Exhibit 1
Agreement and Plan of Merger
[Execution Copy]
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AGREEMENT AND PLAN OF MERGER
DATED AS OF DECEMBER 14, 2001
BY AND AMONG
DIRECTPLACEMENT, INC.,
PCS MERGER CORP.,
PCS SECURITIES, INC.,
XXXXXXX X. XXXXXX
AND
XXXXXXX X. XXXX, III
TABLE OF CONTENTS
Page
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ARTICLE I The Merger; Effect of Merger..................................1
Section 1.1 The Merger..................................................1
Section 1.2 Effective Time of the Merger................................1
Section 1.3 Effects of Merger...........................................2
ARTICLE II The Surviving Corporation.....................................2
Section 2.1 Certificate of Incorporation................................2
Section 2.2 By-Laws.....................................................2
Section 2.3 Officers and Directors......................................2
ARTICLE III Conversion of Shares..........................................2
Section 3.1 Conversion of Shares; Net Asset Payments....................2
Section 3.2 Restrictions on Transfer....................................3
Section 3.3 Parent to Deliver Certificates..............................3
Section 3.4 No Fractional Securities....................................4
Section 3.5 Closing of Company Transfer Books...........................4
Section 3.6 Tax Treatment...............................................4
ARTICLE IV. Representations and Warranties of the Company.................4
Section 4.1 Execution and Delivery......................................4
Section 4.2 Consents and Approvals......................................4
Section 4.3 No Breach...................................................5
Section 4.4 Organization, Standing and Authority........................5
Section 4.5 Capitalization of the Company...............................6
Section 4.6 Options and Other Stock Rights..............................6
Section 4.7 Subsidiaries................................................6
Section 4.8 Corporate Records...........................................6
Section 4.9 Regulatory Compliance.......................................6
Section 4.10 Financial Statements........................................8
Section 4.11 Liabilities.................................................9
Section 4.12 No Material Adverse Change..................................9
Section 4.13 Compliance with Laws........................................9
Section 4.14 Permits.....................................................9
Section 4.15 Actions and Proceedings.....................................9
Section 4.16 Contracts and Other Agreements.............................10
Section 4.17 Relationship With Customers and Research Providers.........12
Section 4.18 Real Property..............................................12
Section 4.19 Intellectual Property......................................12
Section 4.20 Receivables................................................14
Section 4.21 Banking....................................................14
Section 4.22 Liens......................................................14
Section 4.23 Employee Benefit Plans.....................................14
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Section 4.24 Employee Relations.........................................14
Section 4.25 Insurance..................................................15
Section 4.26 Officers, Directors, Employees, Consultants................15
Section 4.27 Transactions with Directors, Officers and Affiliates.......15
Section 4.28 Operations of the Company..................................16
Section 4.29 Brokerage..................................................17
Section 4.30 Taxes......................................................17
Section 4.31 Environmental Laws.........................................18
Section 4.32 Company Action.............................................18
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB.............19
Section 5.1 Execution and Delivery.....................................19
Section 5.2 Consents and Approvals.....................................19
Section 5.3 No Breach..................................................19
Section 5.4 SEC Documents; Financial Statements........................20
Section 5.5 Shares of Parent Common Stock..............................20
Section 5.6 Organization, Standing and Authority of Parent and Sub.....20
Section 5.7 Capitalization.............................................21
Section 5.8 Brokerage..................................................21
Section 5.9 Sub Action.................................................21
Section 5.10 Options and Other Stock Rights.............................21
Section 5.11 Compliance with Laws.......................................21
Section 5.12 Permits....................................................22
Section 5.13 Actions and Proceedings....................................22
Section 5.14 Corporate Records..........................................22
Section 5.15 Regulatory Compliance......................................22
Section 5.16 Liabilities................................................24
Section 5.17 No Material Adverse Change.................................24
Section 5.18 Contracts and Other Agreements.............................24
Section 5.19 Relationship With Customers................................26
Section 5.20 Real Property..............................................27
Section 5.21 Intellectual Property......................................27
Section 5.22 Receivables................................................28
Section 5.23 Banking....................................................28
Section 5.24 Liens......................................................29
Section 5.25 Employee Benefit Plans.....................................29
Section 5.26 Employee Relations.........................................29
Section 5.27 Insurance..................................................30
Section 5.28 Officers, Directors, Employees, Consultants................30
Section 5.29 Transactions with Directors, Officers and Affiliates.......30
Section 5.30 Operations of Parent.......................................30
Section 5.31 Taxes......................................................32
Section 5.32 Environmental Laws.........................................33
Section 5.33 Company Action.............................................33
ARTICLE VI. Representations and Warranties of, Xxxxxx and Xxxx...........33
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Section 6.1 Execution and Delivery.....................................33
Section 6.2 Consents and Approvals.....................................33
Section 6.3 No Breach..................................................34
Section 6.4 Investment Representations.................................34
ARTICLE VII. PRE-CLOSING COVENANTS AND AGREEMENTS.........................35
Section 7.1 Conduct of Business........................................35
Section 7.2 Litigation Involving the Company...........................36
Section 7.3 Continued Effectiveness of Representations and
Warranties of the Parties..................................36
Section 7.4 Corporate Examinations and Investigations..................37
Section 7.5 No Shopping................................................37
Section 7.6 Parent and Sub Approvals...................................37
Section 7.7 Company Approvals..........................................38
Section 7.8 Distribution...............................................38
Section 7.9 Expenses...................................................38
Section 7.10 Further Assurances; Line of Credit.........................38
Section 7.11 Board Representation.......................................39
Section 7.12 Line of Credit.............................................39
ARTICLE VIII. CONDITIONS PRECEDENT TO EACH PARTY'S OBLIGATION
TO EFFECT THE MERGER.........................................39
Section 8.1 New Line of Credit.........................................39
Section 8.2. Execution of Agreements with Company Stockholders..........39
Section 8.3 Litigation.................................................39
Section 8.4 IRS Letter.................................................40
ARTICLE IX. CONDITIONS PRECEDENT TO THE OBLIGATION OF PARENT AND SUB TO
EFFECT THE MERGER............................................40
Section 9.1 Representations and Covenants..............................40
Section 9.2 Absence of Material Adverse Change.........................40
Section 9.3 Opinion of Counsel to the Company..........................40
Section 9.4 NASD Acknowledgement.......................................40
Section 9.5 Termination of Amended and Restated Corporate..............41
Section 9.6 Closing Conditions.........................................41
Section 9.7 Delivery of PCS Shares.....................................41
ARTICLE X. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO
EFFECT THE MERGER............................................41
Section 10.1 Representations and Covenants..............................41
Section 10.2 Absence of Material Adverse Change.........................41
Section 10.3 Closing Conditions.........................................42
Section 10.4 Opinion of Counsel.........................................42
Section 10.5 Registration Rights Agreement..............................42
Section 10.6 Delivery of Share Consideration............................42
ARTICLE XI. CLOSING......................................................42
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Section 11.1 The Closing................................................42
ARTICLE XII. INDEMNIFICATION AND POST-CLOSING COVENANTS...................42
Section 12.1 Survival of Representations and Warranties.................42
Section 12.2 Indemnification............................................43
Section 12.3 Method of Asserting Claims.................................43
Section 12.4 Limitations................................................45
Section 12.5 Correspondent Relationships................................45
ARTICLE XIII. TERMINATION OF AGREEMENT.....................................46
Section 13.1 Termination................................................46
Section 13.2 Effect of Termination......................................46
ARTICLE XIV. DEFINITIONS..................................................46
Section 14.1 Definitions................................................46
ARTICLE XV. MISCELLANEOUS................................................51
Section 15.1 Publicity..................................................51
Section 15.2 Notices....................................................51
Section 15.3 Entire Agreement...........................................52
Section 15.4 Waivers and Amendments; Non Contractual Remedies;
Preservation of Remedies; Liability........................52
Section 15.5 Governing Law..............................................53
Section 15.6 Binding Effect; No Assignment..............................53
Section 15.7 Third Party Beneficiaries..................................53
Section 15.8 Counterparts...............................................53
Section 15.9 Exhibits and Schedules.....................................53
Section 15.10 Headings...................................................53
Section 15.11 Submission to Jurisdiction; Venue..........................53
Section 15.12 Disputes and Arbitration...................................54
Section 15.13 Specific Performance.......................................55
Section 15.14 Severability...............................................55
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Exhibits
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Exhibit A-1 Form of Employment Agreement with Xxxxxxx X. Xxxxxx
Exhibit A-2 Form of Consulting Agreement with Xxxxxxx X. Xxxx, III
Exhibit B Form of Opinion of Xxxxxxx Xxxx & Xxxxx LLP as Counsel to
the Company
Exhibit C Form of Opinion of Berlack, Israels & Xxxxxxxx LLP as
Counsel to Parent and Sub
Exhibit D Officers and Directors of the Company Following the
Effective Time
Exhibit E Form of Voting Agreement
Exhibit F Form of Registration Rights Agreement
Company Disclosure Schedules
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Section Description
------- -----------
4.4 Foreign Qualification; Organizational Documents
4.5 Stockholders; Option Holders
4.7 Subsidiary Qualification; Subsidiary Organizational
Documents; Investments
4.12 No Material Adverse Change
4.13 Compliance with Laws
4.15 Actions and Proceedings
4.16 Contracts and Other Agreements
4.17 Intellectual Property
4.18 Real Property
4.21 Bank Accounts
4.23 Employee Benefit Plans
4.25 Insurance
4.26 Officers, Directors, Employees, Consultants
4.27 Transactions with Directors, Officers and Affiliates
4.28 Subsequent Events
4.30 Tax Jurisdictions
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Parent Disclosure Schedules
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Section Description
------- -----------
5.10 Options and Other Stock Rights
5.13 Actions and Proceedings
5.16 Liabilities
5.18 Contracts and Other Agreements
5.20 Real Property
5.21 Intellectual Property
5.23 Banking
5.25 Employee Benefit Plans
5.26(b) Employee Relations
5.27 Insurance
5.28 Officers, Directors, Employees, Consultants
5.29 Transactions with Directors, Officers and Affiliates
5.30 Operations of Parent
5.30 (ii) Operations of Parent
5.31(e) Taxes
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
December 14, 2001, is made by and among DirectPlacement, Inc., a Delaware
corporation ("Parent"), PCS Merger Corp., a Washington corporation and a wholly
owned subsidiary of Parent ("Sub"), PCS Securities, Inc., a Washington
corporation (the "Company"), Xxxxxxx X. Xxxxxx, an individual residing at 0000
00xx Xxxxxx, Xxxxxxx, Xxxxxxxxxx 00000 ("Xxxxxx"), and Xxxxxxx X. Xxxx, III, an
individual residing at 000 Xxxxxx Xxxxx Xxxx, Xxxxxxxx Xxxxx, XX 00000 ("Hill").
Certain terms used in this Agreement are defined in Article XIII.
W I T N E S S E T H:
WHEREAS, Parent and Sub desire to effect a business combination by
means of the merger of Sub with and into the Company; and
WHEREAS, Xxxxxx and Xxxx are the sole stockholders of the Company
(the "Company Stockholders"); and
WHEREAS, the Board of Directors of Parent and Sub and the
stockholder of Sub and the Board of Directors of the Company and the Company
Stockholders have approved the merger of Sub with and into the Company (the
"Merger"), upon the terms and subject to the conditions set forth herein; and
WHEREAS, for federal income tax purposes, it is intended that the
Merger qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, the
parties hereto agree as follows:
ARTICLE I.
The Merger; Effect of Merger
Section 1.1 The Merger. Upon the terms and subject to the conditions of
this Agreement and in accordance with the applicable provisions of the
Washington Business Corporation Act, as amended, and any rules and regulations
thereunder (the "Washington Corporation Law"), Sub shall be merged with and into
the Company and the separate existence of Sub shall thereupon cease. The name of
the Company, as the surviving corporation in the Merger (the "Surviving
Corporation"), shall by virtue of the Merger be unchanged.
Section 1.2 Effective Time of the Merger. The Merger shall become
effective at such time as a properly executed Certificate of Merger or other
appropriate document is duly filed with the Secretary of State of the State of
Washington, which filing shall be made as soon as
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practicable following fulfillment or waiver of the conditions set forth in
Articles VII, VIII and IX hereof or such later time as is specified in such
filing (the "Effective Time").
Section 1.3 Effects of Merger. The Merger shall have the effects set forth
in Section 23B.11.060 of the Washington Corporation Law.
ARTICLE II.
The Surviving Corporation
Section 2.1 Certificate of Incorporation. The Certificate of Incorporation
of the Company as in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation, and thereafter may be
amended in accordance with its terms and as provided by the Washington
Corporation Law.
Section 2.2 By-Laws. The by-laws of the Company as in effect immediately
prior to the Effective Time shall be the by-laws of the Surviving Corporation,
and thereafter may be amended in accordance with their terms and as provided by
the Washington Corporation Law.
Section 2.3 Officers and Directors. The persons named in Exhibit D to this
Agreement shall be the officers and directors of the Surviving Corporation after
the Effective Time, in each case until their respective successors are duly
elected and qualified.
ARTICLE III.
Conversion of Shares
Section 3.1 Conversion of Shares; Net Asset Payments
(a) Subject to Section 3.2 hereof, at the Effective Time, by virtue
of the Merger and without any action on the part of any Company Stockholder,
each Company Stockholder shall be entitled to receive in exchange for the
Company Common Stock (i )that number of fully paid and non-assessable shares of
Parent Common Stock (rounded to the nearest whole number) equal to such
stockholder's Percentage Ownership multiplied by 10.5 million shares (the "Share
Consideration") and (ii) the Net Asset Payments (as hereinafter defined) in
accordance with Section 3.1(b) below.
(b) As soon as possible but by no later than January 8, 2002, the
outside accountant of the Company shall have prepared a balance sheet of the
Company as of December 31, 2001, such balance sheet to be prepared in accordance
with the Company's past accounting practices (the "December 31 Balance Sheet").
The Company shall promptly deliver the December 31 Balance Sheet to Parent and
Parent's accountants for their review. Each of the Company's accountant and
Parent's accountant shall agree on the December 31 Balance Sheet. As soon as
possible but by no later than January 11, 2002, Parent shall, or shall cause the
Company to, pay in immediately available funds (i) to each Company Stockholder
an amount equal to (x) the Company's cash on hand as reflected on the December
31 Balance Sheet (the "January
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Payment") less (y) the Bear Xxxxxxx Payment (as hereinafter defined), multiplied
by such stockholder's Percentage Ownership and (ii) to Bear Xxxxxxx Securities
Corp. ("Bear Xxxxxxx") the Bear Xxxxxxx Payment. By March 29, 2002, Parent
shall, or shall cause the Company to, pay in immediately available funds to each
Company Stockholder an amount equal to the Company's Net Tangible Book Value (as
hereinafter defined) multiplied by such stockholder's Percentage Ownership (the
"March Payment"); provided however, in no event shall the aggregate amount of
the March Payments to the Company Stockholders exceed a total of $500,000. In
the event that the Net Tangible Book Value exceeds $500,000, then Parent shall,
or shall cause the Company to, pay in immediately available funds to each
Company Stockholder an amount equal to the Company's Net Tangible Book Value
less the amount of the March Payment multiplied by such stockholder's Percentage
Ownership by June 28, 2002. "Net Tangible Book Value" shall mean the total net
tangible assets reflected on the December 31 Balance Sheet less an amount equal
to (i) the total liabilities reflected on the December 31 Balance Sheet, plus
(ii) the January Payment. "Net Asset Payments" means all of the payments due to
the Company Stockholders under this Section 3.1(b). "Bear Xxxxxxx Payment" shall
mean an amount equal to the lesser of (i) all indebtedness outstanding under
that certain line of credit among Bear Xxxxxxx, Xxxxxx and Xxxx (the "Existing
Line of Credit"), including without limitation, all principal, interest, fees
and other amounts due under that certain promissory note dated November 3, 2000
among Hill, Xxxxxx and Bear Xxxxxxx (the "Promissory Note"), and (ii) the
January Payment.
(c) Each issued and outstanding share of capital stock of Sub shall
be converted into one validly issued, fully paid and nonassessable share of
common stock, par value $.01 per share, of the Surviving Corporation.
Section 3.2 Restrictions on Transfer.
(a) Each of the Company Stockholders agrees not to directly or
indirectly, offer, sell (including by effecting any short sale), transfer, loan,
pledge, hypothecate grant any option for the sale of, acquire any option to
dispose of, gift or otherwise dispose of any of the Lock-up Shares (the
"Transfer Restrictions") until the Transfer Restrictions are terminated in
accordance with Section 3.2(b) below. In addition, on the Closing Date, Parent
shall issue a "stop transfer order" describing the Transfer Restriction (and the
termination thereof) to its transfer agent with respect to the Lock-up Shares.
(b) The Transfer Restrictions shall be removed with respect to
twenty percent (20%) of the Lock-up Shares on each December 31st following the
Closing Date commencing on December 31, 2002; provided, however, that if a
Company Stockholder (i) dies or (ii) the employment or consultancy of such
Company Stockholder with the Company is terminated due to a Disability, or
without Cause or (iii) terminates his or her employment or consultancy, as the
case may be, with the Company for Good Reason, then all of the restrictions with
respect to the Lock-up Shares issued to such Company Stockholder shall terminate
as of the Termination Date.
Section 3.3 Parent to Deliver Certificates. At the Closing, Parent shall
deliver to the Company Stockholders, stock certificates representing the Share
Consideration. Parent Common Stock into which Company Common Stock shall be
converted in the Merger shall be deemed to have been issued at the Effective
Time. In the event that any Company Stockholder's Certificates
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have been lost, stolen or destroyed, such Company Stockholder will be entitled
to receive the Share Consideration only after providing an affidavit of loss and
indemnity bond, in form reasonably satisfactory to Parent.
Section 3.4 No Fractional Securities Notwithstanding any other provision
of this Agreement, no certificates or scrip for shares of common stock
representing less than one share of Parent Common Stock shall be issued upon the
surrender for exchange of Certificates.
Section 3.5 Closing of Company Transfer Books. Immediately prior to the
Effective Time, the Company Common Stock transfer books shall be closed and no
transfer of Company Common Stock shall thereafter be made.
Section 3.6 Tax Treatment. The Merger is intended to constitute a
reorganization under Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code, and
Parent and the Company shall not report the transaction on any tax return in a
manner or take any action inconsistent therewith.
ARTICLE IV.
Representations and Warranties of the Company
The Company represents and warrants to Parent and Sub that, except
as set forth in the disclosure schedule attached hereto (the "Company Disclosure
Schedule"), which Company Disclosure Schedule shall be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Article
IV:
Section 4.1 Execution and Delivery. The Company has the power and
authority to enter into this Agreement including the schedules and exhibits
attached hereto (the "Company Documents") and, to carry out its obligations
hereunder and thereunder. The execution, delivery and performance of this
Agreement and the Company Documents and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by the
Company's Board of Directors and the Company Stockholders. This Agreement
constitutes the valid and binding obligation of the Company, and the Company
Documents, when executed and delivered, assuming due execution on delivery
thereof by Parent and Sub, will constitute the valid and binding obligations of
the Company enforceable in accordance with their respective terms, except as
enforcement may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of equitable remedies, including specific performance, is subject
to the discretion of the court before which any proceeding therefor may be
brought. No other corporate proceedings on the part of the Company are necessary
after the date of this Agreement to authorize this Agreement and the Company
Documents and the transactions contemplated hereby and thereby.
Section 4.2 Consents and Approvals. The execution and delivery by the
Company of this Agreement and the Company Documents, the performance by the
Company of its obligations hereunder and thereunder, and the consummation by the
Company of the transactions contemplated hereby and thereby, as the case may be,
do not require the Company to obtain any consent, approval or action of, or make
any filing or registration with, or give any notice to, any
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person or any Governmental Entity, other than (i) written notification to and
approval of the NASD, (ii) the filing of the Certificate of Merger with the
Secretary of State of the State of Washington and (iii) filings in the State of
Washington in which the Company is registered as a broker-dealer.
Section 4.3 No Breach The execution, delivery and performance by the
Company of this Agreement and the Company Documents and the consummation by the
Company of the transactions contemplated hereby and thereby in accordance with
the terms and conditions hereof and thereof will not (i) violate any provision
of the Certificate of Incorporation or By-Laws of the Company; (ii) violate,
conflict with or result in the breach of any of the terms of, result in any
modification of the effect of, otherwise give any other contracting party the
right to terminate, or constitute (or with notice or lapse of time or both,
constitute) a default under, any contract or other agreement or instrument to
which the Company is a party or by or to which the assets or properties of the
Company may be bound or subject; (iii) violate any order, judgment, injunction,
award or decree of any Governmental Entity against, or binding upon, or any
agreement with, or condition imposed by, any Governmental Entity, binding upon
the Company, or upon the securities, assets or business of the Company; (iv)
violate any statute, law or regulation of any jurisdiction as such statute, law
or regulation relates to the Company, or to the securities, assets or business
of the Company; (v) result in the creation or imposition of any lien or other
encumbrance or the acceleration of any indebtedness or other obligation of the
Company; or (vi) result in the breach of any of the terms or conditions of,
constitute a default under, or otherwise cause a violation of, any Permit of the
Company; except in the case of (ii) through (vi) above, for violations,
conflicts, breaches, defaults, modifications, impairments, liens or other
encumbrances that would not reasonably be expected, individually or in the
aggregate, have a Company Material Adverse Effect. "Company Material Adverse
Effect" shall mean any circumstance, change, event or effect that is materially
adverse to the business, properties, assets, condition (financial or otherwise),
liabilities, operations or prospects of the Company, or adversely affects the
consummation of the transactions contemplated hereby excluding any changes or
events caused by the compliance of the Company and the Company Stockholders with
the terms of this Agreement or any of the Company Documents.
Section 4.4 Organization, Standing and Authority. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Washington and has all requisite corporate power and
authority to own, lease and operate its assets, properties and business and to
carry on its business as now being conducted or currently proposed to be
conducted. The Company is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned or held under lease or the nature of such activities make
such qualification necessary, except where the failure to so qualify would not,
individually or in the aggregate, have a Company Material Adverse Effect. All
such jurisdictions are set forth on Section 4.4 of the Company Disclosure
Schedule. The copies of the Certificate of Incorporation and By-Laws of the
Company included as part of Section 4.4 of the Company Disclosure Schedule
constitute accurate and complete copies of such organizational instruments and
accurately reflect all amendments thereto through the date hereof.
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Section 4.5 Capitalization of the Company. The authorized capital stock of
the Company consists of 100 shares of Company Common Stock and no shares of
Company preferred stock. There are 100 shares of Company Common Stock
outstanding of which Xxxxxx owns 51 shares and Hill owns 49 shares. As of the
date hereof, there are no bonds, debentures, notes or other indebtedness having
the right to vote on any matters on which the Company's stockholders may vote
issued or outstanding.
Section 4.6 Options and Other Stock Rights. Except as set forth in Section
4.6 of the Company Disclosure Schedule, there is no (i) outstanding option,
warrant, call, unsatisfied preemptive right or other agreement of any kind to
purchase or otherwise to receive from the Company any of the outstanding,
authorized but unissued, unauthorized or treasury shares of Company Common
Stock, or any other security of the Company, (ii) outstanding security of any
kind convertible into any security of the Company, and (iii) outstanding
contract or other agreement to purchase, redeem or otherwise acquire any
outstanding shares of Company Common Stock, or any other security of the
Company.
Section 4.7 Subsidiaries. The Company does not have any direct or indirect
Subsidiaries. As of the date hereof, the Company has not made any advances to or
investments in, and does not own any securities of or other interests in, any
other person.
Section 4.8 Corporate Records. True and correct copies of the minute books
of the Company have heretofore been delivered to Parent, all as in effect on the
date hereof. The minute books of the Company reflect all actions taken at all
formal meetings, and by consents in lieu of formal meetings, of the stockholders
of the Company, the Board of Directors of the Company and all committees
thereof.
Section 4.9 Regulatory Compliance.
(a) The Company is (i) duly licensed as a broker/dealer with the
SEC, the NASD, the State of Washington and the State of California and (ii) a
member of the NASD and (iii) a member of SIPC. The Company has all permits,
licenses and authorizations required by any Governmental Entity for the conduct
of its current business, except where failure to have such permits, licenses and
authorizations would not reasonably be expected, individually or in the
aggregate, to have a Company Material Adverse Effect. There are no fees or
assessments owed to any Governmental Entity which regulates the business of the
Company, except for fees or assessments which would not reasonably be expected
to have Company Material Adverse Effect. The Company is registered and in good
standing with the SEC as a broker/dealer pursuant to the Exchange Act, is a
member in good standing of the NASD and SIPC, and is currently registered to
conduct business as a broker/dealer in each state which requires such
registration or qualification in connection with its business. To the knowledge
of the Company, the Company has complied with applicable federal and state laws
and regulations and the rules and regulations of the SEC, NASD and other
regulatory bodies and any other industry, governmental or trade organizations,
as required in connection with the conduct of its present business, except for
failures to be in compliance which would not reasonably be expected,
individually or in the aggregate, to have a Company Material Adverse Effect.
There are no pending applications to register the Company as a broker dealer in
any state.
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(b) Neither the Company, Xxxxxx or Xxxx, nor any of the Company's
officers and directors are involved in any material respect in any of the
following: (a) state or federal bankruptcy proceedings either as the bankrupt
petitioner or as the subject of any involuntary petition; (b) conviction of or
entry of a plea of guilty or no contest to any criminal act, excluding traffic
violations or other minor offenses; (c) being the subject of any order,
judgment, or decree, not subsequently reversed, suspended, or vacated, of any
court of competent jurisdiction permanently or temporarily enjoining or
otherwise limiting the following activities: (1) acting as a futures commission
merchant, introducing broker, commodity trading advisor, commodity pool
operator, floor broker, leverage transaction merchant, any other person
regulated by the Commodity Futures Trading Commission, or an associated person
of any of the foregoing, or as an investment adviser, underwriter, broker, or
dealer in securities or as an affiliated person, director, or employee of any
investment company, bank, savings and loan association, or insurance company; or
engaging in any type of business practice; or (2) engaging in any activity in
connection with the purchase or sale of any security or commodity or in
connection with any violation of federal or state securities or commodities
laws; or (d) having been found by a court of competent jurisdiction, any state
agency, any self-regulatory organization, the SEC or the Commodity Futures
Trading Commission to have violated any federal or state securities or
commodities law, if such judgment or finding has not been subsequently reversed,
suspended, or vacated.
(c) The Company has filed with the SEC and all other appropriate
agencies and the NASD, when due, all forms (including Form BD), financial and
other reports and all documents required to be filed pursuant to the foregoing
laws and other requirements and any other applicable laws, and the rules and
regulations thereunder. The Company has delivered to Parent true and complete
copies of all such forms, notices, registrations, and other filings, as amended
to date, and copies of all current reports and information required to be kept
by the Company pursuant to applicable federal and state statutes and NASD rules
and regulations. The information contained in such forms, registrations, filings
and reports was true and complete in all respects at the time of filing, and did
not contain any untrue statement of material fact or omit to state a material
fact required to make the statements therein, in light of the circumstances
under which they were made, not misleading. Copies of all inspection reports or
similar documents furnished to the Company by the SEC, NASD or state regulatory
authorities have been provided to Parent.
(d) The Company has exercised reasonable care to insure that all
customers' accounts are being conducted in compliance with margin requirements
and other applicable laws and regulations relating to the conduct of a brokerage
business and customers' accounts and records are accurate in all material
respects and in proper order.
(e) The Company has been and continues to be in compliance with all
net capital requirements of the NASD and SEC and all other net capital
requirements of other regulatory, self-regulatory and governmental agencies, and
is not subject to any fine, suspension or penalty for any present or past
violation of such net capital requirements. The Company is in compliance with
all provisions of its current NASD Membership Agreement.
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(f) There are no pending or threatened written customer complaints
(written or oral), claims, suits, arbitrations or any other proceedings
outstanding against the Company, or against Xxxxxx or Hill in connection with
the conduct of the Company's business.
(g) There are no actions, suits, proceedings or investigations
pending, threatened or contemplated against or relating to the Company, Xxxxxx
or Xxxx, at law or in equity, or before or by any federal, state, municipal or
other governmental department, commission, board, agency or instrumentality,
domestic or foreign, securities or commodities exchange, or board of trade or
the NASD in connection with the conduct of the Company's business, nor has any
such action, suit, proceeding, or investigation been pending during the
twenty-four-month period preceding the date hereof.
(h) Neither the Company, Xxxxxx or Hill nor any of its principals is
operating under or subject to, or in default with respect to any adjudicate,
jury, order, writ, injunction or decree of any federal, state, municipal or
governmental department, commission, or board, agency, or instrumentality,
domestic or foreign, securities or commodity exchange, or board of trade or the
NASD; and neither the Company nor any of its principals is a party to any cease
and desist order, supervisory agreement or arrangement, conceptual or otherwise,
with any regulatory authority.
(i) The Company currently has in effect a blanket broker-dealer
fidelity bond, a full and complete copy of which has been supplied to Parent.
(j) The Company is not an "investment company" as that term is
defined in the Investment Company Act of 1940 nor is the Company registered as
an "investment adviser" as that term is defined in the Investment Advisers Act
of 1940.
(k) The Company is not currently acting as an underwriter,
co-underwriter or selling group member in any pending transactions and has no
commitment or agreement to do so.
(l) The Company has notified the NASD regarding the change of
control of the Company contemplated by this Agreement, a true and correct copy
of such notification and the approval by the NASD in response to such
notification has been provided to Parent.
Section 4.10 Financial Statements.
(a) Schedule 4.10 of the Company Disclosure Schedule contains the
following financial statements (the "Financial Statements"):
(i) the audited balance sheets of the Company as of December 31.
2000, and 1999 (the "Balance Sheets"), and the related statements of
operations, stockholders' equity and cash flows for the two years then
ended; and
(ii) the unaudited balance sheet of the Company as of September 30,
2001 (the "Latest Balance Sheet") and the related statements of
operations, stockholders' equity and cash flows for the 9-month period
then ended (the "Interim Financial Statements"); and
8
Each of the foregoing Financial Statements (including in all cases the notes
thereto, if any) is accurate and complete in all material respects, is
consistent with the books and records of the Company and presents fairly as of
their respective dates the financial condition, results of operations and cash
flows of the Company in accordance with GAAP throughout the periods covered
thereby subject, in the case of the Interim Financial Statements, to the absence
of footnotes and to year-end adjustments that will not be material in amount.
Section 4.11 Liabilities. The Company does not have any direct or indirect
liability, contingent or otherwise, that is required by GAAP to be reflected or
reserved for on the Financial Statements (collectively, the "Liabilities"), that
was not adequately reflected or reserved against on the audited financial
statements for the period ended December 31, 2000 or on the Company interim
financial statements for the nine-month period ended September 30, 2001, other
than (i) liabilities incurred in the ordinary course of business since September
30, 2001 consistent with past practices, or (ii) liabilities permitted by this
Agreement to be incurred in connection with the transactions contemplated by
this Agreement.
Section 4.12 No Material Adverse Change. Except as disclosed in Section
4.12 of the Company Disclosure Schedule, since September 30, 2001, there has
been no material adverse change in the management, assets, Liabilities,
properties, business, operations, financial condition, or results of operations
of the Company.
Section 4.13 Compliance with Laws. The Company is not in violation of any
applicable order, judgment, injunction, award or decree, law, ordinance or
regulation or any other requirement of any Governmental Entity applicable to the
Company or any of its businesses, except for violations which, individually or
in the aggregate, would not reasonably be expected to cause a Company Material
Adverse Effect. The Company has not received notice that any such violation has
been alleged or is being investigated.
Section 4.14 Permits. The Company has obtained all Permits that are
necessary for the ownership and conduct of its businesses as presently conducted
or currently proposed to be conducted, other than any Permits, the absence of
which would not, individually or in the aggregate, have a Company Material
Adverse Effect; such material permits are in full force and effect and are
sufficient for the ownership and conduct of the business as presently conducted;
no violations exist or have been recorded in respect of any Permit, except for
violations which, individually or in the aggregate, would not reasonably be
expected to cause a Company Material Adverse Effect; and no proceeding is
pending or, to the knowledge of the Company, threatened, that would suspend,
revoke or limit any material Permit.
Section 4.15 Actions and Proceedings. There are no outstanding orders,
judgments, injunctions, awards or decrees of any Governmental Entity against or
involving the Company or any of its directors, officers or employees (in their
capacities as such) that would reasonably be expected, individually or in the
aggregate, to cause a Company Material Adverse Effect. As of the date of this
Agreement there is no claim, action, suit, litigation, legal, administrative or
arbitration proceeding, whether formal or informal (including, without
limitation, any claim or notice of intent to institute any matter), which is
pending or, to the Company's knowledge, threatened in writing, or if not in
writing, in a manner that makes such threat reasonably free
9
from doubt, against the Company or to the Company's knowledge, any of its
directors, officers or employees (in their capacities as such) or the Company's
properties, capital stock or assets.
Section 4.16 Contracts and Other Agreements.
(a) Section 4.16 of the Company Disclosure Schedule sets forth as of the
date of this Agreement each contract and other agreement as described below
(whether or not in writing) which is currently in effect (unless indicated
otherwise below) to which the Company is a party or by or to which its assets or
properties are bound:
(i) contracts and other agreements with any current or former
officer, director, employee, consultant, agent or other representative of the
Company, other than pursuant to Plans described in Section 4.23 of the Company
Disclosure Schedule;
(ii) contracts and other agreements with any labor union or
association representing any employee;
(iii) contracts and other agreements for the purchase or sale of
equipment or services, which involve the receipt or payment by the Company of an
amount in excess of $2,000 per month (in the aggregate in the case of any
related series of contracts and other agreements) other than the provision of
research services;
(iv) contracts and other agreements for the sale of any of the
assets or properties of the Company or for the grant to any person of any
preferential rights to purchase any of the assets or properties of the Company;
(v) contracts and other agreements calling for an aggregate purchase
price or payments in any one year of more than $10,000 payable by the Company in
any one case (in the aggregate in the case of any related series of contracts
and other agreements);
(vi) contracts and other agreements, whether or not currently in
effect, relating to the acquisition by the Company of any business entity of, or
the disposition of any business entity involving the Company to, any other
person;
(vii) contracts relating to the disposition or acquisition of any
investment in any person;
(viii) joint venture and similar agreements;
(ix) contracts and other agreements, whether or not currently in
effect, under which the Company agreed to indemnify any party or to share tax
liability of any party, which could involve the payment by the Company of an
amount in excess of $10,000 (in the aggregate in the case of any related series
of contracts or other agreements);
(x) contracts and other agreements containing covenants of the
Company, or, to the Company's knowledge, its officers, directors or employees,
not to compete in or solicit employees in any line of business or with any
person in any geographical area or covenants of
10
any other person not to compete with or solicit employees from the Company in
any line of business or in any geographical area;
(xi) contracts and other agreements relating to the making of any
loan or other extension of credit by the Company;
(xii) contracts and other agreements relating to the borrowing of
money by, or indebtedness of, the Company or the direct or indirect guaranty by
the Company of any obligation or indebtedness of any other person or
Governmental Entity (other than any accounts receivable or accounts payable of
the Company), including, without limitation, any (a) agreement or arrangement
relating to the maintenance of compensating balances, (b) agreement or
arrangement with respect to lines of credit, (c) agreement to advance or supply
funds to any other person other than in the ordinary course of business, (d)
agreement to pay for property, products or services of any other person even if
such property, products or services are not conveyed, delivered or rendered, (e)
keep-well, make-whole or maintenance of working capital or earnings or similar
agreement, and (f) guaranty with respect to any lease or other similar periodic
payments to be made by any such person;
(xiii) contracts and other agreements relating to the provision by
or to the Company of clearing arrangements for the sale or transfer of
securities;
(xiv) each Lease and lease of personal property which requires
annual lease payments in excess of $10,000;
(xv) contracts and other agreements pursuant to which the Company
obtains or grants insurance or reinsurance;
(xvi) contracts and other agreements between the Company and any
customer or account with regard to the sale of advice, guidance or research
related to the purchase or sale of securities or the financial markets;
(xvii) contracts and other agreements which require payments
generated by a change in control of the Company;
(xviii) contracts and other agreements with any stockholder,
director or officer of the Company; and
(xix) contracts and other agreements, with any analyst, research
provider, advisor, consultant or other third party regarding the communication
of advice, guidance or recommendation related to the purchase or sale of
securities or the financial markets.
(b) There have been delivered to Parent prior to the date hereof true and
complete copies of all of the contracts and other agreements set forth in
Section 4.16 of the Company Disclosure Schedule. Each such contract and other
agreement is valid, in full force and effect and binding upon the Company and,
to the Company's knowledge, the other parties thereto in accordance with its
terms, and the Company is not in default under any of them and the Company has
no knowledge of any threat in writing, or if not in writing, in a manner that
makes such threat
11
reasonably free from doubt, of cancellation or termination thereunder, nor will
the consummation of the transactions contemplated by this Agreement result in a
default under any such contract or other agreement or the right to terminate
such contract or other agreement, except for defaults which would not reasonably
be expected, individually or in the aggregate, to have a Company Material
Adverse Effect. No Permits or other documents or agreements with, or issued by
or filed with, any person, have been granted to any other person that provide
the right to use any real or tangible personal property comprising any portion
of the assets of the Company. The Company is not a party to any contract,
commitment, arrangement or agreement which would, following the Closing,
restrain or restrict Parent or any affiliate of Parent, from operating the
business of the Company in the manner in which it is currently operated.
Section 4.17 Relationship With Customers and Research Providers. The
Company has not received any notice in writing, in a manner that makes such
threat reasonably free from doubt that any material customer or research
provider intends to terminate or materially reduce its business with the Company
and no material customer or research provider has terminated or materially
reduced its business with the Company in the last twelve (12) months.
Section 4.18 Real Property.
(a) Section 4.18 of the Company Disclosure Schedule sets forth a
list and summary description of all leases, subleases, licenses, occupancy
agreements or other agreements, written and oral, together with any amendments
or modifications thereto (each a "Lease" and collectively, the "Leases") with
respect to (A) all real property leased by the Company (whether as lessor or
lessee and including those in the names of nominees or other entities) and used
or occupied in connection with the business of the Company (the "Leased Real
Property") and (B) all real property leased or subleased by the Company, as
lessor or sublessor, to third parties (such Section 4.18 of the Company
Disclosure Schedule to include the date of each Lease, the address of the
respective Leased Real Property. The Company does not own any real property.
(b) Each Lease is, with respect to the Company, in full force and
effect, and to the Company's knowledge, is in full force and effect with respect
to each other party thereto. The Company has performed all obligations required
to be performed by it to date under, and is not in default in respect of, any
Lease, and no event has occurred which, with due notice or lapse of time or
both, would constitute such a default by the Company, except for defaults which
would not reasonably be expected, individually or in the aggregate to have a
Company Material Adverse Effect. To the knowledge of the Company, there is no
default asserted thereunder by any other party thereto and there are no
unasserted defaults. All rentals and other payments due under each such Lease
have been duly paid.
Section 4.19 Intellectual Property .
(a) Section 4.19(a) of the Company Disclosure Schedule sets forth a
true and complete list of all Non-Software Intellectual Property (other than
trade secrets and confidential business information) that is (i) owned by the
company and registered, the subject of an application or material or (ii) the
subject of a material Contract or other agreement. Except as
12
would not reasonably be expected, individually or in the aggregate, to have a
Company Material Adverse Effect, the Company is the sole and exclusive owner of
all right, title and interest in or, as to any third party rights identified in
Section 4.19(a) of the Company Disclosure Schedule, has obtained a license to
use all Non-Software Intellectual Property used by the Company in the operation
of the Company's business, free and clear of all Liens or other encumbrances.
Except as set forth in Section 4.19(a) of the Company Disclosure Schedule, the
Merger shall not result in any material changes in the terms and conditions
under which the Non-Software Intellectual Property is owned or licensed for use
by the Company.
(b) Except as would not reasonably be expected, individually or in
the aggregate, to have a Company Adverse Effect, the Company is the sole and
exclusive owner of all right, title and interest in all Intellectual Property in
and to the Company Software Programs listed in Section 4.19(b) of the Company
Disclosure Schedule (representing all the material Company Software Programs
owned by the Company), free and clear of all mortgages, pledges, Liens or other
encumbrances. The Intellectual Property rights in and to each such Company
Software Program will be owned on identical terms and conditions immediately
subsequent to the Closing hereunder.
(c) Section 4.19(c) of the Company Disclosure Schedule sets forth
all Third Party Software Programs licensed to the Company (other than
off-the-shelf software programs). Except as would not reasonably be expected,
individually or in the aggregate, to have a Company Material Adverse Effect, (i)
the Company has the right and license to use, pursuant to Third Party Software
license agreements, all Third Party Software used in connection with, and as
incorporated into, the Company Software Programs or in conducting the Company's
own business and (ii) all use of each of such licensed Third Party Software
Programs by the Company has been in compliance with the respective license
agreements.
(d) Except as set forth in Section 4.19(d) of the Company Disclosure
Schedule, the Company has delivered to Parent correct and complete copies of all
documents pertaining to statutory Intellectual Property, including but not
limited to, all trademark, service xxxx, trade name, copyright, and patent,
registrations and applications used by the Company in conducting its own
business and all documents pertaining to licenses, agreements, and permissions
(as amended to date) to use any Non-Software Intellectual Property used by the
Company in conducting its own business, and have made available to Parent
correct and complete copies of all other written documentation evidencing the
Company's ownership and prosecution (if applicable) of each such item.
(e) To the knowledge of the Company, in no instance has the
eligibility of the Non-Software Intellectual Property and the Company Software
Programs for protection under applicable intellectual property laws been
forfeited to the public domain by omission by the Company of any required notice
or any other action taken by the Company.
(f) To the knowledge of the Company, the use of the Company Software
Programs and the license, sale or lease of the Company Software Programs, or of
any part thereof, or of any copy, or of any part thereof, do not and will not
infringe on, misappropriate, any copyright, trade secret, patents or any other
exclusionary right, of any third party in either the
13
United States or any foreign country. To the knowledge of the Company, no person
or entity has asserted against the Company a claim that the use, license, sale
or lease of any Company Software Program, or any part thereof, infringes,
misappropriates or contributes to the infringement of any patent claim,
copyright or trade secret right of any third party in either the United States
or any foreign country, and the Company is not aware of any valid basis for any
such claim.
Section 4.20 Receivables. All accounts receivable reflected in the
Company Latest Balance Sheet, and all accounts receivable arising subsequent to
September 30, 2001, represent bona fide transactions that have arisen in the
ordinary course of business, are valid and existing and represent moneys due.
The Company has made and will make adjustments to the carrying value of such
receivables reasonably considered adequate for receivables not collectible in
the ordinary course of its business in accordance with customary practice,
consistently applied.
Section 4.21 Banking. Section 4.21 of the Company Disclosure Schedule
contains a complete list of all of the bank accounts and lines of credit owned
or used by the Company, and the names of all persons with authority to withdraw
funds from, or execute drafts or checks on, each such account.
Section 4.22 Liens. The Company has good and marketable title to all of
its respective assets and properties, in each case free and clear of any
material Lien or other encumbrance, except for (i) Liens or other encumbrances
securing taxes, assessments, governmental charges or levies, or the claims of
materialmen, carriers, landlords and like persons, all of which are not yet
delinquent or which are being contested in good faith and (ii) Liens or other
encumbrances of a character that do not detract from the value of the property
subject thereto or impair the use of or the access to the property subject
thereto, or impair the operation of the Company or detract from its business.
Section 4.23 Employee Benefit Plans. Within the six (6) year period prior
to the Closing Date, the Company has not maintained any "employee benefit
plans", as such term is defined in Section 3(3) of ERISA, nor has it maintained
any other employee benefit arrangements or payroll practices, including, without
limitation, any such arrangements or payroll practices providing severance pay,
sick leave, vacation pay, salary continuation for disability, retirement
benefits, deferred compensation, bonus pay, incentive pay, stock options,
hospitalization insurance, medical insurance, life insurance, scholarships or
tuition reimbursements, nor has any such plan, program or arrangement been
maintained by the Company for any current or former employees of the Company.
The Company has not been obligated to contribute to a "multiemployer plan," as
defined in Section 3(37) of ERISA, a "defined benefit plan," as defined in
Section 3(35) of ERISA or a plan providing retiree life or retiree health
benefits to former employees within the six (6) year period ending on the
Closing Date.
Section 4.24 Employee Relations.
(a) The Company is in compliance with all laws regarding employment,
wages, hours, equal opportunity, collective bargaining and payment of social
security and other taxes except where failure to be in compliance would not,
individually or in the aggregate, reasonably
14
be expected to have a Company Material Adverse Effect. The Company is not
engaged in any unfair labor practice or discriminatory employment practice and
no complaint of any such practice against the Company has been filed or, to the
Company's knowledge, threatened to be filed with or by the National Labor
Relations Board, the Equal Employment Opportunity Commission or any other
administrative agency, federal or state, that regulates labor or employment
practices, nor is any grievance filed or, to the Company's knowledge, threatened
to be filed, against the Company by any employee pursuant to any collective
bargaining or other employment agreement to which the Company is a party or is
bound. The Company is in material compliance with all applicable foreign,
federal, state and local laws and regulations regarding occupational safety and
health standards, and has received no complaints from any foreign, federal,
state or local agency or regulatory body alleging violations of any such laws
and regulations.
(b) The employment of all persons employed by the Company is
terminable at will without any penalty or severance obligation of any kind on
the part of the Company. All sums due for employee compensation and benefits and
all vacation time owing to any employees of the Company have been duly and
adequately accrued on the accounting records of the Company. All employees of
the Company are either United States citizens or resident aliens permitted to
engage in employment in the United States in accordance with all applicable
laws.
Section 4.25 Insurance. Section 4.25 of the Company Disclosure Schedule
sets forth a list of all policies or binders of errors and omissions, fire,
liability, product liability, workmen's compensation, vehicular and other
insurance held by or on behalf of the Company (collectively, the "Insurance
Policies"). Such Insurance Policies are in full force and effect and are in
amounts of a nature which are adequate and customary for the Company's business.
In addition, Section 4.25 of the Company Disclosure Schedule sets forth in
respect of the Insurance Policies (i) a description of occurrences reported
involving amounts in excess of $10,000 and (ii) the aggregate amount paid out
under each such policy during the period from January 1, 1996 through the date
hereof. There have been no disputes regarding denial or nonpayment of claims
under any Insurance Policy.
Section 4.26 Officers, Directors, Employees, Consultants. Section 4.26 of
the Company Disclosure Schedule sets forth (i) the name of each officer and
director of the Company and the amount of compensation paid during fiscal 2000
and the amount reasonably expected to be paid during fiscal 2001, (ii) the name
of each other employee or class of employees of the Company who either (x)
received compensation in fiscal 2001 in excess of $25,000 or (y) is anticipated
to receive, based on current compensation levels, compensation in fiscal 2001 in
excess of $25,000, indicating the amount of such compensation for such persons
for fiscal 1999 and fiscal 2000; and (iii) a list of all employees employed by
the Company as of the date hereof. The Company does not engage any person as a
consultant whose engagement cannot be terminated on not less than 30 days'
notice without penalty.
Section 4.27 Transactions with Directors, Officers and Affiliates. Except
as disclosed in Section 4.27 of the Company Disclosure Schedule, since January
1, 1999, there have been no transactions between the Company and any director,
officer, employee, stockholder or other affiliate of the Company or loans,
guarantees or pledges to, by or for the Company from, to,
15
by or for any of such persons other than in connection with such position. Since
January 1, 1999, none of the officers, directors or employees of the Company, or
any spouse or relative of any of such persons, has been a director or officer
of, or has had any direct or indirect interest in, any firm, corporation,
association or business enterprise which during such period has been a supplier,
customer or sales agent of the Company or has competed with or been engaged in
any business of the kind being conducted by the Company, except for (i) the
ownership of Institutional Research Services, Inc. and Huntstreet Corporation,
and (ii) an investment in less than 5% of the outstanding equity of any such
firm, corporation, association or business enterprise, the equity of which is
publicly traded.
Section 4.28 Operations of the Company. Except as disclosed in Section
4.28 of the Company Disclosure Schedule and except as may result from the
transactions contemplated by this Agreement, since September 30, 2001, the
Company has not:
(i) amended its Certificate of Incorporation or by-laws or merged
with or into or consolidated with any other person, subdivided or in any way
reclassified any shares of its capital stock or changed or agreed to change in
any manner the rights of its outstanding capital stock or the character of its
business;
(ii) issued or sold or purchased, or issued options or rights to
subscribe to, or entered into any contracts or commitments to issue or sell or
purchase, any shares of its capital stock or any of its bonds, notes, debentures
or other evidences of indebtedness;
(iii) entered into or amended any agreement with any labor union or
association representing any employee, or, except for Plans referred to in
Section 4.23 of the Company Disclosure Schedule, made any wage or salary
increase or bonus, or increase in any other direct or indirect compensation, for
or to any of its officers, directors, employees, consultants, agents or other
representatives in excess of $10,000, or commitment or agreement to make or pay
the same;
(iv) except in the ordinary course of business consistent with past
practice, declared or made any Distributions to any stockholder or made any
direct or indirect redemption, retirement, purchase or other acquisition of any
shares of its capital stock;
(v) made any change in its accounting methods or practices or made
any change in depreciation or amortization policies, except as required by law
or GAAP;
(vi) made any loan or advance to its stockholders or to any of the
directors, officers or employees of the Company, consultants, agents or other
representatives, or otherwise than in the ordinary course of business made any
other loan or advance;
(vii) except in the ordinary course of business consistent with past
practice, (A) entered into any Lease; (B) sold, abandoned or made any other
disposition of any of its assets or properties; or (C) granted or suffered any
Lien or other encumbrance on any of its assets or properties;
16
(viii) made or entered into any agreement to make any acquisition of
all or a substantial part of the assets, properties, securities or business of
any other person;
(ix) paid, directly or indirectly, any of its Liabilities before the
same became due in accordance with its terms or otherwise than in the ordinary
course of business;
(x) terminated or failed to renew, or received any written threat
(that was not subsequently withdrawn) to terminate or fail to renew, any
contract or other agreement that is or was material to the assets, liabilities,
properties, business, operations, condition (financial or otherwise), or
operations of the Company;
(xi) made any revaluation of any assets or write-down of the value
of any receivables of the Company in excess of $10,000, other than revaluations
of the Company's investment portfolio on a quarterly basis in the normal course
of business consistent with past practice;
(xii) except in the ordinary course of business consistent with past
practice, accelerated the collection, or sale to third parties, of any
receivables of the Company, or delayed the payment of any payables of the
Company;
(xiii) entered into any other contract or other agreement or other
transaction that obligates the Company to pay an amount in excess of $10,000,
which contract is not terminable by the Company upon not more than 30 days'
notice; or
(xiv) suffered any damage, destruction or loss, whether covered by
insurance or not, which has had or could have a Company Material Adverse Effect.
Section 4.29 Brokerage. No broker, agent or finder has acted, directly or
indirectly, for the Company or, to the knowledge of the Company, any of the
Company Stockholders, nor has the Company or, to the knowledge of the Company,
any of the Company Stockholders, incurred any obligation to pay any brokerage
fee, agent's commission or finder's fee or other commission in connection with
the transactions contemplated by this Agreement.
Section 4.30 Taxes.
(a) The Company has duly and timely filed all federal, state, local,
foreign and other tax returns and reports required to be filed by it on or
before the date hereof, and has either (i) paid all Taxes of the Company due and
payable or (ii) has accrued on the consolidated balance sheet of the Company
included in the Company interim financial statements previously furnished to
Parent (in accordance with GAAP applied on a basis consistent with that of prior
years) all Taxes required to be accrued by the Company on or before the date
hereof. All of such returns or reports are true, accurate and complete and
reflect the Tax liability in all material respects for which the Company could
be held responsible and all Taxes for which the Company could be held
responsible as shown on such returns or reports as due and payable have been
paid.
(b) The Company is not delinquent in the payment of any Taxes for
which the Company could be held responsible, nor has the Company requested any
extension of time
17
within which to file any Tax return which return has not since been filed, nor
has the Company waived or tolled the running of any statute of limitations with
respect to any such Taxes.
(c) No deficiency for any Tax has been threatened, asserted or
assessed in writing against the Company, and there are not any unresolved
claims, proceedings or actions pending (including an audit of any tax return
filed by the Company with any federal, state, local or foreign taxing
authority), concerning either the Tax liability of the Company or the collection
or assessment of any Tax for any period for which returns have been filed or
were due.
(d) The Company has delivered to Parent true and correct copies of
any filed tax returns (including information returns and Forms 1120) of the
Company with respect to any taxable year beginning on or after January 1, 1994,
through the date of this Agreement. The Company has not filed an election under
Section 341(f) of the Code that is applicable to the Company or any asset held
by the Company. In addition, none of the Company's debt is corporate acquisition
indebtedness within the meaning of Section 279 of the Code. The Company has not
agreed, nor is required, to make any adjustment under Section 481(a) of the Code
by reason of a change in accounting method or otherwise. The Company is not a
member of any joint venture, partnership or other arrangement or contract which
is treated as a partnership for federal income tax purposes. The Company has
withheld and, if due, paid all Taxes required to have been withheld and, if due,
paid in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party. There are no pending
claims or assessments for Taxes payable by the Company. Neither the Company nor
any of its affiliates has been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code.
(e) Section 4.30 of the Company Disclosure Schedule lists each state
in which the Company is required to file Tax returns.
Section 4.31 Environmental Laws.
(a) The Company (i) is in compliance in all material respects with
all Environmental Laws; (ii) has obtained all necessary Environmental Permits,
the failure of which to obtain could have a Company Material Adverse Effect, all
of which are in full force and effect; and (iii) is in compliance with all terms
and conditions of such material Environmental Permits.
Section 4.32 Company Action. The Board of Directors of the Company (at a
meeting duly called and held) has by the requisite vote of all directors present
(a) determined that the Merger is advisable and fair and in the best interests
of the Company and its stockholders, (b) approved the Merger in accordance with
the applicable provisions of the Washington Corporation Law and (c) recommended
the approval of this Agreement and the Merger by the holders of the Company
Common Stock and directed that the Merger be submitted for consideration by the
Company's Stockholders. The Company Stockholders have unanimously approved (i)
the execution and delivery of this Agreement and (ii) the consummation of the
transactions contemplated hereby.
18
ARTICLE V.
Representations and Warranties of Parent and Sub
Parent and Sub, jointly and severally, represent and warrant to the
Company, Xxxxxx and Xxxx that, except (i) as such representations relate to PPI
Capital Group, Inc. during the period prior to June 11, 2001 and (ii) as set
forth in the disclosure schedule attached hereto (the "Parent Disclosure
Schedule"), which Parent Disclosure Schedule and shall be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Article
V:
Section 5.1 Execution and Delivery. Each of Parent and its subsidiaries
other than Sub (collectively, "Parent" with respect to the representations and
warranties contained in this Article V) and Sub has the corporate power and
authority to enter into this Agreement and each agreement, document or
instrument contemplated hereby or to be delivered in connection herewith to
which such person is a party (the "Parent Documents") and to carry out its
respective obligations hereunder and thereunder. The execution, delivery and
performance by Parent and Sub of this Agreement and the Parent Documents to
which it is a party and the consummation of the transactions contemplated hereby
and thereby have been duly authorized by the Board of Directors of Parent and
Sub, as applicable (and, in the case of this Agreement, by the Board of
Directors of Sub and by Parent as the sole stockholder of Sub). This Agreement
constitutes the valid and binding obligation of Parent and Sub and the Parent
Documents will constitute the valid and binding obligations of Parent and Sub,
when executed by such person, in each case, enforceable in accordance with their
respective terms, except as enforcement may be limited by bankruptcy, insolvency
or other similar laws affecting the enforcement of creditors' rights generally
and except that the availability of equitable remedies, including specific
performance, is subject to the discretion of the court before which any
proceeding therefor may be brought. No other corporate proceedings on the part
of Parent or Sub are necessary to authorize this Agreement or the Parent
Documents and the transactions contemplated hereby and thereby.
Section 5.2 Consents and Approvals. The execution and delivery by Parent
and Sub of this Agreement and the Parent Documents, the performance by Parent
and Sub of their respective obligations hereunder and thereunder and the
consummation by Parent and Sub of the transactions contemplated hereby and
thereby do not require Parent or Sub to obtain any consent, approval or action
of, or make any filing or registration with or give any notice to, any
Governmental Entity, other than (i) written notification to the NASD, and (ii)
the filing of the Certificate of Merger with the Secretary of State of the State
of Washington.
Section 5.3 No Breach. The execution, delivery and performance by Parent
and Sub of this Agreement and the Parent Documents and the consummation of the
transactions contemplated hereby and thereby in accordance with the terms and
conditions hereof and thereof will not (i) violate any provision of the
Certificate of Incorporation or By-Laws of Parent or Sub; (ii) violate, conflict
with or result in the breach of any of the terms of, result in any modification
of the effect of, otherwise give any other contracting party the right to
terminate, or constitute (or with notice or lapse of time or both, constitute) a
default under, any contract or other agreement or instrument to which Parent or
Sub is a party or by or to which the assets or properties of Parent or Sub may
be bound or subject; (iii) violate any order, judgment, injunction, award or
decree of
19
any Governmental Entity against, or binding upon, or any agreement with, or
condition imposed by, any Governmental Entity, binding upon Parent or Sub, or
upon the securities, assets or business of Parent or Sub; (iv) violate any
statute, law or regulation of any jurisdiction as such statute, law or
regulation relates to Parent or Sub, or to the securities, assets or business of
Parent or Sub; (v) result in the creation or imposition of any lien or other
encumbrance or the acceleration of any indebtedness or other obligation of
Parent or Sub; or (vi) result in the breach of any of the terms or conditions
of, constitute a default under, or otherwise cause an impairment of, any Permit
of Parent or Sub; except in the case of (ii) through (vi) for violations,
conflicts, breaches, defaults, modifications, impairments, liens or other
encumbrances that would not, individually or in the aggregate, have a Parent
Material Adverse Effect. "Parent Material Adverse Effect" shall mean any
circumstance, change, event or effect that is materially adverse to the
business, properties, assets, condition (financial or otherwise), liabilities,
operations or prospects of the Parent, or adversely affects the consummation of
the transactions contemplated hereby excluding any changes or events caused by
the compliance of the Parent with the terms of this Agreement or any of the
Company Documents.
Section 5.4 SEC Documents; Financial Statements. (a) Commencing on June
11, 2001, Parent has filed and will file with the SEC all forms, reports,
schedules, statements, exhibits and other documents (collectively, the "Parent
SEC Documents") required to be filed on or before the date hereof or the Closing
Date, respectively, by it under the Exchange Act. Parent has furnished or made
available to the Company true and correct copies of all Parent SEC Documents
filed by Parent since June 11, 2001 and will promptly furnish to the Company any
other Parent SEC Document filed by or on behalf of Parent with the SEC from the
date hereof to the Closing Date. At the time filed, the Parent SEC Documents
filed by Parent since June 11, 2001 (i) did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading and (ii) complied in
all material respects with the applicable requirements of the Exchange Act.
(b) The unaudited consolidated financial statements of Parent for the nine
months ended September 30, 2001 (the "Parent Financial Statements"), which are
included in the Parent SEC Documents, have previously been made available to the
Company. The Parent Financial Statements comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto; and fairly present, in all material
respects, on a consolidated basis, the financial position of Parent at, and the
results of its operations for, each of the periods then ended and were prepared
in conformity with GAAP applied on a consistent basis, except as otherwise
disclosed therein and, subject to normal year-end adjustments, the absence of
footnote disclosures, and any other adjustments described therein.
Section 5.5 Shares of Parent Common Stock. The Share Consideration will,
when issued and delivered to the Company Stockholders pursuant to Section
3.1(a), be duly authorized, validly issued, fully paid, non-assessable, and free
of all Liens or other encumbrances.
Section 5.6 Organization, Standing and Authority of Parent and Sub. Each
of Parent and Sub is a corporation duly organized, validly existing and in good
standing under the
20
laws of the state of its incorporation, and has all requisite power and
authority to own, lease and operate its assets, properties and businesses and to
carry on its businesses as now being conducted or currently proposed to be
conducted. Parent is duly qualified as a foreign corporation to do business, and
is in good standing, in each jurisdiction where the character of its properties
owned or held under lease or the nature of such activities make such
qualification necessary, except where the failure to so qualify would not,
individually or in the aggregate, have a Parent Material Adverse Effect. Sub has
not engaged in any business (other than certain organizational matters) since
the date of its incorporation.
Section 5.7 Capitalization.
The authorized capital stock of Parent consists of 80,000,000 shares
of Parent Common Stock and 10,000,000 shares of preferred stock, par value
$.0001 per share. As of November 30, 2001, there were 11,839,990 shares of
Parent Common Stock and no shares of preferred stock outstanding and there have
been no material changes in such numbers through the date hereof. As of the date
hereof, there are no bonds, debentures, notes or other indebtedness having the
right to vote on any matters on which Parent's stockholders may vote issued or
outstanding. All outstanding shares of Parent Common Stock are duly authorized
and are validly issued, fully paid and nonassessable.
The authorized capital stock of Sub consists of 100 shares of Sub
Common Stock, all of which are duly authorized, validly issued, fully paid and
nonassessable.
Section 5.8 Brokerage. No broker, agent or finder has acted, directly or
indirectly, for Parent or Sub. Parent and Sub have not incurred any obligation
to pay any brokerage fees, agent's commissions or finder's fee or commission in
connection with the transactions contemplated by this Agreement.
Section 5.9 Sub Action. The Board of Directors of Sub (at a meeting duly
called and held) has by the requisite vote of all directors present approved the
Merger in accordance with the provisions of Section 23B.11.010 of the Washington
Corporation Law.
Section 5.10 Options and Other Stock Rights. Except as disclosed in
Section 5.10 of the Parent Disclosure Statement, there is no (i) outstanding
option, warrant, call, unsatisfied preemptive right or other agreement of any
kind to purchase or otherwise to receive from Parent any of the outstanding,
authorized but unissued, unauthorized or treasury shares of Parent Common Stock,
Parent preferred stock or any other security of the Parent, (ii) outstanding
security of any kind convertible into any security of Parent, and (iii)
outstanding contract or other agreement to purchase, redeem or otherwise acquire
any outstanding shares of Parent Common Stock, Parent Preferred Stock or any
other security of Parent.
Section 5.11 Compliance with Laws. Parent is not in violation of any
applicable order, judgment, injunction, award or decree, law, ordinance or
regulation or any other requirement of any Governmental Entity applicable to
Parent or any of its businesses; Parent has not received notice that any such
violation has been alleged or is being investigated.
21
Section 5.12 Permits. Parent has obtained all Permits that are necessary
for the ownership and conduct of its businesses as presently conducted or
currently proposed to be conducted, other than any Permits, the absence of which
would not, individually or in the aggregate, have a Parent Material Adverse
Effect; such material Permits are in full force and effect and are sufficient
for the ownership and conduct of such businesses as presently conducted; no
violations exist or have been recorded in respect of any Permit; and no
proceeding is pending or, to the knowledge of Parent, threatened, that would
suspend, revoke or limit any Permit.
Section 5.13 Actions and Proceedings. There are no outstanding orders,
judgments, injunctions, awards or decrees of any Governmental Entity against or
involving Parent or any of its directors, officers or employees (in their
capacities as such). As of the date of this Agreement there is no claim, action,
suit, litigation, legal, administrative or arbitration proceeding, whether
formal or informal (including, without limitation, any claim or notice of intent
to institute any matter), which is pending or, to Parent's knowledge, threatened
in writing, or, if not in writing, in a manner that makes such threat reasonably
free from doubt, against or involving the Parent or any of its directors,
officers or employees (in their capacities as such) or properties, capital stock
or assets, except where the failure of any of the foregoing to be true does not
individually or in the aggregate have a Parent Material Adverse Effect on
Parent.
Section 5.14 Corporate Records. True and correct copies of the minute
books of each of Parent and Sub have heretofore been made available to the
Company, all as in effect on the date hereof. The minute books of Parent reflect
all actions taken at all formal meetings, and by consents in lieu of formal
meetings, of the stockholders of Parent, the Board of Directors of Parent and
all committees thereof since June 11, 2001.
Section 5.15 Regulatory Compliance
(a) Parent's wholly owned subsidiary, DP Securities, Inc. ("DPI") is
(i) duly licensed as a broker/dealer with the SEC, the NASD, and the State of
California and (ii) a member of the NASD and (iii) a member of SIPC. DPI has all
permits, licenses and authorizations required by any Governmental Entity for the
conduct of its current business, except where failure to have such permits,
licenses and authorizations would not reasonably be expected, individually or in
the aggregate, to have a Parent Material Adverse Effect. There are no fees or
assessments owed to any Governmental Entity which regulates the business of DPI,
except for fees or assessments which would not reasonably be expected to have
Parent Material Adverse Effect. DPI is registered and in good standing with the
SEC as a broker/dealer pursuant to the Exchange Act, is a member in good
standing of the NASD and SIPC, and is currently registered to conduct business
as a broker/dealer in each state which requires such registration or
qualification in connection with its business. To the knowledge of the Parent,
DPI has complied with applicable federal and state laws and regulations and the
rules and regulations of the SEC, NASD and other regulatory bodies and any other
industry, governmental or trade organizations, as required in connection with
the conduct of its present business, except for failures to be in compliance
which would not reasonably be expected, individually or in the aggregate, to
have a Parent Material Adverse Effect. There are no pending applications to
register the Parent as a broker dealer in any state.
22
(b) Neither Parent, nor any of Parent's officers and directors are
involved in any material respect in any in of the following: (a) state or
federal bankruptcy proceedings either as the bankrupt petitioner or as the
subject of any involuntary petition; (b) conviction of or entry of a plea of
guilty or no contest to any criminal act, excluding traffic violations or other
minor offenses; (c) being the subject of any order, judgment, or decree, not
subsequently reversed, suspended, or vacated, of any court of competent
jurisdiction permanently or temporarily enjoining or otherwise limiting the
following activities: (1) acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool operator, floor broker,
leverage transaction merchant, any other person regulated by the Commodity
Futures Trading Commission, or an associated person of any of the foregoing, or
as an investment adviser, underwriter, broker, or dealer in securities or as an
affiliated person, director, or employee of any investment company, bank,
savings and loan association, or insurance company; or engaging in any type of
business practice; or (2) engaging in any activity in connection with the
purchase or sale of any security or commodity or in connection with any
violation of federal or state securities or commodities laws; or (d) having been
found by a court of competent jurisdiction, any state agency, any
self-regulatory organization, the SEC or the Commodity Futures Trading
Commission to have violated any federal or state securities or commodities law,
if such judgment or finding has not been subsequently reversed, suspended, or
vacated.
(c) Parent has filed with the SEC and all other appropriate agencies
and the NASD, when due, all forms financial and other reports and all documents
required to be filed pursuant to the foregoing laws and other requirements and
any other applicable laws, and the rules and regulations thereunder. Parent has
made available to the Company true and complete copies of all such forms,
notices, registrations, and other filings, as amended to date, and copies of all
current reports and information required to be kept by Parent pursuant to
applicable federal and state statutes and NASD rules and regulations. The
information contained in such forms, registrations, filings and reports was true
and complete in all respects at the time of filing, and did not contain any
untrue statement of material fact or omit to state a material fact required to
make the statements therein, in light of the circumstances under which they were
made, not misleading. Copies of all inspection reports or similar documents
furnished to Parent by the SEC, NASD or state regulatory authorities have been
made available to the Company.
(d) Parent has exercised reasonable care to insure that all
customers' accounts are being conducted in compliance with margin requirements
and other applicable laws and regulations relating to the conduct of a brokerage
business and customers' accounts and records are accurate in all material
respects and in proper order.
(e) Parent has been and continues to be in compliance with all net
capital requirements of the NASD and SEC and all other net capital requirements
of other regulatory, self-regulatory and governmental agencies, and is not
subject to any fine, suspension or penalty for any present or past violation of
such net capital requirements. Parent is in compliance with all provisions of
its current NASD Membership Agreement.
(f) There are no pending or threatened written customer complaints
(written or oral), claims, suits, arbitrations or any other proceedings
outstanding against Parent.
23
(g) There are no actions, suits, proceedings or investigations
pending, threatened or contemplated against or relating to Parent, at law or in
equity, or before or by any federal, state, municipal or other governmental
department, commission, board, agency or instrumentality, domestic or foreign,
securities or commodities exchange, or board of trade or the NASD, nor has any
such action, suit, proceeding, or investigation been pending during the
twenty-four-month period preceding the date hereof.
(h) Neither Parent nor any of its principals is operating under or
subject to, or in default with respect to any adjudicate, jury, order, writ,
injunction or decree of any federal, state, municipal or governmental
department, commission, or board, agency, or instrumentality, domestic or
foreign, securities or commodity exchange, or board of trade or the NASD; and
neither Parent nor any of its principals is a party to any cease and desist
order, supervisory agreement or arrangement, conceptual or otherwise, with any
regulatory authority.
(i) DPI currently has in effect a blanket broker-dealer fidelity
bond, a full and complete copy of which has been made available to the Company.
(j) Parent is not an "investment company" as that term is defined in
the Investment Company Act of 1940 nor is Parent registered as an "investment
adviser" as that term is defined in the Investment Advisers Act of 1940.
(k) Parent is not currently acting as an underwriter, co-underwriter
or selling group member in any pending transactions and has no commitment or
agreement to do so.
Section 5.16 Liabilities. Parent does not have any direct or indirect
liability, contingent or otherwise, that is required by GAAP to be reflected or
reserved for on the financial statements of Parent, that was not adequately
reflected or reserved against on the audited financial statements for the period
ended December 31, 2000 or on the Parent Financial Statements, other than (i)
liabilities incurred in the ordinary course of business since September 30, 2001
consistent with past practices, or (ii) liabilities permitted by this Agreement
to be incurred in connection with the transactions contemplated by this
Agreement.
Section 5.17 No Material Adverse Change. Since September 30, 2001, there
has been no material adverse change in the management, assets, Liabilities,
properties, business, operations, financial condition, or results of operations
of Parent.
Section 5.18 Contracts and Other Agreements.
(a) Section 5.18 of Parent Disclosure Schedule sets forth as of the
date of this Agreement each contract and other agreement as described below
(whether or not in writing) which is currently in effect (unless indicated
otherwise below) to which Parent is a party or by or to which its assets or
properties are bound:
(i) contracts and other agreements with any current or former
officer, director, employee, consultant, agent or other representative of
Parent, other than pursuant to Plans described in Section 5.18 of Parent
Disclosure Schedule;
24
(ii) contracts and other agreements with any labor union or
association representing any employee;
(iii) contracts and other agreements for the purchase or sale of
equipment or services, which involve the receipt or payment by Parent of an
amount in excess of $2,000 per month (in the aggregate in the case of any
related series of contracts and other agreements);
(iv) contracts and other agreements for the sale of any of the
assets or properties of Parent or for the grant to any person of any
preferential rights to purchase any of the assets or properties of Parent;
(v) contracts and other agreements calling for an aggregate purchase
price or payments in any one year of more than $10,000 payable by Parent in any
one case (in the aggregate in the case of any related series of contracts and
other agreements);
(vi) contracts and other agreements, whether or not currently in
effect, relating to the acquisition by Parent of any business of, or the
disposition of any business involving Parent to, any other person;
(vii) contracts relating to the disposition or acquisition of any
investment or of any interest in any person;
(viii) joint venture and similar agreements;
(ix) contracts and other agreements, whether or not currently in
effect, under which Parent agreed to indemnify any party or to share tax
liability of any party, which could involve the payment by Parent of an amount
in excess of $10,000 (in the aggregate in the case of any related series of
contracts or other agreements);
(x) contracts and other agreements containing covenants of Parent,
or, to Parent's knowledge, its officers, directors or employees, not to compete
in or solicit employees in any line of business or with any person in any
geographical area or covenants of any other person not to compete with or
solicit employees from Parent in any line of business or in any geographical
area;
(xi) contracts and other agreements relating to the making of any
loan or other extension of credit by Parent;
(xii) contracts and other agreements relating to the borrowing of
money by, or indebtedness of, Parent or the direct or indirect guaranty by
Parent of any obligation or indebtedness of any other person or Governmental
Entity (other than any accounts receivable or accounts payable of Parent),
including, without limitation, any (a) agreement or arrangement relating to the
maintenance of compensating balances, (b) agreement or arrangement with respect
to lines of credit, (c) agreement to advance or supply funds to any other person
other than in the ordinary course of business, (d) agreement to pay for
property, products or services of any other person even if such property,
products or services are not conveyed, delivered or rendered, (e) keep-well,
make-whole or maintenance of working capital or earnings or similar agreement,
and
25
(f) guaranty with respect to any lease or other similar periodic payments to be
made by any such person;
(xiii) contracts and other agreements relating to the provision by
or to Parent of clearing arrangements for the sale or transfer of securities;
(xiv) each Lease and lease of personal property which requires
annual lease payments in excess of $10,000;
(xv) contracts and other agreements pursuant to which Parent obtains
or grants insurance or reinsurance;
(xvi) contracts and other agreements between Parent and any customer
or account with regard to the sale of advice, guidance or research related to
the purchase or sale of securities or the financial markets;
(xvii) contracts and other agreements which require payments
generated by a change in control of Parent;
(xviii) contracts and other agreements with any stockholder,
director or officer of Parent; and
(xix) contracts and other agreements, with any analyst, research
provider, advisor, consultant or other third party regarding the communication
of advice, guidance or recommendation related to the purchase or sale of
securities or the financial markets.
(b) There have been delivered to the Company prior to the date
hereof true and complete copies of all of the contracts and other agreements set
forth in Section 5.18 of Parent Disclosure Schedule. Each such contract and
other agreement is valid, in full force and effect and binding upon Parent and,
to Parent's knowledge, the other parties thereto in accordance with its terms,
and Parent is not in default under any of them and Parent has no knowledge of
any threat in writing, or if not in writing, in a manner that makes such threat
reasonably free from doubt, of cancellation or termination thereunder, nor will
the consummation of the transactions contemplated by this Agreement result in a
default under any such contract or other agreement or the right to terminate
such contract or other agreement, except for defaults which would not reasonably
be expected, individually or in the aggregate, to have a Parent Material Adverse
Effect. No Permits or other documents or agreements with, or issued by or filed
with, any person, have been granted to any other person that provide the right
to use any real or tangible personal property comprising any portion of the
assets of Parent. Parent is not a party to any contract, commitment, arrangement
or agreement which would, following the Closing, restrain or restrict Parent or
any affiliate of Parent, from operating the business of Parent in the manner in
which it is currently operated.
Section 5.19 Relationship With Customers. Parent has not received any
notice in writing, or if not in writing, in a manner that makes such threat
reasonably free from doubt, that any material customer intends to terminate or
materially reduce its business with Parent and no
26
material customer has terminated or materially reduced its business with Parent
in the last twelve (12) months.
Section 5.20 Real Property.
(a) Section 5.20 of Parent Disclosure Schedule sets forth a list and
summary description of all leases, subleases, licenses, occupancy agreements or
other agreements, written and oral, together with any amendments or
modifications thereto (each a "Parent Lease" and collectively, the "Parent
Leases") with respect to (A) all real property leased by Parent (whether as
lessor or lessee and including those in the names of nominees or other entities)
and used or occupied in connection with the business of Parent (the "Parent
Leased Real Property") and (B) all real property leased or subleased by Parent,
as lessor or sublessor, to third parties (such Section 5.20 of Parent Disclosure
Schedule to include the date of each Lease, the address of the respective Parent
Leased Real Property. Parent does not own any real property.
(b) Each Parent Lease is, with respect to Parent, in full force and
effect, and to Parent's knowledge, is in full force and effect with respect to
each other party thereto. Parent has performed all obligations required to be
performed by it to date under, and is not in default in respect of, any Lease,
and no event has occurred which, with due notice or lapse of time or both, would
constitute such a default by Parent, except for defaults which would not
reasonably be expected, individually or in the aggregate to have a Parent
Material Adverse Effect. To the knowledge of Parent, there is no default
asserted thereunder by any other party thereto and there are no unasserted
defaults. All rentals and other payments due under each such Lease have been
duly paid.
Section 5.21 Intellectual Property . (a) Section 5.21 (a) of Parent
Disclosure Schedule sets forth a true and complete list of all Non-Software
Intellectual Property (other than trade secrets and confidential business
information) that is (i) owned by Parent and registered, the subject of an
application or material or (ii) the subject of a material Contract or other
agreement. Except as would not reasonably be expected, individually or in the
aggregate, to have a Parent Material Adverse Effect, Parent is the sole and
exclusive owner of all right, title and interest in or, as to any third party
rights identified in Section 5.21 of Parent Disclosure Schedule, has obtained a
license to use all Non-Software Intellectual Property used by Parent in the
operation of Parent's business, free and clear of all Liens or other
encumbrances. Except as set forth in Section 5.21 of Parent Disclosure Schedule,
the Merger shall not result in any material changes in the terms and conditions
under which the Non-Software Intellectual Property is owned or licensed for use
by Parent.
(b) Except as would not reasonably be expected, individually or in
the aggregate, to have a Parent Material Adverse Effect, Parent is the sole and
exclusive owner of all right, title and interest in all Intellectual Property in
and to Parent Software Programs listed in Section 5.21 of Parent Disclosure
Schedule (representing all the material Parent Software Programs owned by
Parent), free and clear of all mortgages, pledges, Liens or other, encumbrances.
The Intellectual Property rights in and to each such Parent Software Program
will be owned on identical terms and conditions immediately subsequent to the
Closing hereunder.
27
(c) Section 5.21 of Parent Disclosure Schedule sets forth all Third
Party Software Programs licensed by Parent (other than off-the-shelf software
programs). Except as would not reasonably be expected, individually or in the
aggregate to have a Parent Material Adverse Effect, (i) the Parent has the right
and license to use, pursuant to Third Party Software license agreements, all
Third Party Software used in connection with, and as incorporated into, Parent
Software Programs or in conducting Parent's own business and (ii) all use of
each of such licensed Third Party Software Programs by Parent has been in
compliance with the respective license agreements.
(d) Parent has made available to the Company correct and complete
copies of all documents pertaining to statutory Intellectual Property, including
but not limited to, all trademark, service xxxx, trade name, copyright, and
patent, registrations and applications used by Parent in conducting its own
business and all documents pertaining to licenses, agreements, and permissions
(as amended to date) to use any Intellectual Property used by Parent in
conducting its own business, and have made available to Parent correct and
complete copies of all other written documentation evidencing the Parent's
ownership and prosecution (if applicable) of each such item.
(e) To the knowledge of Parent, in no instance has the eligibility
of the Non-Software Intellectual Property and Parent Software Programs for
protection under applicable intellectual property laws been forfeited to the
public domain by omission by Parent of any required notice or any other action
taken by Parent.
(f) To the knowledge of Parent, the use of Parent Software Programs
and the license, sale or lease of Parent Software Programs, or of any part
thereof, or of any copy, or of any part thereof, do not and will not infringe
on, misappropriate, any copyright, trade secret, patents or any other
exclusionary right, of any third party in either the United States or any
foreign country. To the knowledge of the Parent, no person or entity has
asserted against Parent a claim that the use, license, sale or lease of any
Parent Software Program, or any part thereof, infringes, misappropriates or
contributes to the infringement of any patent claim, copyright or trade secret
right of any third party in either the United States or any foreign country, and
Parent are not aware of any basis for any such claim.
Section 5.22 Receivables . All accounts receivable reflected in balance
sheet contained in the Company's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 2001, and all accounts receivable arising subsequent to
September 30, 2001, represent bona fide transactions that have arisen in the
ordinary course of business, are valid and existing and represent moneys due.
Parent has made and will make adjustments to the carrying value of such
receivables reasonably considered adequate for receivables not collectible in
the ordinary course of its business in accordance with customary practice,
consistently applied.
Section 5.23 Banking. Section 5.23 of Parent Disclosure Schedule contains
a complete list of all of the bank accounts and lines of credit owned or used by
Parent, and the names of all persons with authority to withdraw funds from, or
execute drafts or checks on, each such account.
28
Section 5.24 Liens. Parent has good and marketable title to all of its
respective assets and properties, in each case free and clear of any material
Lien or other encumbrance, except for (i) Liens or other encumbrances securing
taxes, assessments, governmental charges or levies, or the claims of
materialmen, carriers, landlords and like persons, all of which are not yet
delinquent or which are being contested in good faith and (ii) Liens or other
encumbrances of a character that do not detract from the value of the property
subject thereto or impair the use of or the access to the property subject
thereto, or impair the operation of Parent or detract from its business.
Section 5.25 Employee Benefit Plans. Section 5.25 of the Parent
Disclosure Schedule contains a complete list of all "employee benefit plans," as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), of Parent and its Affiliates and all material bonus, stock
option, stock purchase, stock appreciation right, incentive, deferred
compensation, supplemental retirement, severance and other similar material
fringe or employee benefit plans, programs, policies or arrangements, any
material employment, consulting or executive compensation agreements for the
benefit of, or relating to, any employee, former employee or retiree of Parent
or its Affiliates (collectively referred to as the "Parent Plans"). Such Parent
Plans have been maintained in material compliance with ERISA, the Code, the
terms of such Parent Plan and other applicable Federal, state, local and foreign
laws. A favorable determination letter has been obtained from the Internal
Revenue Service for any such Parent Plan that is intended to be a tax qualified
plan within the meaning of section 401(a) of the Code. There has been no
"prohibited transaction" within the meaning of Section 4975(c) of the Code or
Section 406 of ERISA involving the assets of any Parent Plan. Neither Parent nor
its Affiliates is or was during the preceding six years obligated to contribute
to any multiemployer plan. Except as required by Section 4980B of the Code, no
Parent Plan or other arrangement provides medical or death benefits with respect
to current or former employees of Parent or its Affiliates beyond their
retirement or other termination of employment. None of the Parent Plans are
subject to Title IV of ERISA.
Section 5.26 Employee Relations.
(a) Parent is in compliance with all laws regarding employment,
wages, hours, equal opportunity, collective bargaining and payment of social
security and other taxes except where failure to be in compliance would not,
individually or in the aggregate, reasonably be expected to have a Parent
Material Adverse Effect. Parent is not engaged in any unfair labor practice or
discriminatory employment practice and no complaint of any such practice against
Parent has been filed or, to Parent's knowledge, threatened to be filed with or
by the National Labor Relations Board, the Equal Employment Opportunity
Commission or any other administrative agency, federal or state, that regulates
labor or employment practices, nor is any grievance filed or, to Parent's
knowledge, threatened to be filed, against Parent by any employee pursuant to
any collective bargaining or other employment agreement to which Parent is a
party or is bound. Parent is in material compliance with all applicable foreign,
federal, state and local laws and regulations regarding occupational safety and
health standards, and has received no complaints from any foreign, federal,
state or local agency or regulatory body alleging violations of any such laws
and regulations.
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(b) The employment of all persons employed by Parent is terminable
at will without any penalty or severance obligation of any kind on the part of
Parent. All sums due for employee compensation and benefits and all vacation
time owing to any employees of Parent have been duly and adequately accrued on
the accounting records of Parent. All employees of Parent are either United
States citizens or resident aliens permitted to engage in employment in the
United States in accordance with all applicable laws.
Section 5.27 Insurance. Section 5.27 of Parent Disclosure Schedule sets
forth a list of all policies or binders of errors and omissions, fire,
liability, product liability, workmen's compensation, vehicular and other
insurance held by or on behalf of Parent (collectively, the "Insurance
Policies"). Such Insurance Policies are in full force and effect and are in
amounts of a nature which are adequate and customary for Parent's business. In
addition, Section 5.27 of Parent Disclosure Schedule sets forth in respect of
the Insurance Policies (i) a description of occurrences reported involving
amounts in excess of $10,000 and (ii) the aggregate amount paid out under each
such policy during the period from January 1, 1996 through the date hereof.
There have been no disputes regarding denial or nonpayment of claims under any
Insurance Policy.
Section 5.28 Officers, Directors, Employees, Consultants. Section 5.28 of
Parent Disclosure Schedule sets forth (i) the name of each officer and director
of Parent and the amount of compensation paid during fiscal 2000 and the amount
reasonably expected to be paid during fiscal 2001, (ii) the name of each other
employee or class of employees of Parent who either (x) received compensation in
fiscal 2001 in excess of $25,000 or (y) is anticipated to receive, based on
current compensation levels, compensation in fiscal 2001 in excess of $25,000,
indicating the amount of such compensation for such persons for fiscal 1999 and
fiscal 2000; and (iii) a list of all employees employed by Parent as of the date
hereof. Parent does not engage any person as a consultant whose engagement
cannot be terminated on not less than 30 days' notice without penalty.
Section 5.29 Transactions with Directors, Officers and Affiliates. Except
as disclosed in Section 5.29 of Parent Disclosure Schedule, since January 1,
1999, there have been no transactions between Parent and any director, officer,
employee, stockholder or other affiliate of Parent or loans, guarantees or
pledges to, by or for Parent from, to, by or for any of such persons other than
in connection with such position. Since January 1, 1999, none of the officers,
directors or employees of Parent, or any spouse or relative of any of such
persons, has been a director or officer of, or has had any direct or indirect
interest in, any firm, corporation, association or business enterprise which
during such period has been a supplier, customer or sales agent of Parent or has
competed with or been engaged in any business of the kind being conducted by
Parent.
Section 5.30 Operations of Parent. Except as disclosed in Section 5.30 of
Parent Disclosure Schedule and except as may result from the transactions
contemplated by this Agreement, since September 30, 2001, Parent has not:
(i) amended its Certificate of Incorporation or by-laws or merged
with or into or consolidated with any other person, subdivided or in any way
reclassified any shares of its
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capital stock or changed or agreed to change in any manner the rights of its
outstanding capital stock or the character of its business;
(ii) issued or sold or purchased, or issued options or rights to
subscribe to, or entered into any contracts or commitments to issue or sell or
purchase, any shares of its capital stock or any of its bonds, notes, debentures
or other evidences of indebtedness;
(iii) entered into or amended any agreement with any labor union or
association representing any employee, or, except for Plans referred to in
Section 5.30 of Parent Disclosure Schedule, made any wage or salary increase or
bonus, or increase in any other direct or indirect compensation, for or to any
of its officers, directors, employees, consultants, agents or other
representatives in excess of $10,000, or commitment or agreement to make or pay
the same;
(iv) except in the ordinary course of business consistent with past
practice, declared or made any Distributions to any stockholder or made any
direct or indirect redemption, retirement, purchase or other acquisition of any
shares of its capital stock;
(v) made any change in its accounting methods or practices or made
any change in depreciation or amortization policies, except as required by law
or GAAP;
(vi) made any loan or advance to its stockholders or to any of the
directors, officers or employees of Parent, consultants, agents or other
representatives, or otherwise than in the ordinary course of business made any
other loan or advance;
(vii) except in the ordinary course of business consistent with past
practice, (A) entered into any Parent Lease; (B) sold, abandoned or made any
other disposition of any of its assets or properties; or (C) granted or suffered
any Lien or other encumbrance on any of its assets or properties;
(viii) made or entered into any agreement to make any acquisition of
all or a substantial part of the assets, properties, securities or business of
any other person;
(ix) paid, directly or indirectly, any of its Liabilities before the
same became due in accordance with its terms or otherwise than in the ordinary
course of business;
(x) terminated or failed to renew, or received any written threat
(that was not subsequently withdrawn) to terminate or fail to renew, any
contract or other agreement that is or was material to the assets, liabilities,
properties, business, operations, condition (financial or otherwise), or
operations of Parent;
(xi) made any revaluation of any assets or write-down of the value
of any receivables of Parent in excess of $10,000, other than revaluations of
Parent's investment portfolio on a quarterly basis in the normal course of
business consistent with past practice;
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(xii) except in the ordinary course of business consistent with past
practice, accelerated the collection, or sale to third parties, of any
receivables of Parent, or delayed the payment of any payables of Parent;
(xiii) entered into any other contract or other agreement or other
transaction that obligates Parent to pay an amount in excess of $10,000, which
contract is not terminable by Parent upon not more than 30 days' notice; or
(xiv) suffered any damage, destruction or loss, whether covered by
insurance or not, which has had or could have a Parent Material Adverse Effect.
Section 5.31 Taxes.
(a) Parent has duly and timely filed all federal, state, local,
foreign and other tax returns and reports required to be filed by it on or
before the date hereof, and has either (i) paid all Taxes of Parent due and
payable or (ii) has accrued on the consolidated balance sheet of Parent included
in Parent interim financial statements previously furnished to the Company (in
accordance with GAAP applied on a basis consistent with that of prior years) all
Taxes required to be accrued by Parent on or before the date hereof. All of such
returns or reports are true, accurate and complete and reflect the Tax liability
in all material respects for which Parent could be held responsible and all
Taxes for which Parent could be held responsible as shown on such returns or
reports as due and payable have been paid.
(b) Parent is not delinquent in the payment of any Taxes for which
Parent could be held responsible, nor has Parent requested any extension of time
within which to file any Tax return which return has not since been filed, nor
has Parent waived or tolled the running of any statute of limitations with
respect to any such Taxes.
(c) No deficiency for any Tax has been threatened, asserted or
assessed in writing against Parent, and there are not any unresolved claims,
proceedings or actions pending (including an audit of any tax return filed by
Parent with any federal, state, local or foreign taxing authority), concerning
either the Tax liability of Parent or the collection or assessment of any Tax
for any period for which returns have been filed or were due.
(d) Parent has made available to the Company true and correct copies
of any filed tax returns (including information returns and Forms 1120) of
Parent with respect to any taxable year beginning on or after January 1, 1999,
through the date of this Agreement. Parent has not filed an election under
Section 341(f) of the Code that is applicable to Parent or any asset held by
Parent. In addition, none of Parent's debt is corporate acquisition indebtedness
within the meaning of Section 279 of the Code. Parent has not agreed, nor is
required, to make any adjustment under Section 481(a) of the Code by reason of a
change in accounting method or otherwise. Parent is not subject to or a member
of any joint venture, partnership or other arrangement or contract which is
treated as a partnership for federal income tax purposes. Parent has withheld
and, if due, paid all Taxes required to have been withheld and, if due, paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party. There are no pending claims or
assessments for Taxes payable
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by Parent. Neither Parent nor any of its affiliates has been a United States
real property holding corporation within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code.
(e) Section 5.31 of Parent Disclosure Schedule lists each state in
which Parent is required to file Tax returns.
Section 5.32 Environmental Laws. Parent (i) is in compliance in all
material respects with all Environmental Laws; (ii) has obtained all necessary
Environmental Permits, the failure of which to obtain could have a Parent
Material Adverse Effect, all of which are in full force and effect; and (iii) is
in compliance with all terms and conditions of such material Environmental
Permits.
Section 5.33 Company Action. The Board of Directors of Parent (at a
meeting duly called and held) has by the requisite vote of all directors present
(a) determined that the Merger is advisable and fair and in the best interests
of Parent and its stockholders and (b) approved the Merger in accordance with
the applicable provisions of the Delaware Corporation Law.
ARTICLE VI.
Representations and Warranties of Xxxxxx and Xxxx
Each of Xxxxxx and Hill, severally and not jointly, represents and
warrants to Parent and Sub solely as to herself or himself, as the case may be,
as follows:
Section 6.1 Execution and Delivery. Each of Xxxxxx and Xxxx has the power
and authority to enter into this Agreement, including the schedules and exhibits
attached hereto to which such Company Stockholder is a party, and, to carry out
its obligations hereunder and thereunder. This Agreement constitutes the valid
and binding obligation of each of Xxxxxx and Hill and the Company Documents,
when executed and delivered, assuming the execution and delivery thereof by
Parent and Sub will constitute the valid and binding obligations of each of
Xxxxxx and Xxxx, in each case enforceable in accordance with their respective
terms, except as enforcement may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally and except
that the availability of equitable remedies, including specific performance, is
subject to the discretion of the court before which any proceeding therefor may
be brought.
Section 6.2 Consents and Approvals. The execution and delivery by each of
Xxxxxx and Hill of this Agreement and the Company Documents to which Xxxxxx or
Xxxx is a party, the performance by each of Xxxxxx and Hill of its obligations
hereunder and thereunder, and the consummation by each of Xxxxxx and Xxxx of the
transactions contemplated hereby and thereby, as the case may be, do not require
Xxxxxx or Hill to obtain any consent, approval or action of, or make any filing
or registration with, or give any notice to, any person or any Governmental
Entity.
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Section 6.3 No Breach. The execution, delivery and performance by each of
Xxxxxx and Xxxx of this Agreement and the Company Documents to which Xxxxxx or
Hill is a party and the consummation by Xxxxxx and Xxxx of the transactions
contemplated hereby and thereby in accordance with the terms and conditions
hereof and thereof will not (i) violate, conflict with or result in the breach
of any of the terms of, result in any modification of the effect of, otherwise
give any other contracting party the right to terminate, or constitute (or with
notice or lapse of time or both, constitute) a default under, any contract or
other agreement or instrument to which Xxxxxx or Hill is a party; (ii) violate
any order, judgment, injunction, award or decree of any Governmental Entity
against, or binding upon or any agreement with, or condition imposed by, any
Governmental Entity, binding upon Xxxxxx or Xxxx; (iii) violate any statute, law
or regulation of any jurisdiction as such statute, law or regulation relates to
Xxxxxx or Hill.
Section 6.4 Investment Representations. The issuance of the Share
Consideration in this transaction is intended to be a private transaction exempt
from registration under the Securities Act of 1933, as amended (the "Securities
Act"), and is made party in reliance upon the representations set forth below.
(a) The Company Stockholders are acquiring the Parent Common Stock
for their own account for investment only and not with a view to, or for sale in
connection with, a distribution of the Parent Common Stock in violation of the
Securities Act and any applicable state securities or blue-sky laws;
(b) The Company Stockholders acknowledge to the Parent that:
(i) the Parent has advised the Company Stockholders that the Share
Consideration has not been registered under the Securities Act or under the laws
of any state on the basis that the issuance thereof contemplated by this
Agreement is exempt from such registration and the certificate representing the
Share Consideration shall contain a restrictive legend reflecting the fact that
the Share Consideration have not been registered;
(ii) the Parent's reliance on the availability of such exemption is,
in part, based upon the accuracy and truthfulness of the Company's Stockholders
representations contained herein;
(iii) the Parent Common Stock cannot be resold without registration
or an exemption under the Securities Act and such state securities laws, and
that certificates representing the Parent Common Stock will bear a restrictive
legend to such effect as well as a restrictive legend in accordance with the
restrictions on transfer contained in Section 3;
(iv) the Company Stockholders have evaluated the merits and risks of
acquiring the Parent Common Stock and has such knowledge and experience in
financial and business matters and is capable of evaluating the merits and risks
of such acquisition, is aware of and has considered the financial risks and
financial hazards of acquiring the Parent Common Stock, and is able to bear the
economic risk of acquiring the Parent Common Stock, including the possibility of
a complete loss with respect thereto.
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ARTICLE VII.
Covenants and Agreements
Each of Parent, Sub and the Company (as applicable) covenant and
agree as follows:
Section 7.1 Conduct of Business.
(a) Prior to the Effective Date, unless Parent shall otherwise agree
in writing:
(i) The Company shall carry on its businesses in the usual, regular
and ordinary course in substantially the same manner as heretofore conducted,
and shall use its best efforts to preserve intact its present business
organizations, keep available the services of its present officers and employees
and preserve its relationships with customers, suppliers and others having
business dealings with them to the end that its goodwill and on-going businesses
shall be unimpaired at the Effective Date, except such impairment as would not
have a Company Material Adverse Effect. The Company shall (i) maintain insurance
coverages and its books, accounts and records in the usual manner consistent
with prior practices; (ii) comply in all material respects with all laws,
ordinances and regulations of Governmental Entities applicable to the Company;
(iii) maintain and keep its properties and equipment in good repair, working
order and condition, ordinary wear and tear excepted; and (iv) perform in all
material respects its obligations under all contracts and commitments to which
it is a party or by which it is bound, in each case other than where the failure
to so maintain, comply or perform, either individually or in the aggregate,
would not result in a Company Material Adverse Effect; and
(ii) The Company shall not undertake any of the actions specified in
Section 4.28.
(b) Prior to the Effective Date, unless the Company shall otherwise
consent in writing (which shall not be unreasonably withheld), Parent shall in
all material respects carry on its businesses in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted, and shall use
its best efforts to preserve intact its present business organizations, keep
available the services of its present officers and employees and preserve its
relationships with customers, suppliers and others having business dealings with
them to the end that its goodwill and on-going businesses shall be unimpaired at
the Effective Date, except such impairment as would not have a Parent Material
Adverse Effect. The Parent shall (i) maintain insurance coverages and its books,
accounts and records in the usual manner consistent with prior practices; (ii)
comply in all material respects with all laws, ordinances and regulations of
Governmental Entities applicable to the Parent; (iii) maintain and keep its
properties and equipment in good repair, working order and condition, ordinary
wear and tear excepted; and (iv) perform in all material respects its
obligations under all contracts and commitments to which it is a party or by
which it is bound, in each case other than where the failure to so maintain,
comply or perform, either individually or in the aggregate, would not result in
a Parent Material Adverse Effect.
35
Section 7.2 Litigation Involving the Company. (a) Prior to the Closing
Date, the Company shall notify Parent of any actions or proceedings that are
threatened in writing, or if not in writing, in a manner that makes such threat
reasonably free from doubt or commenced against the Company, or against any
officer or director, property or asset or Affiliate of the Company, or with
respect to the Company's affairs, promptly upon the Company becoming aware
thereof, and of any requests of the Company or, to the knowledge of the Company,
any Company Stockholder, for additional information or documentary materials by
any Governmental Entity in connection with the transactions contemplated hereby
promptly upon the Company becoming aware thereof. As to compliance with such
requests for such information, the Company shall consult with and obtain the
consent of Parent, which consent shall not be withheld unreasonably; provided
that such consent shall be unnecessary where such information is required by law
to be provided.
(b) Prior to the Closing Date, Parent shall notify the Company of
any actions or proceedings that are threatened or commenced against the Parent,
the Company, or against any officer or director, property or asset or Affiliate
of the Parent, or with respect to Parent's affairs, promptly upon Parent
becoming aware thereof, and of any requests of Parent or, to the knowledge of
Parent, any Parent Stockholder, for additional information or documentary
materials by any Governmental Entity in connection with the transactions
contemplated hereby promptly upon the Company becoming aware thereof. As to
compliance with such requests for such information, Parent shall consult with
and obtain the consent of the Company, which consent shall not be withheld
unreasonably; provided that such consent shall be unnecessary where such
information is required by law to be provided.
Section 7.3 Continued Effectiveness of Representations and Warranties of
the Parties. From the date hereof through the Closing Date, (a) the Company
shall use all reasonable efforts to conduct its affairs in such a manner so
that, except as otherwise contemplated or permitted by this Agreement, the
representations and warranties of the Company contained in Article IV shall
continue to be true and correct in all material respects (or in all respects in
the case of any representation or warranty which refers to a Company Material
Adverse Effect or otherwise includes a concept of materiality) on and as of the
Closing Date as if made on and as of the Closing Date, (i) except that any such
representations and warranties that are given as of a particular date and relate
solely to a particular date or period shall be true and correct in all material
respects (or in all respects in the case of any representation or warranty which
refers to a Company Material Adverse Effect or otherwise includes a concept of
materiality) as of such date or period, and (ii) in the case of Section 4.12
only, except for such changes with respect thereto (x) which are contemplated by
this Agreement or (y) which are attributable to the execution of this Agreement,
or the announcement or contemplation of the transactions proposed herein; (b)
Parent and Sub shall use all respective reasonable efforts to conduct their
affairs in such a manner so that, except as otherwise contemplated or permitted
by this Agreement, the representations and warranties contained in Article V
shall continue to be true and correct in all material respects (or in all
respects in the case of any representation or warranty which refers to a Parent
Material Adverse Effect or otherwise includes a concept of materiality) on and
as of the Closing Date as if made on and as of the Closing Date, except that any
such representations and warranties that are given as of a particular date and
relate solely to a particular date or period shall be true and correct in all
material respects (or in all respects in the
36
case of any representation or warranty which refers to a Parent Material Adverse
Effect or otherwise includes a concept of materiality) as of such date or
period, (c) the Company shall promptly notify Parent and Sub of any event,
condition or circumstance occurring from the date hereof through the Closing
Date of which the Company becomes aware that would cause any material revisions
to the Company Disclosure Schedule provided by the Company pursuant to this
Agreement, or that would constitute a violation or breach of this Agreement by
the Company; and (d) Parent and Sub shall promptly notify the Company of any
event, condition or circumstance occurring from the date hereof through the
Closing Date of which it becomes aware that would cause any material revisions
to the Parent Disclosure Schedule provided by Parent or Sub pursuant to this
Agreement, or that would constitute a violation or breach of this Agreement by
Parent or Sub. No such notification shall be deemed an amendment to the
Disclosure Schedules to this Agreement, except as otherwise provided by this
Agreement.
Section 7.4 Corporate Examinations and Investigations.
(a) The parties shall cooperate with each other party as such other
party shall reasonably request in connection with the due diligence review of
the other parties to this Agreement, to the extent necessary to confirm the
accuracy of the representations and warranties contained herein.
(b) If this Agreement terminates, the parties hereto and their
respective affiliates shall keep confidential and shall not use or retain in any
manner any information or documents obtained from any other party concerning its
assets, liabilities, properties, business or operations, unless readily
ascertainable from public or published information or trade sources or already
known or subsequently developed by it independently of any investigation of any
other party, or received from a third party not under an obligation to such
other party to keep such information confidential.
Section 7.5 No Shopping. Prior to the earlier of (i) the Effective Time or
(ii) the termination of this Agreement, the Company shall not, directly or
indirectly, through any officer, director, employee, representative, agent,
financial advisor or otherwise (x) solicit, initiate or knowingly encourage
(including by way of furnishing information) inquiries or submission of
proposals or offers from any person relating to any sale of all or any portion
of the assets, business, properties of (other than immaterial or insubstantial
assets), or any equity interest in, the Company or any business combination with
the Company, whether by merger, consolidation, purchase of assets, tender offer,
recapitalization, liquidation, dissolution or otherwise or any other
transaction, the consummation of which would or could impede, interfere with,
prevent or materially delay the Merger or (y) participate in any negotiation
regarding, or furnish to any other person any information with respect to, or
otherwise knowingly cooperate in any way with, or knowingly assist in,
facilitate or encourage, any effort or attempt by any other person to do or seek
to do any of the foregoing.
Section 7.6 Parent and Sub Approvals. Parent and Sub shall take all
reasonable steps necessary or appropriate to obtain as promptly as practicable
all necessary approvals, authorizations and consents of any person or
Governmental Entity required to be obtained by Parent and Sub to consummate the
transactions contemplated hereby, and will cooperate with the
37
Company in seeking to obtain all such approvals, authorizations and consents.
Parent and Sub shall use all reasonable efforts to provide such information to
such persons, bodies and authorities as such persons, bodies or authorities or
the Company may reasonably request.
Section 7.7 Company Approvals. The Company shall take all reasonable steps
necessary or appropriate to obtain as promptly as practicable all necessary
approvals, authorizations and consents of any third party or Governmental Entity
required to be obtained by the Company to consummate the transactions
contemplated hereby and will cooperate with Parent in seeking to obtain all such
approvals, authorizations and consents. The Company shall use all reasonable
efforts to provide such information to such persons, bodies and authorities as
such persons, bodies and authorities or Parent may reasonably request.
Section 7.8 Distribution. The Company shall not declare, set aside or pay
any Distribution, except in the ordinary course of business consistent with past
practice, without the consent of Parent which shall not be unreasonably
withheld.
Section 7.9 Expenses. Except as otherwise specifically provided herein,
Parent, Sub and the Company shall bear their respective expenses incurred in
connection with the preparation, execution and performance of this Agreement and
the transactions contemplated hereby, including, without limitation, all fees
and expenses of investment bankers, agents, representatives, counsel and
accountants ("Transaction Expenses"); provided, however, that upon the Closing
Parent shall pay fifty percent (50%) of the legal fees of Xxxxxxx Xxxx & Xxxxx
LLP incurred by the Company Stockholders in connection with the transactions
contemplated hereby over $25,000. In any action, suit or proceeding under or to
enforce any provision of this Agreement, the prevailing party shall be entitled
to recover its reasonable attorney's fees and other out-of-pocket expenses from
the losing party.
Section 7.10 Further Assurances; Line of Credit.
(a) Each of Parent, Sub and the Company shall execute such documents
and other papers and take such further actions as may be reasonably required or
desirable to carry out the provisions hereof and the transactions contemplated
hereby. Each of Parent, Sub and the Company shall use all reasonable efforts to
cause all actions to effectuate the Closing for which such party is responsible
under this Agreement to be taken as promptly as practicable, including using all
reasonable efforts to obtain all necessary waivers, consents and approvals
(including, but not limited to, if applicable, filings with the NASD and with
all applicable Governmental Entities) and to lift any injunction or other legal
bar to the Merger (and, in each case, to proceed with the Merger as
expeditiously as possible). Notwithstanding the foregoing, there shall be no
action required to be taken and no action will be taken in order to consummate
and make effective the transactions contemplated by this Agreement if such
action, either alone or together with another action, would result in a Company
Material Adverse Effect or a Parent Material Adverse Effect.
(b) In case at any time after the Effective Time any further action
is necessary or desirable to carry out the purposes of this Agreement, the
proper officers and/or directors of Parent, the Company and the Surviving
Corporation shall take all such necessary action.
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(c) The Parent shall use all reasonable efforts to cause Bear
Xxxxxxx to issue a line of credit to Parent in the aggregate principal amount of
not less than $3,000,000 (the "New Line of Credit"). Xxxxxx and Xxxx shall
execute and deliver personal guarantees of Parent's obligations under such line
of credit; provided, however, that Xxxxxx and Hill shall not be obligated under
this Section 7.10(c) to execute and deliver such personal guarantees if Xxxxx X.
Xxxxxxxxxx, the Chief Executive Officer and President of Parent, fails to
execute and deliver a like guarantee. In addition, Parent agrees not to increase
the total principal amount of the indebtedness of Parent under the New Line of
Credit that is guaranteed by Xxxxxx and/or Hill in excess of $3,000,000.
Section 7.11 Board Representation. Concurrent with the Closing, Parent
shall expand its Board of Directors and appoint each of Xxxxxx and Xxxx as
members of the Parent's Board of Directors, to serve until the next annual
meeting of the Parent's stockholders and until his/her successor is duly elected
and qualified. Parent shall cause each of Xxxxxx and Hill to be included in the
slate of directors proposed by Parent for election at each annual meeting of the
Parent's stockholders until the earlier of (i) the date on which Xxxxxx or Xxxx
request that Parent cease nominating Xxxxxx or Hill, as the case may be, as a
member of the Parent's Board of Directors, and (ii) December 31, 2006.
Section 7.12 Line of Credit Each of Xxxxxx and Xxxx agree not to draw down
any funds or in any way increase the amount owed under the Existing Line of
Credit and the Promissory Note until such time that the Company is released from
its guaranty of such obligations.
ARTICLE VIII.
Conditions Precedent to Each Party's Obligation
to Effect the Merger
The respective obligations of each party to effect the Merger shall
be subject to the satisfaction on or prior to the Closing of the following
conditions, any one or more of which may be waived by them, to the extent
permitted by law:
Section 8.1 New Line of Credit. A new line of credit shall be secured by
the Parent, commensurate with the Company Stockholder's line of credit currently
existing with Bear Xxxxxxx.
Section 8.2 Execution of Agreements with Company Stockholders. Each
Company Stockholder and Parent shall execute and deliver an agreement, in
substantially the forms attached hereto as Exhibits X-0, X-0 and E.
Section 8.3 Litigation. No action, suit or proceeding shall have been
instituted and be continuing or be threatened by any Governmental Entity to
restrain, modify or prevent the carrying out of the transactions contemplated
hereby; no temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal or
regulatory restraint or prohibition preventing the consummation of the Merger or
limiting or restricting Parent's conduct or operation of the business of the
Company after the Merger shall have been issued; no action, suit or proceeding
seeking any of the foregoing shall have been
39
instituted by any third party that has or is reasonably likely to materially
impair the Company's or Parent's ability to consummate the transactions
contemplated hereby or have a Company Material Adverse Effect.
Section 8.4 IRS Letter. Parent and Institutional Research Services, Inc.
("IRS") shall have entered into a letter agreement in form and substance
reasonably satisfactory to each of the parties regarding the issuance of Parent
stock options to IRS sales persons.
ARTICLE IX.
Conditions Precedent to the Obligation of
Parent and Sub to Effect the Merger
The obligation of Parent and Sub to effect the Merger shall be
subject to the satisfaction on or prior to the Closing of the following
additional conditions, any one or more of which may be waived by them, to the
extent permitted by law:
Section 9.1 Representations and Covenants. The representations and
warranties of the Company, Xxxxxx and Xxxx contained in this Agreement shall be
true and correct in all material respects (or in all respects in the case of any
representation or warranty which refers to a Company Material Adverse Effect or
otherwise includes a concept of materiality) on and as of the Closing Date with
the same force and effect as though made on and as of the Closing Date, (i)
except that any such representations and warranties that are given as of a
particular date and relate solely to a particular date or period shall be true
and correct in all material respects (or in all respects in the case of any
representation or warranty which refers to a Company Material Adverse Effect or
otherwise includes a concept of materiality) as of such date or period, and (ii)
in the case of Section 4.12 only, except for such changes with respect thereto
(x) which are contemplated by this Agreement or (y) which are attributable to
the execution of this Agreement, or the announcement or contemplation of the
transactions proposed herein.
Section 9.2 Absence of Material Adverse Change. There shall have been no
material adverse change in the business, operations or financial condition of
the Company, except for such changes with respect thereto (x) which are
contemplated by this Agreement or (y) which are attributable to the execution of
this Agreement, or the announcement or contemplation of the transactions
proposed herein.
Section 9.3 Opinion of Counsel to the Company. Parent shall have received
the opinion of Xxxxxxx Xxxx & Xxxxx LLP counsel to the Company, dated the
Closing Date, in substantially the form of Exhibit B and otherwise in form and
substance reasonably acceptable to the parties.
Section 9.4 NASD Acknowledgement. Parent shall have received notification
(in form and substance reasonably satisfactory to Parent) that the NASD has
acknowledged the change in control of the Company occurring as a result of the
consummation of the transactions contemplated by this Agreement.
40
Section 9.5 Termination of Amended and Restated Corporate Agreement.
Parent shall have received an agreement executed by each of the Company, Xxxxxx
and Hill terminating that certain Amended and Restated Corporate Agreement dated
January 15, 1995 in form and substance reasonably satisfactory to Parent.
Section 9.6 Closing Conditions. Documentation or other information shall
have been received in a form reasonably satisfactory to Parent and Sub which
evidences that the conditions set forth in this Article VIII have been
satisfied.
Section 9.7 Delivery of PCS Shares. At the Closing, the Company
Stockholders shall deliver to Parent the certificates representing all of the
issued and outstanding shares of Company Common Stock.
ARTICLE X.
Conditions Precedent to the Obligation of the
Company to Effect the Merger
The obligation of the Company to effect the Merger shall be subject
to the satisfaction on or prior to the Closing of the following additional
conditions, any one or more of which may be waived by the Company, to the extent
permitted by law:
Section 10.1 Representations and Covenants. The representations and
warranties of Parent and Sub contained in this Agreement shall be true and
correct in all material respects (or in all respects in the case of any
representation or warranty which refers to a Parent Material Adverse Effect or
that includes a concept of materiality) on and as of the Closing Date with the
same force and effect as though made on and as of the Closing Date, (i) except
that any such representations and warranties that are given as of a particular
date and relate solely to a particular date or period shall be true and correct
in all material respects (or in all respects in the case of any representation
or warranty which refers to a Parent Material Adverse Effect or that includes a
concept of materiality) as of such date or period, and (ii) in the case of
Section 5.10 only, except for such changes with respect thereto (x) which are
contemplated by this Agreement or (y) which are attributable to the execution of
this Agreement, or the announcement or contemplation of the transactions
proposed herein. Parent and Sub shall have performed and complied in all
material respects with all covenants and agreements required by this Agreement
to be performed or complied with by Parent or Sub on or prior to the Closing
Date. Parent and Sub shall have delivered to the Company certificates of an
Executive Officer of Parent and Sub, dated the Closing Date, to the foregoing
effect.
Section 10.2 Absence of Material Adverse Change. There shall have been no
material adverse change in the business, operations or financial condition of
Parent and its Subsidiaries, taken as a whole, except for such changes with
respect thereto (x) which are contemplated by this Agreement or (y) which are
attributable to the execution of this Agreement or the announcement or
contemplation of the transactions proposed herein.
41
Section 10.3 Closing Conditions. Documentation or other information shall
have been received in a form reasonably satisfactory to the Company which
evidences that the conditions set forth in this Article IX have been satisfied.
Section 10.4 Opinion of Counsel. The Company shall have received the
opinion of Berlack, Israels & Xxxxxxxx LLP, counsel to the Parent, dated the
Closing Date, in substantially the form of Exhibit C and otherwise in form and
substance reasonably acceptable to the parties. The Company, Xxxxxx and Hill
shall have received an opinion of Xxxxxxx Xxxx & Xxxxx LLP in form and substance
reasonably acceptable to them that the tax treatment of the Merger will be as
contemplated by Section 3.6.
Section 10.5 Registration Rights Agreement. Each of the Company
Stockholders shall have received executed originals of the Registration Rights
Agreement in the form attached hereto as Exhibit F.
Section 10.6 Delivery of Share Consideration. Parent shall deliver to the
Company Stockholders certificates representing the Share Consideration in
accordance with Article III of this Agreement.
ARTICLE XI.
Closing
Section 11.1 The Closing. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at the offices of Berlack,
Israels & Xxxxxxxx LLP, 000 Xxxx 00xx Xxxxxx, Xxx Xxxx, XX, at 10:00 a.m. local
time on the Closing Date or at such other time and place as the parties may
mutually agree.
ARTICLE XII.
Indemnification and Post Closing Covenants
Section 12.1 Survival of Representations and Warranties. Notwithstanding
any right of Parent and Sub to investigate fully the affairs of the Company, or
any right of the Company to investigate fully the accuracy of the
representations and warranties of Parent and Sub, and notwithstanding any
knowledge of facts determined or determinable by Parent, Sub or the Company, as
the case may be, pursuant to such investigation or right of investigation,
Parent, Sub and the Company, as the case may be, have the right to rely fully
upon the representations, warranties, covenants and agreements of the Company,
Parent and Sub, as the case may be, contained in this Agreement. The
representations and warranties of Parent, Sub and the Company and the covenants
to be performed by the Company, Parent and Sub, as the case may be, prior to the
Effective Time shall survive the execution and delivery hereof and the Closing
hereunder until one year after the Closing Date, except for (i) representations
and warranties set forth in Sections 4.23, 4.30, 5.25 and 5.31, (ii) Losses (as
defined below) arising out of or related to that certain litigation matter
involving Insiders Edge, Institutional Research Services, Inc. and the Company
filed in Dallas, Texas (the "Litigation Matter Losses"), and (iii) Losses
arising out
42
of or related to Parent's breach of its obligations under Section 12.6 (the
"Personal Guaranty Losses"), which shall each survive the execution and delivery
hereof in accordance with the applicable statute of limitations.
Section 12.2 Indemnification.
(a) Subject to Section 12.4 hereof, Hill and Xxxxxx severally agree
to indemnify, defend and hold harmless the Parent and their respective
directors, officers, employees, shareholders and any Affiliates of the
foregoing, and their successors and assigns (collectively, the "Parent Group")
from and against any and all losses, liabilities (including punitive or
exemplary damages and fines or penalties and any interest thereon), expenses
(including reasonable fees and disbursements of counsel and expenses of
investigation and defense), claims, Liens or other obligations of any nature
whatsoever (hereinafter individually, a "Loss" and collectively, "Losses")
suffered or incurred by the Parent Group which, directly or indirectly, arise
out of, result from or relate to, (i) any inaccuracy in or any breach of any
representation or warranty of the Company (or the Company Stockholders, as the
case may be) contained in Articles IV or Article VI, (ii) any breach of any
covenant or agreement of the Company (or the Company Stockholders, as the case
may be) contained in this Agreement or in any Company Document or (iii) the
Litigation Matter Losses.
(b) Subject to Section 12.4 hereof, the Parent agrees to indemnify,
defend and hold harmless Hill and Xxxxxx and their Affiliates and their
successors and assigns (the "Stockholder Group") from and against any and all
Losses suffered or incurred by the Stockholder Group which, directly or
indirectly, arise out of, result from or relate to (i) any inaccuracy in or any
breach of any representation or warranty of the Parent contained in Article V,
(ii) any breach of any covenant or agreement of the Parent contained in this
Agreement or in the Parent Documents or (iii) the Personal Guaranty Losses.
Section 12.3 Method of Asserting Claims The party making a claim under
this Article V is referred to as the "Indemnified Party" and the party against
whom such claims are asserted under Section 12.2 is referred to as the
"Indemnifying Party". All claims by any Indemnified Party under Section 12.2
shall be asserted and resolved as follows:
(a) In the event that any claim or demand for which an Indemnifying
Party would be liable to an Indemnified Party hereunder is asserted against or
sought to be collected from such Indemnified Party by a third party, said
Indemnified Party shall within fifteen (15) days notify in writing the
Indemnifying Party of such claim or demand, specifying the nature of the
specific basis for such claim or demand, and the amount or the estimated amount
thereof to the extent then feasible (which estimate shall not be conclusive of
the final amount of such claim and demand; any such notice, being the "Claim
Notice"); provided, however, that any failure to give such Claim Notice will not
be deemed a waiver of any rights of the Indemnified Party except to the extent
the rights of the Indemnifying Party are actually prejudiced or harmed. The
Indemnifying Party may elect to assume the defense of any such claim or demand
by delivering written notice to the Indemnified Party of such election; provided
that any Indemnified Party is hereby authorized prior to the date on which it
receives written notice from the Indemnifying Party assuming such defense, to
retain counsel, whose reasonable fees and expenses shall be at
43
the expense of the Indemnifying Party, to file any motion, answer or other
pleading and take such other action which it reasonably shall deem necessary to
protect its interests or those of the Indemnifying Party until the date on which
the Indemnified Party receives such notice from the Indemnifying Party. After
the Indemnifying Party shall assume such defense, the Indemnified Party shall
have the right to retain its own counsel, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Party unless the named
parties of any such proceeding (including any impleaded parties) include both
the Indemnifying Party and the Indemnified Party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. The Indemnifying Party shall not, in
connection with any proceedings or related proceedings in the same jurisdiction,
be liable for the reasonable fees and expenses of more than one such firm for
the Indemnified Party (except to the extent the Indemnified Party retained
counsel to protect its (or the Indemnifying Party's) rights prior to the
selection of counsel by the Indemnifying Party). The Indemnified Party agrees to
cooperate reasonably with the Indemnifying Party and its counsel in contesting
any claim or demand which the Indemnifying Party defends. No claim or demand may
be settled by an Indemnifying Party or, where permitted pursuant to this
Agreement, by an Indemnified Party without the consent of the Indemnified Party
in the first case or the consent of the Indemnifying Party in the second case,
which consent shall not be unreasonably withheld, unless such settlement shall
be accompanied by a complete release of the Indemnified Party in the first case
or the Indemnifying Party in the second case.
(b) In the event any Indemnified Party shall have a claim against
any Indemnifying Party hereunder which does not involve a claim or demand being
asserted against or sought to be collected from it by a third party, the
Indemnified Party shall send a Claim Notice with respect to such claim to the
Indemnifying Party. If the Indemnifying Party does not dispute such claim within
thirty (30) days of receipt of the Claim Notice the amount of such claim shall
be paid to the Indemnified Party within forty-five (45) days of receipt of the
Claim Notice.
(c) So long as any right to indemnification exists pursuant to this
Article XI, the affected parties each agree to retain all books, records,
accounts, instruments and documents reasonably related to the Claim Notice. In
each instance, the Indemnified Party shall have the right to be kept informed by
the Indemnifying Party and its legal counsel with respect to all significant
matters relating to any legal proceedings. Any information or documents made
available to any party hereunder, which information is designated as
confidential by the party providing such information and which is not otherwise
generally available to the public, or which information is not otherwise
lawfully obtained from third parties or not already within the knowledge of the
party to whom the information is provided (unless otherwise covered by the
confidentiality provisions of any other agreement among the parties hereto, or
any of them), and except as may be required by applicable law or requested by
third party lenders to such party, shall not be disclosed to any third Person
(except for the representatives of the party being provided with the
information, in which event the party being provided with the information shall
request its representatives not to disclose any such information which it
otherwise required hereunder to be kept confidential).
(d) To the extent a Loss occurs under Section 12.2(a), Hill and/or
Xxxxxx may elect to meet such obligation by delivery for cancellation of a
number of shares of Parent
44
Common Stock. Any stock delivered pursuant to this Section 12.3(d) shall be
valued at the average of (i) a price equal to the fair market value on the date
of delivery and (ii) and a price equal to the fair market value on the Closing
Date (the "Fair Market Value"). To the extent a Loss occurs under Section
12.2(b), Hill and Xxxxxx may elect to receive such payment (i) in cash, or (ii)
in a number of shares of Parent Common Stock having a Fair Market Value equal to
such payment amount.
Section 12.4 Limitations.
(a) No amounts of indemnity shall be payable as a result of any
claim arising under Section 12.2(a) or (b) unless and until the Parent Group or
the Stockholder Group, as the case may be, have suffered, incurred, sustained or
become subject to aggregate Losses thereunder in any amount in excess of
$175,000, in which event the Indemnified Party shall be entitled to seek
indemnity from the Indemnifying Party for any Losses in any amount in excess of
such $175,000 threshold.
(b) Notwithstanding anything to the contrary herein, the aggregate
sum of the indemnification obligations of (i) the Stockholder Group under
Section 12.2(a) shall be limited to a number of shares of Parent Common Stock
equal to thirty (30%) percent of the Share Consideration and (ii) the Parent
Group under Section 12.2(b) shall be limited to an amount not to exceed $8.2
million.
(c) The limitations set forth in this Section 12.4 shall not apply
to any fraudulent misrepresentation, to any Litigation Matter Losses or any
Personal Guaranty Losses.
(d) After the Closing, Article XII hereof will provide the exclusive
remedy for any breach of any representation or warranty or any covenant or
agreement contained in this Agreement or other claim arising out of this
Agreement or the Transactions.
(e) Any indemnification payment required to be made pursuant to this
Article XI shall be reduced by (i) any amount actually recovered by the
indemnified party under any insurance policy with respect to the indemnified
Loss and (ii) any net tax benefit actually realized by the indemnified party
during the year in which such indemnified party receives indemnification
hereunder.
Section 12.5 Correspondent Relationships. During the five (5) year period
following the Closing Date, Parent agrees to use its best efforts to cause the
Company to maintain correspondent clearing relationships with not less than two
(2) prominent "wall street" clearing firms, such firms to be reasonably
acceptable to the Company Stockholders.
Section 12.6 Termination of Personal Guaranties. In the event that Xxxxxx
and/or Hill execute personal guarantees with respect to Parent's obligations
under the New Line of Credit (as required under Section 7.10(c)), then the
Company shall cause Bear Xxxxxxx to release Xxxxxx and/or Hill from such
personal guarantees by the date that is one (1) year following the Closing Date.
45
ARTICLE XIII.
Termination of Agreement
Section 13.1 Termination. This Agreement may be terminated prior to the
Closing as follows:
(a) by either Parent or the Company if the Merger shall not have
been consummated on or before December 31, 2001;
(b) by the Company if any of the conditions specified in Article IX
or X have not been met or waived by the Company at such time as any such
condition is no longer capable of satisfaction;
(c) by Parent if any of the conditions specified in Article IX or X
have not been met or waived by Parent at such time as any such condition is no
longer capable of satisfaction;
(d) by the Company if Parent or Sub shall have breached any of their
respective obligations under Article VI of this Agreement in any material
respect and such breach continues for a period of ten days after the receipt of
notice of the breach from the Company;
(e) at any time on or prior to the Closing Date, by mutual written
consent of Parent, Sub and the Company.
Section 13.2 Effect of Termination. If this Agreement is terminated and
the transactions contemplated hereby are not consummated as described above,
this Agreement shall become void and be of no further force and effect.
ARTICLE XIV.
Definitions
Section 14.1 Definitions. The following terms when used in this Agreement
shall have the following meanings:
"Affiliate" (or "Affiliates" as the context may require), with respect to
any person, means any other person controlling, controlled by or under common
control with such person.
"Agreement" has the meaning set forth in the preamble.
"Business Day" means any day other than a Saturday or a Sunday, or a day
on which banking institutions in the State of New York are obligated by law or
executive order to close.
"Cause" has the meaning set forth for the term "Cause" (i) in the
Employment Agreement with respect to Xxxxxx, and (ii) in the Consulting
Agreement with respect to Hill.
46
"CERCLA" shall mean the Comprehensive Environmental Response Compensation
and Liability Act, 42 X.X.X.xx.xx. 9601 et seq. as amended.
"Certificates" has the meaning set forth in Section 3.3(a).
"Claims Notice" has the meaning set forth in Section 11.3(a).
"Closing" has the meaning set forth in Article XI.
"Closing Date" means December 31, 2001 or (b) such other date as the
parties hereto agree in writing.
"Code" has the meaning set forth in the recitals.
"Company" has the meaning set forth in the preamble.
"Company Common Stock" means the common stock of the Company.
"Company Disclosure Schedule" has the meaning set forth in the preamble to
Article IV.
"Company Documents" has the meaning set forth in Section 4.1.
"Company Material Adverse Effect" has the meaning set forth in Section
4.3.
"Company Software Program" means any software program, including its
Documentation (if any), owned by Company.
"Company Stockholders" has the meaning set forth in the Recitals.
"Contracts and other agreements" mean all contracts, agreements, supply
agreements, undertakings, indentures, notes, bonds, loans, instruments, leases,
mortgages, commitments or other binding arrangements.
"Consulting Agreement" means that certain Consulting Agreement dated as of
December 31, 2001 between Hill and the Company.
"Disability" has the meaning set forth in (i) the Employment Agreement
with respect to Xxxxxx, and (ii) in the Consulting Agreement with respect to
Hill.
"Distribution" means any distribution of cash, securities or property on
or in respect of the Company Common Stock, or Parent Common Stock, as the case
may be, whether as a dividend or otherwise.
"Documentation" means, with respect to a software program to the extent
the Company possess it, the source code (with comments), as well as any
pertinent commentary or explanation prepared by or the property of the Company
to render such materials understandable and useable by a trained computer
programmer, any programs (including compilers), "workbenches," tools and higher
level (or "proprietary") language necessary for the development, maintenance and
47
implementation of the software program, and any and all prepared and deliverable
materials relating to the software program, including without limitation all
notes, flow charts, programmer's or user's manuals.
"Effective Time" has the meaning set forth in Section 1.2.
"Employment Agreement" means that certain employment agreement dated as of
December 31, 2001 between Parent and Xxxxxx.
"Environmental Laws" means all federal, state, and local laws, ordinances,
rules, regulations, codes, duties under the common law or orders, including,
without limitation, any requirements imposed under any Permits, licenses,
judgments, decrees, agreements or recorded covenants, conditions, restrictions
or easements, the purpose of which is to protect the environment, human health,
safety or welfare, or which pertain to Hazardous Materials.
"Environmental Permits" shall mean all Permits, licenses, approvals,
authorizations, consents or registrations required under applicable
Environmental Laws in connection with the ownership, use and/or operation by the
Company of its properties.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the regulations and rulings issued thereunder.
"Financial Statements" has the meaning set forth in Section 4.10
"GAAP" means generally accepted accounting principles in the United States
of America from time to time in effect.
"Good Reason" has the meaning set forth for the term "Good Reason" (i) in
the Employment Agreement with respect to Xxxxxx, and (ii) the Consulting
Agreement with respect to Hill.
"Governmental Entities" means (a) any federal, state, county, local or
municipal government or administrative agency or political subdivision thereof,
(b) any governmental agency, authority, board, bureau, commission, department or
instrumentality, (c) any court or administrative tribunal, (d) any
non-governmental agency, tribunal or entity that is vested by a governmental
agency with applicable jurisdiction, or (e) any arbitration tribunal or other
non-governmental authority with applicable jurisdiction.
"Hazardous Materials" means (i) any substance or material regulated or
identified under Environmental Laws; (ii) gasoline, diesel fuel or other
petroleum hydrocarbons, PCBs or asbestos; or (iii) any pollutant, toxic
substance, or contaminant.
"Hill" has the meaning set forth in the preamble.
"Insurance Policies" has the meaning set forth in Section 4.25.
48
"Intellectual Property" means all (a) trademarks, service marks, trade
dress, logos, trade names, and corporate names and registrations and
applications for registration thereof, (b) patents, patent applications, and
provisional applications, including all continuations, divisionals and related
applications, (c) copyrights and registrations and applications for registration
thereof, (d) trade secrets and confidential business 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, copyrightable works,
financial, marketing, and business data, pricing and cost information, business
and marketing plans, and customer and supplier lists and information), and (e)
to the extent legally protectable, other proprietary rights.
"IRS" means the Internal Revenue Service or any successor agency or
department.
"Leased Real Property" has the meaning set forth in Section 4.18(a).
"Leases" has the meaning set forth in Section 4.18(a).
"Liabilities" has the meaning set forth in Section 4.11.
"Lien or other encumbrance" (or "liens or other encumbrances" or "liens or
other encumbrance" or "lien or other encumbrances" as the context may require or
any similar formulation) means any lien, claim, pledge, mortgage, assessment,
security interest, charge, option, right of first refusal, easement, servitude,
adverse claim, transfer restriction under any stockholder or similar agreement
or other encumbrance of any kind.
"Lock-Up Shares" means fifty percent (50%) of the number of shares
received by each Company Stockholder constituting the Share Consideration.
"Loss" has the meaning set forth in Section 12.2(a).
"Merger" has the meaning set forth in the recitals.
"NASD" means the National Associations of Securities Dealers, Inc.
"Non-Software Intellectual Property" means Intellectual Property rights in
items other than Third Party Software Programs.
"1940 Act" shall mean the Investment Company Act of 1940, as amended, and
the regulations and rulings issued thereunder.
"Parent" has the meaning set forth in the preamble.
"Parent Common Stock" means the common stock, par value $.0001 per share,
of Parent.
"Parent Disclosure Schedule" has the meaning set forth in the preamble to
Article V.
"Parent Documents" has the meaning set forth in Section 5.1.
49
"Parent Group" has the meaning set forth in Section 12.2(a).
"Parent Interim Financial Statements" has the meaning set forth in Section
5.4.
"Parent Material Adverse Effect" has the meaning set forth in Section 5.2.
"Parent SEC Documents" has the meaning set forth in Section 5.4.
"Percentage Ownership" means, as of the Effective Date the percentage
derived by dividing the total number of shares of common stock of the Company
owned by a stockholder of the Company by the total number of issued and
outstanding shares of common stock of the Company.
"Permits" (or "Permit" as the context may require) mean all licenses,
permits, certificates, certificates of occupancy, orders, approvals,
registrations, authorizations, inspections, qualifications and filings with and
under all federal, state, local or foreign laws and Governmental Entities.
"Person" (or "persons" as the context may require) means any individual,
corporation, partnership, firm, joint venture, association, joint-stock company,
trust, unincorporated organization, Governmental Entity or other entity.
"Plan" or "Plans" has the meaning set forth in Section 4.23(a).
"Property" (or "properties" as the context may require) means real,
personal or mixed property, tangible or intangible.
"Xxxxxx" has the meaning set forth in the preamble.
"Remedial Action" shall mean any action required to (i) clean up, remove
or treat Hazardous Materials; (ii) prevent a release or threat of release of any
Hazardous Material; (iii) perform pre-remedial studies, investigations or
post-remedial monitoring and care; (iv) cure a violation of Environmental Law or
(v) take corrective action under sections 3004(u), 3004(v) or 3008(h) of the
Resource Conservation Recovery Act, 42 U.S.C. xx.xx. 6901 et seq. or analogous
state law.
"SEC" means the Securities and Exchange Commission or any successor agency
or department.
"Securities Act" means the Securities Act of 1933, as amended, and the
regulations and rulings issued thereunder.
"Share Consideration" has the meaning set forth in Section 3.1(a).
"SIPC" means the Securities Investors Protection Corporation.
"Sub" has the meaning set forth in the preamble hereof.
50
"Sub Common Stock" means the common stock, par value $.01 per share, of
Sub.
"Subsidiaries" (or "Subsidiary" as the context may require), means each
entity as to which a person, directly or indirectly, owns or has the power to
vote, or to exercise a controlling influence with respect to, 50% or more of the
securities of any class of such entity, the holders of which are ordinarily, in
the absence of contingencies, entitled to vote for the election of directors (or
persons performing similar functions) of such entity.
"Surviving Corporation" has the meaning set forth in Section 1.1.
"Taxes" (or "Tax" as the context may require) means all federal, state,
county, local, foreign and other taxes (including, without limitation, income,
intangibles, premium, excise, sales, use, gross receipts, franchise, ad valorem,
severance, capital levy, transfer, employment and payroll-related, and property
taxes, import duties and other governmental charges and assessments), and
includes interest, additions to tax and penalties with respect thereto.
"Third Party Software Program" means any software program, including the
Documentation (if any) in the Company's possession, developed by a third party
and used by Company in developing a Company Software Program or used by the
Company in conducting its internal business.
"Termination Date" has the meaning set forth for the term "Termination
Date" (i) in the Employment Agreement with respect to Xxxxxx, and (ii) in the
Consulting Agreement with respect to Hill.
"Transaction Expenses" has the meaning set forth in Section 6.9.
"Washington Corporation Law" has the meaning set forth in Section 1.1.
ARTICLE XV.
Miscellaneous
Section 15.1 Publicity. So long as this Agreement is in effect, prior to
making a press release or other public statement with respect to the
transactions contemplated by this Agreement, any party (a "Releasing Party")
will consult with the other party (the "Receiving Party") and provide such other
party with a draft of such press release, except as may otherwise be required by
law or stock exchange regulations.
Section 15.2 Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally, sent
by facsimile transmission or sent by certified, registered, express mail or
nationally recognized courier service, postage prepaid. Any such notice shall be
deemed given when so delivered personally or successfully sent by facsimile
transmission or, if mailed, five days after the date of deposit in the United
States mails, as follows:
51
(i) if to Parent or Sub, to:
DirectPlacement, Inc.
0000 Xxxxx Xxxxx
Xxxxx 000
Xxx Xxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxxxxx
and
Berlack, Israels & Xxxxxxxx LLP
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxxx, Esq.
(ii) if to the Company, Xxxxxx or Xxxx, to:
PCS Securities, Inc.
000 Xxxxxxxx Xxxxxx
Xxxxx 000
Xxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxx
Attention: Xxxxxxx X. Xxxx, III
with, a concurrent copy to:
Xxxxxxx Xxxx & Xxxxx, LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx Xxxxx, Esq.
Any party may by notice given in accordance with this Section 15.2
to the other parties designate another address or person for receipt of notices
hereunder.
Section 15.3 Entire Agreement. This Agreement (including the exhibits and
schedules hereto) and the agreements contemplated hereby, contain the entire
agreement among the parties with respect to the subject matter hereof, and
supersede all prior agreements, written or oral, with respect thereto.
Section 15.4 Waivers and Amendments; Non Contractual Remedies;
Preservation of Remedies; Liability. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms hereof may be waived, only by a
written instrument signed by each of the parties or, in the case of waiver, by
the party waiving compliance. No delay on the part of any party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof. Nor
shall any waiver on the part of any party of any such right, power or privilege,
nor any single or
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partial exercise of any such right, power or privilege, preclude any further
exercise thereof or the exercise of any other right, power or privilege.
Section 15.5 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
Section 15.6 Binding Effect; No Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns and heirs and legal representatives. Neither this
Agreement, nor any right hereunder, may be assigned by any party without the
prior written consent of the other party hereto; provided, however, that Parent
and Sub may assign their rights (but not their obligations) hereto to their
Subsidiaries.
Section 15.7 Third Party Beneficiaries. Nothing in this Agreement is
intended or shall be construed to give any person, other than the parties
hereto, any legal or equitable right, remedy or claim under or in respect of
this Agreement or any provision contained herein.
Section 15.8 Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the parties
hereto.
Section 15.9 Exhibits and Schedules. The exhibits and schedules hereto are
a part of this Agreement as if fully set forth herein. All references herein to
Articles, Sections, subsections, clauses, exhibits and schedules shall be deemed
references to such parts of this Agreement, unless the context shall otherwise
require.
Section 15.10 Headings. The headings in this Agreement are for reference
only, and shall not affect the interpretation of this Agreement.
Section 15.11 Submission to Jurisdiction; Venue. Any action or proceeding
against any party hereto with respect to this Agreement shall be brought in the
courts of the State of New York or of the United States for the District of New
York, and, by execution and delivery of this Agreement, each party hereto hereby
irrevocably accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. Each party hereto
irrevocably consents to the service of process at any of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to such party at its address set
forth in Section 15.2, such service to become effective 30 days after such
mailing. Nothing herein shall affect the right of any party hereto to serve
process on any other party hereto in any other manner permitted by law. Each
party hereto irrevocably waives any objection which it may now have or hereafter
have to the laying of venue of any of the aforesaid actions or proceedings
arising out of or in connection with this Agreement brought in the courts
referred to above and hereby further irrevocably waives and agrees not to plead
or claim in any such court that any such action or proceeding brought in any
such court has been brought in an inconvenient forum.
53
Section 15.12 Disputes and Arbitration. The following procedures shall be
used to resolve any controversy or claim ("dispute") as provided in this
Agreement. If any of these provisions are determined to be invalid or
unenforceable, the remaining provisions shall remain in effect and binding on
the parties to the fullest extent permitted by law.
(a) Mediation.
(i) A dispute shall be submitted to mediation by written notice to the
other party or parties. In the mediation process, the parties will try to
resolve their differences voluntarily with the aid of an impartial mediator, who
will attempt to facilitate negotiations. The mediator will be selected by
agreement of the parties. If the parties cannot agree on a mediator, a mediator
shall be designated by the American Arbitration Association ("AAA") or
JAMS/Endispute at the request of a party. Any mediator so designated must be
acceptable to all parties.
(ii) The mediation will be conducted as specified by the mediator and
agreed upon by the parties. The parties agree to discuss their differences in
good faith and to attempt, with the assistance of the mediator, to reach an
amicable resolution of the dispute.
(iii) The mediation will be treated as a settlement discussion and
therefore will be confidential. The mediator may not testify for either party in
any later proceedings relating to the dispute. No recording or transcript shall
be made of the mediation proceedings.
(iv) Each party will bear its own costs in the mediation. The fees and
expenses of the mediator will be shared equally by the parties.
(b) Arbitration.
(i) If a dispute has not been resolved within 90 days after the written
notice beginning the mediation process (or a longer period, if the parties agree
to extend the mediation), the mediation shall terminate and the dispute will be
settled by arbitration. The arbitration will be conducted in the County and City
of New York in accordance with the procedures in this document and the
Arbitration Rules for Commercial Disputes of the AAA as in effect on the date
hereof ("AAA Rules"). In the event of a conflict, the provisions of this
document will control.
(ii) The arbitration will be conducted before a panel of three
arbitrators, regardless of the size of the dispute, one of whom will be selected
by the Company Stockholders, one of whom will be selected by the Parent and one
of whom will be agreed upon by the two previously selected arbitrators and
otherwise to be selected as provided in the AAA Rules. Any issue concerning the
extent to which any dispute is subject to arbitration, or concerning the
applicability, interpretation or enforceability of these procedures, including
any contention that all or part of these procedures are invalid and
unenforceable, shall be governed by the Federal Arbitration Act and resolved by
the arbitrators. No potential arbitrator may serve on the panel unless he or she
has agreed in writing to abide and be bound by these procedures.
(iii) All aspects of the arbitration shall be treated as confidential.
Neither the parties nor the arbitrators may disclose the existence, content or
results of the arbitration, except as necessary to comply with legal or
regulatory requirements. Before making any such disclosure, a
54
party shall give written notice to all other parties and shall afford such
parties a reasonable opportunity to protect their interests.
(iv) The result of the arbitration will be binding on the parties, and
judgment on the arbitrators' award may be entered by any party in any court
having jurisdiction, including the State and/or Federal Courts located in the
City of New York.
(v) Additionally, any party may seek injunctive relief from any Court of
competent jurisdiction in the City of New York. In the event that either party
has to seek injunctive relief or any provisional remedy, the parties to this
Agreement consent to jurisdiction in the Federal and/or State Courts located in
the City of New York.
Section 15.13 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
Section 15.14 Severability. If any court of competent jurisdiction
determines that any provision of this Agreement is not enforceable in accordance
with its terms, then such provision shall be deemed to be modified so as to
apply such provision, as modified, to the protection of the legitimate interests
of the parties hereto to the fullest extent legally permissible and shall not
affect the validity or enforceability of the remaining provisions of this
Agreement.
[Signature page to follow]
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IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
DIRECTPLACEMENT, INC.
By: /s/ Xxxxx X. Xxxxxxxxxx
--------------------------------------------
Name: Xxxxx X. Xxxxxxxxxx
Title: President and Chief Executive Officer
PCS MERGER CORP.
By: /s/ Xxxxx X. Xxxxxxxxxx
--------------------------------------------
Name: Xxxxx X. Xxxxxxxxxx
Title: President and Chief Executive Officer
PCS SECURITIES, INC.
By: /s/ Xxxxxxx X. Xxxxxx
--------------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: President
/s/ Xxxxxxx X. Xxxxxx
------------------------------------------------
Xxxxxxx X. Xxxxxx
/s/ Xxxxxxx X. Xxxx, III
------------------------------------------------
Xxxxxxx X. Xxxx, III
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