Exhibit 10.1
[EXECUTION COPY]
================================================================================
STOCK PURCHASE AND RECAPITALIZATION AGREEMENT
by and among
OPTIONSXPRESS, INC.
THE PURCHASERS NAMED HEREIN
and
THE SELLERS NAMED HEREIN
December 17, 2003
================================================================================
TABLE OF CONTENTS
Page
Section 1. Stock Purchase and Recapitalization.............................................................1
1A. Authorization...................................................................................1
1B. Investment Transaction..........................................................................2
1C. Repurchase Transaction..........................................................................2
1D. Closing.........................................................................................2
1E. Multiple Closings...............................................................................3
▇▇. ▇▇▇▇▇▇▇▇▇▇ Price; Net Book Value Dividend; Adjustments..........................................5
Section 2. Conditions of the Obligations of the Purchasers at the Closing..................................7
2A. Representations and Warranties; Covenants.......................................................7
2B. Amendment of Certificate of Incorporation.......................................................7
2C. Amendment of Bylaws.............................................................................7
2D. Stockholders Agreement..........................................................................7
2E. Registration Agreement..........................................................................7
2F. Investor Rights Agreement.......................................................................7
2G. Employment Letter Agreements; Amended and Restated Restricted Stock Agreements..................7
2H. Management Rights Agreement.....................................................................8
2I. Director Indemnification Agreement..............................................................8
2J. Opinion of the Company's and the Sellers' Counsel...............................................8
2K. Repurchase Transaction..........................................................................8
2L. Key-Man Policies................................................................................8
2M. Litigation......................................................................................8
2N. Filings.........................................................................................8
2O. Third Party Consents and Approvals..............................................................9
2P. Governmental Consents and Approvals.............................................................9
2Q. Material Adverse Effect.........................................................................9
2R. Closing Documents...............................................................................9
2S. Proceedings....................................................................................10
2T. Waiver.........................................................................................10
Section 3. Conditions of the Obligations of the Company and the Sellers at the Closing....................10
3A. Representations and Warranties; Covenants......................................................10
3B. Stockholders Agreement.........................................................................10
3C. Registration Agreement.........................................................................10
3D. Investor Rights Agreement......................................................................10
3E. Litigation.....................................................................................11
3F. Governmental Consents and Approvals............................................................11
3G. Investment Transaction.........................................................................11
3H. Waiver.........................................................................................11
- i -
TABLE OF CONTENTS
(CONTINUED)
Section 4. Pre-Closing Covenants and Agreements...........................................................11
4A. General........................................................................................11
4B. Maintenance of Business........................................................................11
4C. Third Party Notices and Consents...............................................................11
4D. Governmental Notices and Consents..............................................................11
4E. Operation of Business..........................................................................12
4F. Full Access....................................................................................13
4G. Notice of Material Developments................................................................13
4H. ▇▇▇▇▇▇▇▇▇▇▇....................................................................................▇▇
▇▇. Tax Matters....................................................................................14
4J. Actions with Respect to Repurchased Shares.....................................................14
4K. Additional Sellers; Joinders...................................................................14
4L. Existing Preferred.............................................................................16
4M. Charter Amendment..............................................................................16
Section 5. Representations and Warranties of the Company..................................................17
5A. Organization, Corporate Power and Licenses.....................................................17
5B. Capital Stock and Related Matters..............................................................17
5C. Subsidiaries; Investments......................................................................18
5D. Authorization; No Breach.......................................................................18
5E. Financial Statements...........................................................................19
5F. Absence of Undisclosed Liabilities.............................................................20
5G. Accounts Receivable............................................................................20
5H. No Material Adverse Effect.....................................................................20
5I. Absence of Certain Developments................................................................20
5J. Assets.........................................................................................22
5K. Tax Matters....................................................................................23
5L. Contracts and Commitments......................................................................24
5M. Intellectual Property Rights...................................................................27
5N. Litigation, Etc................................................................................29
5O. Brokerage......................................................................................29
5P. Insurance......................................................................................29
5Q. Employees......................................................................................30
5R. ERISA..........................................................................................30
5S. Compliance with Laws; Licenses; Certain Operations.............................................32
5T. Affiliated Transactions........................................................................32
5U. Real Property..................................................................................32
5V. Disclosure.....................................................................................33
5W. Closing Date...................................................................................33
Section 6. Representations and Warranties of the Sellers..................................................33
6A. Capacity; Power and Authority..................................................................33
- ii -
TABLE OF CONTENTS
(CONTINUED)
6B. Authorization; No Breach.......................................................................33
6C. Title to Shares, Etc...........................................................................34
6D. Brokerage......................................................................................34
6E. Litigation, Etc................................................................................34
6F. Company Transactions...........................................................................34
6G. Closing Date...................................................................................34
Section 7. Representations and Warranties of the Purchasers...............................................35
7A. Organization, Power and Authority..............................................................35
7B. Authorization; No Breach.......................................................................35
7C. Brokerage......................................................................................35
7D. Investment Representations.....................................................................35
7E. Closing Date...................................................................................36
Section 8. Indemnification and Other Agreements...........................................................36
8A. Survival of Representations and Warranties.....................................................36
8B. General Indemnification........................................................................37
8C. Press Release and Announcements................................................................42
8D. Confidentiality................................................................................42
8E. Dispute Resolution.............................................................................42
8F. Appointment of Sellers' Representative.........................................................43
8G. Further Assurances.............................................................................44
Section 9. Definitions....................................................................................44
Section 10. Termination....................................................................................51
10A. Conditions of Termination......................................................................51
10B. Effect of Termination..........................................................................52
Section 11. Miscellaneous..................................................................................52
11A. Fees and Expenses..............................................................................52
11B. Remedies.......................................................................................52
11C. Transfer of Restricted Securities..............................................................53
11D. Consent to Amendments..........................................................................54
11E. Successors and Assigns.........................................................................54
11F. Severability...................................................................................54
11G. Counterparts...................................................................................54
11H. Descriptive Headings; Interpretation...........................................................54
11I. Entire Agreement...............................................................................55
11J. No Third-Party Beneficiaries...................................................................55
11K. Schedules......................................................................................55
11L. Treatment of the Preferred Stock...............................................................55
- iii -
TABLE OF CONTENTS
(CONTINUED)
11M. Governing Law..................................................................................55
11N. Notices........................................................................................55
11O. No Strict Construction.........................................................................56
- iv -
EXHIBITS AND SCHEDULES
EXHIBITS:
Exhibit A - Amended and Restated Certificate of Incorporation
Exhibit B - Amended and Restated Bylaws
Exhibit C - Stockholders Agreement
Exhibit D - Registration Agreement
Exhibit E - Investor Rights Agreement
Exhibit F - Employment Agreements
Exhibit G - Management Rights Agreement
Exhibit H - Indemnification Agreement
Exhibit I - Opinion of Counsel for the Company and the Sellers
Exhibit J - Amended and Restated Restricted Stock Agreements
DISCLOSURE SCHEDULES:
Schedule of Purchasers
Schedule of Sellers
Contracts Schedule
Employees Schedule
Affiliated Transaction Schedule
Closing Net Book Value Adjustments Schedule
Officers and Directors Schedule
Capitalization Schedule
Investments and Subsidiaries Schedule
Restrictions Schedule
Financial Statements Schedule
Liabilities Schedule
Accounts Receivable Schedule
Developments Schedule
Assets Schedule
Taxes Schedule
Intellectual Property Schedule
Litigation Schedule
Insurance Schedule
Employee Benefits Schedule
Compliance Schedule
Licenses Schedule
Affiliated Transactions Schedule
Real Property Schedule
- v -
STOCK PURCHASE AND RECAPITALIZATION AGREEMENT
THIS
STOCK PURCHASE AND RECAPITALIZATION AGREEMENT (this "AGREEMENT") is
made and entered into as of December 17, 2003, by and among optionsXpress, Inc.,
a Delaware corporation (the "COMPANY"), the Persons listed on the SCHEDULE OF
PURCHASERS attached hereto (collectively referred to herein as the "PURCHASERS"
and individually as a "PURCHASER"), and the Persons listed on the SCHEDULE OF
SELLERS attached hereto as of the date hereof and any other Person who becomes a
party hereto and is added to the SCHEDULE OF SELLERS attached hereto after the
date hereof in accordance with Paragraph 4K below (collectively referred to
herein as the "SELLERS" and individually as a "SELLER"). The Company, the
Purchasers and the Sellers are sometimes collectively referred to herein as the
"PARTIES" and individually as a "PARTY." Capitalized terms used herein and not
otherwise defined herein have the meanings given to such terms in Section 9
below.
WHEREAS, the Sellers that are parties hereto as of the date hereof own
beneficially and of record approximately 70% of the Company's outstanding common
stock, par value $.0001 per share (the "COMMON STOCK"), on a fully-diluted basis
(including shares convertible into Common Stock);
WHEREAS, the Company desires to reconstitute its capital structure
through the sale of certain newly-authorized equity securities and the
repurchase of certain of its outstanding equity securities, in each case on the
terms and subject to the conditions set forth herein;
WHEREAS, the Purchasers desire to purchase certain newly-authorized
equity securities on the terms and subject to the conditions set forth herein;
and
WHEREAS, the Sellers desire the Company to repurchase certain equity
securities of the Company held by the Sellers on the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants, agreements and
understandings contained herein, and intending to be legally bound, the Parties
hereby agree as follows:
Section 1. STOCK PURCHASE AND RECAPITALIZATION.
1A. AUTHORIZATION. On or prior to the Closing Date:
(i) The Company shall authorize (and the Sellers shall cause the
Company to authorize) the filing under the laws of the State of Delaware of the
Company's second amended and restated certificate of incorporation in the form
of EXHIBIT A attached hereto (as so further amended and restated, the
"CERTIFICATE OF INCORPORATION"). The Certificate of Incorporation shall be duly
filed by the Company on or prior to the Closing Date and shall be in full force
and effect under the laws of the State of Delaware as of the Closing.
(ii) The Company shall authorize (and the Sellers shall cause the
Company to authorize) the issuance to the Purchasers of an aggregate of
2,554,977 shares of its newly-designated Series A Convertible Preferred Stock,
par value $.0001 per share (the "PREFERRED STOCK"), at a price per share equal
to $36.4324 and having the rights and preferences set forth in the Certificate
of Incorporation. The Preferred Stock shall be initially convertible into shares
of Common Stock on a one-for-one basis as set forth in the Certificate of
Incorporation.
(iii) The Company shall authorize (and the Sellers shall cause the
Company to authorize) the repurchase from the Sellers of an aggregate of
2,554,977 shares of Common Stock (the "REPURCHASED SHARES"), which may include
the repurchase and cancellation of vested options exercisable for shares of
Common Stock (the "REPURCHASED OPTIONS"), at a price per share equal to $36.4324
(and, in the case of Repurchased Options, at a price per share of Common Stock
issuable upon exercise of such Repurchased Options equal to $36.4324 less the
aggregate exercise price associated with such Repurchased Options), for an
aggregate purchase price equal to $93,084,000, less the aggregate exercise price
associated with all such Repurchased Options (the "REPURCHASE PRICE").
1B. INVESTMENT TRANSACTION. On the basis of the representations,
warranties, covenants and agreements set forth herein and subject to the
satisfaction or waiver of the conditions set forth in Section 2 below (in the
case of the Purchasers) and Section 3 below (in the case of the Company and the
Sellers), the Purchasers and the Company agree to and shall consummate, and the
Sellers shall cause the Company to consummate, at the Closing, the following
transaction (the "INVESTMENT TRANSACTION"): the Company shall sell to each
Purchaser, and each Purchaser shall purchase from the Company, the number of
shares of Preferred Stock set forth opposite such Purchaser's name on the
SCHEDULE OF PURCHASERS attached hereto (the "PURCHASED SHARES") for an aggregate
purchase price equal to $93,084,000 (the "STOCK PURCHASE PRICE"), payable in the
manner set forth in Paragraph 1D(i) hereof.
1C. REPURCHASE TRANSACTION. On the basis of the representations,
warranties, covenants and agreements set forth herein and subject to the
satisfaction or waiver of the conditions set forth in Section 3 below and the
consummation of the Investment Transaction, the Company and each of the Sellers
agree to and shall consummate, at the Closing, the following transaction (the
"REPURCHASE TRANSACTION"): the Company shall repurchase (with respect to
outstanding shares) and repurchase and cancel (with respect to outstanding stock
options) (by applying the proceeds of the Investment Transaction) from each
Seller the number of Repurchased Shares and/or Repurchased Options set forth
opposite such Seller's name on the SCHEDULE OF SELLERS attached hereto and shall
pay to each such Seller (in the manner set forth in Paragraph 1D(iii) below) the
portion of the Repurchase Price set forth opposite such Seller's name on the
SCHEDULE OF SELLERS attached hereto.
1D. CLOSING. The closing of each of the Investment Transaction
and the Repurchase Transaction (the "CLOSING") shall take place at the offices
of ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, or
at such other place as may be mutually agreeable to the Purchasers and the
Sellers' Representative, at 10:00 a.m., local time, on January 15, 2004 (or such
earlier date as may be mutually agreeable to the Purchasers and the Company),
- 2 -
or, if any of the conditions to Closing set forth in Section 2 and Section 3
below have not been satisfied or waived by the Party entitled to the benefit
thereof on or prior to such date, on the second business day following
satisfaction or waiver of such conditions (the "CLOSING DATE"). The Investment
Transaction and the Repurchase Transaction shall each constitute a separate
transaction hereunder. At the Closing, the Parties shall consummate the
Investment Transaction and the Repurchase Transaction in the following manner
and in the following order (except that each of the transactions shall be deemed
to have been consummated simultaneously and none of the transactions described
below shall be consummated unless all of such transactions are consummated):
(i) Each Purchaser shall deliver to the Company such Purchaser's
portion of the Stock Purchase Price as set forth opposite such Purchaser's name
on the SCHEDULE OF PURCHASERS attached hereto, by wire transfer of immediately
available funds to an account designated by the Company.
(ii) The Company shall deliver to each Purchaser a stock certificate
or certificates representing the Preferred Stock purchased by such Purchaser, as
set forth opposite such Purchaser's name on the SCHEDULE OF PURCHASERS attached
hereto, registered in such Purchaser's name, upon payment of such Purchaser's
portion of the Stock Purchase Price in the manner described in clause (i) above.
(iii) The Company shall pay to the Sellers' Representative (on its
own behalf and as paying agent for and on behalf of the other Sellers) an amount
equal to the Repurchase Price by wire transfer of immediately available funds to
an account designated by the Sellers' Representative (and with it being
understood that the Repurchase Price shall be allocated by the Sellers'
Representative to each of the Sellers as set forth on the SCHEDULE OF SELLERS
attached hereto). Any amounts payable to the Sellers in respect of Repurchased
Options shall be reduced by the amount of any required tax withholding under
applicable federal and state laws, rules and regulations as determined by the
Company prior to the Closing (and with all such withheld amounts being remitted
by the Company to the applicable taxing authorities promptly following the
Closing).
(iv) Each of the Sellers shall deliver to the Company the stock
certificate or certificates evidencing the Repurchased Shares held by such
Seller upon payment of the Repurchase Price in the manner described in clause
(iii) above, duly endorsed in blank or accompanied by duly executed stock
powers, and/or satisfactory evidence of such Seller's acknowledgement and
agreement with respect to the repurchase and cancellation of Repurchased
Options. The Company shall deliver to each Seller a new stock certificate or
certificates representing the shares of Common Stock owned by such Seller which
were represented by the certificate(s) delivered pursuant to this clause (iv)
but which were not repurchased by the Company in connection with the Repurchase
Transaction.
1E. MULTIPLE CLOSINGS. Notwithstanding Paragraph 1D above or any
other provision hereof to the contrary, if the Parties receive or otherwise
obtain such Governmental Approvals (referred to herein as the "INITIAL
GOVERNMENTAL APPROVALS") as are necessary to consummate a portion of the
Investment Transaction but as of such date have not received or
- 3 -
otherwise obtained all of the Governmental Approvals that are necessary to
consummate the entire Investment Transaction (such other Governmental Approvals
being referred to herein as the "REMAINING GOVERNMENTAL APPROVALS"), then,
subject to the satisfaction of the other conditions to Closing set forth in
Section 2 and Section 3 below (or the waiver of any such conditions by the Party
or Parties entitled to the benefit thereof), the Parties shall (upon the written
request of the Purchasers), within two business days following the receipt of
such Initial Governmental Approvals and the satisfaction of such other
conditions, consummate such portion of the Investment Transaction as may be
consummated without the Remaining Regulatory Approvals and such portion of the
Repurchase Transaction as may be consummated with the proceeds of such partial
Investment Transaction (I.E., the aggregate number of Repurchased Shares and
Repurchased Options sold in such portion of the Repurchase Transaction shall
equal the number of shares of Preferred Stock purchased in such portion of the
Investment Transaction), and shall (subject to the remaining provisions of this
Paragraph 1E) consummate the remaining portion of the Investment Transaction and
the remaining portion of the Repurchase Transaction in one or more subsequent
closings (to the fullest extent then permitted based on the receipt of such
Remaining Governmental Approvals) within two business days following receipt of
such Remaining Governmental Approvals. For example, if the Parties have received
or otherwise obtained all Governmental Approvals, other than those required from
the NASD, the Parties shall (upon the written request of the Purchasers)
consummate a portion of the Investment Transaction and a portion of the
Repurchase Transaction such that (i) the Purchasers shall purchase a number of
shares of Preferred Stock (pro rata among the Purchasers based on the total
number of shares of Preferred Stock to be purchased by each such Purchaser as
set forth on the SCHEDULE OF PURCHASERS attached hereto and at a price per share
equal to $36.4324) representing 24.99% of the Company's outstanding Common Stock
(assuming conversion of the Existing Preferred and the Preferred Stock to be
purchased at such Closing and the repurchase of Repurchased Shares and
Repurchased Options as described in clause (ii) below) and (ii) the Company
shall apply the proceeds of such portion of the Investment Transaction to
repurchase an aggregate number of Repurchased Shares and Repurchased Options
(pro rata among the Sellers based on each such Seller's ownership interest in
the Repurchased Shares and Repurchased Options as set forth on the SCHEDULE OF
SELLERS attached hereto and at a price per Repurchased Share equal to $36.4324
and, in the case of Repurchased Options, at a price per share of Common Stock
issuable upon exercise of such Repurchased Options equal to $36.4324 less the
aggregate exercise price associated with such Repurchased Options) equal to the
number of shares of Preferred Stock purchased in such Investment Transaction,
and the Parties shall consummate the remaining portion of the Investment
Transaction and Repurchase Transaction as provided above following receipt of
such Remaining Governmental Approvals (in this example, the requisite NASD
approval). If there is more than one closing hereunder, then (A) the first such
closing shall be referred to in this Paragraph 1E as the "INITIAL CLOSING," (B)
the Initial Closing shall not take place prior to January 15, 2004 without the
Company's written consent, (C) all references to the "Closing" in this Agreement
shall be deemed to be references to the Initial Closing and all references in
this Agreement to the "Closing Date" shall be deemed to be references to the
date of the Initial Closing, (D) for the avoidance of doubt, it is acknowledged
and agreed that the Closing Balance Sheet shall be prepared as of the date of
the Initial Closing and (E) each of the Parties shall use reasonable efforts to
take all actions and to do all things
- 4 -
necessary, proper or advisable in order to consummate and make effective the
remaining portions of the Investment Transaction and the ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇.
▇▇. ▇▇▇▇▇▇▇▇▇▇ PRICE; NET BOOK VALUE DIVIDEND; ADJUSTMENTS.
(i) The Repurchase Price for the Repurchased Shares and the
Repurchased Options shall be paid to the Sellers' Representative (on its own
behalf and as paying agent for and on behalf of the other Sellers) in the manner
described in clause (iii) of Paragraph 1D above.
(ii) In addition to the payment of the Repurchase Price, following
the Closing (at the time provided for in the last sentence of this subparagraph
(ii)), the Company shall declare a cash dividend (the "NET BOOK VALUE DIVIDEND")
payable to the holders of record of the Company's outstanding Common Stock as of
immediately prior to the Closing (including, for this purpose, the Common Stock
issuable upon conversion of the Existing Preferred and the Common Stock issuable
upon the exercise of the Repurchased Options held by the Sellers as of the
Closing, but, for the avoidance of doubt, specifically excluding the Preferred
Stock and the Common Stock issuable upon conversion of the Preferred Stock) in
an aggregate amount equal to the excess (if any) of (a) the Company's Net Book
Value as shown on the Closing Balance Sheet (as defined in Paragraph 1F(iii)
below and as prepared in accordance with the provisions thereof), as adjusted
pursuant to and in accordance with the CLOSING NET BOOK VALUE ADJUSTMENTS
SCHEDULE attached hereto (the "CLOSING NET BOOK VALUE"), over (b) $2,750,000.
The Net Book Value Dividend shall be declared and paid (together with interest
thereon at the Applicable Rate calculated on the basis of the actual number of
days elapsed over 360, from the Closing Date to the date of payment) on the
later of (x) three (3) business days after the Closing Balance Sheet becomes
final and binding on the Parties pursuant to Paragraph 1F(iii) below, (y) 45
days after the Closing Date and (z) such date as the Company's board of
directors otherwise determines in good faith that the payment of such Net Book
Value Dividend shall not adversely affect or otherwise impair the Company's
liquidity position or net regulatory capital requirements.
(iii) Within 30 days following Closing Date, the Company shall deliver
to the Purchasers a balance sheet of the Company (in its final and binding form,
the "CLOSING BALANCE SHEET") setting forth the Closing Net Book Value as of the
closing of business on the Closing Date (and after giving effect to the
adjustments described on the CLOSING NET BOOK VALUE ADJUSTMENTS SCHEDULE
attached hereto and the consummation of the Investment Transaction and the
Repurchase Transaction). The Closing Balance Sheet shall include all known
adjustments required in a year-end closing of the books and, except as otherwise
provided in this Paragraph 1F or in the definition of Net Book Value, shall be
prepared in a manner consistent with the accounting principles and policies used
in the preparation of the Latest Audited Balance Sheet. During the 10-day period
immediately following the Purchasers' receipt of the Closing Balance Sheet,
during normal business hours, the Purchasers and (upon execution of reasonable
and customary confidentiality agreements) their representatives or designees
shall be permitted to review, and the Company shall provide to the Purchasers,
copies of the Company's books and records and the Company's working papers
related to the preparation of the Closing Balance Sheet and determination of the
Closing Net Book Value, and the Company shall provide to the Purchasers and
their representatives or designees reasonable access to all appropriate Company
- 5 -
personnel in connection therewith. The Closing Balance Sheet shall become final
and binding upon the Parties 10 days after the Purchasers' receipt thereof,
unless the Purchasers shall give written notice of their disagreement (a "NOTICE
OF DISAGREEMENT") to the Company prior to such date. Any Notice of Disagreement
shall specify in reasonable detail the nature and dollar amount of any
disagreement so asserted. If a timely Notice of Disagreement is received by the
Company, then the Closing Balance Sheet (as revised in accordance with clause
(x) or (y) below) shall become final and binding upon the Parties on the
earliest of (x) the date the Parties resolve in writing any differences they
have with respect to the matters specified in the Notice of Disagreement or (y)
the date all matters in dispute are finally resolved in writing by the
Accounting Firm. During the 10 days following delivery of a Notice of
Disagreement, the Parties shall seek in good faith to resolve in writing any
differences which they may have with respect to the matters specified in the
Notice of Disagreement. At the end of the 10-day period referred to above, the
Parties shall submit to a mutually satisfactory independent "big-four"
accounting firm (the "ACCOUNTING FIRM") for review and resolution of all matters
(but only such matters) which remain in dispute and which were properly included
in the Notice of Disagreement. The Accounting Firm shall make a final
determination of the Closing Net Book Value in accordance with the guidelines
and procedures set forth in this Agreement. The Parties will cooperate with the
Accounting Firm during the term of its engagement. In resolving any matters in
dispute, the Accounting Firm may not assign a value to any item in dispute
greater than the greatest value for such item assigned by the Company, on the
one hand, or the Purchasers, on the other hand, or less than the smallest value
for such item assigned by the Company, on the one hand, or the Purchasers, on
the other hand. The Accounting Firm's determination shall be based solely on
presentations by the Company and/or the Purchasers which are in accordance with
the guidelines and procedures set forth in this Agreement (I.E., not on the
basis of an independent review). The Closing Balance Sheet and the determination
of the Closing Net Book Value shall become final and binding on the Parties on
the date the Accounting Firm delivers its final resolution in writing to the
Parties (which the Accounting Firm shall be instructed to deliver not more than
45 days following submission of such disputed matters). The fees and expenses of
the Accounting Firm shall be paid by the Company.
(iv) Notwithstanding anything to the contrary herein, if the
Company's Closing Net Book Value is less than $2,750,000, then the Sellers'
Representative (on its own behalf and as paying agent for and on behalf of the
other Sellers) shall, within three (3) business days after the Closing Balance
Sheet becomes final and binding on the Parties, make payment by wire transfer to
the Company in immediately available funds of the amount of such difference,
together with interest thereon at a rate per annum equal to the prime rate of
interest as published in THE WALL STREET JOURNAL (the "APPLICABLE RATE"),
calculated on the basis of the actual number of days elapsed over 360, from the
Closing Date to the date of payment. Each Seller shall be responsible for his or
its pro rata share of any obligations of the Sellers' Representative (as paying
agent for the Sellers) under this Paragraph 1F(iv) based on such Seller's
percentage ownership interest in the Repurchased Shares and Repurchased Options
as set forth on the SCHEDULE OF SELLERS attached hereto.
- 6 -
Section 2. CONDITIONS OF THE OBLIGATIONS OF THE PURCHASERS AT THE
CLOSING. The obligation of the Purchasers to consummate the transactions
contemplated hereby at the Closing is subject to the satisfaction as of the
Closing of the following conditions:
2A. REPRESENTATIONS AND WARRANTIES; COVENANTS. The representations
and warranties contained in Section 5 and Section 6 hereof that are subject to
materiality qualifications shall be true and correct in all respects at and as
of the Closing and the representations and warranties contained in Section 5 and
Section 6 hereof that are not subject to materiality qualifications shall be
true and correct in all material respects at and as of the Closing, in each case
as though then made (other than any such representations and warranties that are
made only as of a specified date) and as though the Closing Date was substituted
for the date of this Agreement throughout such representations and warranties
(without taking into account any disclosures made by the Company or the Sellers
to the Purchasers pursuant to Paragraph 4G below or any amendments or
supplements to the Schedules referred to in Section 5 made by the Company
pursuant to Paragraph 4G below), and the Company and the Sellers shall have
performed in all material respects all of the covenants required to be performed
by the Company and the Sellers hereunder prior to the Closing.
2B. AMENDMENT OF CERTIFICATE OF INCORPORATION. The Certificate of
Incorporation shall have been amended and restated in the form of EXHIBIT A
attached hereto, shall be in full force and effect under the laws of the State
of Delaware as of the Closing as so amended and restated and shall not have been
further amended or modified.
2C. AMENDMENT OF BYLAWS. The Company's bylaws (the "BYLAWS") shall
have been amended and restated in the form of EXHIBIT B attached hereto, shall
be in full force and effect as of the Closing as so amended and restated and
shall not have been further amended or modified.
2D. STOCKHOLDERS AGREEMENT. The Company, the Purchasers and the
Company's other stockholders shall have entered into a Stockholders Agreement in
the form of EXHIBIT C attached hereto (the "STOCKHOLDERS AGREEMENT"), and the
Stockholders Agreement shall be in full force and effect as of the Closing and
shall not have been amended or modified.
2E. REGISTRATION AGREEMENT. The Company and the Purchasers shall
have entered into a Registration Agreement in the form of EXHIBIT D attached
hereto (the "REGISTRATION AGREEMENT"), and the Registration Agreement shall be
in full force and effect as of the Closing and shall not have been amended or
modified.
2F. INVESTOR RIGHTS AGREEMENT. The Company and the Purchasers shall
have entered into an Investor Rights Agreement in the form of EXHIBIT E attached
hereto (the "INVESTOR RIGHTS AGREEMENT"), and the Investor Rights Agreement
shall be in full force and effect as of the Closing and shall not have been
amended or modified.
2G. EMPLOYMENT LETTER AGREEMENTS; AMENDED AND RESTATED RESTRICTED
STOCK AGREEMENTS. The Company and each of ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇
(collectively, the "EXECUTIVES") shall have entered into employment letter
agreements in the form of EXHIBIT F
- 7 -
attached hereto (collectively, the "EMPLOYMENT AGREEMENTS") and amended and
restated restricted stock agreements in the form of EXHIBIT J attached hereto
(collectively, the "RESTRICTED STOCK AGREEMENTS"). The Employment Agreements and
the Restricted Stock Agreements shall be in full force and effect as of the
Closing and shall not have been amended or modified and shall not provide for or
require the payment of any consideration to such parties in connection with the
execution thereof.
2H. MANAGEMENT RIGHTS AGREEMENT. The Company and each of Summit
Ventures VI-A, L.P. and Summit Ventures VI-B, L.P. shall have entered into a
Management Rights Agreement in the form of EXHIBIT G attached hereto (the
"MANAGEMENT RIGHTS AGREEMENT"), and the Management Rights Agreement shall be in
full force and effect as of the Closing.
2I. DIRECTOR INDEMNIFICATION AGREEMENT. The Company shall have
entered into an Indemnification Agreement in the form of EXHIBIT H attached
hereto with each of the Investor Director and the Other Stockholder Directors
(as such terms are defined in the Stockholders Agreement) (each, an
"INDEMNIFICATION AGREEMENT"), and each such Indemnification Agreement shall be
in full force and effect as of the Closing.
2J. OPINION OF THE COMPANY'S AND THE SELLERS' COUNSEL. The
Purchasers shall have received from KMZ Rosenman, counsel for the Company and
certain of the Sellers, an opinion with respect to the matters set forth in
EXHIBIT I attached hereto, which shall be addressed to the Purchasers, dated as
of the Closing Date and in form and substance reasonably satisfactory to the
Purchasers.
2K. REPURCHASE TRANSACTION. The Sellers shall have simultaneously
delivered to the Company the Repurchased Shares and/or the Repurchased Options,
and the Sellers' Representative (on its own behalf and as paying agent for and
on behalf of the other Sellers) shall have received the aggregate Repurchase
Price in payment therefor in the manner set forth in Paragraph 1D above.
2L. KEY-MAN POLICIES. The Company shall have commenced application
for a key-man life insurance policy on the life of each of ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇ in the face amount of $1,000,000 each. Such insurance
policies shall contain reasonable and customary terms and provisions, shall name
the Company as beneficiary and shall provide that such insurance policies may
not be canceled unless the insurance carrier gives at least 30 days' prior
written notice to the Purchasers.
2M. LITIGATION. No suit, action or other proceeding shall be pending
or threatened before any Governmental Entity in which it is sought to restrain
or prohibit the transactions contemplated hereby or that could have a Material
Adverse Effect, and no injunction, judgment, order, decree or ruling with
respect thereto shall be in effect.
2N. FILINGS. The Company shall have made all filings required to be
made by the Company and shall have (subject to Paragraph 1E) obtained all
Licenses and other authorizations required to be obtained by the Company under
all applicable Laws (including
- 8 -
federal and state securities Laws) to consummate the transactions contemplated
by this Agreement in compliance with such Laws (other than any securities Law
filings required to be made after the Closing, which filings shall be made
promptly after the Closing).
2O. THIRD PARTY CONSENTS AND APPROVALS. The Company shall have
received or obtained all third party and stockholder consents and approvals that
are (i) necessary for the consummation of the transactions contemplated hereby,
or (ii) that are required in order to prevent a breach of or default under, a
termination or modification of, or acceleration of the terms of, any contract,
agreement or document identified with an asterisk (*) on the attached CONTRACTS
SCHEDULE (collectively, the "THIRD PARTY APPROVALS"), in each case on terms and
conditions reasonably satisfactory to the Purchasers.
2P. GOVERNMENTAL CONSENTS AND APPROVALS. Subject to Paragraph 1E,
the Parties shall have received or obtained all governmental and regulatory
consents and approvals that are necessary for the consummation of the
transactions contemplated hereby (including any required consent or approval of
the National Association of Securities Dealers, Inc. ("NASD"), the Chicago Board
Options Exchange, Inc. ("CBOE"), the International Securities Exchange ("ISE"),
the Pacific Exchange/ArcaEx ("PCX/ARCAEX"), the National Futures Association
("NFA"), the Securities and Exchange Commission ("SEC"), and the Commodity
Futures Trading Commission ("CFTC")), in each case on terms and conditions
reasonably satisfactory to the Purchasers (so long as the foregoing are
consistent with the Purchaser's current regulatory status), and any applicable
waiting period under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976,
as amended (the "▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ ACT"), shall have expired or been terminated
(collectively, the "GOVERNMENTAL APPROVALS"). The Company's and its
Subsidiaries' net capital (as defined and computed in accordance with applicable
SEC and NASD regulations) shall meet and be in accordance with any minimum net
capital requirements as of the Closing.
2Q. MATERIAL ADVERSE EFFECT. Since September 30, 2003, there shall
have been no Material Adverse Effect.
2R. CLOSING DOCUMENTS. At the Closing, the Company shall have
delivered to the Purchasers all of the following documents:
(i) a certificate of an officer of the Company, dated the Closing
Date, stating that the conditions specified in Paragraphs 2A through 2Q (other
than Paragraphs 2D, 2E, 2F, 2H, 2I and 2J), inclusive, have been fully
satisfied;
(ii) certified copies of (a) the resolutions duly adopted by the
Company's board of directors authorizing the execution, delivery and performance
of this Agreement and each of the other agreements contemplated hereby, the
adoption and filing of the Certificate of Incorporation referred to in Paragraph
2B, the amendment and restatement of the Bylaws referred to in Paragraph 2C, the
Investment Transaction, the Repurchase Transaction, and the other transactions
contemplated hereby and (b) the resolutions duly adopted by the Company's
stockholders adopting the amendment and restatement of the Certificate of
Incorporation referred to in Paragraph 2B and the amendment and restatement of
the Bylaws referred to in Paragraph 2C;
- 9 -
(iii) certified copies of the Certificate of Incorporation and the
Bylaws, each as in effect at the Closing;
(iv) copies of all Third Party Approvals and Governmental Approvals
(including all blue sky law filings related to the issuance of the Preferred
Stock, other than any such filings which are not required to be made until after
the Closing, and waivers or terminations of all existing preemptive rights and
rights of first refusal); and
(v) good standing certificates of the Company and each of its
Subsidiaries from each of their respective jurisdictions of incorporation and
each jurisdiction in which the Company or any of its Subsidiaries is qualified
to do business as a foreign corporation, in each case dated as of a recent date
prior to the Closing Date.
2S. PROCEEDINGS. All corporate and other proceedings taken or
required to be taken by the Company or the Sellers at or prior to the Closing in
connection with the transactions contemplated hereby shall have been taken and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Purchasers and their special counsel.
2T. WAIVER. Any condition specified in this Section 2 may be
waived if consented to in writing by the Purchasers.
Section 3. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY AND THE SELLERS
AT THE CLOSING. The obligation of the Company and the Sellers to consummate the
transactions contemplated hereby at the Closing is subject to the satisfaction
as of the Closing of the following conditions:
3A. REPRESENTATIONS AND WARRANTIES; COVENANTS. The representations
and warranties contained in Section 7 hereof shall be true and correct in all
material respects at and as of the Closing as though then made and as though the
Closing Date was substituted for the date of this Agreement throughout such
representations and warranties (without taking into account any disclosures made
by the Purchasers to the Company or the Sellers pursuant to Paragraph 4G below),
and the Purchasers shall have performed in all material respects all of the
covenants required to be performed by the Purchasers hereunder prior to the
Closing.
3B. STOCKHOLDERS AGREEMENT. The Purchasers shall have entered into
the Stockholders Agreement and the Stockholders Agreement shall be in full force
and effect as of the Closing and shall not have been amended or modified.
3C. REGISTRATION AGREEMENT. The Purchasers shall have entered into
the Registration Agreement and the Registration Agreement shall be in full force
and effect as of the Closing and shall not have been amended or modified.
3D. INVESTOR RIGHTS AGREEMENT. The Purchasers shall have entered
into the Investor Rights Agreement and the Investor Rights Agreement shall be in
full force and effect as of the Closing and shall not have been amended or
modified.
- 10 -
3E. LITIGATION. No suit, action or other proceeding shall be pending
before any Governmental Entity in which it is sought to restrain or prohibit the
transactions contemplated hereby (other than any such suit, action or proceeding
brought by any of the Parties against any of the other Parties), and no
injunction, judgment, order, decree or ruling with respect thereto shall be in
effect.
3F. GOVERNMENTAL CONSENTS AND APPROVALS. Subject to Paragraph 1E,
the Parties shall have received or obtained all Governmental Approvals that are
required for the consummation of the transactions contemplated hereby, and the
waiting period under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act shall have expired or been
terminated.
3G. INVESTMENT TRANSACTION. The Purchasers shall have simultaneously
purchased the Purchased Shares and delivered the Stock Purchase Price to the
Company in the manner set forth in Paragraph 1D above.
3H. WAIVER. Any condition specified in this Section 3 may be waived
if consented to in writing by the Company and the Sellers' Representative.
Section 4. PRE-CLOSING COVENANTS AND AGREEMENTS. Each of the Parties
agrees as follows with respect to the period between the date of this Agreement
and the Closing:
4A. GENERAL. Each of the Parties shall use reasonable efforts to
take all actions and to do all things necessary, proper or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the conditions set forth in Sections
2 and 3 above). At the Closing, the applicable Parties shall execute and deliver
the Stockholders Agreement, the Registration Agreement, the Investor Rights
Agreement and the other agreements and instruments contemplated hereby to be
executed and delivered at the Closing.
4B. MAINTENANCE OF BUSINESS. The Company and each of its
Subsidiaries shall: (i) maintain its assets in good operating condition and
repair (normal wear and tear excepted), (ii) maintain insurance reasonably
comparable to that in effect on the date of the Latest Balance Sheet, (iii)
maintain its books, accounts and records in accordance with past custom and
practice and GAAP as used in the preparation of the Latest Balance Sheet and the
financial statements described in Paragraph 5E below, and (iv) maintain in full
force and effect the existence of all material Licenses and all material
Intellectual Property Rights.
4C. THIRD PARTY NOTICES AND CONSENTS. The Company and its
Subsidiaries shall use reasonable efforts to give all required notices to third
parties and obtain all required third party consents in connection with the
matters contemplated by this Agreement.
4D. GOVERNMENTAL NOTICES AND CONSENTS. Each of the Parties shall
give any notices to, make any filings with, and use reasonable efforts to
obtain, any authorizations, consents and approvals of Governmental Entities in
connection with the matters contemplated by this Agreement. Without limiting the
generality of the foregoing, each of the Parties shall use reasonable efforts to
obtain an early termination of the waiting period under the
- 11 -
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act, and shall make any further filings pursuant thereto that
may be necessary, proper or advisable in connection therewith, and the Company
shall pay all filing and other fees related to any filings under the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act.
4E. OPERATION OF BUSINESS. Each of the Company and its Subsidiaries
shall operate its business only in the usual and ordinary course of business
consistent with its Licenses and past practice and use reasonable efforts to
preserve the goodwill and organization of its business and the relationships, in
all material respects, with its customers, vendors, employees and other Persons
having business relations with the Company or any of its Subsidiaries. Without
limiting the generality of the foregoing, prior to the Closing, the Company
shall not (and shall not permit any of its Subsidiaries to):
(i) take or omit to take any action that is reasonably within the
Company's control that could reasonably be expected to require disclosure under
Paragraph 5I below or that could reasonably be expected to otherwise result in a
breach of any of the representations, warranties or covenants made by the
Company, its Subsidiaries or the Sellers in this Agreement;
(ii) take any action or omit to take any action that is reasonably
within the Company's control which act or omission would reasonably be
anticipated to have a material adverse impact on the Company's or any of its
Subsidiaries' good relations with any regulatory organization;
(iii) take any action or omit to take any action that is reasonably
within the Company's control which act or omission would reasonably be
anticipated to have a Material Adverse Effect;
(iv) (a) enter into any contract restricting the conduct of its
business in a manner inconsistent with past practice and industry standards or
any Licenses or enter into any Material Contract outside of the ordinary course
of business; (b) make any loans or Investments (other than advances to the
Company's employees or money market fund investments in the ordinary course of
business consistent with past practice); (c) increase any officer's or
employee's compensation, incentive arrangements or other benefits, except for
increases or bonuses made to employees (other than executive officers) that are
set forth on the EMPLOYEES SCHEDULE attached hereto; (d) redeem, purchase or
otherwise acquire directly or indirectly any of its issued and outstanding
capital stock, or any outstanding rights or securities exercisable or
exchangeable for or convertible into its capital stock, or make any distribution
or dividend to any of its stockholders or other Persons; PROVIDED THAT the
Company may pay cash dividends to its stockholders so long as such dividends do
not cause the Company or any of its Subsidiaries to violate any applicable
minimum net capital requirements (as defined and computed in accordance with
applicable SEC and NASD regulations) and do not cause the Company's Closing Net
Book Value to be less than $2,750,000; (e) amend its certificate of
incorporation or bylaws or issue or agree to issue any capital stock or any
rights to acquire, or securities convertible into or exchangeable for, any of
its capital stock; (f) directly or indirectly engage in any transaction,
arrangement or contract with any officer, director, stockholder or other insider
or Affiliate of the Company, except in the ordinary course of business and
consistent with past custom and practice as described on the AFFILIATED
TRANSACTION SCHEDULE attached hereto; (g)
- 12 -
execute any guaranty, issue any debt, borrow any money, or otherwise incur or
create any Indebtedness or enter into any transaction or agreement that could
reasonably be expected to have a material adverse effect on the Company's or any
of its Subsidiaries' net capital requirements under its Licenses; (h) buy, sell,
assign, transfer or encumber any assets, tangible or intangible (including
Intellectual Property Rights), out of the ordinary course of business or not
consistent with past practice; (i) delay or postpone the payment of any accounts
payable or accelerate the collection of or discount any accounts receivable out
of the ordinary course of business consistent with past practice or otherwise
change its accounting policies or practices; (j) enter into any transaction,
arrangement or contract except on an arm's-length basis in the ordinary course
of business consistent with its Licenses and with past custom and practice; or
(k) commit, or enter into any agreement to do, any of the foregoing.
Notwithstanding the foregoing, nothing in this Paragraph 4E shall
prohibit the Company from taking any action or omitting to take any action as
required or as expressly contemplated by this Agreement.
4F. FULL ACCESS. Each of the Company and its Subsidiaries shall
afford, and cause their respective officers, directors, employees, attorneys,
accountants and other agents to afford, to the Purchasers and their respective
accounting, legal and other representatives, as well as their respective
officers, employees, affiliates and other agents, full and complete access at
all reasonable times and during normal business hours to the personnel of the
Company and any of its Subsidiaries and to business, financial, legal, tax,
compensation and other data and information concerning the affairs and
operations of the Company and any of its Subsidiaries (including information
regarding, and access to representatives and officials of, any Governmental
Entities which have granted or issued Licenses or authorizations to the Company
and/or its Subsidiaries); PROVIDED, HOWEVER, that this Paragraph 4F shall in no
event require the Company and its Subsidiaries to disclose to the Purchasers or
their respective representatives, officers, employees, affiliates or agents
certain information regarding the Company's source codes or other material and
proprietary trade secrets included in the Company's Intellectual Property Rights
deemed sufficiently confidential and proprietary by the Company's executive
officers in their good faith judgment to reasonably warrant exclusion from the
terms of this ▇▇▇▇▇▇▇▇▇ ▇▇. Without limiting the generality of the foregoing,
the Company shall deliver to the Purchasers copies of the Company's interim
monthly and year-to-date consolidated financial statements as soon as reasonably
practicable (and in any event within 21 days) following the end of each monthly
accounting period during the period between the date of this Agreement and the
Closing.
4G. NOTICE OF MATERIAL DEVELOPMENTS. Each Party shall give prompt
written notice to the other Parties of (i) any variances in any of its
representations or warranties contained in Sections 5, 6 or 7 below, as the case
may be, (ii) any breach of any covenant hereunder by such Party and (iii) any
other material development affecting the ability of such Party to consummate the
transactions contemplated by this Agreement. The Company shall be permitted to
amend or supplement the Schedules referred to in Section 5 hereof at any time
after the date hereof and prior to the Closing Date to reflect new or changed
facts, events or circumstances that did not exist on, or that changed after, the
date hereof and that would have been required to be disclosed on one or more
Schedules referred to in Section 5 hereof if such
- 13 -
information was in existence on the date hereof (with it being understood,
however, that the disclosure in such amendments or supplements, if any, shall
not modify the representations and warranties set forth herein for purposes of
determining whether the condition set forth in Paragraph 2A has been satisfied).
Such amendments and supplements, if any, as well as any disclosures by a Seller
pursuant to the first sentence of this Paragraph 4G with respect to the
representations and warranties in Paragraph 6G, shall have the effect of
modifying the representations and warranties made by the Company herein or such
Seller from and after the Closing for purposes of the provisions of Paragraph 8B
below.
4H. EXCLUSIVITY. None of the Company, its Subsidiaries, the Sellers,
or any of their respective Affiliates, representatives, officers, employees,
directors or agents shall, directly or indirectly, (i) submit, solicit,
initiate, encourage or discuss any proposal or offer from any Person (other than
the Purchasers in connection with the transactions contemplated hereby) or enter
into any agreement or accept any offer relating to or consummate any (a)
reorganization, liquidation, dissolution or recapitalization of the Company or
its Subsidiaries, (b) merger or consolidation involving the Company or its
Subsidiaries, (c) purchase or sale of any assets or capital stock (or any rights
to acquire, or securities convertible into or exchangeable for, any such capital
stock) of the Company or its Subsidiaries, or (d) similar transaction or
business combination involving the Company or its Subsidiaries or their
respective businesses or assets (each of the foregoing transactions described in
clauses (a) through (d), a "COMPANY TRANSACTION") or (ii) furnish any
information with respect to, assist or participate in or facilitate in any other
manner any effort or attempt by any Person (other than the Purchasers) to do or
seek to do any of the foregoing. The Company, its Affiliates and the Sellers
agree to notify the Purchasers immediately if any Person makes any proposal,
offer, inquiry or contact with respect to a Company Transaction. None of the
Sellers shall vote, in their capacity as stockholders of the Company, in favor
of such Company Transaction.
4I. TAX MATTERS. Without the prior written consent of the
Purchasers, none of the Sellers, the Company nor any of its Subsidiaries shall
make or change any election, change an annual accounting period, adopt or change
any accounting method, file any amended Tax Return, enter into any closing
agreement, settle any Tax claim or assessment relating to the Company or any of
its Subsidiaries, surrender any right to claim a refund of Taxes, consent to any
extension or waiver of the limitation period applicable to any Tax claim or
assessment relating to the Company or its Subsidiaries, or take any other
similar action, or omit to take any action relating to the filing of any Tax
Return or the payment of any Tax, if such election, adoption, change, amendment,
agreement, settlement, surrender, consent or other action or omission would have
the effect of increasing the present or future Tax liability or decreasing any
present or future Tax asset of the Company or any of its Subsidiaries or the
Purchasers.
4J. ACTIONS WITH RESPECT TO REPURCHASED SHARES. The Sellers shall
not sell, redeem, convert, assign, exchange, transfer, pledge or otherwise
dispose of or encumber any interest in the Repurchased Shares (or any other
shares of Common Stock or Existing Preferred Stock) or Repurchased Options,
except as expressly contemplated by this Agreement.
4K. ADDITIONAL SELLERS; JOINDERS. Promptly following the date
hereof, the Company shall deliver to the Company's stockholders and option
holders (other than the Sellers
- 14 -
party hereto as of the date hereof) an information statement with respect to
this Agreement and the transactions contemplated hereby and shall permit and
invite such stockholders and option holders to participate in the Repurchase
Transaction to the full extent of their Pro Rata Share of the Repurchased Shares
and the Repurchased Options. For purposes hereof, "PRO RATA SHARE" means 38.671%
of each such stockholder's shares of Common Stock as of the date hereof
(including shares of Common Stock issuable upon the conversion of such holder's
Existing Preferred) and 38.671% of the number of shares of Common Stock issuable
as of the date hereof upon the exercise of such option holder's vested options
as of the date hereof. If and to the extent that any such other stockholders or
option holders do not elect to participate in the Repurchase Transaction to the
full extent permitted hereby, then the other Sellers who are not employees of
the Company (but excluding, for this purpose, the Executives) shall have the
right to sell additional Repurchased Shares to the extent of such shortfall
(and, in the case of any over-subscription in connection therewith, such
additional shares and/or options shall be allocated pro rata among the electing
Sellers based on their desired participation amounts, or as otherwise determined
by the Company in its discretion, but with it being understood that (i) the
Executives may not sell more than 110% of the number of Repurchased Shares set
forth opposite their names on the SCHEDULE OF SELLERS attached hereto without
the written consent of the Company AND the Purchasers and (ii) each other Seller
with over-subscription rights may not sell more than a total of 50% of such
Seller's shares of Common Stock (including shares of Common Stock issuable upon
the conversion of such holder's Existing Preferred) unless otherwise consented
to by either the Company OR the Purchasers). Any such stockholder or option
holder that elects to participate in whole or in part in the Repurchase
Transaction hereunder shall become, as a condition thereto, a party to this
Agreement and the Stockholders Agreement and shall execute and deliver to the
Company and the Purchasers a joinder agreement in connection therewith in form
and substance reasonably satisfactory to the Company and the Purchasers. In
connection therewith, the SCHEDULE OF SELLERS attached hereto shall be amended
to reflect each such stockholder's and option holder's participation in the
Repurchase Transaction (but with it being understood that (x) no amendments
shall be made that decrease the number of Repurchased Shares being sold by any
of the Sellers party hereto as of the date hereof without the Purchaser's prior
written consent and (y) no amendments shall be made that increase the number of
Repurchased Shares being sold by any Seller party hereto as of the date hereof
without such Seller's prior written consent), and each such stockholder and
option holder shall succeed to all of the rights and obligations of a "Seller"
hereunder and an "Other Stockholder" and a "holder of Stockholder Shares" under
the Stockholders Agreement. Notwithstanding anything to the contrary in this
Agreement (including Paragraph 1B and ▇▇▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇), if and to the extent
that the Sellers party to this Agreement as of the Closing are not selling in
the Repurchase Transaction an aggregate of 2,554,977 Repurchased Shares
(including, for this purpose, shares of Common Stock issuable upon exercise of
Repurchased Options that are being repurchased and cancelled pursuant to the
Repurchase Transaction), then, rather than purchasing 2,554,977 shares of
Preferred Stock at the Closing at a price per share of $36.4324, the Purchasers
shall purchase (and the Company shall sell) a number of shares of Preferred
Stock (at a price per share of $36.4324) at the Closing equal to the aggregate
number of Repurchased Shares and Repurchased Options being sold pursuant to the
Repurchase Transaction (which Repurchased Shares shall be sold at a price per
share equal to $36.4324 and which Repurchased Options shall be sold at a price
per share of Common Stock issuable upon exercise of such Repurchased Options
equal to
- 15 -
$36.4324 less the aggregate exercise price associated with such Repurchased
Options), and all references in this Agreement to the number of shares of
Preferred Stock being purchased in the Investment Transaction and the number of
Repurchased Shares and/or Repurchased Options being repurchased in the
Repurchase Transaction, and all other references in this Agreement that are
calculated based upon such numbers (including the Stock Purchase Price and the
Repurchase Price), shall be automatically changed MUTATIS MUTANDIS to reflect
the aggregate number of Repurchased Shares and Repurchased Options being sold in
the Repurchase Transaction as of the Closing.
4L. EXISTING PREFERRED. The Parties acknowledge that, pursuant to
the terms of the Existing Preferred, the consent of the holders of 66% of the
Existing Preferred is required to convert such Existing Preferred into Common
Stock, and the Parties desire that all of such Existing Preferred shall be
converted into Common Stock as of the Closing. The Company shall attempt to
obtain the consent of the holders thereof to effect such conversion on or prior
to the Closing Date, and each Seller that holds Existing Preferred shall consent
to such conversion and, to the extent necessary to deliver such Seller's
Repurchased Shares at the Closing, shall convert shares of Existing Preferred
held by such Seller into shares of Common Stock pursuant to the express terms
thereof immediately prior to the Closing. Notwithstanding the foregoing, if such
requisite consent is not obtained at or prior to the Closing, the Parties
acknowledge that certain shares of Existing Preferred shall remain outstanding
as of the Closing. In that case, the Parties agree to cooperate and to take all
actions and do all things necessary, proper or advisable in order to modify the
Certificate of Incorporation attached as EXHIBIT A hereto so as to reference
and/or include therein such remaining shares of Existing Preferred and to
provide that (i) if the consent of the holders of a majority of the Existing
Preferred outstanding as of immediately prior to the Closing is obtained in
connection therewith (and with it being understood that the Company shall
attempt to obtain such consent), the Preferred Stock described herein shall rank
senior to any remaining Existing Preferred (assuming that all of the Existing
Preferred is not converted to Common Stock as of the Closing) with respect to
distributions upon liquidation and redemptions and otherwise, and (ii) if the
consent of the holders of a majority of the Existing Preferred outstanding as of
immediately prior to the Closing is not obtained as provided in clause (i)
above, the Preferred Stock described herein shall rank junior to any remaining
Existing Preferred (assuming that all of the Existing Preferred is not converted
to Common Stock as of the Closing) with respect to distributions upon
liquidation. Thereafter, (x) all references herein to the Certificate of
Incorporation shall be deemed to be references to the Certificate of
Incorporation as so modified, (y) the designation of the Preferred Stock
referred to herein and in the Certificate of Incorporation shall be changed to
"Series B Convertible Preferred Stock," and all references herein and in the
other agreements contemplated hereby to the "Preferred Stock" or the "Series A
Preferred" shall be deemed to be references to such Series B Convertible
Preferred Stock, and (z) the representations and warranties in Paragraph 5B
shall be amended as appropriate to include all necessary references to the
Existing Preferred that remains outstanding as of the Closing.
4M. CHARTER AMENDMENT. Each Seller shall vote all of the shares of
Common Stock and Existing Preferred held by such Seller in favor of the
amendment and restatement of the Certificate of Incorporation referred to
Paragraph 2B (as the same may be modified pursuant to the provisions of
Paragraph 4L) and as provided in clause (i) of Paragraph 4L above.
- 16 -
Section 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. As a material
inducement to the Purchasers to enter into this Agreement and purchase the
Purchased Shares hereunder, the Company hereby represents and warrants to the
Purchasers as follows:
5A. ORGANIZATION, CORPORATE POWER AND LICENSES. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and is qualified to do business in every jurisdiction
in which the failure to so qualify could reasonably be expected to have a
Material Adverse Effect. The Company possesses all requisite corporate power and
authority and all Licenses and authorizations necessary to own and operate its
properties, to carry on its businesses as now conducted and to carry out the
transactions contemplated by this Agreement. The copies of the Company's charter
documents and bylaws which have been made available to the Purchasers' special
counsel reflect all amendments made thereto at any time prior to the date of
this Agreement and are correct and complete. The attached OFFICERS AND DIRECTORS
SCHEDULE lists all of the current officers and directors of the Company.
5B. CAPITAL STOCK AND RELATED MATTERS.
(i) As of the date hereof, the authorized capital stock of the
Company consists of 25,000,000 shares of Common Stock, of which 5,426,776 shares
are issued and outstanding and are held by the Sellers as set forth on the
attached CAPITALIZATION SCHEDULE, and 10,000,000 shares of preferred stock, of
which 1,839,938 shares (the "EXISTING PREFERRED") are issued and outstanding and
are held by the Sellers as set forth on the attached CAPITALIZATION SCHEDULE
(the "EXISTING PREFERRED HOLDERS"). As of the Closing and immediately
thereafter, the authorized capital stock of the Company shall consist of (a)
10,000,000 shares of preferred stock, of which 2,554,977 shares shall be
designated as Series A Convertible Preferred Stock and (b) 25,000,000 shares of
Common Stock. Except as set forth in the immediately preceding sentence and
except as set forth in the CAPITALIZATION SCHEDULE, the Company does not have
and as of the Closing Date will not have authorized or outstanding any stock or
securities convertible or exchangeable for any shares of its capital stock or
containing any profit participation features, nor any rights (whether contract
rights or otherwise) or options to subscribe for or to purchase or otherwise
acquire its capital stock or any stock or securities convertible into or
exchangeable for its capital stock or any stock appreciation rights or phantom
stock plans. The Company is not subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of its
capital stock or any warrants, options or other rights to acquire its capital
stock, other than as expressly set forth on the CAPITALIZATION SCHEDULE and, as
of the Closing, pursuant to the Certificate of Incorporation and the
Stockholders Agreement. As of the date hereof and as of the Closing and
immediately thereafter, all of the outstanding shares of the Company's capital
stock are or shall be validly issued, fully paid and nonassessable. The attached
CAPITALIZATION SCHEDULE accurately sets forth the following information with
respect to all outstanding options and rights to acquire the Company's capital
stock: the holder, the number of shares covered, the exercise price and the
expiration date. Except as set forth on the CAPITALIZATION SCHEDULE, none of the
Company's outstanding stock options provide for accelerated vesting upon the
consummation of an initial public offering or a sale or change of control of the
Company.
- 17 -
(ii) Except as set forth on the CAPITALIZATION SCHEDULE, there are
no statutory or contractual stockholder preemptive rights or rights of first
refusal or other similar restrictions with respect to the issuance of the
Preferred Stock hereunder or the issuance of any Common Stock upon the
conversion of the Preferred Stock. To its Knowledge, the Company has not
violated any applicable federal or state securities Laws in connection with the
offer, sale or issuance of any of its capital stock and, assuming in part the
accuracy of the Purchasers' representations and warranties set forth in
Paragraph 7 below, the issuance of the Preferred Stock hereunder and the
issuance of Common Stock upon the conversion of the Preferred Stock does not
require registration under the Securities Act or any applicable state securities
Laws. Except as set forth on the CAPITALIZATION SCHEDULE, and except for the
Stockholders Agreement and the Investor Rights Agreement to be executed and
delivered at the Closing, to the Company's Knowledge there are no agreements or
understandings between the Company's stockholders or among any other Person with
respect to the voting or transfer of the Company's capital stock or with respect
to any other aspect of the Company's governance.
5C. SUBSIDIARIES; INVESTMENTS. The attached INVESTMENTS AND
SUBSIDIARIES SCHEDULE correctly sets forth the name of each Subsidiary of the
Company, the jurisdiction of its incorporation and the Persons owning the
outstanding capital stock of such Subsidiary. Each Subsidiary of the Company and
any Subsidiary thereof is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, possesses all requisite
corporate power and authority and all material Licenses and authorizations
necessary to own its properties and to carry on its businesses as now being
conducted and is qualified in every jurisdiction in which the failure to so
qualify would have a Material Adverse Effect. All of the outstanding shares of
capital stock of each Subsidiary are validly issued, full paid and
nonassessable, and all such shares are owned by the Company or another
Subsidiary free and clear of any Encumbrance and not subject to any option or
right to purchase any such shares. Except as set forth on the INVESTMENTS AND
SUBSIDIARIES SCHEDULE, neither the Company nor any Subsidiary of the Company or
any Subsidiary thereof has any obligation to make any additional Investments in
any Person.
5D. AUTHORIZATION; NO BREACH. . The execution, delivery and
performance of this Agreement, the Registration Agreement, the Stockholders
Agreement, the Investor Rights Agreement and all of the other agreements and
instruments contemplated hereby to which the Company is a party, the offering,
sale and issuance of the Preferred Stock, the repurchase of the Repurchased
Shares pursuant hereto, the issuance of Common Stock upon the conversion of the
Preferred Stock, the amendment and restatement of the Certificate of
Incorporation and the amendment and restatement of the Bylaws have been duly
authorized by the Company. This Agreement constitutes a valid and binding
obligation of the Company, enforceable in accordance with its terms, and the
Certificate of Incorporation, when filed under the laws of the State of Delaware
in accordance with the terms hereof, and all other agreements and instruments
contemplated hereby to which the Company is a party, when executed and delivered
by the Company in accordance with the terms hereof, shall each constitute a
valid and binding obligation of the Company, enforceable in accordance with
their respective terms (subject to general principles of equity which may limit
the enforceability of restrictions on competition and/or solicitation such as
non-compete and non-solicitation agreements). Except as set forth on
- 18 -
the attached RESTRICTIONS SCHEDULE, the execution and delivery by the Company of
this Agreement, the Registration Agreement, the Stockholders Agreement, the
Investor Rights Agreement and all other agreements and instruments contemplated
hereby to which the Company is a party, the issuance of the Preferred Stock, the
repurchase of the Repurchased Shares pursuant hereto, the issuance of Common
Stock upon the conversion of the Preferred Stock, the amendment and restatement
of the Certificate of Incorporation, the amendment and restatement of the Bylaws
and the fulfillment of and compliance with the respective terms hereof and
thereof by the Company do not and shall not (i) conflict with or result in a
breach of the terms, conditions or provisions of, (ii) constitute a default
under (whether with or without the passage of time, the giving of notice or
both), (iii) result in the creation of any Lien or Encumbrance upon the
Company's capital stock or assets pursuant to, (iv) give any third party the
right to modify, terminate or accelerate any obligation under, (v) result in a
violation of, or (vi) require any authorization, consent, approval, exemption or
other action by or notice or declaration to, or filing with, any third party or
any Governmental Entity pursuant to, the Company's certificate of incorporation
or bylaws, or any Law to which the Company or any of its Subsidiaries is
subject, or any Material Contract, in any material respect, or any order,
judgment or decree to which the Company or any of its Subsidiaries is subject.
Neither the Company nor any of its Affiliates or the Sellers is a party to or
bound by any written or oral agreement or understanding with respect to a
Company Transaction other than this Agreement, and all of them have terminated
all discussions with third parties (other than the Purchasers) regarding Company
Transactions.
5E. FINANCIAL STATEMENTS. Attached hereto as the FINANCIAL
STATEMENTS SCHEDULE are the following financial statements:
(i) the audited consolidated balance sheet of the Company as of
December 31, 2002, December 31, 2001 and December 31, 2000 and the related
statements of income and cash flows (or the equivalent) for the fiscal years
then ended;
(ii) the audited consolidated balance sheet of the Company as of
September 30, 2003 (the "LATEST AUDITED BALANCE SHEET") and the related
statement of income and cash flows (or the equivalent) for the nine-month period
then ended; and
(iii) the unaudited consolidated balance sheet of the Company as of
November 30, 2003 (the "LATEST BALANCE SHEET"), and the related statements of
income and cash flows (or the equivalent) for the eleven-month period then
ended.
Each of the foregoing financial statements (including in all cases the notes
thereto, if any) is accurate and complete, is consistent with the books and
records of the Company (which, in turn, are accurate and complete), fairly
presents the financial condition and operating results of the Company and its
Subsidiaries and has been prepared in accordance with GAAP consistently applied
throughout the periods covered thereby, subject in the case of the unaudited
financial statements to the absence of footnote disclosures and changes
resulting from normal year-end adjustments for recurring accruals (none of which
would, alone or in the aggregate, have a Material Adverse Effect).
- 19 -
5F. ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on the
attached LIABILITIES SCHEDULE, neither the Company nor any of its Subsidiaries
has any obligation or liability (whether accrued, absolute, contingent,
unliquidated or otherwise, whether due or to become due and regardless of when
asserted) arising out of transactions entered into at or prior to the date
hereof, or any action or inaction at or prior to the date hereof, or any state
of facts existing at or prior to the date hereof, other than: (i) liabilities
set forth on the liabilities side of the Latest Balance Sheet (including any
notes thereto), (ii) liabilities and obligations which have arisen after the
date of the Latest Balance Sheet in the ordinary course of business (none of
which is a liability resulting from noncompliance with any applicable Laws,
breach of any contract, breach of warranty, tort, infringement, claim or
lawsuit), (iii) other liabilities and obligations expressly disclosed in the
Schedules referred to in this Section 5, and (iv) any other liabilities or
obligations which alone or in the aggregate would not have a Material Adverse
Effect.
5G. ACCOUNTS RECEIVABLE. Except as set forth on the attached
ACCOUNTS RECEIVABLE SCHEDULE, all accounts and notes receivable reflected on the
Latest Balance Sheet and all accounts receivable to be reflected on the Closing
Balance Sheet (net of allowances for doubtful accounts as reflected thereon and
as determined in accordance with GAAP) are or shall be valid and bona fide
receivables arising in the ordinary course of business. No Person has any Lien
on such receivables or any part thereof, and, except as described on the
attached ACCOUNTS RECEIVABLE SCHEDULE, no agreement for deduction, free goods or
services, discount or other deferred price or quantity adjustment has been made
with respect to any such receivables.
5H. NO MATERIAL ADVERSE EFFECT. Since December 31, 2002, there has
occurred no fact, event or circumstance which has had or would reasonably be
expected to have a Material Adverse Effect. Since December 31, 2002, the Company
and each of its Subsidiaries has conducted its business only in the ordinary
course of business consistent with its Licenses and, to the extent reasonably
appropriate, consistent in all material respects with past practice, it being
understood that the Company has a relatively short operating history and its
operations and practices evolve as needed to accommodate the development and
growth of the business.
5I. ABSENCE OF CERTAIN DEVELOPMENTS. Except as expressly
contemplated by this Agreement or as set forth on the attached DEVELOPMENTS
SCHEDULE, since September 30, 2003, neither the Company nor any of its
Subsidiaries has:
(i) issued any notes, bonds or other debt securities or any capital
stock or other equity securities or any securities or rights convertible,
exchangeable or exercisable into any capital stock or other equity securities;
(ii) borrowed any amount or incurred or become subject to any
material liabilities, except current liabilities incurred in the ordinary course
of business consistent with past practice;
(iii) discharged or satisfied any material Lien (other than Permitted
Encumbrances) or paid any material obligation or liability, other than current
liabilities paid in the ordinary course of business;
- 20 -
(iv) declared, set aside or made any payment or distribution of cash
or other property to any of the Company's stockholders with respect to such
stockholder's capital stock or otherwise, or purchased, redeemed or otherwise
acquired any shares of its capital stock or other equity securities (including
any warrants, options or other rights to acquire its capital stock or other
equity securities);
(v) mortgaged or pledged any of its properties or assets or
subjected them to any Lien, except for Permitted Encumbrances;
(vi) sold, assigned, leased, licensed or otherwise transferred any
of its tangible assets, except in the ordinary course of business consistent
with past practice and for fair value;
(vii) canceled, compromised, waived, or released any material right
or claim (other than in the ordinary course of business and consistent with past
practice);
(viii) sold, assigned, transferred, leased, licensed (other than
licenses to its customers in the ordinary course of business in accordance with
the Company's standard terms and conditions) or otherwise encumbered any
Intellectual Property Rights, disclosed any proprietary confidential information
to any Person (other than to the Purchasers and other than in the ordinary
course of business consistent with past practice in circumstances in which it
has imposed reasonable confidentiality restrictions), or abandoned or permitted
to lapse any material Intellectual Property Rights;
(ix) made or granted any bonus or any wage or salary increase to
any employee or group of employees (except (a) to non-management employees in
the ordinary course of business consistent with past practice or (b) as required
by pre-existing contracts described on the attached CONTRACTS SCHEDULE), or made
or granted any increase in any employee benefit plan or arrangement, or amended
or terminated any existing employee benefit plan or arrangement or adopted any
new employee benefit plan or arrangement;
(x) suffered any extraordinary losses in excess of $100,000 in
the aggregate;
(xi) made capital expenditures or commitments therefor that aggregate
in excess of $250,000;
(xii) delayed or postponed the payment of any accounts payable or
commissions or any other liability or obligation or agreed or negotiated with
any party to extend the payment date of any accounts payable or commissions or
any other liability or obligation or accelerated the collection of (or
discounted) any accounts or notes receivable, other than in the ordinary course
of business consistent with past practice;
(xiii) made any loans or advances to (other than advances to the
Company's employees or money market fund investments in the ordinary course of
business consistent with past practice), guarantees for the benefit of, or any
Investments in, any Person (including incorporation of any Subsidiary);
- 21 -
(xiv) made any charitable contributions or pledges exceeding in the
aggregate $100,000 or made any political contributions;
(xv) suffered any damage, destruction or casualty loss exceeding in
the aggregate $100,000, whether or not covered by insurance;
(xvi) made any change in any method of accounting or accounting
policies that is material or that is other than in the usual, regular and
ordinary course of business consistent with past practice and its Licenses or
reversed any accruals (whether or not in the ordinary course of business or
consistent with past practice);
(xvii) amended its certificate of incorporation, bylaws or other
organizational documents;
(xviii) entered into any agreement or arrangement prohibiting or
restricting it from freely engaging in any business or otherwise restricting the
conduct of its business;
(xix) entered into any Material Contract other than in the ordinary
course of business consistent with past practice and its Licenses, entered into
any other material transaction, whether or not in the ordinary course of
business or consistent with past practice, or materially changed any business
practice; or
(xx) agreed, whether orally or in writing, to do any of the
foregoing.
5J. ASSETS.
(i) Except as set forth on the attached ASSETS SCHEDULE, the Company
and each of its Subsidiaries, as the case may be, has good and valid title to, a
valid leasehold interest in, or a valid license to use, the properties and
assets, whether tangible or intangible, used by it, located on its premises or
shown on the Latest Balance Sheet or acquired thereafter, free and clear of all
Liens, except for properties and assets disposed of in the ordinary course of
business since the date of the Latest Balance Sheet and except for Liens
disclosed on the Latest Balance Sheet (including any notes thereto) and
Permitted Encumbrances.
(ii) Except as set forth on the attached ASSETS SCHEDULE, all of the
Company's and its Subsidiaries' buildings, equipment, fixtures, improvements and
other tangible assets (whether owned or leased) are in good condition and repair
(ordinary wear and tear excepted) and are fit for use in the ordinary course of
the Company's or its Subsidiaries' business as presently conducted. All such
assets have been installed and maintained in all material respects in accordance
with all applicable laws, regulations and ordinances.
(iii) Except as set forth on the attached ASSETS SCHEDULE, each of the
Company and its Subsidiaries owns, has a valid leasehold interest in, or has a
valid license to use, all of the material assets, properties and rights, whether
tangible or intangible, necessary for the conduct of its business as presently
conducted.
- 22 -
5K. TAX MATTERS.
(i) Except as set forth on the attached TAXES SCHEDULE:
(a) each of the Company and its Subsidiaries has filed all
Tax Returns which it is required to file under applicable laws and
regulations, and all such Tax Returns are complete and correct and have been
prepared in compliance with all applicable laws and regulations;
(b) each of the Company and its Subsidiaries has paid all
Taxes due and owing by it (whether or not such Taxes are shown or required
to be shown on a Tax Return) and has withheld and paid over to the
appropriate taxing authority all Taxes which it is required to withhold from
amounts paid or owing to any employee, stockholder, creditor or other third
party;
(c) neither the Company nor any of its Subsidiaries has
waived any statute of limitations with respect to any Taxes or agreed to any
extension of time for filing any Tax Return which has not been filed; and
neither the Company nor any of its Subsidiaries has consented to extend to a
date later than the date hereof the period in which any Tax may be assessed
or collected by any taxing authority;
(d) the accrual for Taxes on the Latest Balance Sheet would
be adequate to pay all material Tax liabilities of the Company and its
Subsidiaries if its current tax year were treated as ending on the date of
the Latest Balance Sheet (excluding any amount recorded which is
attributable solely to timing differences between book and Tax income);
(e) since December 31, 2002, neither the Company nor any of
its Subsidiaries has incurred any liability for Taxes other than in the
ordinary course of business;
(f) the assessment of any additional Taxes for periods for
which Tax Returns have been filed by the Company and its Subsidiaries shall
not exceed the recorded liability therefor on the Latest Balance Sheet or
the Closing Balance Sheet (excluding any amount recorded which is
attributable solely to timing differences between book and Tax income);
(g) no foreign, federal, state or local tax audits or
administrative or judicial Tax proceedings are pending or being conducted
with respect to the Company or any of its Subsidiaries;
(h) neither the Company nor any of its Subsidiaries has
received from any foreign, federal, state or local taxing authority
(including jurisdictions where the Company or any of its Subsidiaries has
filed Tax Returns) any (i) written notice indicating an intent to open an
audit or other review, (ii) request for information related to Tax matters
or (iii) notice of deficiency or proposed adjustment for any amount of Tax;
- 23 -
(i) no claim has ever been made by a taxing authority in a
jurisdiction where the Company or any of its Subsidiaries does not file Tax
Returns that the Company or any of its Subsidiaries is or may be subject to
Taxes assessed by such jurisdiction;
(j) neither the Company nor any of its Subsidiaries has been
a member of an Affiliated Group (other than a group the common parent of
which is the Company) or filed or been included in a combined, consolidated
or unitary income Tax Return (other than a Tax Return with respect to such a
group);
(k) neither the Company nor any of its Subsidiaries is a
party to or bound by any Tax allocation or Tax sharing agreement;
(l) there are no Liens for Taxes (other than for current
Taxes not yet due and payable) upon the assets of the Company or any of its
Subsidiaries; and
(m) neither the Company nor any of its Subsidiaries shall be
required to (i) as a result of a change in method of accounting for a
taxable period ending on or prior to the Closing Date, include any
adjustment in taxable income for any taxable period (or portion thereof)
ending after the Closing Date or (ii) as a result of any "closing
agreement," as described in Section 7121 of the Code (or any corresponding
provision of state, local or foreign income Tax law) executed on or before
the Closing Date, include any item of income in, or exclude any item of
deduction from, taxable income for any taxable period (or portion thereof)
ending after the Closing Date.
(ii) Neither the Company nor any of its Subsidiaries: (a) has made an
election or (b) is liable for the Taxes of another Person (1) under Treas. Reg.
Section 1.1502-6 (or comparable provisions of state, local or foreign law), (2)
as a transferee or successor or (3) by contract or indemnity or otherwise.
5L. CONTRACTS AND COMMITMENTS.
(i) Except as expressly contemplated by this Agreement or as set
forth on the attached CONTRACTS SCHEDULE, the attached INTELLECTUAL PROPERTY
SCHEDULE, the attached EMPLOYEES SCHEDULE or the attached EMPLOYEE BENEFITS
SCHEDULE, neither the Company nor any of its Subsidiaries is a party to or bound
by any written or oral:
(a) pension, profit sharing, stock option, employee stock
purchase or other plan or arrangement providing for deferred or other
compensation to employees or any other employee benefit plan, arrangement or
practice, whether formal or informal;
(b) collective bargaining agreement or any other contract
with any labor union, or any severance agreements, programs, policies or
arrangements;
(c) management agreement, any contract for the employment of
any officer, individual employee or other Person on a full-time, part-time,
consulting or other basis or any contract providing for the payment of any
cash or other compensation or
- 24 -
benefits upon the consummation of the transactions contemplated hereby or
any contract relating to loans to any officers, directors or Affiliates;
(d) material contract or agreement requiring the consent of
any party thereto upon a change in control of the Company, containing any
provision which would result in a modification of any rights or obligations
of any party thereunder upon a change in control of the Company or which
would provide any party any remedy (including rescission or liquidated
damages) in the event of a change in control of the Company;
(e) contract under which it has advanced or loaned monies to
any other Person or otherwise agreed to advance, loan or invest any funds
(other than advances to the Company's employees in the ordinary course of
business consistent with past practice);
(f) clearing agreements or agreements related to order flow
for broker-dealer transactions;
(g) agreement or indenture relating to borrowed money or
other Indebtedness of the Company or any of its Subsidiaries or the
mortgaging, pledging or otherwise placing a Lien on any material asset or
material group of assets of the Company or any of its Subsidiaries or any
letter of credit arrangements;
(h) guaranty of any obligation for borrowed money or
otherwise (other than endorsements made for collection in the ordinary
course of business);
(i) lease or agreement under which the Company is lessee of
or holds or operates any property, real or personal, owned by any other
Person, except for any lease of personal property under which the aggregate
annual rental payments do not exceed $250,000;
(j) lease or agreement under which the Company is lessor of
or permits any third party to hold or operate any property, real or
personal, owned or controlled by the Company;
(k) nondisclosure, noncompete or confidentiality agreements
or agreements regarding ownership and rights with regard to work produced by
employees;
(l) contract or group of related contracts with the same
party or group of affiliated parties for the purchase of supplies, products,
equipment or other personal property or for the receipt of services under
which the undelivered balance of such products and services has a selling
price in excess of $250,000, excluding ordinary course trading obligations
with customers and clearing firms;
(m) contract or group of related contracts with the same
party or group of affiliated parties for the sale of supplies, products,
equipment or other personal
- 25 -
property or for the furnishing of services under which the undelivered
balance of such products or services due from the Company or any of its
Subsidiaries has a selling price in excess of $250,000, excluding ordinary
course trading obligations with customers and clearing firms;
(n) other contract or group of related contracts with the
same party or group of affiliated parties continuing over a period of more
than six (6) months from the date or dates thereof and not terminable by the
Company or any of its Subsidiaries upon 30 days' or less notice without
penalty or involving unfulfilled obligations of more than $250,000;
(o) contract or group of related contracts requiring the
payment of any fee, penalty or other amount by the Company or any of its
Subsidiaries in the event of any failure to perform or late performance of
such contract or contracts by the Company or any of its Subsidiaries;
(p) contract relating to the marketing, sale, advertising or
promotion of its services continuing over a period of more than six (6)
months from the date thereof or involving annual consideration in excess of
$250,000;
(q) agreements relating to the ownership of or investments
in any business or enterprise, including investments in joint ventures and
minority equity investments;
(r) warranty agreement with respect to its services or its
products sold, leased or licensed which contains terms and conditions that
differ in any material respect from the Company's or any of its
Subsidiaries' standard warranty terms and conditions (a copy of which
standard terms and conditions is attached to the CONTRACTS SCHEDULE);
(s) assignment, license, royalty, indemnification or other
agreement with respect to any Intellectual Property Rights involving annual
consideration in excess of $250,000 (except any licenses granted to the
Company or any of its Subsidiaries only for the Company's or such
Subsidiaries' own use, of unmodified, mass market software, pursuant to the
licensor's ordinary license terms);
(t) agreement under which it has granted any Person any
registration rights (including demand or piggyback registration rights);
(u) material broker, agent, sales representative, sales or
distribution agreement;
(v) power of attorney or other similar agreement or grant of
agency;
(w) contract or agreement prohibiting it from freely
engaging in any business or competing anywhere in the world;
- 26 -
(x) material contract, agreement, commitment or undertaking
with any Governmental Entity, other than in the ordinary course of business
as are usual and customary with respect to the Company's business; or
(y) other agreement which is material to its operations or
business prospects or involves an annual consideration in excess of
$250,000, whether or not in the ordinary course of business.
(ii) All of the contracts, agreements and instruments set forth or
required to be set forth on the attached CONTRACTS SCHEDULE (each, a "MATERIAL
CONTRACT") are valid, binding and (subject to general principles of equity which
may limit the enforceability of restrictions on competition and/or solicitation
such as non-compete and non-solicitation agreements) enforceable in accordance
with their respective terms. Each of the Company and its Subsidiaries has
performed all obligations required to be performed by it in all material
respects and is not in default under or in breach of, in each such case, in any
material respect, nor in receipt of any written claim of such default or breach
under any Material Contract; no event has occurred which with the passage of
time or the giving of notice or both would result in a default, breach or event
of noncompliance, in each such case, in any material respect, by the Company or
any of its Subsidiaries under any Material Contract; and neither the Company nor
any of its Subsidiaries has any present expectation or intention of not fully
performing on a timely basis all such obligations required to be performed by
the Company or any of its Subsidiaries under any Material Contract; and neither
the Company nor any of its Subsidiaries has any Knowledge of any breach or
cancellation or anticipated cancellation, in each case, in any material respect,
by the other parties to any Material Contract. Neither the Company nor any of
its Subsidiaries is a party to any contract, agreement or commitment the
performance of which could reasonably be expected to have a Material Adverse
Effect.
(iii) The Purchasers' special counsel has been supplied with a true
and correct copy of each of the written instruments, plans, contracts and
agreements and an accurate description of each of the oral arrangements,
contracts and agreements which are referred to on the attached CONTRACTS
SCHEDULE, together with all amendments, waivers or other changes thereto.
5M. INTELLECTUAL PROPERTY RIGHTS.
(i) The attached INTELLECTUAL PROPERTY SCHEDULE contains a complete
and accurate list of all (a) patented or registered Intellectual Property Rights
owned or used by the Company or any of its Subsidiaries, (b) pending patent
applications and applications for other registrations of Intellectual Property
Rights filed by or on behalf of the Company or any of its Subsidiaries, (c)
unregistered trademarks, service marks, trade names, logos, corporate names and
brand names in each case used by the Company or any of its Subsidiaries to
identify the Company or such Subsidiaries, as applicable, or their respective
products and services, specifying the products or services with respect to which
such marks or names are used, and (d) Internet domain names used by the Company
or any of its Subsidiaries. The attached INTELLECTUAL PROPERTY SCHEDULE also
contains a complete and accurate list of all licenses and other rights granted
by the Company or any of its Subsidiaries to any third party with respect to any
Intellectual Property Rights (excluding the rights of customers in the ordinary
course of
- 27 -
business) , and all licenses and other rights granted by any third party to the
Company or any of its Subsidiaries with respect to any material Intellectual
Property Rights (except any licenses granted to the Company or any of its
Subsidiaries of unmodified, mass market software, pursuant to the licensor's
ordinary license terms, having an aggregate value for all related licenses
thereof of less than $100,000), in each case identifying the subject
Intellectual Property Rights. The Company and its Subsidiaries own and possess
all right, title and interest to, or have the right to use pursuant to a valid
and enforceable license, all Intellectual Property Rights necessary for the
operation of their businesses as presently conducted, free and clear of all
Liens. To the Knowledge of the Company, it is not and will not be necessary to
utilize any Intellectual Property Rights relating to the Trading Platform that
are owned by any of the Company's or its Subsidiaries' employees and that were
developed, invented or made prior to their employment by the Company or any of
its Subsidiaries except for any such Intellectual Property Rights that have
previously been assigned to the Company or any of its Subsidiaries. Except as
set forth on the attached INTELLECTUAL PROPERTY SCHEDULE, the loss or expiration
of any Intellectual Property Right or related group of Intellectual Property
Rights owned or used by the Company or any of its Subsidiaries has not had a
Material Adverse Effect, and no loss or expiration of any material Intellectual
Property Right is to the Company's Knowledge threatened in writing or pending.
The Company has taken commercially reasonable steps to maintain and protect the
Intellectual Property Rights which it or any of its Subsidiaries owns and uses.
(ii) Except as set forth on the attached INTELLECTUAL PROPERTY
SCHEDULE, (a) there have been no claims made in writing against the Company or
any of its Subsidiaries asserting the invalidity, misuse or unenforceability of
any of the Intellectual Property Rights owned or used by the Company or any of
its Subsidiaries and, to the Company's Knowledge, there is no basis for any such
claim with respect to Intellectual Property Rights owned by the Company and
relating to the Trading Platform, (b) neither the Company nor any of its
Subsidiaries have received any written notices of any infringement or
misappropriation by, or conflict with, any third party with respect to any
Intellectual Property Rights (including any written demand or request that the
Company or any of its Subsidiaries license any rights from a third party), (c)
to the Company's Knowledge, the conduct of the Company's and its Subsidiaries'
businesses has not infringed or misappropriated and does not infringe or
misappropriate with any Intellectual Property Rights of other Persons, (d) the
development and operation of the Trading Platform has not infringed or
misappropriated and does not infringe or misappropriate any Intellectual
Property Rights of other Persons, and (e) to the Company's Knowledge, the
material Intellectual Property Rights owned by the Company or any of its
Subsidiaries have not been infringed or misappropriated by other Persons. The
transactions contemplated by this Agreement will not have a material adverse
effect on the Company's (or its Subsidiaries') right, title or interest in and
to their Intellectual Property Rights and all of such Intellectual Property
Rights shall be owned or available for use by the Company or any of its
Subsidiaries on identical terms and conditions immediately after the Closing.
(iii) All Persons who have participated in the creation or development
of any of the Intellectual Property Rights relating to the Trading Platform have
executed and delivered to the Company a valid and enforceable agreement (a)
providing for the non-disclosure by such Person of any confidential information
of the Company and its Subsidiaries, and (b) providing
- 28 -
for the assignment by such Person to the Company of any such Intellectual
Property Rights arising out of such Person's employment by or contract with the
Company or any of its Subsidiaries.
5N. LITIGATION, ETC. Except as set forth on the attached LITIGATION
SCHEDULE, there are no (and since the Company's date of incorporation there have
not been any) actions, suits, proceedings (including any administrative, self
regulatory organization or arbitration proceedings), orders, investigations or
claims (other than (i) actions, suits, proceedings, orders, investigations or
claims affecting generally the industry in which the Company conducts business
to which the Company is not a specified party; and (ii) customer complaints
which are in the ordinary course of business and which, individually and in the
aggregate, have not had and will not have a Material Adverse Effect) pending or,
to the Company's Knowledge, threatened in writing against or affecting the
Company or its Subsidiaries (or to the Company's Knowledge, pending or
threatened in writing against or affecting any of the officers, directors or
employees of the Company or its Subsidiaries with respect to their respective
business activities), or pending or threatened in writing by the Company or its
Subsidiaries against any Person, at law or in equity, or before or by any
Governmental Entity (including any actions, suits, proceedings or investigations
with respect to the transactions contemplated by this Agreement); neither the
Company nor its any of its Subsidiaries is subject to any arbitration
proceedings under collective bargaining agreements or any other material
arbitration proceedings or any material governmental investigations or inquiries
(other than in the ordinary course of business). The foregoing includes, without
limitation, to the Company's Knowledge, actions pending or threatened in writing
involving the prior employment of any of the employees of the Company or its
Subsidiaries, their use in connection with the Company's or its Subsidiaries
business of any information or techniques allegedly proprietary to any of their
former employers or their obligations under any agreements with prior employers.
The Company and its Subsidiaries are insured with respect to each of the matters
set forth on the attached LITIGATION SCHEDULE to the extent disclosed thereon.
Neither the Company nor its Subsidiaries is subject to any judgment, order or
decree of any court or other governmental agency or self-regulatory organization
(other than judgments, orders or decrees affecting generally the industry in
which the Company conducts business to which the Company is not a specified
party), and neither the Company nor its Subsidiaries has received any opinion or
memorandum or advice from legal counsel or compliance personnel to the effect
that it is exposed, from a legal standpoint, to any liability which would
reasonably be expected to be (individually or in the aggregate) material to its
business.
5O. BROKERAGE. Except for ▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co. (pursuant to an
engagement letter listed on the CONTRACTS SCHEDULE attached hereto), no Person
has any claim for brokerage commissions, finders' fees or similar compensation
in connection with the transactions contemplated by this Agreement based on any
arrangement or agreement to which the Company or any of its Subsidiaries is a
party or to which the Company or any of its Subsidiaries is subject.
5P. INSURANCE. The attached INSURANCE SCHEDULE contains a
description of each insurance policy maintained by the Company or its
Subsidiaries with respect to their respective properties, assets and business,
and each such policy is in full force and effect. Neither the Company nor any of
its Subsidiaries is in default with respect to its obligations under any
- 29 -
insurance policy maintained by it, and neither the Company nor any of its
Subsidiaries has ever been denied insurance coverage. Except as set forth on the
attached INSURANCE SCHEDULE, neither the Company nor any of its Subsidiaries has
any self-insurance or co-insurance programs. The insurance coverage of the
Company and its Subsidiaries is customary for corporations of similar size
engaged in similar lines of business.
5Q. EMPLOYEES. To the Company's Knowledge, no executive or key
employee or independent contractor of the Company or any of its Subsidiaries and
no group of employees or independent contractors of the Company or any of its
Subsidiaries has any plans to terminate employment with the Company or any of
its Subsidiaries. Neither the Company nor any of its Subsidiaries have any
material labor relations problems (including any union organization activities,
threatened or actual strikes or work stoppages or material grievances). The
EMPLOYEES SCHEDULE attached hereto contains a correct and complete list of all
employees of the Company and its Subsidiaries who are not citizens of the United
States and who are not permanent residents of the United States (together with a
listing of each such employee's visa status and visa expiration date). The
Company and each of its Subsidiaries have complied in all material respects with
all Laws relating to the employment of labor (including, without limitation,
provisions thereof relating to wages, hours, equal opportunity, collective
bargaining and the payment of social security and other taxes) and have complied
with all Laws related to the licensing of employees under its applicable
Licenses. Neither the Company, its Subsidiaries nor, to the Company's Knowledge,
any of their employees is subject to any noncompete, nondisclosure,
confidentiality, employment, consulting or similar agreements in conflict with
the present business activities of the Company and its Subsidiaries, except for
agreements between the Company or any of its Subsidiaries and their respective
present and former employees. The attached EMPLOYEES SCHEDULE sets forth the
aggregate bonuses currently expected to be paid to the Company's and its
Subsidiaries' officers and employees in respect of the fiscal year ended
December 31, 2003.
5R. ERISA.
(i) Except as disclosed on the attached EMPLOYEE BENEFITS SCHEDULE,
the Company does not maintain, contribute to or have any actual or potential
liability with respect to any (x) "employee pension benefit plan" (as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) (the "Savings Plan"), (y) "employee welfare benefit plan" (as defined
in Section 3(1) of ERISA) (the "Welfare Plans") or (z) nonqualified deferred
compensation, incentive, bonus, severance, retention, change-in-control,
material fringe benefit, stock option, stock bonus or other material benefit
arrangements (collectively (x), (y) and (z) above referred to as the "PLANS").
For purposes of this Paragraph 5R, the term "Company" includes all organizations
under common control with the Company pursuant to Section 414(b), (c), (m) or
(o) of the IRC.
(ii) The Company does not maintain, contribute to or have any actual
or potential liability with respect to any active or terminated, funded or
unfunded (w) employee benefit plan subject to Section 412 of the IRC or Section
302 of Title I of ERISA, (x) multiemployer plan (as defined in Section 3(37) of
ERISA), (y) defined benefit plan (as defined in Section 3(35) of ERISA) or (z)
plan or arrangement to provide medical, health, life
- 30 -
insurance or other welfare-type benefits for current or future retired or
terminated employees (except for limited continued health benefit coverage
required to be provided under Section 4980B of the IRC or similar state Law).
(iii) The Company has provided to the Purchasers accurate and complete
copies of each of the Plans and any related trusts, insurance contracts or other
agreements, the IRS favorable determination letter issued with respect to the
Savings Plan, if any, IRS Form 5500s (including all attachments) for the Savings
Plan and the Welfare Plans to the extent applicable for the most recently
completed plan year and the most recent financial statement with respect to the
Savings Plan.
(iv) Each of the Plans and all related funding arrangements comply in
all material respects in form and operation with its terms and the applicable
requirements of ERISA, the IRC and any other applicable Laws. Except as
disclosed on the attached EMPLOYEE BENEFITS SCHEDULE, the Savings Plan has
received a favorable GUST determination letter that it qualifies under the IRC
(and that its trust is exempt from Tax under the IRC). Nothing has occurred
since the date of such favorable determination letter that could adversely
affect the qualified status of the Savings Plan or the tax-exempt status of the
trust. No asset of the Company is subject to any Lien under ERISA or the Code.
Except as disclosed on the attached EMPLOYEE BENEFITS SCHEDULE, no Welfare Plan
is self-insured. All incurred but not reported claims under any Welfare Plan
that is self-insured shall be properly accrued in accordance with GAAP on the
Closing Balance Sheet.
(v) None of the Company, or, to the Company's Knowledge, any trustee
or administrator of any Plan or other Person has engaged in any transaction with
respect to any Plan which could subject the Company or any of its employees to
any material Tax or penalty or other liability imposed by ERISA or the IRC. No
actions, suits, investigations, inquiries, audits or claims with respect to any
of the Plans (other than routine claims for benefits) are pending or, to the
Knowledge of the Company, threatened, and the Company is not aware of any facts
or circumstances which could give rise to or be expected to give rise to any
such actions, suits, investigations, inquiries, audits or claims. The Company
has complied in all material respects with the requirements of Section 4980B of
the IRC and Section 601 et seq. of ERISA ("COBRA"). Each individual who has
received compensation for the performance of services on behalf of the Company
has been properly classified as an employee or independent contractor in
accordance with applicable laws and each Plan has complied with the "leased
employee" provisions of the Code. All contributions which are due under each of
the Plans has been made and all other contributions have been properly accrued.
None of the Plans has any unfunded liabilities which will not be fully accrued
on the Closing Balance Sheet. The Company has complied with all reporting and
disclosure obligations with respect to the Plans.
(vi) Neither the Company nor any affiliate has any liability with
respect to any "employee benefit plan" (as defined in Section 3(3) of ERISA)
solely by reason of being treated as a single employer under Section 414 of the
Code with any trade, business or entity other than the Company and its
Affiliates.
- 31 -
5S. COMPLIANCE WITH LAWS; LICENSES; CERTAIN OPERATIONS. Except as
set forth on the attached COMPLIANCE SCHEDULE:
(i) The Company and its Subsidiaries have complied in all material
respects and are in compliance in all material respects with all applicable Laws
of all Governmental Entities relating to the operation of their businesses and
the maintenance and operation of their properties and assets (including all
minimum net capital requirements). No written notices have been received by and
no material claims have been filed against the Company or any of its
Subsidiaries alleging a violation of any such Laws. Neither the Company nor any
of its Subsidiaries has at any time made any bribes, kickback payments, unlawful
compensation payments or other similar payments of cash or other consideration,
including payments to any business relations for purposes of doing business with
such Persons.
(ii) The Company and its Subsidiaries hold and are in material
compliance with all Licenses of or from Governmental Entities required for the
conduct of their businesses as presently conducted and the ownership of their
properties, and the attached LICENSES SCHEDULE sets forth a list of all of
Licenses which are material to the Company's business. Except as set forth on
the attached LICENSES SCHEDULES, no written notices have been received by the
Company or any of its Subsidiaries alleging the failure to hold any of the
foregoing. All of such Licenses will be available for use by the Company and its
Subsidiaries immediately after the Closing.
(iii) The Company has made available for review by the Purchasers a
true and correct copy of all current forms filed to obtain and maintain all
Licenses material to the business of the Company or any of its Subsidiaries,
including Form BD, Focus reports filed with the NASD since December 31, 2002,
membership applications filed with each self-regulatory organization, and
futures commission merchant registrations. Each of such current forms does not
contain any untrue statement of any material fact or omit any material fact
necessary to make each statement contained therein, in light of the
circumstances under which they were made, not misleading.
(iv) No associated person (within the meaning of the Exchange Act) or
employee of the Company or any of its Subsidiaries is subject to any event set
forth in Section 15(b) of the Exchange Act or which could have a Material
Adverse Effect on the Company's or its Subsidiaries' Licenses.
5T. AFFILIATED TRANSACTIONS. Except as set forth on the attached
AFFILIATED TRANSACTIONS SCHEDULE, no officer, director, or greater than 3%
stockholder or Affiliate of the Company or, to the Company's Knowledge, any
individual related by blood, marriage or adoption to any such individual, or, to
the Company's Knowledge, any entity in which any such Person or individual owns
a 5% or more beneficial interest, is a party to any agreement, contract,
commitment or transaction with the Company or its Subsidiaries or has any
interest in any property used by the Company or its Subsidiaries (including any
Intellectual Property Rights).
5U. REAL PROPERTY. The REAL PROPERTY SCHEDULE sets forth a list of
all leases, subleases, licenses or other agreements for the use or occupancy of
any real property (the "LEASED REAL PROPERTY") (including all amendments,
extensions, renewals, guaranties and other
- 32 -
agreements with respect thereto) held by the Company or any of its Subsidiaries
(collectively, the "LEASES") and the address for each Leased Real Property. The
Company has delivered to the Purchasers a true and complete copy of each written
Lease, and in the case of any oral Leases, a written summary of the basic terms
thereof. Except as set forth in the REAL PROPERTY SCHEDULE, with respect to each
of the Leases: (i) the Lease is legal, valid, binding, enforceable and in full
force and effect; (ii) the consummation of the transactions contemplated
hereunder will not result in a breach of or default under the Lease or otherwise
cause the Lease to cease to be legal, valid, binding, enforceable and in full
force and effect on identical terms following the Closing; (iii) neither the
Company, its Subsidiaries nor, to the Company's Knowledge, any other party to
the Lease is in breach or default under the Lease, and no event has occurred or
circumstance exists which, with the delivery of notice, passage of time or both,
would constitute such a breach or default or permit the termination,
modification or acceleration of rent under the Lease; (iv) to the Company's
Knowledge, no other party to the Lease has repudiated any term thereof, and
there are no disputes of which the Company has Knowledge, oral agreements or
forbearance programs in effect with respect to the Lease; and (v) neither the
Company or any of its Subsidiaries has assigned, subleased, mortgaged, deeded in
trust or otherwise transferred or encumbered the Lease or any interest therein.
Neither the Company nor any of its Subsidiaries owns any real property or any
interest in real property.
5V. DISCLOSURE. To the Company's Knowledge, neither this Agreement,
any of the Exhibits or Schedules attached hereto nor any of the certificates
delivered to the Purchasers by or on behalf of the Company pursuant to the
requirements of this Agreement, when taken together as a whole, contain any
untrue statement of a material fact or omit a material fact necessary to make
each statement contained herein or therein, in light of the circumstances in
which they were made, not misleading.
5W. CLOSING DATE. The representations and warranties contained in
this Section 5 and elsewhere in this Agreement and all information contained in
any Exhibit, Schedule or attachment hereto or in any certificate delivered by,
or on behalf of, the Company to the Purchasers pursuant to this Agreement shall
be true and correct on the Closing Date as though then made and as though the
Closing Date was substituted for the date of this Agreement throughout such
representations and warranties (after taking into account any amendments or
supplements to the Schedules referred to in this Section 5 made by the Company
pursuant to Paragraph 4G).
Section 6. REPRESENTATIONS AND WARRANTIES OF THE SELLERS. As a material
inducement to the Purchasers to enter into this Agreement and purchase the
Purchased Shares hereunder, each Seller severally and not jointly hereby
represents and warrants to the Purchasers and the Company as follows:
6A. CAPACITY; POWER AND AUTHORITY. Such Seller possesses all
requisite capacity, power and authority to enter into and carry out the
transactions contemplated by this Agreement.
6B. AUTHORIZATION; NO BREACH. . This Agreement and all other
agreements contemplated hereby to which such Seller is a party, when executed
and delivered by such Seller
- 33 -
in accordance with the terms hereof, shall each constitute a valid and binding
obligation of such Seller, enforceable against such Seller in accordance with
its terms (subject to general principles of equity which may limit the
enforceability of restrictions on competition or solicitation such as
non-compete and non-solicitation agreements). The execution and delivery by such
Seller of this Agreement and all other agreements contemplated hereby to which
such Seller is a party, the repurchase of the Repurchased Shares from such
Seller hereunder, and the fulfillment of and compliance with the respective
terms hereof and thereof by such Seller, do not and shall not (i) conflict with
or result in a breach of the terms, conditions or provisions of, (ii) constitute
a default under (whether with or without the passage of time, the giving of
notice or both), (iii) result in the creation of any lien, security interest,
charge or encumbrance upon such Seller's assets pursuant to, (iv) give any third
party the right to modify, terminate or accelerate any obligation under, (v)
result in a violation of, or (vi) require any authorization, consent, approval,
exemption or other action by or notice or declaration to, or filing with, any
third party or any Governmental Entity pursuant to, any Law to which such Seller
is subject, or any agreement, instrument, order, judgment or decree to which
such Seller is subject, except for any filing, notice or authorization required
pursuant to the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act.
6C. TITLE TO SHARES, ETC. Such Seller is the record and beneficial
owner of, and has good and marketable title to, the Repurchased Shares and the
other Common Stock and Existing Preferred Stock and the Repurchased Options
indicated as owned by such Seller on the attached CAPITALIZATION SCHEDULE
referenced in Paragraph 5B, free and clear of all Liens, agreements, voting
trusts, proxies and other arrangements or restrictions of any kind whatsoever
(collectively, "ENCUMBRANCES"). At the Closing, such Seller shall sell to the
Company good and marketable title to such Repurchased Shares, and shall sell to
the Company or cancel such Repurchased Options, in each case free and clear of
all Encumbrances.
6D. BROKERAGE. Except for ▇▇▇▇▇▇▇, Sachs & Co. (pursuant to an
engagement letter listed on the CONTRACTS SCHEDULE attached hereto), no Person
has any claim for brokerage commissions, finders' fees or similar compensation
in connection with the transactions contemplated by this Agreement based on any
arrangement or agreement to which such Seller is a party or to which such Seller
is subject.
6E. LITIGATION, ETC. There are no actions, suits, proceedings
(including any arbitration proceedings), orders, investigations or claims
pending or, to such Seller's knowledge, threatened against or affecting such
Seller in which it is sought to restrain or prohibit or to obtain damages or
other relief in connection with the transactions contemplated hereby.
6F. COMPANY TRANSACTIONS. Such Seller is not a party to or bound by
any agreement with respect to a Company Transaction other than this Agreement,
and such Seller has terminated all discussions with third parties (other than
the Purchasers) regarding Company Transactions.
6G. CLOSING DATE. The representations and warranties of such Seller
contained in this Section 6 and elsewhere in this Agreement shall be true and
correct on Closing Date as though then made and as though the Closing Date was
substituted for the date of this Agreement throughout such representations and
warranties (after taking into account any disclosures made
- 34 -
by such Seller pursuant to Paragraph 4G above in respect of the representations
and warranties made by such Seller in Paragraph 6E above).
Section 7. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. As a
material inducement to the Company and the Sellers to enter into this Agreement
and take the actions set forth in Section 1, each Purchaser hereby represents
and warrants to the Company and the Sellers as follows:
7A. ORGANIZATION, POWER AND AUTHORITY. Such Purchaser is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Such Purchaser possesses all requisite power and
authority necessary to enter into and carry out the transactions contemplated by
this Agreement.
7B. AUTHORIZATION; NO BREACH. The execution, delivery and
performance of this Agreement and all other agreements contemplated hereby to
which such Purchaser is a party have been duly authorized by such Purchaser.
This Agreement and all other agreements contemplated hereby to which such
Purchaser is a party, when executed and delivered by such Purchaser in
accordance with the terms hereof, shall each constitute a valid and binding
obligation of such Purchaser, enforceable in accordance with its terms. The
execution and delivery by such Purchaser of this Agreement and all other
agreements contemplated hereby to which such Purchaser is a party, the purchase
of such Preferred Stock hereunder, and the fulfillment of and compliance with
the respective terms hereof and thereof by such Purchaser, do not and shall not
(i) conflict with or result in a breach of the terms, conditions or provisions
of, (ii) constitute a default under (whether with or without the passage of
time, the giving of notice or both), (iii) give any third party the right to
modify, terminate or accelerate any obligation under, (iv) result in a violation
of, or (v) require any authorization, consent, approval, exemption or other
action by or notice or declaration to, or filing with, any Governmental Entity
pursuant to, the organizational documents of such Purchaser, or any Law to which
such Purchaser is subject, or any agreement, instrument, order, judgment or
decree to which such Purchaser is subject, except for any filing, notice or
authorization required pursuant to the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act.
7C. BROKERAGE. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement to which
such Purchaser is a party or to which such Purchaser is subject. Such Purchaser
shall pay, and hold the Company, its Subsidiaries and the Sellers harmless
against, any liability, loss or expense (including reasonable attorneys' fees
and out-of-pocket expenses) arising in connection with any such claim.
7D. INVESTMENT REPRESENTATIONS.
(i) Such Purchaser is acquiring the Restricted Securities to be
purchased by it hereunder for its own account with the present intention of
holding such securities for purposes of investment, and such Purchaser has no
intention of selling such securities in a public distribution in violation of
the federal securities Laws or any applicable state securities Laws; PROVIDED
THAT nothing contained herein shall prevent such Purchaser or any subsequent
holder of
- 35 -
such Restricted Securities from transferring such securities in compliance with
the provisions of Paragraph 11C below.
(ii) Such Purchaser is an "accredited investor" as defined in Rule
501(a) under the Securities Act.
(iii) Such Purchaser understands that the Restricted Securities to be
purchased by it hereunder have not been registered under the Securities Act on
the basis that the sale provided for in this Agreement is exempt from the
registration provisions thereof and that the Company's reliance on such
exemption is predicated in part upon the representations of the Purchasers set
forth herein.
7E. CLOSING DATE. The representations and warranties of such
Purchaser contained in this Section 7 shall be true and correct on the Closing
Date as though then made and as though the Closing Date was substituted for the
date of this Agreement throughout such representations and warranties.
Section 8. INDEMNIFICATION AND OTHER AGREEMENTS.
8A. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties in this Agreement and the Schedules attached hereto or in any
writing delivered by any Party to another Party in connection with this
Agreement shall survive the Closing as follows:
(i) the representations and warranties in Paragraph 5K (Tax Matters)
shall terminate when the applicable statutes of limitations with respect to the
liabilities in question expire (after giving effect to any extensions or waivers
thereof), plus thirty (30) days;
(ii) the representations and warranties in Paragraph 5S (Compliance
with Laws; Licenses; Certain Operations) shall terminate on the later of (a)
eighteen (18) months following the Closing or (b) the date that is thirty (30)
days following the Purchasers' receipt of the Company's audited consolidated
financial statements for the calendar year ended December 31, 2004;
(iii) the representations and warranties in Paragraph 5B (Capital
Stock and Related Matters) (other than the second sentence of subparagraph (ii)
thereof), ▇▇▇▇▇▇▇▇▇ ▇▇ (▇▇▇▇▇▇▇▇▇), ▇▇▇▇▇▇▇▇▇ ▇▇ (▇▇▇▇▇▇▇▇; Power and
Authority), Paragraph 6C (Title to Shares, Etc.), Paragraph 6D (Brokerage),
Paragraph 6F (Company Transactions), Paragraph 7A (Organization, Power and
Authority), ▇▇▇▇▇▇▇▇▇ ▇▇ (▇▇▇▇▇▇▇▇▇), the first and second and last sentences of
Paragraph 5D (Authorization; No Breach), the first sentence of Paragraph 6B
(Authorization; No Breach) and the first and second sentences of Paragraph 7B
(Authorization; No Breach) shall not terminate; and
(iv) all other representations and warranties in this Agreement and
the Schedules attached hereto or in any writing delivered by any Party to
another Party in connection with this Agreement shall terminate on the date that
is thirty (30) days following the Purchasers'
- 36 -
receipt of the Company's audited consolidated financial statements for the
calendar year ended December 31, 2004;
PROVIDED THAT any representation or warranty in respect of which indemnity may
be sought under Paragraph 8B, and the indemnity with respect thereto, shall
survive the time at which it would otherwise terminate pursuant to this
Paragraph 8A if notice of the inaccuracy or breach or alleged inaccuracy or
breach thereof giving rise to such right or alleged right of indemnity shall
have been given to the Party against whom such indemnity may be sought prior to
such time (regardless of when Losses in respect thereof may actually be
incurred). The representations and warranties in this Agreement and the
Schedules attached hereto or in any writing delivered by any Party to another
Party in connection with this Agreement shall survive for the periods set forth
in this Paragraph 8A and shall in no event be affected by any investigation,
inquiry or examination made for or on behalf of any Party, or the knowledge of
any Party's officers, directors, stockholders, employees or agents or the
acceptance by any Party of any certificate or opinion hereunder.
8B. GENERAL INDEMNIFICATION.
(i) INDEMNIFICATION BY THE SELLERS (JOINT AND SEVERAL). Each of the
Sellers, jointly and severally, shall indemnify each of the Purchaser Parties
and save and hold each of them harmless against any Losses which any such
Purchaser Party may suffer, sustain or become subject to, as a result of, in
connection with, relating or incidental to or by virtue of: (a) any breach of
any representation or warranty of the Company under this Agreement or any of the
Schedules attached hereto, or in any of the certificates or other instruments or
documents furnished by the Company pursuant to this Agreement; (b) any
nonfulfillment or breach of any covenant, agreement or other provision by the
Company under this Agreement or any of the Schedules attached hereto required to
be performed or complied with by the Company or its Subsidiaries at or prior to
the Closing (other than any breach of Paragraph 4G above that was not knowing
and willful); or (c) any claim by any Person (other than the Purchasers) with
respect to, or arising as a result of, any Company Transaction (whether or not
consummated) based on any alleged arrangement or agreement to which the Company
or any of its Subsidiaries or any of their respective directors or officers is
alleged to be a party; PROVIDED THAT the Sellers shall not have any liability
under clause (a) above (other than with respect to the representations and
warranties contained in Paragraph 5B (Capital Stock and Related Matters),
Paragraph 5O (Brokerage), and the first and last sentences of Paragraph 5D
(Authorization; No Breach)) unless the aggregate of all Losses relating thereto
for which the Sellers would, but for this proviso, be liable exceeds on a
cumulative basis an amount equal to $250,000 (and then the Sellers shall be
liable only for all Losses in excess thereof); and PROVIDED FURTHER that the
Sellers shall not have any liability under clause (a) above for any individual
item where the Loss relating to such item is less than $10,000 (but with it
being understood, however, that all Losses reasonably related to claims arising
out of the same or substantially common facts, events or circumstances shall be
considered an individual claim for purposes of this Agreement and all such items
shall be aggregated for purposes of the first proviso to this Paragraph 8B(i));
and PROVIDED FURTHER that the Sellers' aggregate liability under clause (a)
above (other than with respect to the representations and warranties contained
in Paragraph 5B (Capital Stock and Related Matters), Paragraph 5O (Brokerage),
and the first and last sentences of Paragraph 5D (Authorization; No Breach))
shall
- 37 -
in no event exceed twelve percent (12%) of the Repurchase Price (but with it
being understood, however, that nothing in this Agreement (including this
Paragraph 8B) shall limit or restrict any of the Purchaser Parties' right to
maintain or recover any amounts in connection with any action or claim based
upon fraudulent misrepresentation or fraud). Any indemnification payment in
respect of Losses under this Paragraph 8B(i) shall be reduced by an amount equal
to the Tax Benefit, if any, attributable to the Losses giving rise to such
payment. All indemnification payments for the benefit of the Purchasers under
this Paragraph 8B shall be deemed to be adjustments to the Stock Purchase Price
set forth in Paragraph 1B above.
(ii) INDEMNIFICATION BY THE SELLERS (SEVERAL). Each of the Sellers,
severally and not jointly, shall indemnify each of the Purchaser Parties and
save and hold each of them harmless against any Losses which any such Purchaser
Party may suffer, sustain or become subject to, as a result of, in connection
with, relating or incidental to or by virtue of: (a) any breach of any
representation or warranty of such Seller under this Agreement or any of the
Schedules attached hereto, or in any of the certificates or other instruments or
documents furnished by such Seller pursuant to this Agreement; (b) any
nonfulfillment or breach of any covenant, agreement or other provision by such
Seller under this Agreement or any of the Schedules attached hereto required to
be performed or complied with by such Seller at or prior to the Closing or (in
the case of ▇▇▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇▇▇▇ 8G and Paragraph 11C only)
after the Closing; or (c) any claim by any Person (other than the Purchasers)
with respect to, or arising as a result of, any Company Transaction (whether or
not consummated) based on any alleged arrangement or agreement to which such
Seller is alleged to be a party. Any indemnification payment in respect of
Losses under this Paragraph 8B(ii) shall be reduced by an amount equal to the
Tax Benefit, if any, attributable to the Losses giving rise to such payment. All
indemnification payments for the benefit of the Purchasers under this Paragraph
8B(ii) shall be deemed to be adjustments to the Stock Purchase Price set forth
in Paragraph 1B above.
(iii) INDEMNIFICATION BY THE PURCHASERS. The Purchasers shall,
severally and jointly, indemnify each of the Company Parties (including each
Seller) and save and hold each of them harmless against any Losses which any of
the Company Parties may suffer, sustain or become subject to, as a result of, in
connection with, relating or incidental to or by virtue of: (a) any breach of
any representation or warranty of the Purchasers under this Agreement or any of
the Schedules attached hereto, or in any of the certificates or other
instruments or documents furnished by the Purchasers pursuant to this Agreement;
or (b) any nonfulfillment or breach of any covenant, agreement or other
provision by the Purchasers under this Agreement or any of the Schedules
attached hereto. Any indemnification payment in respect of Losses under this
Paragraph 8B(iii) shall be reduced by an amount equal to the Tax Benefit, if
any, attributable to the Losses giving rise to such payment.
(iv) NATURE OF CERTAIN INDEMNIFICATION OBLIGATIONS. The
representations and warranties of each of the Sellers in Section 6 of this
Agreement and the covenants and agreements made by each of the Sellers under
this Agreement (other than as specifically set forth in this Paragraph 8B) in
such Seller's individual capacity that are required to be performed or complied
with by such Seller are several obligations. This means that the particular
Seller making the representation, warranty, covenant or agreement will be solely
responsible for any Losses for which the Purchaser Parties are entitled to
indemnification pursuant to this
- 38 -
Agreement, subject to any applicable limitations contained herein. The
representations and warranties made by the Company in or pursuant to this
Agreement and the covenants and agreements made by the Company under this
Agreement that are required to be performed or complied with by the Company at
or prior to the Closing are obligations of the Company for which the Sellers
have agreed to be jointly and severally liable pursuant to Paragraph 8B(i),
which means that each Seller may be held responsible for the entirety of any
Losses for which the Purchaser Parties are entitled to indemnification pursuant
to this Agreement, subject to any applicable limitations contained herein.
(v) MANNER OF PAYMENT. Any indemnification of the Purchaser Parties
or the Company Parties pursuant to this Paragraph 8B shall be effected by wire
transfer of immediately available funds from the Sellers' Representative (on its
own behalf and for and on behalf of the other Sellers pursuant to the Sellers'
Representative Agreement) or one or more of the Sellers or the Purchasers, as
the case may be, to an account designated by any Purchaser Party or Company
Party, as the case may be, within 15 days after the determination thereof. Any
such indemnification payments shall include interest at the Applicable Rate
calculated on the basis of the actual number of days elapsed over 360, from the
date any such Loss is suffered or sustained to the date of payment.
(vi) DEFENSE OF THIRD PARTY CLAIMS. Any Person making a claim for
indemnification under this Paragraph 8B (an "INDEMNITEE") shall notify the
indemnifying party (an "INDEMNITOR") of the claim in writing promptly after
receiving written notice of any action, lawsuit, proceeding, investigation or
other claim against it (if by a third party), describing in reasonably available
detail the claim, the amount thereof (if known and quantifiable) and the basis
thereof; PROVIDED THAT the failure to so notify an Indemnitor shall not relieve
the Indemnitor of its obligations hereunder except to the extent that (and only
to the extent that) such failure shall have caused the damages for which the
Indemnitor is obligated to be greater than such damages would have been had the
Indemnitee given the Indemnitor prompt notice hereunder. Any Indemnitor shall be
entitled to participate in the defense of such action, lawsuit, proceeding,
investigation or other claim giving rise to an Indemnitee's claim for
indemnification at such Indemnitor's expense, and at its option (subject to the
limitations set forth below) shall be entitled to assume the defense thereof by
appointing a reputable counsel reasonably acceptable to the Indemnitee to be the
lead counsel in connection with such defense; PROVIDED THAT, prior to the
Indemnitor assuming control of such defense it shall first verify to the
Indemnitee in writing that such Indemnitor will not dispute that such claim is
subject to indemnification under this Section 8 and PROVIDED FURTHER, that:
(1) the Indemnitee shall be entitled to participate in the
defense of such claim and to employ counsel of its choice for such
purpose; PROVIDED THAT the fees and expenses of such separate counsel
shall be borne by the Indemnitee (other than any reasonable fees and
expenses of such separate counsel that are incurred prior to the date
the Indemnitor effectively assumes control of such defense which,
notwithstanding the foregoing, shall be borne by the Indemnitor, and
except that the Indemnitor shall pay all of the reasonable fees and
expenses of such separate counsel if the Indemnitee has been advised by
counsel in writing
- 39 -
that a reasonable likelihood exists of a conflict of interest between
the Indemnitor and the Indemnitee);
(2) the Indemnitor shall not be entitled to assume control
of such defense (unless otherwise agreed to in writing by the
Indemnitee) and shall pay the reasonable fees and expenses of counsel
retained by the Indemnitee if (A) the claim for indemnification relates
to or arises in connection with any criminal or quasi-criminal
proceeding, action, indictment, allegation or investigation with respect
to the Indemnitee; (B) the claim, if successful, would set a precedent
that would materially interfere with, or have a material adverse effect
on, the business or financial condition of the Indemnitee; (C) the claim
seeks an injunction or equitable relief against the Indemnitee; (D) the
Indemnitee has been advised by counsel in writing that a reasonable
likelihood exists of a conflict of interest between the Indemnitor and
the Indemnitee; or (E) upon petition by the Indemnitee, the appropriate
court rules that the Indemnitor failed or is failing to vigorously
prosecute or defend such claim; and
(3) if the Indemnitor shall control the defense of any such
claim, the Indemnitor shall obtain the prior written consent of the
Indemnitee before entering into any settlement of a claim or ceasing to
defend such claim if, pursuant to or as a result of such settlement or
cessation, injunctive or other equitable relief will be imposed against
the Indemnitee or if such settlement does not expressly and
unconditionally release the Indemnitee from all liabilities and
obligations with respect to such claim, without prejudice.
(vii) INDEMNIFICATION PROCEDURES FOR NON THIRD PARTY CLAIMS. In the
event an Indemnitee should have a claim against an Indemnitor hereunder which
does not involve a third party claim, the Indemnitee shall promptly transmit to
the Indemnitor a written notice describing in reasonable detail the nature of
such non-third party claim, an estimate of the amount of damages attributable to
such non-third party claim (if known and quantifiable) and the basis of the
Indemnitee's request for indemnification under this Agreement; PROVIDED THAT the
failure to so notify an Indemnitor shall not relieve the Indemnitor of its
obligations hereunder except to the extent that (and only to the extent that)
such failure shall have caused the damages for which the Indemnitor is obligated
to be greater than such damages would have been had the Indemnitee given the
Indemnitor prompt notice hereunder.
(viii) CERTAIN WAIVERS. Each Seller agrees that such Seller shall not
make any claim for indemnification against the Company or any of its
Subsidiaries by reason of the fact that he or it is or was a stockholder,
director, officer, employee or agent of the Company or any of its Subsidiaries
or is or was serving at the request of the Company as a partner, trustee,
director, officer, employee or agent of another entity (whether such claim is
for judgments, damages, penalties, fines, costs, amounts paid in settlement,
losses, expenses or otherwise and whether such claim is pursuant to any statute,
charter document, bylaw, agreement or otherwise) with respect to any action,
suit, proceeding, complaint, claim or demand brought by any of the Purchaser
Parties against such Seller pursuant to this Agreement, and each Seller hereby
acknowledges and agrees that such Seller shall not have any claim or right to
contribution or
- 40 -
indemnity from the Company or any of its Subsidiaries with respect to any
amounts paid by such Seller pursuant to this Paragraph 8B. Nothing in this
Paragraph 8B(viii), however, shall prohibit, restrict or modify any right of any
current or former officer, director or employee of the Company to receive
indemnification from the Company to the extent such person is otherwise entitled
to indemnification pursuant to the Certificate of Incorporation or Bylaws of the
Company as in effect prior to the Closing or otherwise pursuant to applicable
law. Except (x) as set forth in the immediately preceding sentence and (y)
claims for (A) any accrued and unpaid employment compensation (including
employee benefits, accrued but unpaid vacation pay, and bonus compensation
payable in respect of the calendar year ended December 31, 2003), (B) expense
reimbursement obligations and (C) liabilities and obligations arising under any
agreements listed or described in any of the Schedules described in Section 5
(including that certain Clearing Agreement, dated as of November 4, 2002, by and
between the Company and Legent Clearing Corp.) or liabilities or obligations
otherwise arising in the ordinary course of business, effective upon the
Closing, each of the Sellers hereby irrevocably waives, releases and discharges
the Company and its Subsidiaries from any and all liabilities and obligations to
such Seller of any kind or nature whatsoever, whether in its or his capacity as
a stockholder, officer or director of the Company or otherwise, in each case
based on facts, events or circumstances arising prior to the Closing and whether
absolute or contingent, liquidated or unliquidated, and whether arising under
any agreement or understanding (other than this Agreement and any of the other
agreements executed and delivered in connection herewith) or otherwise at law or
equity, and no Seller shall seek to recover any amounts in connection therewith
or thereunder from the Company. In no event shall the Company have any liability
to any of the Sellers whatsoever for any breaches of the representations,
warranties, agreements or covenants of the Company hereunder, and none of the
Sellers shall in any event seek contribution from the Company for any breaches
of the Company's obligation to the Purchasers or in respect of any other
payments required to be made by the Sellers pursuant to this Agreement. In no
event shall the Sellers have any liability for any breaches of the
representations, warranties, agreements or covenants of the Company hereunder
other than pursuant to Paragraph 8B(i) above, and the Purchasers shall not
assert any claim for liability arising out of this Agreement against any Seller
who is or was an officer, director, employee or agent of the Company or any of
its Subsidiaries other than in their capacity as a Seller hereunder.
(ix) EXCLUSIVE MONETARY REMEDY. Other than with respect to fraudulent
misrepresentation or fraud, the indemnification provisions and procedures
contained in this Section 8 shall constitute the sole and exclusive recourse and
remedy of the Parties following the Closing with respect to any monetary Losses
resulting from, arising out of or in connection with any matters subject to
indemnification under this Section 8. Accordingly, other than with respect to
claims alleging fraudulent misrepresentation or fraud, no claim for any monetary
Losses following the Closing arising under this Agreement shall be made by any
of the Purchaser Parties except pursuant to the provisions of this Section 8.
Notwithstanding the foregoing, nothing in this Paragraph 8B(ix) shall limit or
otherwise affect any recourse or rights or remedy of the Purchasers against the
Company arising out of any nonfulfillment or breach of any covenant or agreement
by the Company under this Agreement or any of the Schedules attached hereto
required to be performed or complied with by the Company after the Closing (and
with it being understood that the representations and warranties in Section 5
and Section 6 are not
- 41 -
covenants or agreements by the Company required to be performed or complied with
by the Company after the Closing).
8C. PRESS RELEASE AND ANNOUNCEMENTS. Unless required by law (in
which case each Party agrees to consult with the other Parties prior to any such
disclosure as to the form and content of such disclosure), no press releases or
other releases of information related to this Agreement or the transactions
contemplated hereby will be issued or released prior to the Closing without the
consent of the Company, the Purchasers and the Sellers' Representative.
8D. CONFIDENTIALITY. If the transactions contemplated hereby are
consummated, each of the Sellers agrees not to disclose or use at any time (and
shall cause each of their respective Affiliates not to use or disclose at any
time) any Confidential Information (whether or not such information is or was
developed by the Sellers), except to the extent that such disclosure or use is
directly related to and required by the performance of such Seller's duties to
the Company. Each of the Sellers further agrees to take all appropriate steps
(and to cause their respective Affiliates to take all appropriate steps) to
safeguard such Confidential Information and to protect it against disclosure,
misuse, espionage, loss and theft. In the event that any of the Sellers is
required by law to disclose any Confidential Information, such Seller shall
promptly notify the Company and the Purchasers in writing, which notification
shall include the nature of the legal requirement and the extent of the required
disclosure, and shall cooperate with the Company to preserve the confidentiality
of such information consistent with applicable law. Notwithstanding anything
herein or any confidentiality or other agreement to the contrary, each of the
Parties (and each Affiliate and Person acting on behalf of any such Party)
agrees that each Party (and each employee, representative, and other agent of
such Party) may disclose to any and all Persons, without limitation of any kind,
the Tax treatment and Tax structure of the transaction and all materials of any
kind (including opinions or other Tax analyses) that are provided to such Party
or such Person relating to such Tax treatment and Tax structure, except to the
extent necessary to comply with any applicable federal or state securities Laws;
PROVIDED THAT this authorization is not intended to permit disclosure of any
other information, including (1) any portion of any materials to the extent not
related to the Tax treatment or Tax structure of the transaction contemplated
hereby, (2) the identities of participants or potential participants in the
transaction contemplated hereby, (3) the existence or status of any
negotiations, (4) any pricing or financial information (except to the extent
such pricing or financial information is related to the Tax treatment or Tax
structure of the transaction), or (5) any other term or detail not relevant to
the Tax treatment or the Tax structure of the transaction contemplated hereby.
8E. DISPUTE RESOLUTION.
(i) In the event of any dispute or disagreement between the Parties
following the Closing as to the interpretation of any provision of this
Agreement or the performance of any obligations hereunder, the matter, upon the
written request of any Party, shall be referred to representatives of the
Parties for decision (the "REPRESENTATIVES"). The Representatives shall promptly
meet in a good faith effort to resolve the dispute. If the Representatives do
not agree upon a decision within 30 calendar days after reference of the matter
to them, each of the Parties shall be free to exercise the remedies available to
it under Paragraph 8E(ii) below. The Parties
- 42 -
acknowledge and agree that the Sellers' Representative shall be the
Representative of the Sellers for purposes of this Paragraph 8E, and that any
discussions or negotiations following the Closing relating to any dispute or
disagreement between the Purchasers, on the one hand, and the Sellers, on the
other, shall be directed by the Purchasers to the Sellers' Representative (and
the Purchasers shall not settle any indemnification claims with any Seller
without the Seller Representative's consent).
(ii) Any controversy, dispute or claim arising out of or relating in
any way to this Agreement or the transactions arising hereunder (other than
pursuant to Paragraph 1F(iii) above) that cannot be resolved by negotiation
pursuant to Paragraph 8E(i) above shall be settled exclusively by arbitration in
Chicago,
Illinois. Such arbitration shall be administered by the Center for
Public Resources Institute for Dispute Resolutions (the "INSTITUTE") in
accordance with its then prevailing Rules for Non-Administered Arbitration of
Business Disputes (except as otherwise provided herein) by one independent and
impartial arbitrator who shall be selected by the Sellers' Representative and
the Purchasers in accordance with such Rules. Notwithstanding anything to the
contrary provided in Paragraph 11M hereof, the arbitration shall be governed by
the United States Arbitration Act, 9 U.S.C. Section 1 ET SEQ. The fees and
expenses of the Institute and the arbitrator shall be paid by the Company and
advanced by the Company from time to time as required. The arbitrator shall
permit and facilitate such discovery as the Party initiating such claim shall
reasonably request. The arbitrator shall render his or her award within 30 days
of the conclusion of the arbitration hearing. The arbitrator shall be expressly
empowered to determine the amount of any Losses subject to indemnification
hereunder in accordance with the terms and provisions of this Agreement.
Notwithstanding anything to the contrary provided in this Paragraph 8E(ii) and
without prejudice to the above procedures, any Party may apply to any court of
competent jurisdiction for temporary injunctive or other provisional judicial
relief if such action is necessary to avoid irreparable damage or to preserve
the status quo until such time as the arbitrator is selected and available to
hear such Party's request for temporary relief. The award rendered by the
arbitrator shall be final and not subject to judicial review (absent manifest
error), and judgment thereon may be entered in any court of competent
jurisdiction. Notwithstanding anything to the contrary provided in this
Paragraph 8E, the Company or the Purchasers may elect to enforce any of the
provisions of Paragraph 8D and the Exhibits attached hereto by application to a
court of competent jurisdiction for equitable or legal relief (including damages
or injunctive relief) rather than pursuant to the above procedures.
8F. APPOINTMENT OF SELLERS' REPRESENTATIVE. Each of the Sellers has
duly appointed ▇▇▇▇▇ ▇▇▇▇ (the "SELLERS' REPRESENTATIVE") as the Sellers'
Representative for purposes of the transactions contemplated by this Agreement
pursuant to a written agreement among the Sellers. Each Seller agrees that the
Company and the Purchasers shall be entitled to rely on any action taken by the
Sellers' Representative, on behalf of the Sellers, in the Sellers'
Representatives' capacity as such (each, an "AUTHORIZED SELLER ACTION"), and
that each Authorized Seller Action shall be binding on each Seller as fully as
if such Seller had taken such Authorized Seller Action. Each Seller, severally
but not jointly, agrees to pay, and to indemnify and hold harmless, the
Purchasers and the Company from and against any Losses which they may suffer,
sustain, or become subject to, as the result of any claim by such Seller that an
Authorized Seller Action is not binding on, or enforceable against, such Seller.
- 43 -
8G. FURTHER ASSURANCES. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement or the transactions contemplated hereby, each of the Parties will take
such further action (including the execution and delivery of such further
instruments and documents) as any other Party may reasonably request, all at the
sole cost and expense of the requesting Party (unless the requesting Party is
entitled to indemnification therefor under Paragraph 8B above).
Section 9. DEFINITIONS. For the purposes of this Agreement, the
following terms have the meanings set forth below:
"ACCOUNTING FIRM" has the meaning set forth in Paragraph 1F(iii).
"AFFILIATE" of any particular Person means any other Person controlling,
controlled by or under common control with such particular Person, where
"CONTROL" means the possession, directly or indirectly, of the power to direct
the management and policies of a Person whether through the ownership of voting
securities, contract or otherwise, and such "control" will be presumed if any
Person owns ten percent (10%) or more of the voting capital stock or other
ownership interests, directly or indirectly, of any other Person.
"AFFILIATED GROUP" means any affiliated group as defined in Code Section
1504 that has filed a consolidated return for federal income tax purposes (or
any similar group under state, local or foreign Law) for a period during which
the Company or any of its Subsidiaries was a member.
"AGREEMENT" has the meaning set forth in the Preamble.
"APPLICABLE RATE" has the meaning set forth in Paragraph 1F(iv).
"AUTHORIZED SELLER ACTION" has the meaning set forth in ▇▇▇▇▇▇▇▇▇ ▇▇.
"▇▇▇▇▇▇" has the meaning set forth in Paragraph 2C.
"CBOE" has the meaning set forth in Paragraph 2P.
"CERTIFICATE OF INCORPORATION" has the meaning set forth in Paragraph
1A(i).
"CFTC" has the meaning set forth in Paragraph 2P.
"CLOSING" has the meaning set forth in Paragraph 1D.
"CLOSING BALANCE SHEET" has the meaning set forth in Paragraph 1F(iii).
"CLOSING DATE" has the meaning set forth in Paragraph 1D.
"CLOSING NET BOOK VALUE" has the meaning set forth in Paragraph
1F(ii)PARA.
"COBRA" has the meaning set forth in Paragraph 5R(v).
- 44 -
"CODE" means the Internal Revenue Code of 1986, as amended, and any
reference to any particular Code section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"COMMON STOCK" has the meaning set forth in the Preamble.
"COMPANY" has the meaning set forth in the Preamble.
"COMPANY EXPENSES" has the meaning set forth in Paragraph 11A.
"COMPANY PARTIES" means the Company, its Affiliates, stockholders,
officers, directors, employees, agents, representatives, successors and
permitted assigns.
"COMPANY TRANSACTION" has the meaning set forth in Paragraph 4H.
"CONFIDENTIAL INFORMATION" means all information of a confidential or
proprietary nature (whether or not specifically labeled or identified as
"confidential"), in any form or medium, that relates to the Company or its
Subsidiaries or their business relations and their respective business
activities. Confidential Information includes, but is not limited to, the
following: (i) internal business information (including historical and projected
financial information and budgets and information relating to strategic and
staffing plans and practices, business, training, marketing, promotional and
sales plans and practices, cost, rate and pricing structures and accounting and
business methods); (ii) identities and individual requirements of, and specific
contractual arrangements with, the Company's and its Subsidiaries' customers,
independent contractors, clearing agencies, joint venture partners and other
business relations and their confidential information; (iii) trade secrets,
know-how, compilations of data and analyses, techniques, systems, formulae,
research, records, reports, manuals, documentation, models, data and data bases
relating thereto; (iv) inventions, innovations, improvements, developments,
methods, designs, analyses, drawings, reports and all similar or related
information (whether or not patentable) and (v) other Intellectual Property
Rights.
"EMPLOYMENT AGREEMENTS" has the meaning set forth in Paragraph 2G.
"ENCUMBRANCES" has the meaning set forth in Paragraph 6C.
"ERISA" has the meaning set forth in Paragraph 5R(i).
"EXCHANGE ACT" means, the Securities Exchange Act of 1934, as amended,
or any similar federal law then in force.
"EXECUTIVES" has the meaning set forth in Paragraph 2G.
"EXISTING PREFERRED" has the meaning set forth in Paragraph 5B(i).
"EXISTING PREFERRED HOLDERS" has the meaning set forth in Paragraph
5B(i).
"GAAP" means United States generally accepted accounting principles.
- 45 -
"GOVERNMENTAL APPROVALS" has the meaning set forth in Paragraph 2P.
"GOVERNMENTAL ENTITY" means (i) any federal, state, local, municipal,
foreign or other government; (ii) any governmental or quasi-governmental
authority of any nature (including any governmental agency, branch, department,
official, entity or self-regulatory organization and any court or other
tribunal); or (iii) any body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police, regulatory, or taxing
authority or power of any nature, including any arbitral tribunal.
"▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ ACT" has the meaning set forth in Paragraph 2P.
"INDEBTEDNESS" means, with respect to any Person at any date, without
duplication: (i) all obligations of such Person for borrowed money or in respect
of loans or advances, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments or debt securities, (iii) any
commitment by which a Person assures a creditor against loss (including
contingent reimbursement obligations with respect to letters of credit and
bankers' acceptances), (iv) all obligations arising from cash/book overdrafts,
(v) all obligations of such Person secured by a Lien on such Person's assets,
(vi) all Guarantees of such Person in connection with any of the foregoing and
any other indebtedness guaranteed in any manner by a Person (including
guarantees in the form of an agreement to repurchase or reimburse), (vii) all
capital lease obligations, (viii) all indebtedness for the deferred purchase
price of property with respect to which a Person is liable, contingently or
otherwise, as obligor or otherwise (other than trade payables and other current
liabilities incurred in the ordinary course of business), (ix) all other
liabilities classified as non-current liabilities in accordance with GAAP as of
the Closing Date and (x) all accrued interest, prepayment premiums or penalties
related to any of the foregoing.
"INDEMNIFICATION AGREEMENT" has the meaning set forth in ▇▇▇▇▇▇▇▇▇ ▇▇.
"INDEMNITEE" has the meaning set forth in Paragraph 8B(vi).
"INDEMNITOR" has the meaning set forth in Paragraph 8B(vi).
"INSTITUTE" has the meaning set forth in Paragraph 8E(ii).
"INTELLECTUAL PROPERTY RIGHTS" means any and all intellectual property
rights of every kind and description anywhere in the world, including all (i)
patents, patent applications, patent disclosures and inventions, (ii) internet
domain names, trademarks, service marks, trade dress, trade names, logos and
corporate names and registrations and applications for registration thereof,
(iii) copyrights (registered or unregistered) and copyrightable works and
registrations and applications for registration thereof, (iv) mask works and
registrations and applications for registration thereof, (v) computer software,
data, data bases and documentation thereof, and (vi) trade secrets and other
Confidential Information (including ideas, formulas, compositions, inventions
(whether patentable or unpatentable and whether or not reduced to practice),
know-how, manufacturing and production processes and techniques, research and
development information, drawings, specifications, designs, plans, proposals,
technical data, financial and
- 46 -
marketing plans, and customer and supplier lists and information, to the extent
the foregoing constitutes and remains trade secrets or Confidential Information
as applicable).
"INVESTMENT" as applied to any Person means (i) any direct or indirect
purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interests (including partnership
interests and joint venture interests) of any other Person and (ii) any capital
contribution by such Person to any other Person.
"INVESTMENT TRANSACTION" has the meaning set forth in Paragraph 1B.
"INVESTOR RIGHTS AGREEMENT" has the meaning set forth in ▇▇▇▇▇▇▇▇▇ ▇▇.
"ISE" has the meaning set forth in Paragraph 2P.
"KNOWLEDGE" means, when referring to the "Knowledge" of the Company, the
actual knowledge or awareness of ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ or ▇▇▇ ▇▇▇▇▇▇▇, and the
knowledge that any such person, as a prudent business person, would have
obtained in the conduct of his business after making reasonable inquiry and
undertaking reasonable diligence with respect to the particular matter in
question.
"LATEST BALANCE SHEET" has the meaning set forth in Paragraph 5E(iii).
"LAW" means any federal, state, local, municipal or foreign statute,
law, ordinance, regulation, rule, code, order, principle of common law or
judgment enacted, promulgated, issued, enforced or entered by any Governmental
Entity, or other requirement or rule of law.
"LEASED REAL PROPERTY" has the meaning set forth in Paragraph 5U.
"LEASES" has the meaning set forth in Paragraph 5U.
"LICENSES" means all licenses, memberships, registrations,
certifications, accreditations, permits, bonds, franchises, approvals,
authorizations, consents or orders of, or filings with, any governmental or
other self-regulatory organization or regulatory authority, whether foreign,
federal, state or local, or any other Person, necessary for the Company's
business.
"LIEN" or "LIENS" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any conditional sale or other
title retention agreement or lease in the nature thereof), any sale of
receivables with recourse against the Company or its Subsidiaries, any filing or
agreement to file a financing statement as debtor under the Uniform Commercial
Code or any similar statute (other than to reflect ownership by a third party of
property leased to the Company or its Subsidiaries under a lease which is not in
the nature of a conditional sale or title retention agreement), or any
subordination arrangement in favor of another Person.
- 47 -
"LOSSES" means any loss, liability, demand, claim, action, cause of
action, cost, damage, deficiency, diminution in value, Tax, penalty, fine or
expense, whether or not arising out of third party claims (including interest,
penalties, reasonable attorneys' fees and expenses and all amounts paid in
investigation, defense or settlement of any of the foregoing).
"MANAGEMENT RIGHTS AGREEMENT" has the meaning set forth in Paragraph 2H.
"MATERIAL ADVERSE EFFECT" means a material and adverse effect or
development upon the business, operations, assets, liabilities, Licenses,
financial condition or operating results of the Company and its Subsidiaries
taken as a whole, but excluding any facts or circumstances (including the
occurrence or non-occurrence of any event) relating to the economy or financial
markets of the United States in general.
"MATERIAL CONTRACT" has the meaning set forth in Paragraph 5L(ii).
"NASD" has the meaning set forth in Paragraph 2P.
"NET BOOK VALUE" means, as of any date of determination, the excess of
the Company's total assets as of such date over the Company's total liabilities
as of such date, in each case as determined on a consolidated basis in
accordance with GAAP. In determining total assets and total liabilities
hereunder, (i) all accounting entries shall be taken into account regardless of
their amount and all errors and omissions shall be corrected, (ii) all proper
adjustments shall be made and (iii) all appropriate reserves as determined in
accordance with GAAP shall be included. To the extent the calculation of Net
Book Value pursuant to the definition immediately above is inconsistent with
that required by the CLOSING NET BOOK VALUE ADJUSTMENTS SCHEDULE, the CLOSING
NET BOOK VALUE ADJUSTMENTS SCHEDULE shall govern.
"NFA" has the meaning set forth in Paragraph 2P.
"NOTICE OF DISAGREEMENT" has the meaning set forth in Paragraph 1F(iii).
"PARTY" or "PARTIES" has the meaning set forth in the Preamble.
"PCX/ARCAEX" has the meaning set forth in Paragraph 2P.
"PERMITTED ENCUMBRANCES" shall mean (i) statutory liens for current
Taxes or other governmental charges not yet due and payable or the amount or
validity of which is being contested in good faith by appropriate proceedings by
the Company and for which appropriate reserves have been established in
accordance with GAAP; (ii) mechanics', carriers', workers', repairers' and
similar statutory liens arising or incurred in the ordinary course of business
for amounts which are not delinquent and which are not, individually or in the
aggregate, significant; (iii) Liens incurred in the ordinary course of business
in connection with, or to secure payment of, utilities or similar services,
workers' compensation, unemployment insurance or social security obligations and
similar statutory requirements; (iv) interests or title of a lessee under any
lease; (v) zoning, entitlement, building and other land use regulations imposed
by governmental agencies having jurisdiction over the Leased Real Property which
are not violated by the current
- 48 -
use and operation of the Leased Real Property; and (vi) covenants, conditions,
restrictions, easements and other similar matters of record affecting title to
the Leased Real Property which do not materially impair the occupancy or use of
the Leased Real Property for the purposes for which it is currently used or
proposed to be used in connection with the Company's or any of its Subsidiaries'
business.
"PERSON" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"PLANS" has the meaning set forth in Paragraph 5R(i).
"PREFERRED STOCK" has the meaning set forth in Paragraph 1A(ii).
"PURCHASED SHARES" has the meaning set forth in ▇▇▇▇▇▇▇▇▇ ▇▇.
"▇▇▇▇▇▇▇▇▇▇" has the meaning set forth in the Preamble.
"PURCHASER PARTIES" means the Purchasers and their Affiliates and their
respective stockholders, partners, members, officers, directors, employees,
agents, representatives, successors and assigns.
"REPURCHASE TRANSACTION" has the meaning set forth in Paragraph 1C.
"REPURCHASED OPTIONS" has the meaning set forth in Paragraph 1A(iii).
"REPURCHASED SHARES" has the meaning set forth in Paragraph 1A(iii).
"REGISTRATION AGREEMENT" has the meaning set forth in Paragraph 2E.
"REPRESENTATIVES" has the meaning set forth in Paragraph 8E(i).
"RESTRICTED SECURITIES" means (i) the Preferred Stock issued hereunder,
(ii) the Common Stock issued upon conversion of the Preferred Stock issued
hereunder, (iii) any other securities of the Company held by any of the Parties
(including any Common Stock held by the Sellers) as of the Closing Date and (iv)
any securities issued or exchanged with respect to the securities referred to in
clauses (i), (ii) and (iii) above by way of a stock dividend or stock split or
in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. As to any particular Restricted
Securities, such securities shall cease to be Restricted Securities when they
have been (a) effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering them, (b) been distributed
to the public through a broker, dealer or market maker pursuant to Rule 144 (or
any similar provision then in force) under the Securities Act or become eligible
for sale pursuant to Rule 144(k) (or any similar provision then in force) under
the Securities Act or (c) been otherwise transferred and new certificates for
them not bearing the Securities Act legend set forth in Paragraph 11C(v) have
been delivered by the Company in accordance with Paragraph 11C(v).
- 49 -
Whenever any particular securities cease to be Restricted Securities, the holder
thereof shall be entitled to receive from the Company, without expense, new
securities of like tenor not bearing a Securities Act legend of the character
set forth in Paragraph 11C(v).
"RESTRICTED STOCK AGREEMENTS" has the meaning set forth in Paragraph 2G.
"SAVINGS PLAN" has the meaning set forth in Paragraph 5R(i).
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
"SELLER" or "SELLERS" has the meaning set forth in the Preamble.
"SELLERS' REPRESENTATIVE AGREEMENT" has the meaning set forth in
▇▇▇▇▇▇▇▇▇ ▇▇.
"SELLERS' REPRESENTATIVE" has the meaning set forth in ▇▇▇▇▇▇▇▇▇ ▇▇.
"STOCK OPTION PLAN" means the optionsXpress, Inc. 2001 Equity Incentive
Plan.
"STOCK PURCHASE PRICE" has the meaning set forth in Paragraph 1B.
"STOCKHOLDERS AGREEMENT" has the meaning set forth in Paragraph 2D.
"SUBSIDIARY" means, with respect to any Person, any corporation, limited
liability company, partnership, association or other business entity of which
(i) if a corporation, a majority of the total voting power of shares of stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by that Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control any managing director or general partner of such limited
liability company, partnership, association or other business entity.
"TAX" or "TAXES" means federal, state, county, local, foreign or other
income, gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including
deficiencies, penalties, additions to tax, and interest attributable thereto)
whether disputed or not.
"TAX BENEFIT" means the present value of any refund, credit or reduction
in otherwise required Tax payments including any interest payable thereon, which
present value
- 50 -
shall be computed as of the first date on which the right to the refund, credit
or other Tax reduction becomes available to be utilized, (i) using the Tax rate
applicable to the highest level of income with respect to such Tax, and (ii)
using as a discount rate the interest rate in effect on such date imposed on
corporate deficiencies paid within 30 days of a notice of proposed deficiency
under the Code. Any Tax Benefit shall be computed net of any related Tax
obligation (which shall be computed in the same manner in which Tax Benefits are
computed pursuant to this definition).
"TAX RETURN" means any return, information report or filing with respect
to Taxes, including any schedules attached thereto and including any amendment
thereof.
"THIRD PARTY APPROVALS" has the meaning set forth in ▇▇▇▇▇▇▇▇▇ ▇▇.
"TRADING PLATFORM" means all software (including HTML, Java, and
Javascript, other than open source), and services and functionality facilitated
thereby, and all copyrightable subject matter provided to or made available for
use by customers of the Company and/or its Subsidiaries via the web site located
at ▇▇▇▇://▇▇▇.▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ (and other web sites accessible via the domain
names used by the Company and required to be set forth in SCHEDULE 5M),
including equity trading, options trading, mutual fund trading, account creation
and maintenance, reports, and research; PROVIDED, HOWEVER, that software,
services, functionality and information provided to the Company and/or its
Subsidiaries by a third party pursuant to a valid agreement which by its terms
permits such provision and use by such customers (or is provided by such
customers) shall not be deemed part of the Company's "TRADING PLATFORM".
"TREASURY REGULATIONS" means the United States Treasury Regulations
promulgated under the Code, and any reference to any particular Treasury
Regulation section shall be interpreted to include any final or temporary
revision of or successor to that section regardless of how numbered or
classified.
"WELFARE PLANS" has the meaning set forth in Paragraph 5R(i).
Section 10. TERMINATION.
10A. CONDITIONS OF TERMINATION. This Agreement may be terminated at
any time prior to the Closing:
(i) by the mutual written consent of the Parties;
(ii) by the Purchasers if there has been a material
misrepresentation, material breach of warranty or material breach of a covenant
by the Company or any of the Sellers in the representations and warranties or
covenants set forth in this Agreement or the Schedules attached hereto, which in
the case of any breach of covenant has not been cured within ten (10) days after
written notification thereof by the Purchasers to the Company and the Sellers'
Representative;
(iii) by the Company and the Sellers if there has been a material
misrepresentation, material breach of warranty or material breach of covenant by
the Purchasers
- 51 -
in the representations and warranties or covenants set forth in this Agreement
or the Schedules attached hereto, which in the case of any breach of covenant
has not been cured within ten (10) days after written notification thereof by
the Company and the Sellers' Representative to the Purchasers; or
(iv) by the Purchasers, on the one hand, or the Company and the
Sellers' Representative, on the other hand, if the Closing shall not have
occurred by March 31, 2004; PROVIDED THAT the Party electing termination
pursuant to this clause (iv) of this Paragraph 10A is not in breach of any of
its representations, warranties, covenants or agreements contained in this
Agreement or the Schedules attached hereto. In the event of termination by
either the Purchasers or the Company and the Sellers pursuant to this Paragraph
10A, written notice thereof (describing in reasonable detail the basis therefor)
shall forthwith be delivered to the other Parties.
10B. EFFECT OF TERMINATION. In the event of termination of this
Agreement by either the Purchasers or the Company and the Sellers as provided
above, this Agreement shall forthwith become void and of no further force and
effect, except that the covenants and agreements set forth in Paragraph 10A and
10B and Section 11 shall survive such termination indefinitely, and except that
nothing in Paragraph 10A or this Paragraph 10B shall be deemed to release any
Party from any liability for any breach by such Party of the terms and
provisions of this Agreement or to impair the right of any Party to compel
specific performance by another Party of its obligations under this Agreement.
Section 11. MISCELLANEOUS.
11A. FEES AND EXPENSES. The Purchasers shall pay all of their own
costs, fees and expenses incurred by the Purchasers and their Affiliates in
connection with this Agreement and the consummation (or the preparation for the
consummation) of the transactions contemplated hereby (including fees and
expenses of legal counsel, accountants and other representatives and consultants
and due diligence (including travel-related) costs, fees and expenses). The
Company shall be solely responsible for and shall pay all of the costs, fees and
expenses incurred by the Company and the Designated Other Stockholders (as
defined in the Stockholders Agreement) in connection with this Agreement and the
consummation (or the preparation for the consummation) of the transactions
contemplated hereby (including fees and expenses of legal counsel, accountants,
investment bankers and other representatives and consultants) (collectively
referred to herein as "COMPANY EXPENSES"). If any legal action or other
proceeding relating to this Agreement, the agreements contemplated hereby, the
transactions contemplated hereby or thereby or the enforcement of any provision
of this Agreement or the agreements contemplated hereby is brought against any
Party, the prevailing Party in such action or proceeding shall be entitled to
recover all reasonable expenses relating thereto (including attorneys' fees and
expenses) from the Party against which such action or proceeding is brought in
addition to any other relief to which such prevailing Party may be entitled.
11B. REMEDIES. Each of the Parties acknowledges and agrees that the
other Parties would be damaged irreparably in the event any of the provisions of
this Agreement are
- 52 -
not performed in accordance with their specific terms or otherwise are breached.
Accordingly, each of the Parties agrees that the other Parties shall be entitled
to an injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
provisions hereof in any action instituted in any court of the United States or
any state thereof having jurisdiction over the Parties and the matter.
11C. TRANSFER OF RESTRICTED SECURITIES.
(i) Restricted Securities are transferable only pursuant to (a)
public offerings registered under the Securities Act, (b) Rule 144 or Rule 144A
of the Securities and Exchange Commission (or any similar rule or rules then in
force) if such rule is available and (c) subject to the conditions specified in
subparagraph (ii) below, any other legally available means of transfer.
(ii) As a condition to any transfer of any Restricted Securities
(other than a transfer described in clause (a) or (b) of subparagraph (i)
above), the holder thereof shall deliver written notice to the Company
describing in reasonable detail the transfer or proposed transfer, together with
an opinion of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP or KMZ Rosenman or other counsel which (to
the Company's reasonable satisfaction) is knowledgeable in securities law
matters to the effect that such transfer of Restricted Securities may be
effected without registration of such Restricted Securities under the Securities
Act. In addition, if the holder of the Restricted Securities delivers to the
Company an opinion of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP or KMZ Rosenman or such other counsel
that no subsequent transfer of such Restricted Securities shall require
registration under the Securities Act, the Company shall promptly upon such
contemplated transfer deliver new certificates for such Restricted Securities
which do not bear the Securities Act legend set forth in Paragraph 11C(v) below.
If the Company is not required to deliver new certificates for such Restricted
Securities not bearing such legend, the holder thereof shall not transfer the
same until the prospective transferee has confirmed to the Company in writing
its agreement to be bound by the conditions contained in this Paragraph 11C(ii)
and Paragraph 11C(v) below.
(iii) Upon the request of a holder of Restricted Securities, the
Company shall promptly supply to such holder or such holder's prospective
transferees all information regarding the Company required to be delivered by
the Company in connection with a transfer pursuant to Rule 144A of the
Securities and Exchange Commission.
(iv) If any Restricted Securities become eligible for sale pursuant
to Rule 144(k), the Company shall, upon the request of the holder of such
Restricted Securities, remove the legend set forth in Paragraph 11C(v) from the
certificates representing such Restricted Securities.
(v) Each certificate representing Restricted Securities shall be
imprinted with a legend in substantially the following form:
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended. The transfer of the securities
represented hereby is subject to the conditions specified in the
Stock
Purchase and Recapitalization Agreement dated as of December 17, 2003,
by and among the issuer (the
- 53 -
"COMPANY") and the other signatories thereto, and the Company reserves
the right to refuse the transfer of such securities until such
conditions have been fulfilled with respect to such transfer. A copy
of such conditions shall be furnished by the Company to the holder
hereof upon written request and without charge."
11D. CONSENT TO AMENDMENTS. This Agreement may be amended, or any
provision of this Agreement may be waived; PROVIDED THAT any such amendment or
waiver shall be binding upon the Company only if set forth in a writing executed
by the Company and referring specifically to the provision alleged to have been
amended or waived, any such amendment or waiver shall be binding upon the
Sellers only if set forth in a writing executed by the Sellers Representative
and referring specifically to the provision alleged to have been amended or
waived, and any such amendment or waiver shall be binding upon the Purchasers
only if set forth in a writing executed by the Purchasers and referring
specifically to the provision alleged to have been amended or waived. No course
of dealing between or among the Parties shall be deemed effective to modify,
amend or discharge any part of this Agreement or any rights or obligations of
any Party under or by reason of this Agreement.
11E. SUCCESSORS AND ASSIGNS. This Agreement and all of the covenants
and agreements contained herein and rights, interests or obligations hereunder,
by or on behalf of any of the Parties hereto, shall bind and inure to the
benefit of the respective successors and assigns of the Parties hereto whether
so expressed or not, except that neither this Agreement nor any of the covenants
and agreements herein or rights, interests or obligations hereunder may be
assigned or delegated by the Sellers, the Company or the Purchasers (other than
any such assignment or delegation by the Purchasers to one or more of their
affiliated investment funds), without the prior written consent of the other
Parties hereto (with it being understood that the Seller Representative shall be
entitled to act on behalf of the Sellers in connection with any such consent).
11F. SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement or the application of any
such provision to any Person or circumstance shall be held to be prohibited by,
illegal or unenforceable under applicable Law in any respect by a court of
competent jurisdiction, such provision shall be ineffective only to the extent
of such prohibition or illegality or unenforceability, without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
11G. COUNTERPARTS. This Agreement may be executed simultaneously in
counterparts (including by means of telecopied signature pages), any one of
which need not contain the signatures of more than one Party, but all such
counterparts taken together shall constitute one and the same Agreement.
11H. DESCRIPTIVE HEADINGS; INTERPRETATION. The headings and captions
used in this Agreement and the table of contents to this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Any capitalized terms used in any Schedule or
Exhibit attached hereto and not otherwise defined therein shall have the
meanings set forth in this Agreement. The use of the word "including" herein
shall
- 54 -
mean "including without limitation." The Parties intend that each
representation, warranty and covenant contained herein shall have independent
significance. If any Party has breached any representation, warranty or covenant
contained herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the Party has not
breached shall not detract from or mitigate the fact that the Party is in breach
of the first representation, warranty or covenant.
11I. ENTIRE AGREEMENT. This Agreement and the agreements and
documents referred to herein contain the entire agreement and understanding
between the Parties with respect to the subject matter hereof and supersede all
prior agreements and understandings (including that certain letter of intent,
dated October 22, 2003, by and between the Company and Summit Partners, L.P.),
whether written or oral, relating to such subject matter in any way.
11J. NO THIRD-PARTY BENEFICIARIES. This Agreement is for the sole
benefit of the Parties and their permitted successors and assigns and nothing
herein expressed or implied shall give or be construed to give any Person, other
than the Parties and such permitted successors and assigns, any legal or
equitable rights hereunder.
11K. SCHEDULES. All Schedules attached hereto or referred to herein
are hereby incorporated in and made a part of this Agreement as if set forth in
full herein.
11L. TREATMENT OF THE PREFERRED STOCK. The Company covenants and
agrees that (i) so long as federal income tax Laws prohibit a deduction for
distributions made by the Company with respect to preferred stock, it shall
treat all distributions paid by it on the Preferred Stock as nondeductible
distributions on all of its tax returns and (ii) it shall treat the Preferred
Stock as preferred stock in all of its financial statements and other reports
and shall treat all distributions paid by it on the Preferred Stock as dividends
on preferred stock in such statements and reports.
11M. GOVERNING LAW. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement and the
Schedules hereto shall be governed by, and construed in accordance with, the
laws of the State of
Illinois without giving effect to any choice of law or
conflict of law rules or provisions (whether of the State of
Illinois or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of
Illinois. In furtherance of the foregoing,
the internal law of the State of
Illinois shall control the interpretation and
construction of this Agreement (and all Schedules and Exhibits hereto), even
though under that jurisdiction's choice of law or conflict of law analysis, the
substantive law of some other jurisdiction would ordinarily apply.
11N. NOTICES. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient, one (1) day after being sent to the recipient by reputable
overnight courier service (charges prepaid), upon machine-generated
acknowledgment of receipt after transmittal by facsimile or five (5) days after
being mailed to the recipient by certified or registered mail, return receipt
requested and postage prepaid. Such notices, demands and other communications
shall be sent to the Company at the
- 55 -
address indicated below, to the Sellers' Representative at the address indicated
below, and to the Purchasers at the addresses indicated on the SCHEDULE OF
PURCHASERS attached hereto, or to such other address or to the attention of such
other person as the recipient party has specified by prior written notice to the
sending party.
THE COMPANY:
optionsXpress, Inc.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Mr. ▇▇▇▇▇ ▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
WITH A COPY TO:
(which shall not constitute notice to the Company)
KMZ Rosenman
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
THE SELLERS' REPRESENTATIVE:
Mr. ▇▇▇▇▇ ▇▇▇▇
c/o optionsXpress, Inc.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
11O. NO STRICT CONSTRUCTION. The Parties have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties, and no presumption or burden of proof
shall arise favoring or disfavoring any Party by virtue of the authorship of any
of the provisions of this Agreement.
* * * * *
- 56 -
IN WITNESS WHEREOF, the parties hereto have executed this
Stock Purchase and Recapitalization Agreement on the date first written above.
OPTIONSXPRESS, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇
---------------------------------
Its: President
---------------------------------
SUMMIT VENTURES VI-A, L.P.
By: Summit Partners VI (GP), L.P.
Its: General Partner
By: Summit Partners VI (GP), LLC
Its: General Partner
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
---------------------------------
Its: Member
SUMMIT VENTURES VI-B, L.P.
By: Summit Partners VI (GP), L.P.
Its: General Partner
By: Summit Partners VI (GP), LLC
Its: General Partner
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
---------------------------------
Its: Member
SUMMIT VI ADVISORS FUND, L.P.
By: Summit Partners VI (GP), L.P.
Its: General Partner
By: Summit Partners VI (GP), LLC
Its: General Partner
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
---------------------------------
Its: Member
SUMMIT VI ENTREPRENEURS FUND, L.P.
By: Summit Partners VI (GP), L.P.
Its: General Partner
By: Summit Partners VI (GP), LLC
Its: General Partner
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
---------------------------------
Its: Member
SUMMIT INVESTORS VI, L.P.
By: Summit Partners VI (GP), L.P.
Its: General Partner
By: Summit Partners VI (GP), LLC
Its: General Partner
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
---------------------------------
Its: Member
G-BAR LIMITED PARTNERSHIP
By: /s/ ▇▇▇▇▇ ▇▇▇▇
---------------------------------
Its: General Partner
▇▇▇▇▇ ▇▇▇▇ DELTA TRUST FOR ▇▇▇
U/A/D JUNE 7, 2002
By: /s/ ▇▇▇▇▇ ▇▇▇▇
---------------------------------
Its: Trustee
/s/ ▇▇▇▇▇ ▇▇▇▇
---------------------------------
▇▇▇▇▇ ▇▇▇▇
/s/ ▇▇▇ ▇▇▇▇▇▇▇
---------------------------------
▇▇▇ ▇▇▇▇▇▇▇
DELAWARE CHARTER F/B/O ▇▇▇ ▇▇▇▇▇▇▇
By: /s/ ▇▇▇ ▇▇▇▇▇▇▇
---------------------------------
Its: Trustee
SCHEDULE OF PURCHASERS
Total
No. of Purchase
Shares of Price for
Names: Series A Preferred Series A Preferred
------ ------------------ ------------------
Summit Ventures VI-A, L.P. 1,644,400.00 $ 59,909,438.56
Summit Ventures VI-B, L.P. 685,781.00 24,984,647.70
Summit VI Entrepreneurs Fund L.P. 52,507.00 1,912,956.03
Summit VI Advisors Fund, L.P. 34,199.00 1,245,951.65
Summit Investors VI, L.P. 9,256.00 337,218.29
------------ ------------------
Total 2,426,143.00 $ 88,390,212.23
============ ==================
Address:
c/o Summit Partners, L.P.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
SCHEDULE OF SELLERS
No. of No. of Portion of
Repurchased Repurchased Repurchase
Names and Addresses Shares Options Total Price
------------------- ----------- ----------- --------------- ---------------
G-Bar Limited Partnership 1,088,888 -- 1,088,888 $ 39,670,803
▇▇▇▇▇ ▇▇▇▇ Delta Trust 233,333 -- 233,333 8,500,881
▇▇▇▇▇ ▇▇▇▇ 216,667 -- 216,667 7,893,699
▇▇▇ ▇▇▇▇▇▇▇ 216,667 -- 216,667 7,893,699
Delaware Charter F/B/O ▇▇▇ ▇▇▇▇▇▇▇ 11,111 -- 11,111 404,800
[Other Post-Signing Sellers](1)
----------- ----------- --------------- ---------------
Total 2,554,977(2) $ 93,084,000(3)
=============== ===============
----------
(1) NOTE: Other Sellers to be added pursuant to Paragraph 4K of this Agreement.
(2) NOTE: Subject to adjustment pursuant to Paragraph 4K of this Agreement.
(3) NOTE: Subject to adjustment pursuant to Paragraph 4K of this Agreement.