Closing shall
not have occurred by September 30, 2003; provided, however, that the right
to terminate this Agreement under this Section 10.01(a) shall not be
available to a party whose failure to fulfill any obligation under this
Agreement shall have been the cause of, or shall have resulted in, the
failure of the Closing to occur on or prior to such date.
(b) by either the Purchaser or the Seller in the event that any
Governmental Authority shall have issued an order, decree or ruling or
taken any other action restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree, ruling
or other action shall have become final and nonappealable;
(c) by the mutual written consent of the Seller and the
Purchaser;
(d) by the Purchaser, in the event of the occurrence of any
breach of any representation, warranty or covenant of the Seller, in each
case that makes any of the conditions set forth in Section 8.02 incapable
of being satisfied; or
(e) by the Seller, in the event of the occurrence of any breach
of any representation, warranty or covenant of the Purchaser, in each case
that makes any of the conditions set forth in Section 8.01 incapable of
being satisfied.
SECTION 10.02. Effect of Termination. In the event of
termination of this Agreement as provided in Section 10.01, this Agreement
shall forthwith become void and there shall be no liability on the part of
any party hereto, except (a) as set forth in Section 5.03 and Article XI
and (b) that nothing
54
herein shall relieve any party from liability for any breach of this
Agreement. No later than two Business Days following the termination of
this Agreement in accordance with Section 10.01, the Seller will, if
previously paid, repay the amount of the Deposit to the Purchaser by wire
transfer in immediately available funds to a bank account designated by the
Purchaser.
SECTION 10.03. Waiver. Any party to this Agreement may (a)
extend the time for the performance of any of the obligations or other acts
of the other party, (b) waive any inaccuracies in the representations and
warranties of the other party contained herein or in any document delivered
by the other party pursuant hereto or (c) waive compliance with any of the
agreements or conditions of the other party contained herein. Any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed by the party to be bound thereby. Any waiver of any term or
condition shall not be construed as a waiver of any subsequent breach or a
subsequent waiver of the same term or condition, or a waiver of any other
term or condition, of this Agreement. The failure of any party to assert
any of its rights hereunder shall not constitute a waiver of any of such
rights.
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.01. Expenses. Except as otherwise specified in this
Agreement, all costs and expenses, including fees and disbursements of
counsel, financial advisors and accountants, incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such costs and expenses, whether or not the Closing
shall have occurred.
SECTION 11.02. Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be given
or made (and shall be deemed to have been duly given or made upon receipt)
by delivery in person, by courier service, by cable, by telecopy, by
telegram, by telex or by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties at the following
addresses (or at such other address for a party as shall be specified in a
notice given in accordance with this Section 11.02):
(a) if to the Seller:
Credit Suisse First Boston (USA), Inc.
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇
Managing Director
with a copy to:
Shearman & Sterling
55
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇'▇▇▇▇▇, Esq.
(b) if to the Purchaser:
The Bank of New York Company, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
General Counsel
with a copy to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
SECTION 11.03. Public Announcements. Neither party to this
Agreement shall make, or cause to be made, any press release, public
announcement or communication to employees or customers in respect of this
Agreement or the transactions contemplated hereby or otherwise communicate
with any third party in respect of this Agreement or the transactions
contemplated hereby without the prior consent of the other party unless
otherwise required by Law or stock exchange regulation, and the parties
shall cooperate as to the timing and contents of any such press release,
public announcement or communication.
SECTION 11.04. Headings. The descriptive headings contained in
this Agreement are for convenience of reference only and shall not affect
in any way the meaning or interpretation of this Agreement.
SECTION 11.05. Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any
Law or public policy, all other terms and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic
or legal substance of the transactions contemplated hereby is not affected
in any manner materially adverse to any party. Upon such determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions
contemplated hereby are consummated as originally contemplated to the
greatest extent possible.
SECTION 11.06. Entire Agreement. This Agreement, the Ancillary
Agreements and the Confidentiality Agreement constitute the entire
agreement
56
of the parties hereto with respect to the subject matter hereof and
supersede all prior agreements and undertakings, both written and oral,
between the Seller and the Purchaser with respect to the subject matter
hereof and thereof.
SECTION 11.07. Assignment. This Agreement may not be assigned by
operation of law or otherwise without the express written consent of the
Seller and the Purchaser (which consent may be granted or withheld in the
sole discretion of the Seller or the Purchaser, as the case may be);
provided, however, that the Seller or the Purchaser may assign this
Agreement in whole or in part to one or more of its Affiliates, without
such consent; provided, however, that no such assignment shall relieve the
Seller or the Purchaser, as the case may be, of its obligations if the
assignee does not perform such obligations.
SECTION 11.08. No Third Party Beneficiaries. This Agreement
shall be binding upon and inure solely to the benefit of the parties hereto
and their permitted assigns and nothing herein, express or implied, is
intended to or shall confer upon any other Person any legal or equitable
right, benefit or remedy of any nature whatsoever under or by reason of
this Agreement.
SECTION 11.09. Amendment. This Agreement may not be amended or
modified except (a) by an instrument in writing signed by, or on behalf of,
the Seller and the Purchaser or (b) by a waiver in accordance with Section
10.03.
SECTION 11.10. Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of New York,
applicable to contracts executed in and to be performed entirely within
that state. All actions and proceedings arising out of or relating to this
Agreement shall be heard and determined in any New York state or federal
court sitting in The City of New York. The parties hereto unconditionally
and irrevocably agree and consent to the exclusive jurisdiction of, and
service of process and venue in, the United States District Court for
Southern District of New York and the courts of the State of New York
located in the County of New York, State of New York and waive any
objection with respect thereto, for the purpose of any action, suit or
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby and further agree not to commence any such action, suit
or proceeding except in any such court.
SECTION 11.11. Waiver Of Jury Trial. The parties each hereby
waive trial by jury in any judicial proceeding involving, directly or
indirectly, any matters (whether sounding in tort, contract or otherwise)
in any way arising out of, related to, or connected with this Agreement,
the transactions contemplated hereby or the relationships established
hereunder.
SECTION 11.12. Counterparts. This Agreement may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original
but all of which taken together shall constitute one and the same
agreement.
SECTION 11.13. Specific Performance. The parties hereto agree
that irreparable damage would occur in the event that any provision of this
Agreement
57
was not performed in accordance with the terms hereof and that the parties
shall be entitled to specific performance of the terms hereof, in addition
to any other remedy at law or equity.
IN WITNESS WHEREOF, the Seller and the Purchaser have caused this
Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
CREDIT SUISSE FIRST BOSTON (USA), INC.
By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
Title: Manageing Director and
Head of Financial Services Division
THE BANK OF NEW YORK COMPANY, INC.
By /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title:Authorized Person