Exhibit 10.6
LICENSE AGREEMENT
Between
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ INCORPORATED
and
NETFOLIO, INC.
April 10, 2000
License Agreement -
Netfolio/▇▇▇▇▇▇▇▇
Table of Contents
ARTICLE I - DEFINED TERMS ....................................................1
ARTICLE II - LICENSE..........................................................3
Section 2.1 Grant of License........................................4
Section 2.2 Delivery of Books and Records...........................4
Section 2.3 Terms of License........................................5
Section 2.4 License Fee.............................................6
Section 2.5 Payment of License fee..................................6
Section 2.6 Reliance on License fee Allocation......................6
ARTICLE III - REPRESENTATION AND WARRANTIES OF LICENSOR.......................7
Section 3.1 Organization Standing and Authority.....................7
Section 3.2 Authorization and Binding Obligation....................7
Section 3.3 Registered Investment Adviser...........................7
Section 3.4 Absence of Conflicting Agreements.......................7
Section 3.5 Title to and Condition of Assets........................8
Section 3.6 Consents................................................8
Section 3.7 Financial Conditions; Effects of Sale of Assets.........8
Section 3.8 Legal Actions...........................................8
Section 3.9. Compliance with Laws...................................8
Section 3.10 The ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds.................................9
Section 3.11 Trade Rights...........................................12
Section 3.12 Disclaimer of Warranties with Respect to Investment
Selection .............................................12
Section 3.13 Sales or Transfer Taxes................................12
Section 3.14 Full Disclosure .......................................13
ARTICLE IV - REPRESENTATION AND WARRANTIES OF LICENSEE.......................13
Section 4.1 Organization Standing and Authority....................13
Section 4.2 Authorization and Binding Obligation...................13
Section 4.3 No Violations..........................................13
Section 4.4 Governmental/Regulatory Authorities....................13
Section 4.5 Disqualifying Conduct..................................14
Section 4.6 Litigation; Proceedings................................14
Section 4.7 Registered Investment Advisor..........................14
Section 4.8 Compliance with Law....................................14
ARTICLE V - COVENANTS........................................................14
Section 5.1 Pre-Closing Covenants of Licensor......................14
Section 5.2 Negative Covenants.....................................15
Section 5.3 Affirmative Covenants of Licensor......................15
Section 5.4 Affirmative Covenant of Licensee -
Access to Information..................................16
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ARTICLE VI - SPECIAL COVENANTS AND AGREEMENTS................................16
Section 6.1 Fees and Expenses......................................16
Section 6.2 Brokers................................................16
Section 6.3 Noncompetition.........................................16
Section 6.4 Confidential Information...............................17
Section 6.5 Cooperation............................................17
Section 6.6 Technical Assistance...................................17
Section 6.7 Covenants With Respect to Changes in Condition and
Litigation.............................................17
Section 6.8 Covenants With Respect to Information in Proxy
Materials and Registration Statements..................18
Section 6.6 Access to Third Parties................................19
ARTICLE VII - CONDITIONS TO OBLIGATIONS OF LICENSEE AND
LICENSOR................................................19
Section 7.1 Conditions to Obligations of Licensee..................19
Section 7.2 Conditions to Obligations of Licensor..................20
Section 7.3 Effect of Consummation of Fund Transactions............21
ARTICLE VIII - CLOSING AND CLOSING DELIVERIES................................21
Section 8.1 Closing................................................21
Section 8.2 Deliveries by Licensor.................................21
Section 8.3 Deliveries by Licensee.................................22
ARTICLE IX - RIGHTS OF LICENSEE AND LICENSOR ON TERMINATION
OR BREACH................................................23
Section 9.1 Termination Rights.....................................23
Section 9.2 Effect of Termination..................................24
Section 9.3 Default; Liquidated Damages............................24
ARTICLE X - REPRESENTATIONS .................................................24
Section 10.1 Representations and Warranties.........................24
Section 10.2 Indemnification by Licensor............................24
Section 10.3 Indemnification by Licensee............................25
Section 10.4 Procedure for Indemnification .........................25
ARTICLE XI - MISCELLANEOUS...................................................27
Section 11.1 Notices................................................27
Section 11.2 Benefit and Binding Effect.............................28
Section 11.3 Governing Law..........................................28
Section 11.4 Headings...............................................28
Section 11.5 Gender and Rules of Construction.......................28
Section 11.6 Entire Agreement.......................................28
Section 11.7 Counterparts...........................................28
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LICENSE AGREEMENT
THIS LICENSE AGREEMENT is made and entered into on this 10th day of
April, 2000, by and between ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ INCORPORATED, a California
corporation ("Licensee"), and NETFOLIO, INC., a Minnesota corporation (formerly
known as ▇'▇▇▇▇▇▇▇▇▇▇▇ Capital Management, Inc., "Licensor").
RECITALS
A. Licensor is a registered investment adviser under the Investment
Advisers Act of 1940, as amended.
B. Licensor serves as investment adviser to each of the
▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, as defined herein, and is the owner of certain intellectual
property rights, including those used in providing investment advisory services
to the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds.
C. Licensor desires to license Licensee, and Licensee wishes to
acquire a license for, certain assets of Licensor and certain rights used in the
operation of Licensor's business of providing investment advisory services to
the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds for a license fee and upon the terms and subject to the
conditions hereinafter set forth.
AGREEMENTS
In consideration of the foregoing premises and the covenants and
agreements contained herein, Licensee and Licensor, intending to be bound
legally, agree as follows:
ARTICLE I - DEFINED TERMS
-------------------------
The following terms shall have the following meanings in this Agreement
(other terms shall be defined in the text of this Agreement).
"Affiliated Person" means an affiliated person as defined in Section
2(a)(3) of the Investment Company Act.
"Affiliate" means a person or entity that directly or indirectly
controls, is controlled by or is under common control with a specified person or
entity.
"Agreement" means this License Agreement together with all schedules
and exhibits attached hereto, and all amendments hereto and thereof.
"Anniversary Date" means the date one year after the Closing Date.
"Closing" means the completion of those actions described in Section
8.2 and Section 8.3 of this Agreement.
"Closing Date" means the date of the Closing specified in Section 8.1
of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Cornerstone Growth Fund" means the ▇'▇▇▇▇▇▇▇▇▇▇▇ Cornerstone Growth
Fund including the ▇'▇▇▇▇▇▇▇▇▇▇▇ Aggressive Growth Fund.
"Cornerstone Value Fund" means the ▇'▇▇▇▇▇▇▇▇▇▇▇ Cornerstone Value Fund
including the ▇'▇▇▇▇▇▇▇▇▇▇▇ Dogs of the Market(R) Fund.
"Fund Transactions" means (i) the termination of the Management
Agreement and any amendments thereto and the execution and delivery of a
management agreement between ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc and Licensee or an
Affiliate of Licensee designated by Licensee (ii) the resignation of the
directors of ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. and the election of new directors for
▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. designated by the Licensee and (iii) the change of
corporate name of ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. to "▇▇▇▇▇▇▇▇ Mutual Funds, Inc."
"▇▇▇▇▇▇▇▇ Funds" means those investment companies registered under the
Investment Company Act for which an Affiliate of Licensee serves as investment
adviser.
"Investment Advisers Act" means the Investment Advisers Act of
1940, as amended, and rules and regulations promulgated thereunder.
"Investment Company Act" means the Investment Company Act of
1940, as amended, and rules and regulations promulgated thereunder.
"Liens" means any security interest, mortgage, lien, pledge,
charge, title retention, security agreement, lease, option, defect of title or
other encumbrance or right of others, except for taxes not yet due or payable
and encumbrances which do not materially impair the use, value or marketability
of the assets to which they relate.
"Management Agreement" means the Management Agreement dated October 11,
1996 between Licensor and ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. and any and all amendments
thereto.
"Marks" means STRATEGY INDEXING(R), STRATEGIC INDEX(R), STRATEGY
INDEXES(R), STRATEGY INDEX(R), DOGS OF THE MARKET(R), CORNERSTONE GROWTH(sm) and
CORNERSTONE VALUE(SM).
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"Material Adverse Effect" with respect to Licensor means an effect on
the business, licenses, prospects or condition (financial or otherwise) of
Licensor that would materially and adversely affect the ability of Licensor to
consummate the transactions contemplated by this Agreement or materially and
adversely affect the Licensee's ability to advise or manage the investments of
the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, and with respect to the Licensee, means an effect on
the business, licenses, prospects or condition (financial or otherwise) of the
License that would materially and adversely affect Licensee's ability to advise
or manage the investments of the ▇▇▇▇▇▇▇▇ Funds or the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds or
adversely affect the ability of Licensee to consummate the transaction
contemplated by this Agreement; provided, however, that any condition materially
and adversely affecting the mutual fund or investment management industries
generally shall not be deemed to constitute a Material Adverse Effect.
"Mutual Fund" means any investment company which is registered
under Section 8(b) of the Investment Company Act, 15 U.S.C. ss. 80a-8(b).
"Notice of Termination" means the notice described in Section 9.1 of
this Agreement.
"▇'▇▇▇▇▇▇▇▇▇▇▇ Funds" means Cornerstone Growth Fund and the Cornerstone
Value Fund including those funds as they presently exist and as they may exist
and by whatever name they may be known after the Closing.
"▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc." means ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc., a Maryland
Corporation.
"Patent" means U.S. Patent No. 5,978,778 covering certain automated
strategies for investment management, together with all divisions,
continuations, continuations-in-part, reissues and extensions thereof.
"License fee" means the license fee specified in Section 2.4 of this
Agreement.
"Securities Act" means the Securities Act of 1933, as amended, and
rules and regulations thereunder.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended, and rules and regulations thereunder.
"Segregated Accounts" means those shareholder accounts of the
▇'▇▇▇▇▇▇▇▇▇▇▇ Funds to which Segregated Shares are allocated.
"Segregated Shares" means and includes (i) the shares of the
▇'▇▇▇▇▇▇▇▇▇▇▇ Funds which are outstanding at the close of business on the
Closing Date and (ii) any Shares of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds issued after the
Closing Date and before the Anniversary Date as a distribution on other
Segregated Shares, but does not include any additional shares of the
▇'▇▇▇▇▇▇▇▇▇▇▇ Funds purchased for Segregated Accounts after the Closing Date.
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ARTICLE II - LICENSE
--------------------
Section 2.1 Grant of License. Subject to the terms and conditions
set forth in this Agreement, Licensor hereby licenses to Licensee on the Closing
Date, and Licensee accepts the license hereinafter set forth:
Section 2.2 Delivery of Books and Records. On the Closing date,
Licensor shall deliver to Licensee originals or true copies of the following
books and records:
(a) All files, books, records and data files (in whatever
form or forms including hard copy, microfilm, microfiche, CD ROM or other
electronic media, including the software necessary to access the same) owned by
or in the possession of Licensor relating to investment accounts and investment
histories of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds (except to the extent that Licensor is
required by applicable law to retain such materials or copies thereof in which
event Licensor shall, at Licensor's expense, provide to Licensee such materials
or copies thereof, whichever is available); and
(b) All records required to be maintained and retained
under the Investment Company Act or the Investment Advisers Act in connection
with Licensor's provision of investment advisory services to the ▇'▇▇▇▇▇▇▇▇▇▇▇
Funds (except to the extent that Licensor or ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. is
required by applicable law to retain such materials or copies thereof in which
event Licensor shall provide to Licensee such materials or copies thereof,
whichever is available).
Section 2.3 Terms of License. Licensor agrees that, effective upon
the Closing, the parties shall be deemed, without more, to have entered into the
following License:
(a) Subject to all of the terms and conditions hereof,
Licensor shall grant to Licensee the perpetual, paid-up, royalty-free exclusive
license to use the Patent, the Marks and the know-how of Licensor heretofore
employed in the management of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, including the CORNERSTONE
GROWTH and CORNERSTONE VALUE models (collectively, the "Trade Rights") solely
for the purpose of managing Mutual Funds. The license to be granted hereby is
personal to Licensee (and to its Affiliates, successors and assigns which agree
in writing to be bound by the provisions of this Agreement) and for the use of
Licensee and such permitted Affiliates, successors and assigns solely in
portfolio selection and management in rendering its investment-management
services to Mutual Funds and does not include the right to sublicense, publish
and distribute Trade Rights or any software incorporating the same, unless
expressly approved by Licensor in writing. All rights which are not specifically
granted by Licensor to Licensee are expressly reserved by Licensor. Nothing
herein shall be construed to prohibit Licensor from using, implementing,
licensing,
4
publishing or distributing the Trade Rights for any other purpose; provided,
however, that for so long as Licensee shall be in compliance with the terms
hereof, Licensor shall not license or permit any third party to use the Trade
Rights in the management of any Mutual Fund.
(b) Except as expressly set forth in the last sentence
of the preceding paragraph, nothing in this Agreement shall preclude Licensor
from employing, marketing, selling, leasing, licensing or maintaining the Trade
Rights or any other products or services of Licensor to or for any other party.
Licensee recognizes that Licensor has historically provided, and may in the
future provide, professional services through its own personnel (including
services which may be delivered over the Internet by Licensor), in direct and
substantial competition with the anticipated services of Licensee as licensed
hereby; Licensor shall not have any obligation to refrain from performing such
services in the future and shall not be deemed to violate any provision of this
Agreement by continuing to provide such services. Licensee acknowledges that
Licensor presently renders, and in the future will render, investment management
services based on the Trade Rights and that Licensor and its Affiliates may from
time to time be the sponsor or various software, literary and investment
products (other than management investment companies registered under the
Investment Company Act) based on the Trade Rights which may be sold worldwide,
none of which activities of Licensor shall be deemed a breach of this Agreement.
(c) This Agreement only permits Licensee to use the
Trade Rights as provided by Licensor to Licensee for use in the management of
Mutual Funds as aforesaid. Neither this Agreement nor any conduct by Licensor
pursuant hereto conveys any right to reproduce or modify the Marks.
(d) At all times the relationship between the parties
established by this Agreement is that of independent contractors, and nothing
contained in this Agreement shall be construed to: (a) give either party the
power to direct or control the day-to-day activities of the other; (b)
constitute the parties as partners, joint ventures, co-owners or otherwise as
participants in a joint or common undertaking; or (c) allow Licensee to create
or assume any obligation on behalf of Licensor for any purpose whatsoever.
(e) All of Licensee's advertising, marketing, promotional
and other materials incorporating or referring to the Marks shall be subject to
Licensor's prior approval in writing, which approval shall be not be
unreasonably withheld or delayed and which approval shall be deemed to have been
granted if Licensor shall fail to respond to any request for approval within
five business days following receipt thereof; provided, however, the Licensee
need not obtain Licensor's approval of any proposed use which is substantially
unchanged from (i) any prior use by Licensor in its own business on or prior to
the date hereof, or (ii) any use previously approved by Licensor in writing.
(f) At no time hereafter shall Licensee challenge
(whether by way of suit, administrative or inter partes proceedings, protest,
objection or otherwise), or assist others to challenge, Licensor's rights in the
Marks or any of Licensor's other trademarks,
5
trade-names or service marks or the registration thereof, nor shall Licensee
seek to register or assist others in an attempt to register any trademark or
service ▇▇▇▇ that is confusingly similar to any trademark, tradename or service
▇▇▇▇ of Licensor.
Section 2.4 License Fee. Subject to any and all conditions and
adjustments set forth herein, the License Fee shall be the sum of the following:
(a) an initial payment equal to .225% of the aggregate
net asset value of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds at the close of business on April 7,
2000; plus
(b) an amount equal to (i) 1.125 % of the aggregate net
asset value of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds at the close of business on the business
day immediately preceding the Closing Date less (ii) the amount determined in
accordance with clause (a) of this Section 2.4; plus
(c) an amount equal to (i) 1.125 % of the aggregate net
asset value of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds at the close of business on the business
day immediately preceding the Closing Date minus (ii) an amount equal to 2.25 %
of the excess of (A) the aggregate redemption price of all Segregated Shares
redeemed subsequent to the Closing Date and before the Anniversary Date over (B)
the aggregate purchase price of all shares of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds purchased
for the Segregated Accounts subsequent to the Closing Date and before the
Anniversary Date; provided, however, that in no event shall the amount
subtracted pursuant to clause (c)(ii) exceed the aggregate of the amounts
determined in accordance with clauses (c)(i) and (d) of this Section 2.4; plus
(d) 125 % of the aggregate net asset value of the
▇'▇▇▇▇▇▇▇▇▇▇▇ Funds at the close of business on the business day immediately
preceding the Closing Date; plus
(e) an amount equal to 10% of the payment determined under
clause (c) of this Section 2.4.
No amount shall be payable by the Licensee with respect to purchases
of Shares of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds occurring after the Closing Date.
Section 2.5 Payment of License fee. Concurrently with the execution
hereof, Licensee has paid to Firstar Bank, N.A., as escrow agent pursuant to a
separate agreement between the parties and said escrow agent, the amount
determined in accordance with clause (a) of Section 2.4 in immediately available
funds. On the Closing Date, Licensee shall cause such escrow funds and all
interest thereon to be paid to Licensor, and shall pay to Licensor in
immediately available funds the amount determined in accordance with clause (b)
of Section 2.4. On the Anniversary Date, Licensee shall pay the amounts
determined in accordance with clauses (c), (d) and (e) of Section 2.4 by
executing and delivering at Closing to Licensor Licensee's promissory note
substantially in the form of Exhibit A hereto in the principal
6
amount equal to the aggregate of the amounts determined in accordance with
clauses (c) and (d) of Section 2.4 hereof.
The principal amount of Licensee's promissory note shall be adjusted
(i) upward by an amount, if any, equal to any Damages owed by Licensee to
Licensor as of the Anniversary Date pursuant to Article X hereof as then
finally determined by a court of competent jurisdiction or agreed to in writing
by the parties hereto, and (ii) downward by an amount, if any, equal to the sum
of any Damages owed by Licensor to Licensee as of the Anniversary Date pursuant
to Article X hereof as then finally determined by a court of competent
jurisdiction or agreed to in writing by the parties hereto.
Section 2.6 Reliance on License fee Allocation. Licensor
and Licensee mutually agree to allocate the License fee among those items
described in Section 2.1 above. Licensor and Licensee agree to use such
allocation and be bound thereby for all purposes, including without limitation,
computing any federal, state, county, local or other tax liability and, unless
required to do so in accordance with a "determination" as defined in Section
1313(a)(1) of the Code, to take no position in any tax return, tax proceeding,
tax audit or otherwise that is inconsistent with such allocation.
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF LICENSOR
--------------------------------------------------------
Licensor represents and warrants to Licensee as follows:
Section 3.1 Organization, Standing and Authority. Licensor is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Minnesota. Licensor has all requisite corporate power and
authority to conduct its business as presently conducted as it relates to
providing investment advisory services to the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, to execute
and deliver this Agreement and the documents contemplated hereby and to perform
and comply with all of the terms, covenants and conditions to be performed and
complied with by Licensor hereunder and thereunder. Licensor is duly qualified
or licensed to do business as a foreign corporation, and is in good standing, in
every jurisdiction where failure to be so qualified or licensed would be
reasonably likely to have a Material Adverse Effect on Licensor.
Section 3.2 Authorization and Binding Obligation. The execution,
delivery and performance of this Agreement by Licensor have been duly authorized
by all necessary corporate action on the part 6f Licensor. This Agreement has
been duly executed and delivered by Licensor and, assuming the due
authorization, execution and delivery of this Agreement by Licensee constitutes
the legal, valid and binding obligation of Licensor, enforceable against
Licensor in accordance with its terms, except as the enforceability hereof may
be limited by bankruptcy, insolvency, reorganization or similar laws relating to
or affecting creditors' rights generally, or by general equity principles
(whether applied in a court of law or a court of equity and including
limitations on the availability of specific performance or other equitable
remedies).
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Section 3.3 Registered Investment Adviser. Licensor is registered as
an investment adviser under the Investment Advisers Act. Licensor has not
received any written notice by any state that Licensor's registration as an
investment adviser is, is to be, or will be restricted or terminated.
Section 3.4 Absence of Conflicting Agreements. The execution,
delivery and performance by Licensor of this Agreement and the documents
contemplated hereby (i) will not conflict with any provision of Licensor's
articles of incorporation or by-laws; (ii) will not conflict with, result in a
breach of, or constitute a default under, any applicable law, judgment, order,
ordinance, injunction, decree, rule, regulation or ruling of any court or
governmental instrumentality, except as will not individually or in the
aggregate have a Material Adverse Effect with respect to Licensor or Licensee or
as will be cured or waived prior to the Closing Date; and (iii) will not
conflict with, constitute grounds for termination of, result in a breach of,
constitute a default under or accelerate or permit the acceleration of any
performance required by the terms of, any agreement, instrument, license or
permit to which Licensor is a party or by which Licensor may be bound, except as
will not singly or in the aggregate have a Material Adverse Effect with respect
to Licensor or Licensee, or as will be cured or waived prior to the Closing
Date.
Section 3.5 Title to and Condition of Assets. As of the date hereof,
Licensor has good and marketable title to the Trade Rights, and on the Closing
Date will have good and marketable title to the Trade Rights sufficient to grant
to Licensee the license hereinabove set forth, free and clear of all Liens.
Section 3.6 Consents. Licensor is not required to submit any notice,
report or other filing with, or obtain any authorization, consent or approval
from, any governmental authority or self-regulatory organization prior to the
execution, delivery and performance by Licensor of this Agreement or the
consummation of the transaction contemplated herein, other than notices, reports
or other filings, authorizations, consents or approvals relating to matters
that, in the aggregate, will not have a Material Adverse Effect with respect to
the Licensor.
Section 3.7 Financial Condition: Effect of Sale of Assets. Licensor
is not insolvent on the date of this Agreement and shall not be insolvent on the
Closing Date. The license contemplated by this Agreement (i) will not constitute
a disposition of all or substantially all of the assets of Licensor, (ii) will
not render Licensor insolvent or leave Licensor with assets unreasonably small
in relation to the business in which it is engaged and (iii) is not being
undertaken by Licensor with the intent to hinder, delay or defraud its
creditors.
Section 3.8 Legal Actions. There is no material action, suit,
proceeding, complaint, litigation, investigation, inquiry or governmental
proceeding pending, or to the knowledge of the Licensor threatened, before any
court or governmental or regulatory
8
authority, against (i) any of the Assets or (ii) Licensor, or to the knowledge
of Licensor any party, that reasonably could be expected to have a material
Adverse Effect on Licensor or Licensee.
Section 3.9 Compliance with Laws. Licensor's business of providing
investment advisory services to the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds is being operated in
material compliance with all applicable laws, rules, regulations, ordinances,
orders or requirements of all federal, state and local governmental or
regulatory authorities. Licensor has complied in all material respects with
all written notices and demands to it from all governmental or regulatory
authorities with respect to the ownership, use and operation of all of the Trade
Rights and the provision of investment advisory services to the ▇'▇▇▇▇▇▇▇▇▇▇▇
Funds.
Section 3.10 The ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds.
To the knowledge of Licensor:
(a) Registration and Regulation of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds.
▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. is duly registered with the Commission as an
investment company under the Investment Company Act, and all shares of each of
the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds which, since their organization, have been or are being
offered for sale have been duly registered under the Securities Act and have
been duly registered, qualified or are exempt from registration or qualification
under the securities laws of each state or other jurisdiction in which such
shares have been or are being offered to revoke or rescind any such registration
or qualification. ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. and each of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds
is in compliance with all applicable laws, rules and regulations, including,
without limitation, the Investment Company Act, the Securities Act, the
Securities Exchange Act and all applicable state securities laws, except where
the failure to be so in compliance would not have a material adverse effect on
▇'▇▇▇▇▇▇▇▇▇▇▇ Funds Inc. or such ▇'▇▇▇▇▇▇▇▇▇▇▇ Fund. Each of the ▇'▇▇▇▇▇▇▇▇▇▇▇
Funds is in compliance with the investment policies and restrictions set forth
in the registration statement of ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. currently in effect
under the Securities Act, except where the failure to be so in compliance would
not have a material adverse effect on ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. or such
▇'▇▇▇▇▇▇▇▇▇▇▇ Fund. The value of the net assets of each ▇'▇▇▇▇▇▇▇▇▇▇▇ Fund is
determined pursuant to the requirements of the Investment Company Act and
purchases and redemptions of shares of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, since their
organization have been effected at the net asset value per share calculated in
such manner. There are no legal or governmental actions, investigations,
inquiries or proceedings pending or threatened against ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc.
or either of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds which could have a material adverse effect
on the condition (financial or otherwise) of ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. or either
of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds.
(b) Organization, Standing and Authority. ▇'▇▇▇▇▇▇▇▇▇▇▇
Funds, Inc., is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maryland. ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. has
all requisite power and authority to own
9
all of its properties and assets and to issue its shares. All of the shares of
the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds that are issued and outstanding are fully paid and
non-assessable.
(c) Financial Statements. The books of account and related
records of ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. and the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds fairly reflect
the respective assets of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, liabilities and transactions
in accordance with generally accepted accounting principles applied on a
consistent basis. The audited financial statements dated September 30, 1999, of
▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. previously delivered to Licensee (the "Fund Financial
Statements") present fairly in all material respects the financial position of
each of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds and the results of operations and cash flows for
the accounting principles applied on a consistent basis as at the dates
indicated. The Fund Financial Statements have been certified by an independent
accounting firm.
(d) No Material Adverse Changes. Since September 30, 1999,
no material adverse change has occurred in the financial condition, results of
operations, business, assets or liabilities of ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. or the
status of ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. as a regulated company under the Code, other
than changes resulting from any change in the mutual fund industry, in general
conditions in the financial or securities markets or the performance of any
investments made by any of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds and other than changes occur
ring in the ordinary course of business of each of ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc.
(e) Contracts. Except for contracts and agreements
disclosed on Schedule 3.10(e) (which shall be updated by Licensor at Closing),
▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. is not a party to any material contract, debt
arrangement, futures contract, plan, lease, franchise, license or permit (other
than permits issued under any state securities law) of any kind or nature
whatsoever. No default by ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc., nor to the knowledge of
Licensor by any other party, exists under any of the contracts and agreements
listed on Schedule 3.10(e) which would have a material adverse effect on
▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc.
(f) Taxes. All federal income tax returns, all other
material federal tax returns, and all material state and local tax returns for
any open tax periods required to be filed by ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. on or
prior to the Closing Date have been or will be timely filed, such returns are or
will be correct in all material respects, and all taxes shows as payable on such
returns have been or will be timely paid. For any period for which tax returns
of ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. are not required to have been filed in accordance
with the previous sentence by the Closing Date, ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. has
made, or will make by the Closing Date, an adequate accrual on its books of any
taxes due or to become due, if any, as a result of actions occurring on or
before the Closing Date. ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. has qualified as a regulated
investment company under the Code in respect of each taxable year of
▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. since commencement of its operations and ▇'▇▇▇▇▇▇▇▇▇▇▇
Funds, Inc. was, and shall be, in compliance with the requirements of Section
851 of Subchapter M of the Code for each of the applicable fiscal periods ending
on or prior to the Closing Date. ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. has timely provided
to the shareholders of each of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds any notices relating to
the character of shareholder distributions or
10
portions thereof required under Sections 852 or 853 of the Code and Section 19
of the Investment Company Act and has properly withheld or collected all taxes
required by law to be withheld or collected from amounts payable to the
shareholders of each of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds and has timely remitted such
withheld or collected taxes to the appropriate taxing authority, agency or body.
(g) Books and Records. The books and records of
▇'▇▇▇▇▇▇▇▇▇▇▇ Funds reflecting, among other things, the purchase and sale of
shares of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds by shareholders of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds,
the number of issued and outstanding shares owned by each shareholder and the
state or other jurisdiction in which such shares were offered and sold, are
complete and accurate in all material respects.
(h) Prospectus. The current prospectus and statement of
additional ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds as of the date on which they were issued did not
contain, and as supplemented by any supplement thereto dated prior to or on the
Closing Date, do not and will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading.
(i) Ability to Conduct Business. Neither ▇'▇▇▇▇▇▇▇▇▇▇▇
Funds, Inc., nor either of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds is subject to, or bound by,
any judgment, order, writ, injunction or decree of any court, or of any
governmental body, including the Commission, or of any arbitrator, that would
prevent the conduct of business material to ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc., or the
▇'▇▇▇▇▇▇▇▇▇▇▇ Funds in accordance with current practice.
(j) Litigation or Proceeding. No litigation is pending or
threatened, and no investigation, inquiry or governmental proceeding is pending
or, to the best of Licensor's knowledge, threatened against or affecting
▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. or either of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds before any court,
arbitrator or federal, state, local or foreign governmental or regulatory agency
or authority or self-regulatory authority (including, but not limited to, the
Commission, the Commodities Futures Trading Commission and the Internal Revenue
Service) that would be reasonably likely to materially and adversely affect the
business operation's or financial condition of ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, or either of
the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds or materially delay, materially hinder or prohibit the
solicitation of proxies from shareholders of either of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds.
(k) Absence of Undisclosed Liabilities. As of September 30,
1999, ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. had no material debts, obligations or
liabilities, whether due or to become due, absolute, contingent or otherwise,
that are required to be reflected in the Fund Financial Statements in accordance
with generally accepted accounting principles, that are not so reflected.
(l) No Pending Transaction. ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. is
not a party to or bound by any agreement, undertaking or commitment (i) to merge
or consolidate with, or acquire all or substantially all of the property and
assets of, any other corporation,
11
trust or person or (ii) to sell, lease or exchange all or substantially all of
its property and assets to any other corporation, trust or person.
(m) Suspension or Revocation of Adviser Registration.
Except as previously disclosed in writing by Licensor to Licensee, on the date
of this Agreement neither the Licensor nor ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc., nor any
Affiliated Person of ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. or the Licensor has been
convicted of any felony or misdemeanor, described in Section 9(a)(1) of the
Investment Company Act, nor has any investment adviser, or any "person
associated" (as defined in the Investment Advisers Act) with any investment
adviser, of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds been subject, or presently is subject, to
any disqualification that would be a basis for denial, suspension or revocation
of registration of an investment adviser under Section 203(e) of the Investment
Advisers Act or Rule 206(4)4(b) thereunder or of a broker-dealer under Section
15 of the Securities Exchange Act, or for disqualification as an investment
adviser, employee, officer or director of an investment company under Section 9
of the Investment Company Act, and, to Licensor's knowledge, there is no
proceeding or investigation that is reasonably likely to become the basis for,
any such disqualification, denial, suspension or revocation.
Section 3.11 Trade Rights. Schedule 3.11 lists all Trade Rights in
which Licensor now has any interest and which are used in the management of
▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, specifying whether such Trade Rights are owned, controlled,
used or held (under license or otherwise) by Licensor, and also indicating which
of such Trade Rights are registered. All Trade Rights shown as registered in
Schedule 3.11 have been properly registered, all pending registrations and
applications have been properly made and filed and all annuity, maintenance,
renewal and other fees relating to registrations or applications are current.
In order to conduct the management or operations of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, as
such is currently being conducted or proposed to be conducted, Licensor does not
require any Trade Rights that it does not already have or that are not readily
available from third-party sources upon payment of customary fees therefor.
Licensor is not infringing and has not infringed any Trade Rights of another in
the management or operations of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, nor is any other person
infringing the Trade Rights of Licensor. Licensor does not pay any royalties or
other consideration for the right to use any Trade Rights of others. There is no
Litigation pending or threatened to challenge Licensor's right, title and
interest with respect to its continued use and right to preclude others from
using any Trade Rights of Licensor. To the best of Licensor's knowledge, all
Trade Rights of Licensor are valid, enforceable and in good standing, and there
are no equitable defenses to enforcement based on any act or omission of
Licensor. The know-how included in the Trade Rights includes all methods and
procedures of every kind necessary for Licensee to apply the CORNERSTONE VALUE
and CORNERSTONE GROWTH stock-selection models in the operation of the
▇'▇▇▇▇▇▇▇▇▇▇▇ Funds as heretofore operated by Licensor.
Section 3.12 Disclaimer of Warranties with Respect to Investment
Selection. LICENSOR DISCLAIMS ALL WARRANTIES OF ANY KIND WITH RESPECT TO THE
INVESTMENT PERFORMANCE OF THE TRADE RIGHTS AND
12
WITH RESPECT TO THE SUITABILITY OF ANY INVESTMENTS SELECTED IN ACCORDANCE
THEREWITH. LICENSOR SHALL NOT BE RESPONSIBLE OR LIABLE WITH RESPECT TO ANY
INVESTMENT UNDERTAKEN IN ACCORDANCE WITH THE TRADE RIGHTS UNDER ANY CONTRACT,
NEGLIGENCE, STRICT LIABILITY OR OTHER THEORY OF LIABILITY: (i) FOR ANY INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES INCLUDING, BUT NOT LIMITED TO CAPITAL LOSS,
LOSS OF INCOME, LOSS OF REVENUES AND LOSS OF PROFITS; OR (ii) FOR ANY MATTER
BEYOND LICENSOR'S REASONABLE CONTROL. LICENSOR IS NOT RESPONSIBLE FOR AND WILL
HAVE NO LIABILITY FOR SOFTWARE, SERVICES OR OTHER ITEMS PROVIDED BY ANY PERSONS
OTHER THAN LICENSOR.
Section 3.13 Sales or Transfer Taxes. The transactions contemplated
by this Agreement shall not result in either Licensee or Licensor incurring any
liability for sales, use, transfer or purchase taxes or fees under the laws of
the State of Connecticut.
Section 3.14 Full Disclosure. No representation or warranty made by
Licensor herein nor any certificate furnished or to be furnished by Licensor
pursuant hereto contains or, at the date of its delivery, will contain any
untrue statement of a material fact, or omits or will omit any statement of a
material fact known to Licensor and known by Licensor to be required to make the
statements herein or therein not misleading.
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF LICENSEE
-------------------------------------------------------
Licensee represents and warrants to Licensor as follows:
Section 4.1 Organization, Standing and Authority. Licensee is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California. Licensee is duly qualified or licensed to do
business as a foreign corporation, and is in good standing, in every
jurisdiction where the failure to be so qualified or licensed would be
reasonably likely to have a Material Adverse Effect on the Licensee. Licensee
has all requisite corporate power and authority to execute and deliver this
Agreement and the documents contemplated hereby, and to perform and comply with
all of the terms, covenants and conditions to be performed and complied with by
Licensee hereunder and thereunder.
Section 4.2 Authorization and Binding Obligation. The execution,
delivery and performance of this Agreement by Licensee have been duly authorized
by all necessary corporate action on the part of Licensee. This Agreement has
been duly executed and delivered by Licensee and, assuming the due
authorization, execution and delivery of this Agreement by Licensor, constitutes
the legal, valid and binding obligation of Licensee, enforceable against
Licensee in accordance with its terms, except as the enforceability hereof may
be affected by bankruptcy, insolvency, reorganization or similar laws relating
to or affecting creditors' rights generally, or by general equity principles
(whether applied in a court of law or a court of
13
equity and including limitations on the availability of specific performance or
other equitable remedies).
Section 4.3 No Violations. The execution, delivery and performance
by Licensee of this Agreement and the documents contemplated hereby (i) will not
conflict with any provision of Licensee's articles of incorporation or by-laws;
(ii) will not conflict with, result in a breach of, or constitute a default
under, any applicable law, judgment, order, ordinance, injunction, decree, rule,
regulation or ruling of any court or governmental instrumentality, except as
will not individually or in the aggregate have a Material Adverse Effect with
respect to Licensee or Licensor or as will be cured by waiver prior to the
Closing Date; and (iii) will not conflict with, constitute grounds for
termination of, result in a breach of, constitute a default under or accelerate
or permit the acceleration of any performance required by the terms of, any
agreement, instrument, license or permit to which Licensee is a party or which
Licensee is bound, except as will not singly or in the aggregate have a Material
Adverse Effect with respect to Licensee or Licensor or as will be cured or
waived prior to the Closing Date.
Section 4.4 Governmental/Regulatory Authorities. Licensee is not
required to submit any notice, report or other filing with, or obtain any
authorization, consent or approval from, any governmental authority or self-
regulatory organization prior to the execution, delivery and performance
by Licensee of this Agreement or the consummation of the transaction
contemplated hereby, other than notices, reports or other filings,
authorizations, consents or approvals relating to matters that, in the
aggregate, will not have a Material Adverse Effect with respect to Licensee.
Section 4.5 Disqualifying Conduct. Neither Licensee nor any
Affiliated Person of Licensee is ineligible to serve as an employee, officer,
director, member of an advisory board, investment adviser, depositor or
principal underwriter of any investment company registered under the Investment
Company Act by reason of any conviction of a felony or misdemeanor, described in
Section 9(a)(1) of the Investment Company Act, or by reason of any order,
judgment or decree of any court of competent jurisdiction, described in Section
9(a)(2) of the Investment Company Act, and is not subject to any order issued by
the Commission under Section 9(b) of the Investment Company Act. Neither
Licensee nor any "associated person" (as defined in the Investment Advisers Act)
of Licensee that is registered as an investment adviser is ineligible pursuant
to Section 203 of the Investment Advisers Act to serve as an investment advisor
or an associated person thereof. To the best of Licensee's knowledge, no facts
exist with respect to Licensee, or any Affiliated Person or associated person of
Licensee, which would form a basis for any such disqualification or
ineligibility.
Section 4.6 Litigation; Proceedings. No litigation, proceeding or
governmental investigation, or inquiry is pending or, to the best of Licensee's
knowledge, threatened, against Licensee that seeks to delay, hinder or prohibit
execution of this Agreement
14
or consummation of the transaction contemplated herein or that, if determined
against Licensee would be reasonably likely to have a Material Adverse Effect on
Licensee.
Section 4.7 Registered Investment Adviser. Licensee or an Affiliated
Person thereof is registered as an investment adviser under the
Investment Advisers Act. Licensee has not received any written notice by any
State that Licensee's registration as an investment adviser is, is to be, or
will be restricted or terminated.
Section 4.8 Compliance with Law. Licensee is in compliance with all
applicable laws, rules and regulations, including, without limitation, federal
and state securities laws, except where failure to be so in compliance would not
be reasonably likely to have a Material Adverse Effect on Licensee.
ARTICLE V - COVENANTS
---------------------
Section 5.1 Pre-Closing Covenants of Licensor.
(a) Maintenance of Business. Except as contemplated by this
Agreement or with the prior written consent of Licensee, between the date hereof
and the Closing Date, Licensor shall operate Licensor's business as it relates
to management of the investments of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds in the ordinary
course of business in accordance with past practices (except where such action
would conflict with Licensor's obligations under this Agreement) and agrees not
to engage in any extraordinary transactions affecting the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds.
(b) Approvals. Subject in all cases to any fiduciary duties
to which it may be subject, Licensor shall use its reasonable best efforts,
prior to the Closing Date or earlier termination of this Agreement in accordance
with its terms, to obtain the actions of the Board of Directors of the
▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. enumerated in Section 7.1(c) and to cause
▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. to solicit the shareholders of each of the
▇'▇▇▇▇▇▇▇▇▇▇▇ Funds with regard to approval of the Fund Transaction for which
shareholder approval is required, as well as other matters relating directly or
indirectly to such Fund Transaction, consistent with all requirements of the
Investment Company Act and the Securities Exchange Act applicable to such
solicitation.
Section 5.2 Negative Covenants. Licensor shall not, without the
prior written consent of Licensee or as contemplated by this Agreement (with
notice to Licensee), do any of the following:
(a) Disposition of Assets. Sell, assign or otherwise
transfer or dispose of any of the Trade Rights;
(b) Contracts. Enter into any contract relating to
Licensor's business of providing investment advisory services to the
▇'▇▇▇▇▇▇▇▇▇▇▇ Funds after the date hereof,
15
other than contracts that will not result in any liability or duty on the part
of Licensee without notifying Licensee prior to execution of such contracts.
Such notice shall be in writing and shall include a copy of each such contract.
Section 5.3 Affirmative Covenants of Licensor.
(a) Access to Information. Subject to applicable
confidentiality agreements, Licensor shall allow Licensee and its authorized
representatives on prior notice reasonable access at Licensee's expense during
normal business hours to Licensor's employees responsible for the ▇'▇▇▇▇▇▇▇▇▇▇▇
Funds, the Assets and to all other properties, equipment and contracts relating
to Licensor's business of providing investment advisory services to the
▇'▇▇▇▇▇▇▇▇▇▇▇ Funds and to the books and records described in Section 2.1(a) and
(b) for the purpose of review and inspection, and furnish or cause to be
furnished to Licensee or its authorized representatives all information with
respect to Licensor's business of providing investment advisory services to the
▇'▇▇▇▇▇▇▇▇▇▇▇ Funds as Licensee may reasonably request, it being understood that
the rights of Licensee hereunder shall not be exercised in such a manner as to
interfere with the operation of Licensor's business.
(b) Transition. Licensor shall cooperate with and assist
Licensee in effecting the transfer to Licensee of Licensor's business of
providing investment advisory services to the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds contemplated
by this Agreement, and shall provide the Licensee with such information
maintained by Licensor As Licensee may reasonably request to facilitate (i)
preparation and filing of tax returns for the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds for their tax
years next ending after the date of this Agreement and (ii) the provision of
information to shareholders in compliance with the Code.
(c) ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds Prospectus. Licensor shall cause
▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. to supplement pursuant to Rule 497 of the Commission
under the Securities Act the prospectus used to sell the shares of the
▇'▇▇▇▇▇▇▇▇▇▇▇ Funds pending the approval of the Fund Transactions by the
shareholders of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds to disclose the transactions
contemplated by this Agreement.
Section 5.4 Affirmative Covenant of Licensee - Access to
Information. Licensee shall provide Licensor with such information regarding
Licensee and Affiliated Persons of Licensee as Licensor or the Board or
Directors of ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. may reasonably request to assist it in
fulfilling its duties to ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. under the Investment Company
Act and under the General Corporation Law of the State of Maryland and as may be
reasonably necessary or desirable in connection with the solicitation of proxies
from the shareholders of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds.
ARTICLE VI - SPECIAL COVENANTS AND AGREEMENTS
---------------------------------------------
Section 6.1 Fees and Expenses. Except as hereinafter provided, the
Licensee shall pay all costs associated with the satisfaction of the condition
set forth in Section 7.1(d) of
16
this Agreement except that Licensor shall pay all fees and disbursements of
Swidler, Berlin, Shereff, Friedman, LLP or other counsel for the ▇'▇▇▇▇▇▇▇▇▇▇▇
Funds related thereto in excess of an aggregate of $25,000 and all fees and
disbursements of ▇▇▇▇▇▇▇▇▇ & Associates or other administrator for the
▇'▇▇▇▇▇▇▇▇▇▇▇ Funds in excess of an aggregate of $2,500. In the event that the
shareholders of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds do not approve the Fund Transactions and
Licensee decides to resolicit proxies for such approval, the Licensee shall pay
all costs related to such resolicitation.
Section 6.2 Brokers. Licensor and Licensee each represent to the
other that they have not used any finder or broker in connection with the
transaction contemplated by this Agreement. Licensee and Licensor agree to
indemnify and hold harmless the other party with respect to any claim or
liability for any finders' or brokers' fees or commissions in connection with
the transaction contemplated by this Agreement as a result of the indemnifying
party's conduct or alleged conduct upon which any such claim or liability is
based.
Section 6.3 Noncompetition. Subject to the Closing, and as an
inducement to Licensee to execute this Agreement and complete the transactions
contemplated hereby, in order to preserve the goodwill associated with the Trade
Rights of Licensor being licensed pursuant to this Agreement, Licensor hereby
covenants and agrees that for a period two years from the Closing Date, it will
not, directly or indirectly, organize, sponsor, provide investment advisory
service to or otherwise assist any Mutual Fund which has or proposes to have
investment policies or uses or proposes to use investment strategies
substantially similar to those of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds; provided, however,
that the foregoing provisions shall not be construed to preclude Licensor from
continuing to render services and investment advice in accordance with
Licensor's past practices in connection with unit investment trusts sponsored by
affiliates of ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇, Inc. and Nike Securities,
respectively. The parties acknowledge that Licensor is the investment
sub-advisor to three investment companies formed in 1997 by Royal Bank of Canada
which employ computer-based stock-selection techniques similar to the Trade
Rights and that, while Licensor does not believe that the sponsor of such funds
has any intention to offer them in the United States, Licensor does not exercise
any control over the territory in which such investment companies may be
offered. Except as otherwise expressly set forth in this Agreement, nothing
contained herein shall be construed to preclude Licensor from soliciting the
holder of any Segregated Account as a client of Licensor's Internet-based
business or in any other lawful manner. In the event a court of competent
jurisdiction determines that the provisions of this covenant not to compete are
excessively broad as to duration, geographical scope or activity, it is
expressly agreed that this covenant not to compete shall be construed so that
the remaining provisions shall not be affected, but shall remain in full force
and effect, and any such overbroad provisions shall be deemed, without further
action on the part of any person, to be modified, amended and/or limited, but
only to the extent necessary to render the same valid and enforceable in such
jurisdiction.
Section 6.4 Confidential Information. The confidentiality agreements
previously entered into between Licensor and Licensee relating to
confidentiality of
17
information provided by either to the other shall remain in effect following the
execution of this Agreement; provided, however, that the restrictions on
Licensee contained in such agreements shall lapse and be of no further force and
effect on and after the Closing Date.
Section 6.5 Cooperation. Licensee and Licensor shall cooperate fully
with each other and their respective counsel and accountants in connection with
any actions required to be taken as part of their respective bligations under
this Agreement, and Licensee and Licensor shall execute such other documents as
may be necessary and desirable to the implementation and consummation of this
Agreement, and otherwise use their reasonable best efforts to consummate the
transaction contemplated hereby and to fulfill their obligations hereunder.
Section 6.6 Technical Assistance. Licensor shall provide technical
assistance without charge to Licensee respecting the day-to-day operations of
the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds during the period commencing with the Closing Date and
ending on the last day of the calendar quarter which commences immediately
following the Closing Date. If on-site assistance is reasonably required at
places other than Licensor's principal place of business, Licensee will pay for
reasonable accommodations and travel cost of Licensor's personnel providing such
on-site assistance, but Licensee shall not pay Licensor's compensation costs for
such personnel.
Section 6.7 Covenants With Respect to Changes in Condition and
Litigation.
(a) Litigation; Proceedings.
(i) From the date of this Agreement through the
Closing Date or earlier termination of this Agreement in accordance with its
terms: (A) Licensor shall notify Licensee promptly of any actions, proceedings
or investigations that from the date of this Agreement are commenced against
Licensor and relate to the administration, management, operation or distribution
of shares of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds and (B) Licensee shall notify Licensor
promptly of any actions, proceedings or investigations that from the date of
this Agreement are commenced against any of the ▇▇▇▇▇▇▇▇ Funds or Licensee or
any of its Affiliates and relate to the administration, management, operation or
distribution of the ▇▇▇▇▇▇▇▇ Funds.
(ii) From the date of this Agreement through the
Closing Date or earlier termination of this Agreement in accordance with its
terms, Licensee shall notify Licensor, and Licensor shall notify Licensee,
promptly of any actions, proceedings or investigations that are commenced
against Licensee or any of its Affiliates or any actions, proceedings or
investigations that are commenced against Licensor or any of its affiliates,
respectively, that would be reasonably likely to affect adversely the
▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, the ▇▇▇▇▇▇▇▇ Funds, the Fund Transactions, the transaction
contemplated herein or that would restrain or enjoin the consummation of, or
declare unlawful, the Fund Transactions or the transaction contemplated herein,
or cause such transaction to be rescinded or that would restrain or enjoin
execution or performance of this Agreement.
18
(b) Change in Condition. From the date of this Agreement
through the Closing Date or earlier termination of this Agreement, Licensee
agrees to advise Licensor promptly in writing of any change in the financial
condition, operations, properties or business of Licensee or any of its
Affiliates which individually or taken as a whole would have a Material Adverse
Effect with respect to Licensee. From the date of this Agreement through the
Closing Date or earlier termination of this Agreement, Licensor agrees to advise
Licensee promptly and in writing of any material adverse change in the financial
condition, operations, properties or businesses of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds,
other than changes in the value of fund assets resulting from changes occurring
in the financial or securities markets. From the date of this Agreement through
the Closing Date or earlier termination of this Agreement, Licensor agrees to
advise Licensee promptly in writing of any change in the financial condition,
operations, properties or business of Licensor which individually or taken as a
whole would have a Material Adverse Effect with respect to Licensor.
Section 6.8 Covenants With Respect to Information in Proxy Materials
and Registration Statements.
(a) Licensor covenants that the last post effective
amendment to the registration statement on Form N-lA filed by ▇'▇▇▇▇▇▇▇▇▇▇▇
Funds, Inc. with the Commission preceding the date of this Agreement, any
subsequent post-effective amendment thereto hereafter filed by ▇'▇▇▇▇▇▇▇▇▇▇▇
Funds, Inc. prior to the shareholder approval of the Fund Transactions and any
prospectus or supplement thereto used for the sale of shares of the
▇'▇▇▇▇▇▇▇▇▇▇▇ Funds and the proxy materials required for the shareholders'
meeting or meetings or meetings of ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. called for the
purpose, pursuant to the Investment Company Act, of approving the Fund
Transactions or other matters relating directly or indirectly to the Fund
Transactions do not or will not contain, at the time any such amendment becomes
effective or such prospectus is delivered in connection with a sale of shares of
the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds or at the time such proxy materials are furnished or at
the time of such meeting or meetings, any untrue statement of material fact or
omit to state any material fact required to be stated therein, where necessary
in order to make the statements made therein, in the light of the circumstances
under which they are made, not misleading; provided, however, that this covenant
shall not apply to any information or data provided by Licensee that describes
Licensee, the ▇▇▇▇▇▇▇▇ Funds or any of their respective business operations or
plans for use in the prospectus or proxy materials.
(b) Licensee covenants that any information or data
provided by Licensee that describes Licensee, the ▇▇▇▇▇▇▇▇ Funds or any of their
respective business operations or plans for use in and prospectus or prospectus
supplement for the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds or the proxy materials required for the
shareholders' meeting or meetings of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds called for the
purpose, pursuant to the Investment Company Act, of approving the Fund
Transactions or other matters relating directly or indirectly to the Fund
Transactions will not contain, at the time any such prospectus or prospectus
supplement is delivered, or at the times such proxy materials are furnished or
at the time of such meeting or meetings, any untrue statement of material fact
or omit to state any material fact required to be
19
stated therein, where necessary in order to make the statements made therein, in
the light of the circumstance under which they were made, not misleading.
Section 6.9 Access to Third Parties. Licensee and Licensor shall
agree on mutually acceptable procedures to contact ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. and
third party providers of Licensor or ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. including, but
not limited to, auditors, transfer agents, administrators or any other service
providers, and authorize such third party providers to communicate with Licensee
and to provide information requested by Licensee.
ARTICLE VII - CONDITIONS TO OBLIGATIONS OF LICENSEE AND LICENSOR
----------------------------------------------------------------
Section 7.1 Conditions to Obligations of Licensee. All obligations
of Licensee at the Closing hereunder are subject to the fulfillment prior to and
at the Closing Date of each of the following conditions, which may be waived, in
writing, in whole or in part by Licensee.
(a) Representations and Warranties. All representations and
warranties of Licensor shall be true, correct and complete at and as of the
Closing Date as though such representations and warranties were made at and as
of such time, unless the facts causing such representation or warranty not to be
true, correct or complete could not reasonably be expected to have a Material
Adverse Effect with respect to Licensor or Licensee.
(b) Covenants and Conditions. Licensor shall have in all
material respects performed and complied with all covenants, agreements and
conditions required by this Agreement to be performed or complied with by it
prior to or on the Closing Date.
(c) ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds Board Action. The ▇'▇▇▇▇▇▇▇▇▇▇▇
Funds Board of Directors have taken action:
(1) to approve the Fund Transactions and authorize
and direct appropriate officers to take all necessary actions to fulfill
the conditions precedent thereto; and
(2) to call shareholders meetings of the
▇'▇▇▇▇▇▇▇▇▇▇▇ Funds to approve the Fund Transactions.
(d) Shareholder Approval. The Fund Transactions shall have
been approved by the requisite vote of the outstanding voting securities of each
of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds.
(e) Conditions Precedent to Fund Transactions. All
conditions precedent to consummation of each of the Fund Transactions shall have
been satisfied or complied with in all material respects prior to the Closing
Date.
(f) Deliveries. Licensor shall have made or stand willing
and able to make all the deliveries to Licensee set forth in Section 8.2.
20
Section 7.2 Conditions to Obligations of Licensor. All obligations
of Licensor at the Closing hereunder are subject to the fulfillment prior to and
at the Closing Date of each of the following conditions which may be waived, in
writing, in whole or in part by Licensor.
(a) Representations and Warranties. All representations and
warranties of Licensee contained in this Agreement shall be true and complete at
and as of the Closing Date as though such representations and warranties were
made at and as of such time, unless the fact causing such representation or
warranty not to be true, correct or compete could not reasonably be expected to
have a Material Adverse Effect with respect to Licensee or Licensor.
(b) Covenants and Conditions. Licensee shall have in all
material respects performed and complied with all covenants, agreements and
conditions required by this Agreement to be performed or complied with by it
prior to or on the Closing Date.
(c) ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. Board Action. The Board of
Directors of ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. have taken action:
(1) to approve the Fund Transactions and authorize
and direct appropriate officers to take all necessary actions to fulfill
the conditions precedent thereto; and
(2) to call a shareholders meeting of the
▇'▇▇▇▇▇▇▇▇▇▇▇ Funds to approve the Fund Transactions.
(d) Shareholder Approval. The Fund Transactions shall have
been approved by the requisite vote of the outstanding voting securities of each
of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds.
(e) Conditions Precedent to Fund Transactions. All
conditions precedent to consummation of each of the Fund Transactions shall have
been satisfied or complied with in all material respects prior to the Closing
Date.
(f) Deliveries. Licensee shall have made or stand willing
and able to make all the deliveries set forth in Section 8.3.
Section 7.3 Effect of Consummation of Fund Transactions. Notwith-
standing any other provision of this Agreement, in the event the Fund
Transactions are consummated prior to the Closing:
(a) This Agreement shall not be subject to termination
pursuant to Section 9.1; and
(b) Licensor shall license the Trade Rights to Licensee on
the date the Fund Transactions are consummated (the "Consummation Date"), and
Licensee shall
21
thereupon become obligated to deliver the unpaid portion of the License Fee to
Licensor in the manner described in Section 2.4 of this Agreement;
Except as otherwise specifically provided herein, nothing in this Section 7.3
shall be deemed to relieve a party of liability under this Agreement if on the
Consummation Date such party shall not have performed or complied, in all
material respects with all covenants, agreements and conditions required by this
Agreement to be performed or complied with by such party prior to or on the
Closing, or if a representation or warranty held by such party in this Agreement
shall not be true, correct and complete on and as of the Consummation Date
(unless the facts causing such representation or warranty not to be true;
correct or complete could not reasonably be expected to have a Material Adverse
Effect with respect to Licensor or Licensee).
ARTICLE VIII - CLOSING AND CLOSING DELIVERIES
---------------------------------------------
Section 8.1 Closing. The Closing Date shall be on or before June 30,
2000, or as soon as practicable after the satisfaction or waiver of the
conditions set forth in Article VII of this Agreement, whichever is earlier;
provided, however, that if the meeting of shareholders of the ▇'▇▇▇▇▇▇▇▇▇▇▇
Funds called to approve the Fund Transactions is adjourned to a date on or after
June 30, 2000, and such adjournment does not require the fixing of a new record
date for such adjourned meeting, the Closing Date shall be as soon as
practicable after the conclusion of such adjourned meeting. Closing shall be
held at the offices of Licensor or such other place as shall be mutually agreed
upon by Licensee and Licensor.
Section 8.2 Deliveries by Licensor. Prior to or on the Closing Date,
Licensor shall deliver to Licensee the following, in form and substance
reasonably satisfactory to Licensee and its counsel:
(a) Management Agreement. The management agreement in the
form approved by the shareholders of the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds duly executed on
behalf of ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds Inc.
(b) Amendment to Articles of Incorporation of ▇'▇▇▇▇▇▇▇▇▇▇▇
Funds, Inc. An amendment to the Articles of Incorporation of ▇'▇▇▇▇▇▇▇▇▇▇▇
Funds, Inc. changing its corporate name to "▇▇▇▇▇▇▇▇ Mutual Funds, Inc." in
appropriate form for filing in the office of the appropriate state official of
the State of Maryland.
(c) Resignations. Resignations executed by each of the
directors and officers of ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc. effective as of the Closing
Date, other than the directors elected by the shareholders of the ▇'▇▇▇▇▇▇▇▇▇▇▇
Funds as part of the Fund Transactions.
(d) Officer's Certificate. A certificate, dated as of the
Closing Date, executed on behalf of Licensor by an authorized officer certifying
that the conditions set forth in Sections 7.1(a) and (b) have been satisfied;
22
(e) Certificate of Secretary of Licensor. A certificate,
dated as of the Closing Date, executed by Licensor's Secretary on Licensor's
behalf: certifying (i) that the resolutions, as attached to such certificate,
were duly adopted by Licensor authorizing and approving the execution of this
Agreement and the consummation of the transaction contemplated hereby and that
such resolutions remain in full force and effect; and (ii) that Licensor has
taken no action to dissolve and that no grounds exist for administrative of
judicial action to dissolve the Licensor and providing, as an attachment
thereto, a certificate of good standing certified by an appropriate state
official of the State of Maryland as of a date not more than fifteen (15) days
before the Closing Date;
(f) A certificate, dated as of the Closing Date executed by
the Secretary of ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc., certifying (i) that the resolutions
attached to such certificate were duly adopted by the shareholders of each of
the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds approving the Fund Transactions and that such
resolutions remain in full force and effect and (ii) that ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds,
Inc. has taken no action to dissolve and that no grounds exist for
administrative or judicial action to dissolve ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds, Inc., and
providing, as an attachment thereto Articles of Incorporation of ▇'▇▇▇▇▇▇▇▇▇▇▇
Funds, Inc., as amended, and a certificate of good standing, each certified by
an appropriate state official of the State of Maryland as of a date not more
than fifteen (15) days before the Closing Date.
(g) Opinion of Counsel. Opinion of Licensor's counsel dated
as of the Closing Date in a form reasonably acceptable to Licensee and its
counsel as to the matters set forth in Schedule 8.2(d); and
(h) Delivery of Assets. Delivery by Licensor to a location
specified by Licensee of originals, if available, or copies, if originals are
not available, of all of the files, books, records of Licensor referred to in
Section 2.1.
Section 8.3 Deliveries by Licensee. Prior to or on the Closing Date,
Licensee shall deliver to Licensor the following, in form and substance
reasonably satisfactory to Licensor and its counsel:
(a) License Fee. The portion of the License fee that is to
be paid on the Closing Date as provided in Section 2.4 and Licensee's duly
executed promissory note in the form attached hereto as Exhibit B in the
aggregate amount determined in accordance with clauses (c) and (d) of Section
2.4;
(b) Officer's Certificate. A certificate, dated as of the
Closing Date, executed on behalf of Licensee by an authorized officer certifying
that the conditions set forth in Section 7.2(a) and (b) have been satisfied;
(c) Secretary's Certificate. A certificate, dated as of the
Closing Date, executed by Licensee's Secretary on its behalf: certifying (i)
that the resolutions, as attached to such certificate, were duly adopted by
Licensee's Board of Directors, authorizing
23
and approving the execution of this Agreement and the consummation of the
transaction contemplated hereby and that such resolutions remain in full force
and effect; and (ii) that Licensee has taken no action to dissolve and that no
grounds exist for administrative or judicial action to dissolve the Licensee and
providing, as attachments thereto, a certificate of good standing certified by
an appropriate state official of the State of California as of a date not more
than fifteen (15) days before the Closing Date and by Licensee's Secretary as of
the Closing Date; and
(d) Opinion of Counsel. An opinion of Licensee's counsel
dated as of the Closing Date in a form reasonably acceptable to Licensor and
Licensor's counsel as to the matters set forth in Schedule 8.3(d).
ARTICLE IX - RIGHTS OF LICENSEE AND LICENSOR ON TERMINATION
-----------------------------------------------------------
OR BREACH
---------
Section 9.1 Termination Rights. This Agreement and, subject to the
provisions of this Article IX, the obligations hereunder may be terminated and
the transaction contemplated hereby abandoned:
(a) by Licensee at any time if all of the conditions set
forth in Section 7.1 hereof shall not have been satisfied or waived by Licensee
on the Closing Date (or the latest permissible time for the Closing Date
provided in Section 8.1); or
(b) by Licensor at any time if all of the conditions set
forth in Section 7.2 hereof shall not have been satisfied or waived by Licensor
on the Closing Date (or the latest permissible time for the Closing Date
provided in Section 8.1); or
(c) by Licensee or Licensor if there is in effect on the
Closing Date (or the latest permissible time for the Closing Date provided in
Section 8.1) any judgment, decree or order that would prevent or make unlawful
the Closing hereunder.
Any termination of this Agreement pursuant to this Section 9.1 shall be
effected by notice in writing to the other party.
Section 9.2 Effect of Termination. If this Agreement is terminated
pursuant to and in accordance with Section 9.1, the termination shall be without
liability of any party, or of any Affiliate of such party, or any shareholder,
director, trustee, officer, employee, agent, consultant or representative, of
such party or of any of its Affiliates, or of ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds and any of its
officers or trustees, to the other party to this Agreement; provided, however,
that, if the termination shall result from the breach by a party of any covenant
or agreement of such party contained in this Agreement, such party responsible
for the breach shall be fully liable for any and all reasonable costs and
expenses (including reasonable counsel fees and disbursements) sustained or
incurred by the non-breaching party; and provided further that the terms of
Section 6.3 and the confidentiality obligations of the parties to this Agreement
set forth in this Agreement shall survive any termination of this Agreement.
24
Section 9.3 Default; Liquidated Damages. Notwithstanding the
provisions of the foregoing Section 9.2, if Licensee fails to close, Licensor
being not in default and all conditions to the obligations of Licensee to close
having been satisfied or waived, Licensor's sole remedy shall be the right to
terminate this Agreement by fifteen (15) days' written notice to Licensee. Upon
such termination: (a) Licensee shall forfeit all rights and claims pursuant to
this Agreement; (b) Licensor shall hold and retain all sums of money paid or
payable in accordance with clause (a) of Section 2.4 of this Agreement as
liquidated damages for Licensor's default, this Agreement serving without more
as an irrevocable direction on behalf of Licensee to Firstar Bank, N.A. to pay
such sums to Licensor; and (c) all rights and remedies under this Agreement
shall thereupon be void. The parties hereby agree that the aforesaid sums shall
be deemed to be adequate but not excessive liquidated damages based upon the
following considerations, which Seller and Purchaser agree would constitute
damages to Licensor for any default by Licensee but are impossible to quantify,
to wit: (a) the removal of the Trade Rights from the market, together with the
uncertainty of obtaining a new licensee at the same or greater license fee;
(b) the expenses incurred by Licensor, including (but not by way of limitation)
attorneys' fees, interest and other costs incidental to the maintenance of
Licensor's Mutual Fund business until a new licensee can be identified; and
(c) all other expenses incurred by Licensor as a result of Licensee's default.
ARTICLE X - REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
-----------------------------------------------------------
Section 10.1 Representations and Warranties. The representations and
warranties contained in this Agreement shall survive until June 30, 2003, except
for: (a) those representations and warranties of Licensor related to the Patent,
which shall survive for the full life of the Patent (including continuations,
continuations-in-part, reissues and extensions thereof); (b) those representa-
tions and warranties of Licensor related to the Marks, which shall survive
indefinitely.
Section 10.2 Indemnification by Licensor. Licensor shall indemnify,
defend and hold harmless the Licensee against any and all claims, actions,
damages, obligations, losses, liabilities, costs and expenses of which Licensee
gives Licensor notice pursuant to Section 10.4(a) on or before the expiration of
the appropriate survival period as set forth above (including reasonable
attorneys' fees, costs of collection and other costs of defense) (collectively,
"Damages"), arising from or in connection with any breach of any representation
or warranty of Licensor or any covenant by Licensor contained in this Agreement.
Section 10.3 Indemnification by Licensee. Licensee shall indemnify
defend and hold harmless Licensor against any and all claims, actions, damages,
obligations, losses, liabilities, costs and expenses of which Licensor gives
Licensee notice pursuant to Section 10.4(a) on or before June 30, 2003
(including reasonable attorney's fees and costs of collection and other costs of
defense) (collectively, "Damages") incurred or suffered arising from or in
connection with:
25
(a) any breach of any representation or warranty of Licensee
or any covenant by Licensee contained in this Agreement; and
(b) Licensee's license of the Trade Rights or the provision
of services to the ▇'▇▇▇▇▇▇▇▇▇▇▇ Funds by Licensee or any of its Affiliates on
and after the Closing Date.
Section 10.4 Procedure for Indemnification. The procedure for seeking
indemnification shall be as follows.
(a) The party claiming indemnification (the "Claimant")
shall promptly give notice to the party from whom indemnification is claimed
(the "Indemnifying Party") of any claim, whether between the parties or brought
by a third party, specifying (i) the factual basis for such claim and (ii) if
known, the estimated amount of the claim. If the claim relates to an action,
suit or proceeding filed by a third party against Claimant, such notice shall be
given by Claimant within five (5) days after written notice of such action, suit
or proceeding was given to Claimant. Such notice shall not be a condition
precedent to any liability of the Indemnifying Party under the provisions for
indemnification contained in this Agreement, unless (and only to the extent
that) failure to give such notice materially prejudices the rights of the
Indemnifying Party with respect to such actions or proceedings.
(b) Following receipt of notice from the Claimant of a claim
for indemnification, the Indemnifying Party shall have thirty (30) days to make
such investigation of the claim as the Indemnifying Party deems necessary or
desirable. For the purposes of such investigation, the Claimant agrees to make
available to the Indemnifying Party and its authorized representative(s) the
information relied upon by the Claimant to substantiate the claim. If the
Claimant and the Indemnifying Party agree at or prior to the expiration of said
thirty (30) day period (or any mutually agreed upon extension thereof) to the
validity and amount of such claim, the Indemnifying Party shall immediately pay
to the Claimant the full amount of the claim. If the Claimant and the
Indemnifying Party do not agree within said period (or any mutually agreed upon
extension thereof), the Claimant may seek appropriate legal remedy.
(c) With respect to any claim by a third party as to which
Claimant is entitled to indemnification hereunder, the Indemnifying Party shall
have the right at its own expense, to participate in or assume control of the
defense of such claim, and the Claimant shall cooperate fully with the
Indemnifying Party, subject to reimbursement for actual out-of-pocket expenses
incurred by the Claimant as the result of a request by the Indemnifying Party.
If the Indemnifying Party elects to assume control of the defense of any third-
party claim, (the Claimant shall have the right to participate in the defense of
such claim at its own expense. Notwithstanding the election of the Indemnifying
Party to assume the defense of such action, the Claimant shall have the right to
employ separate counsel and to participate in the defense of such action, and
the Indemnifying Party shall bear the reasonable fees, costs and expenses of
separate counsel if (a) in the reasonable judgment of the Claimant the use of
counsel chosen by the Indemnifying Party to represent the Claimant would present
such counsel with a conflict of
26
interest; (b) the defendants in, or targets of, any such action include both thc
Indemnifying Party and the Claimant, and the Claimant shall have reasonably
concluded that there may be legal defenses available to it which are different
from or additional to those available to the Indemnifying Party (in which case
the Indemnifying Party shall not have the right to direct the defense of such
action on behalf of the Claimant); (c) the Indemnifying Party shall not have
employed counsel satisfactory to the Claimant, in the exercise of the Claimant's
reasonable judgment, to represent the Claimant within a reasonable time after
notice of the institution of such action; or (d) the Indemnifying Party shall
authorize in writing the Claimant to employ separate counsel at the expense of
the Indemnifying Party. If the Indemnifying Party chooses to defend any claim,
the Claimant shall make available to the Indemnifying Party any books, records
or other documents within its control that are necessary or appropriate for such
defense, subject to attorney client privilege and confidentiality agreements. In
any event, the Claimant, the Indemnifying Party and the Indemnifying Party's
counsel (and, if applicable, the Claimant's counsel), shall cooperate (at no
material cost to the Claimant other than the cost of Claimant's counsel) in the
compromise of, or defense against, any such asserted liability. If the
Indemnifying Party assumes the defense of such an action, no compromise or
settlement thereof may be effected by the Indemnifying Party without the
Claimant's consent (which shall in any event not be unreasonably withheld)
unless (i) there is no finding or admission of any violation of the rights of
any person by the Claimant and no effect on any other claims that may be made
against the Claimant and (ii) the sole relief provided is monetary damages that
are paid in full by the Indemnifying Party.
(d) If a claim, whether between the parties or by a third
party, requires immediate action, the parties will make every effort to reach a
decision with respect thereto as expeditiously as possible.
(e) The Claimant may not compromise any such claim without
the prior written consent of the Indemnifying Party, which consent may not be
unreasonably withheld.
(f) The indemnification rights provided in Sections 10.2 and
10.3 shall extend to the shareholders, directors, officers, employees,
Affiliates and agents of the Claimant although for the purpose of the procedures
set forth in this Section 10.4, any indemnification claims by such parties shall
be made by and through the Claimant.
(g) The indemnification obligations of Licensee and Licensor
under this Article X shall constitute the sole and exclusive remedies of
Licensee and Licensor for recovery of money damages after the Closing Date.
ARTICLE XI - MISCELLANEOUS
--------------------------
Section 11.1 Notices. All notices, demands and requests required or
permitted to be given under the provisions of this Agreement shall be (i) in
writing (ii) delivered by personal delivery, or sent by commercial delivery
service or registered or certified mail, return
27
receipt requested (iii) deemed to have been given on the date of personal
delivery or the date set forth in the records of the delivery service or on the
return receipt or on the date receipt is confirmed as set forth in the
confirmation of the properly transmitted facsimile, and (iv) addressed as
follows:
If to Licensor: Netfolio, Inc.
-------------- ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇'▇▇▇▇▇▇▇▇▇▇▇, Chairman
with copies (which shall not constitute notice) to:
-----------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
If to Licensee: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Incorporated
-------------- The Courtyard Square
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
with copies (which shall not constitute notice) to:
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇ & Lardner
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇ (fax)
or to any such other or additional persons and addresses as the parties may from
time to time designate in a writing delivered in accordance with this Section
11.1; provided that any facsimile should be sent to a number provided by the
intended recipient.
Section 11.2 Benefit and Binding Effect. Neither party hereto may
assign this Agreement without the prior written consent of the other party
hereto, except that Licensee may assign some or all of its rights and obli-
gations under this Agreement to any member of the affiliated group of
corporations of which Licensee is a part or to any purchaser of successor to
Licensee's business, provided that such assignee agrees in writing to be bound
by the provisions of this Agreement. This Agreement is for the sole benefit of
and shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns and is not for the benefit of
any other person.
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Section 11.3 Governing Law. This Agreement shall be governed,
construed and enforced in accordance with the substantive laws of (without
regard to conflict of law principles), and the sole forum for the judicial
resolution of any dispute arising under this Agreement shall be, the State of
New York. The parties hereto consent and submit to the exclusive personal and
subject-matter jurisdiction of the state and federal courts located in the State
and County of New York. Trial by jury in any action, proceeding or counterclaim
arising hereunder is hereby waived.
Section 11.4 Headings. The headings herein are included for ease of
reference only and shall not control or affect the meaning or construction of
the provisions of this Agreement.
Section 11.5 Gender and Rules of Construction. All references in this
Agreement to the masculine gender shall include the feminine and neuter genders,
and vice versa, and all references to the singular shall include the plural, and
vice versa. Any reference to any Section, Schedule or Exhibit contained in this
Agreement shall refer to such Section, Schedule or Exhibit as set forth in or
attached to this Agreement, notwithstanding use of or failure to use the term
"hereof," "hereto" or "herein" in connection with such reference.
Section 11.6 Entire Agreement. This Agreement, all Schedules hereto,
and all documents and certificates to be delivered by the parties pursuant
hereto collectively represent the entire understanding and agreement between
Licensee and Licensor with respect to the subject matter hereof except as
otherwise provided in Section 6.4(b). All Schedules required by this Agreement
shall be deemed part of this Agreement and incorporated herein, where
applicable, as if fully set forth herein. This Agreement supersedes all prior
negotiations between Licensee and Licensor and all letters of intent and other
writings relating to such negotiations, and cannot be amended, supplemented or
modified except by an agreement in writing which makes specific reference to
this Agreement or an agreement delivered pursuant hereto, as the case may be,
and which is signed by the party against which enforcement of any such
amendment, supplement or modification is sought.
Section 11.7 Counterparts. This Agreement may be signed in any number
of counterparts with the same effect as if the signature on each such
counterpart were upon the same instrument. An electronic facsimile or photocopy
of this Agreement shall he deemed an original and may be admitted in evidence
for all purposes.
IN WITNESS WHEREOF, this Agreement has been executed by Licensee and
Licensor as of the date first above written.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ INCORPORATED
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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NETFOLIO, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇'▇▇▇▇▇▇▇▇▇▇▇
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EXHIBIT A
THE OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATED TO OBLIGATIONS TO FIRSTAR
BANK, NATIONAL ASSOCIATION, IN ACCORDANCE WITH THE TERMS OF A SUBORDINATION
AGREEMENT HELD BY SAID BANK.
SUBORDINATED PROMISSORY NOTE
$___________ __________, 2001
FOR VALUE RECEIVED, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ INCORPORATED a
corporation organized under the laws of the State of California ("Maker"),
promises to pay to the order of NETFOLIO, INC., a corporation organized under
the laws of the State of Minnesota ("Payee") the principal sum of ___________
Dollars ($_____), at the principal office of the Payee in Greenwich,
Connecticut, or such other place within the United States as the holder hereof
may from time to time designate, payable in sixty (60) equal monthly
installments of ____________ Dollars ($_____) each on the 15th day of each month
commencing ______ 15, 2001. 1
The unpaid principal balance hereof shall bear interest,
payable with each installment of principal computed at a per annum rate
equivalent to the rate announced by Firstar Bank, National Association,
Cincinnati, Ohio ("Firstar") as its prime rate (the "Prime Rate") with the
interest rate hereon changing quarterly effective on the 15th day of each third
calendar month, beginning on the 15th day of the third calendar month following
the month in which this Promissory Note is executed, to reflect the Prime Rate
as last previously announced by Firstar.
In the event any payment of interest or principal due
hereunder shall not be paid on the date when due (including any such non-payment
which arises as a result of the subordination in right of payment of the
obligations evidenced hereby to certain indebtedness of Maker to Firstar Bank,
N.A.), such past-due payment shall bear interest at the rate of eighteen (18%)
percent per annum, compounded monthly, from the date when such payment first
became due until receipt of payment thereof by Payee. In addition, Maker shall
pay a late payment premium of two (2%) percent of any principal or interest
payment made more than five (5) business days after the due date thereof, which
premium shall be paid with such late payment and shall be deemed part of such
payment for the purpose of computing interest under the preceding sentence. This
paragraph shall not be deemed to extend or otherwise modify or amend the date
when such payments are due hereunder.
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1 [Commencement of payment is the fifteenth day of the month following
the Anniversary Date].
This note may be prepaid in full or in part at any time
without premium or penalty. All prepayments shall be applied against
installments of principal due hereunder in the inverse order of their maturity.
This note is issued pursuant to the provisions of a certain
License Agreement between Maker and Payee dated April 10, 2000. In the event of
any inconsistency between the terms of this note and such License Agreement, the
terms of such License Agreement shall control.
If any payment is not made when due, the unpaid balance of
this note shall, at the option of the holder and without notice or demand,
mature and become immediately payable. The unpaid balance shall automatically
mature and become immediately payable in the event Maker becomes the subject of
bankruptcy or other insolvency proceedings.
Maker waives presentment, demand, notice of dishonor and
protest. Maker agrees to pay all costs of collection, including reasonable
attorney's fees and legal expenses.
This note is governed by the internal laws of the State of New
York, except to the extent superseded by federal law.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ INCORPORATED
By:______________________________________
Name:
Title:
Attest:
By:______________________________________
Name:
Title: