Exhibit 1
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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
E*TRADE GROUP, INC.
OPUS ACQUISITION CORP.
AND
WEB STREET, INC.
MAY 20, 2001
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TABLE OF CONTENTS
PAGE
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ARTICLE 1
THE OFFER
Section 1.01. The Offer.......................................................1
Section 1.02. Company Action..................................................3
Section 1.03. Directors.......................................................4
ARTICLE 2
THE MERGER
Section 2.01. The Merger......................................................5
Section 2.02. Effective Time; Closing.........................................5
Section 2.03. Effect Of The Merger............................................6
Section 2.04. Certificate Of Incorporation; Bylaws............................6
Section 2.05. Directors And Officers..........................................6
Section 2.06. Effect On Capital Stock.........................................6
Section 2.07. Exchange Of Certificates........................................7
Section 2.08. No Further Ownership Rights In Company Common Stock............11
Section 2.09. Taking Of Necessary Action; Further Action.....................11
Section 2.10. Dissenting Shares..............................................11
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF COMPANY
Section 3.01. Organization; Subsidiaries.....................................12
Section 3.02. Company Capitalization.........................................13
Section 3.03. Obligations With Respect To Capital Stock......................14
Section 3.04. Authority; Non-Contravention...................................15
Section 3.05. SEC Filings; Company Financial Statements......................16
Section 3.06. Absence Of Certain Changes Or Events...........................17
Section 3.07. Taxes..........................................................18
Section 3.08. Title To Properties............................................20
Section 3.09. Intellectual Property..........................................20
Section 3.10. Compliance With Laws...........................................23
Section 3.11. Litigation.....................................................24
Section 3.12. Employee Benefit Plans.........................................24
Section 3.13. Certain Agreements.............................................28
Section 3.14. Brokers' And Finders' Fees.....................................30
Section 3.15. Insurance......................................................31
Section 3.16. Disclosure.....................................................31
Section 3.17. Fairness Opinion...............................................31
Section 3.18. Affiliates.....................................................31
Section 3.19. Environmental Matters..........................................31
Section 3.20. Investment Company Act.........................................32
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Section 3.21. Related Party Transactions.....................................32
Section 3.22. Broker-Dealer Compliance.......................................32
Section 3.23. Financial Services.............................................33
Section 3.24. Customer Accounts..............................................33
Section 3.25. Risk Management Instruments....................................33
Section 3.26. Investment Securities..........................................33
Section 3.27. Repurchase Agreements..........................................34
Section 3.28. Books And Records..............................................34
Section 3.29. Commission Rates...............................................34
Section 3.30. Net Capital....................................................34
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Section 4.01. Organization Of Parent And Merger Sub..........................35
Section 4.02. Parent And Merger Sub Capitalization...........................35
Section 4.03. Authority; Non-contravention...................................36
Section 4.04. Sec Filings; Parent Financial Statements.......................37
Section 4.05. Absence Of Certain Changes Or Events...........................38
Section 4.06. Disclosure Documents...........................................38
Section 4.07. Litigation.....................................................39
Section 4.08. Compliance With Laws...........................................39
ARTICLE 5
CONDUCT PRIOR TO THE EFFECTIVE TIME
Section 5.01. Conduct Of Business By Company.................................39
Section 5.02. Tax Matters....................................................42
ARTICLE 6
ADDITIONAL AGREEMENTS
Section 6.01. Stockholder Approval; Preparation Of Registration Statement
And Proxy Statement/Prospectus.................................42
Section 6.02. Regulatory Filings.............................................44
Section 6.03. No Solicitation................................................45
Section 6.04. Obligations Of Merger Sub......................................47
Section 6.05. Voting Of Shares...............................................48
Section 6.06. Registration Statement.........................................48
Section 6.07. Confidentiality; Access To Information.........................48
Section 6.08. Public Disclosure..............................................48
Section 6.09. Reasonable Efforts; Notification...............................49
Section 6.10. Warrants, Stock Options And ESPP...............................50
Section 6.11. Accounts Maintenance And Transition Period.....................51
Section 6.12. Company Trademarks.............................................51
Section 6.13. Indemnification................................................51
Section 6.14. NYSE Listing...................................................52
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Section 6.15. Letters Of Accountants.........................................52
Section 6.16. Takeover Statutes..............................................52
Section 6.17. Tax Matters....................................................53
Section 6.18. Escrow.........................................................53
ARTICLE 7
CONDITIONS TO THE MERGER
Section 7.01. Conditions To Obligations Of Each Party To Effect The Merger...54
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
Section 8.01. Termination....................................................55
Section 8.02. Notice Of Termination; Effect Of Termination...................56
Section 8.03. Fees And Expenses..............................................56
Section 8.04. Amendment......................................................57
Section 8.05. Extension; Waiver..............................................58
ARTICLE 9
GENERAL PROVISIONS
Section 9.01. Non-survival Of Representations And Warranties.................58
Section 9.02. Notices........................................................58
Section 9.03. Interpretation; Certain Defined Terms..........................59
Section 9.04. Counterparts...................................................60
Section 9.05. Entire Agreement; Third Party Beneficiaries....................60
Section 9.06. Severability...................................................60
Section 9.07. Other Remedies; Specific Performance...........................60
Section 9.08. Governing Law..................................................61
Section 9.09. Rules Of Construction..........................................61
Section 9.10. Assignment.....................................................61
Section 9.11. Waiver Of Jury Trial...........................................61
Exhibit A......Form of Stockholders Agreement
Exhibit B......Form of Affiliate Letter
Exhibit C......Form of Escrow Agreement
Exhibit D......Escrow Threshold Schedule
Exhibit E......Schedule of Net Termination Payments/Receipts and Net Cash
Position
Exhibit F......Schedule of Escrow Executives' Contributions to Escrow
Exhibit G......Form of Non-Competition Agreement
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of May 20, 2001, among E*TRADE Group, Inc., a Delaware corporation
("Parent"), Opus Acquisition Corp., a Delaware corporation and a wholly owned
first-tier subsidiary of Parent ("Merger Sub"), and Web Street, Inc., a
Delaware corporation ("Company").
RECITALS
A. The respective Boards of Directors of Parent, Merger Sub and Company
have approved this Agreement (in the case of Parent, through approval of the
Finance Committee of Parent's Board of Directors pursuant to authority
delegated by the Board of Directors of Parent), and declared advisable that
Merger Sub make an exchange offer (the "Offer") to exchange shares of common
stock, par value $.01 per share, of Parent ("Parent Common Stock") for all of
the issued and outstanding shares of common stock, par value $.01 per share
("Company Common Stock"), of Company (the "Shares") and the merger of Merger
Sub with and into Company (the "Merger") upon the terms and subject to the
conditions of this Agreement and in accordance with the General Corporation Law
of the State of Delaware ("Delaware Law").
B. It is intended that, for United States federal income tax purposes, the
Offer and the Merger (together, the "Transaction") shall be treated as an
integrated transaction and shall qualify as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"). For accounting purposes, the Merger is intended to be accounted for as
a "purchase" under United States generally accepted accounting principles
("GAAP").
C. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's willingness to enter into this Agreement, certain
stockholders of Company are entering into a Stockholders Agreement with Parent
in the form of Exhibit A (the "Stockholders Agreement").
In consideration of the foregoing and the representations, warranties,
covenants and agreements set forth in this Agreement, the parties agree as
follows:
ARTICLE 1
THE OFFER
Section 1.01. The Offer. (a) Provided that (i) this Agreement shall not
have been terminated in accordance with Section 8.01 and (ii) none of the events
set forth in Sections (a), (b) or (f) of Annex I hereto shall have occurred and
be continuing, Merger Sub shall, as promptly as practicable after the date
hereof, commence the Offer. Each Share accepted by Merger Sub pursuant to the
Offer shall be exchanged for the right to receive from Merger Sub that number
of fully paid and nonassessable shares of Parent Common Stock equal to the
Exchange Ratio. For purposes of this Agreement, the "Exchange Ratio" shall mean
0.1864. The initial expiration date of the Offer shall be the twentieth
business day following commencement of the Offer. The Offer shall be subject to
the condition that there shall be validly tendered in accordance with the terms
of the Offer prior to the expiration date of the Offer and not withdrawn a
number of Shares which, together with the Shares then owned by Parent and
Merger Sub (if any) represents at least a majority of the total number of
outstanding Shares, assuming the exercise of all then-outstanding phantom
stock, options, warrants, rights and convertible securities (if any) and the
issuance of all Shares that Company is obligated to issue thereunder (such
total number of outstanding Shares being hereinafter referred to as the "Fully
Diluted Shares") (the "Minimum Condition") and to the other conditions set
forth in Annex I hereto. Parent and Merger Sub expressly reserve the right to
waive the conditions to the Offer and to make any change in the terms or
conditions of the Offer; provided that, without the prior written consent of
Company, no change may be made which decreases the number of Shares sought in
the Offer, changes the form or amount of consideration to be paid, imposes
conditions to the Offer in addition to those set forth in Annex I, changes or
waives the Minimum Condition, extends the Offer (except as set forth in the
following two sentences), or makes any other change to any of the terms and
conditions to the Offer which is adverse to the holders of Shares. Subject to
the terms of the Offer and this Agreement and the satisfaction (or waiver to
the extent permitted by this Agreement) of the conditions to the Offer, Merger
Sub shall accept for payment all Shares validly tendered and not withdrawn
pursuant to the Offer as soon as practicable after the applicable expiration
date of the Offer and shall pay for all such Shares promptly after acceptance;
provided that (x) Merger Sub shall extend the Offer for successive extension
periods not in excess of 10 business days per extension if, at the scheduled
expiration date of the Offer or any extension thereof, any of the conditions to
the Offer shall not have been satisfied, until such time as such conditions are
satisfied or waived, and (y) Merger Sub may extend the Offer if and to the
extent required by the applicable rules and regulations of the Securities
Exchange Commission ("SEC") (each extension pursuant to clause (x) or (y), a
"Mandatory Extension"). In addition, Merger Sub may extend the Offer after the
acceptance of Shares thereunder for a further period of time (each, an
"Optional Extension") by means of a subsequent offering period under Rule
14d-11 promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), of not more than 20 business days to meet the objective (which
is not a condition to the Offer) that there be validly tendered, in accordance
with the terms of the Offer, prior to the expiration date of the Offer (as so
extended) and not withdrawn a number of Shares which, together with Shares then
owned by Parent and Merger Sub, represents at least 90% of the outstanding
Shares.
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Notwithstanding anything to the contrary set forth herein, no certificates
or scrip representing fractional shares of Parent Common Stock shall be issued
in connection with the exchange of Parent Common Stock for Shares upon
consummation of the Offer, and in lieu thereof each tendering stockholder who
would otherwise be entitled to a fractional share of Parent Common Stock in the
Offer will be paid an amount in cash equal to the product obtained by
multiplying (A) the fractional share interest to which such holder would
otherwise be entitled by (B) the closing price for a share of Parent Common
Stock as reported on the New York Stock Exchange (the "NYSE") on the first date
Merger Sub accepts Shares for exchange in the Offer.
(b) As soon as practicable after the date of this Agreement (but in any
event not later than June 20, 2001), Parent shall prepare and file with the SEC
a registration statement on Form S-4 to register the offer and sale of Parent
Common Stock pursuant to the Offer (the "Registration Statement"). The
Registration Statement will include a preliminary prospectus containing the
information required under Rule 14d-4(b) promulgated under the Exchange Act
(the "Preliminary Prospectus"). As soon as practicable on the date of
commencement of the Offer, Parent and Merger Sub shall (i) file with the SEC a
Tender Offer Statement on Schedule TO with respect to the Offer which will
contain or incorporate by reference all or part of the Preliminary Prospectus
and form of the related letter of transmittal (together with any supplements or
amendments thereto, collectively the " Offer Documents") and (ii) cause the
Offer Documents to be disseminated to holders of Shares. Parent, Merger Sub and
Company each agree promptly to correct any information provided by it for use
in the Registration Statement or the Offer Documents if and to the extent that
it shall have become false or misleading in any material respect. Parent and
Merger Sub agree to take all steps necessary to cause the Offer Documents as so
corrected to be filed with the SEC and to be disseminated to holders of Shares,
in each case as and to the extent required by applicable federal securities
laws.
Section 1.02. Company Action. (a) Company hereby consents to the Offer and
represents that its Board of Directors, at a meeting duly called and held, has
by unanimous vote of the directors participating therein (i) determined that
this Agreement and the transactions contemplated hereby, including the Offer and
the Merger, are advisable and are fair to and in the best interest of Company's
stockholders, (ii) approved and adopted this Agreement and the transactions
contemplated hereby, including the Offer and the Merger, which approval
constitutes approval under Section 203 of Delaware Law such that the Offer, the
Merger, this Agreement and the other transactions contemplated hereby are not
and shall not be subject to any restriction pursuant to Section 203 of Delaware
Law, and (iii) resolved to recommend acceptance of the Offer and approval and
adoption of this Agreement and the Merger by Company's stockholders (the
recommendations referred to in this clause (iii) are collectively referred to in
this Agreement as the "Recommendations"). Company further represents that
Xxxxxxxx, Xxxxx & Company Inc. has rendered to Company's Board of Directors
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its opinion that, as of the date of this Agreement, the consideration to be
received by Company's stockholders pursuant to this Agreement is fair to such
stockholders from a financial point of view. Company has been advised that all
of its directors and executive officers currently intend to tender their Shares
pursuant to the Offer.
(b) As soon as practicable on the day that the Offer is commenced, Company
will file with the SEC and disseminate to holders of Shares a Solicitation/
Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9") which shall,
subject to Section 6.03(b), reflect the Recommendations. Company, Parent and
Merger Sub each agree promptly to correct any information provided by it for
use in the Schedule 14D-9 if and to the extent that it shall have become false
or misleading in any material respect. Company agrees to take all steps
necessary to cause the Schedule 14D-9 as so corrected to be filed with the SEC
and to be disseminated to holders of Shares, in each case as and to the extent
required by applicable federal securities laws. Parent and its counsel shall be
given a reasonable opportunity to review and comment on the Schedule 14D-9 and
any material amendments thereto prior to its being filed with the SEC.
(c) Company will promptly furnish Parent and Merger Sub pursuant to the
terms of the Confidentiality Agreement, dated April 23, 2001, between Company
and Parent (the "Confidentiality Agreement") with a list of its stockholders,
mailing labels and any available listing or computer file containing the names
and addresses of all record holders of Shares and lists of securities positions
of Shares held in stock depositories, in each case as of the most recent
practicable date, and will provide to Parent and Merger Sub such additional
information (including, without limitation, updated lists of stockholders,
mailing labels and lists of securities positions) and such other assistance as
Parent or Merger Sub may reasonably request in connection with the Offer.
Section 1.03. Directors. (a) Effective upon the first acceptance for
payment by Merger Sub of Shares pursuant to the Offer, which shall occur as soon
as practicable after the Minimum Condition and all other conditions to the Offer
hereunder have been fulfilled (the "Appointment Time"), Parent shall be entitled
to designate the number of directors, rounded up to the next whole number, on
Company's Board of Directors that equals the product of (i) the total number of
directors on Company's Board of Directors (giving effect to the election of any
additional directors pursuant to this Section 1.03) and (ii) the percentage that
the number of Shares owned by Parent or Merger Sub (including Shares accepted
for payment) bears to the total number of Shares outstanding, and Company shall
take all action reasonably necessary to cause Parent's designees to be elected
or appointed to Company's Board of Directors, including, without limitation,
increasing the number of directors, or seeking and accepting resignations of
incumbent directors, or both; provided that, prior to the Effective Time (as
defined below), Company's Board of Directors shall always have at least two
members who were directors of Company prior to consummation of the Offer and
designated by Xxxxxx X. Xxx and Avi Fox (who may designate
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themselves) (each such member, a "Continuing Director") and Parent shall take
any and all actions required or advisable to cause the election of each
Continuing Director to the Company's Board of Directors during such period. If
the number of Continuing Directors is reduced to less than two for any reason
prior to the Effective Time, the remaining and departing Continuing Directors
shall be entitled to designate a person to fill the vacancy and Parent shall
cause the election of such person. Notwithstanding anything in this Agreement
to the contrary, if Parent's designees are elected to Company's Board of
Directors prior to the Effective Time, the affirmative vote of the Continuing
Directors shall be required for Company to (a) amend or terminate this
Agreement or agree or consent to any amendment or termination of this
Agreement, (b) waive any of Company's rights, benefits or remedies hereunder,
(c) extend the time for performance of Parent's and Merger Sub's respective
obligations hereunder, or (d) approve any other action by Company which could
adversely affect the interests of the stockholders of Company (other than
Parent, Merger Sub and their affiliates (other than Company and its
subsidiaries)), with respect to the transactions contemplated by this Agreement
or otherwise, except to the extent that such action similarly adversely affects
all holders of Parent Common Stock.
(b) Company's obligations to appoint designees to its Board of Directors
shall be subject to Section 14(f) of the Exchange Act and Rule 14f-l
promulgated thereunder. Company shall promptly take all actions required
pursuant to Section 1.03 and Rule 14f-l in order to fulfill its obligations
under this Section 1.03 and shall include in the Schedule 14D-9 such
information with respect to Company and its officers and directors as is
required under Section 14(f) and Rule 14f-l to fulfill its obligations under
this Section 1.03. Parent will supply to Company in writing and be solely
responsible for any information with respect to itself and its nominees,
officers, directors and affiliates required by Section 14(f) and Rule 14f-1.
ARTICLE 2
THE MERGER
Section 2.01. The Merger. Upon the terms and subject to the conditions of
this Agreement and the applicable provisions of Delaware Law, at the Effective
Time, Merger Sub shall be merged with and into Company, the separate corporate
existence of Merger Sub shall cease, and Company shall continue as the
surviving corporation of the Merger (the "Surviving Corporation").
Section 2.02. Effective Time; Closing. Subject to the provisions of this
Agreement, Company and Merger Sub will file a certificate of merger, in such
appropriate form as determined by the parties, with the Secretary of State of
the State of Delaware in accordance with the relevant provisions of Delaware
Law (the "Certificate of Merger") (the time of such filing (or such later time
as may be agreed in writing by Company and Parent and specified in the
Certificate of
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Merger) being the "Effective Time") as soon as practicable on or after the
Closing Date. The closing of the Merger (the "Closing") shall take place at the
offices of Xxxxx Xxxx & Xxxxxxxx, 0000 Xx Xxxxxx Xxxx, Xxxxx Xxxx, Xxxxxxxxxx,
at a time and date to be specified by the parties, which shall be no later than
the second business day after the satisfaction or waiver of the conditions set
forth in Article 7, or at such other time, date and location as the parties
hereto agree in writing (the "Closing Date").
Section 2.03. Effect Of The Merger. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement and the applicable provisions
of Delaware Law. Without limiting the generality of the foregoing, at the
Effective Time, the Surviving Corporation shall possess all the property,
rights, privileges, powers and franchises of Company and Merger Sub, and shall
be subject to all debts, liabilities and duties of Company and Merger Sub. .
Certificate Of Incorporation; Bylaws. At the Effective Time, the
Section 2.04. Certificate of Incorporation; Bylaws. (a) At the Effective
Time, the Certificate of Incorporation of Merger Sub, as in effect immediately
prior to the Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended as provided by law and such
Certificate of Incorporation of the Surviving Corporation; provided, however,
that at the Effective Time Article I of the Certificate of Incorporation of the
Surviving Corporation shall be amended to read: "The name of the corporation is
`Web Street, Inc.'"
(b) At the Effective Time, the Bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation until thereafter amended.
Section 2.05. Directors And Officers. The initial directors of the
Surviving Corporation shall be the directors of Merger Sub immediately prior to
the Effective Time, until their respective successors are duly elected or
appointed and qualified. The initial officers of the Surviving Corporation
shall be the officers of Merger Sub immediately prior to the Effective Time,
until their respective successors are duly appointed.
Section 2.06. Effect On Capital Stock. Subject to the terms and conditions
of this Agreement, at the Effective Time, by virtue of the Merger and without
any action on the part of Merger Sub, Company or the holders of any of the
following securities:
(a) Conversion of Company Common Stock. Each share of Company Common Stock
issued and outstanding immediately prior to the Effective Time, other than any
shares of Company Common Stock to be canceled pursuant to Section 2.06(b), will
be canceled and extinguished and automatically converted (subject to Section
2.06(e)) into the right to receive the number of shares of Parent Common Stock
equal to the Exchange Ratio upon surrender of the certificate representing such
share of Company Common Stock in the manner provided in
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Section 2.07 (together with the cash in lieu of fractional shares of Parent
Common Stock as specified below, the "Merger Consideration"). No fraction of a
share of Parent Common Stock will be issued by virtue of the Merger, but in
lieu thereof, a cash payment shall be made pursuant to Section 2.07(e).
(b) Cancellation of Company-Owned and Parent-Owned Stock. Each share of
Company Common Stock held by Company or owned by Parent or Merger Sub
immediately prior to the Effective Time shall be canceled and extinguished
without any conversion thereof.
(c) Stock Options; Employee Stock Purchase Plan; Warrants. At the
Effective Time, all warrants to purchase Company Common Stock then outstanding
shall be assumed by Parent in accordance with Section 6.10 of this Agreement.
At the Appointment Time, all options to purchase Company Common Stock then
outstanding, if any, whether under (i) Company's Stock Option Plan (the "1998
Option Plan"), (ii) Company's 1999 Stock Incentive Plan (the "1999 Option
Plan"), (iii) Company's 2000 Stock Plan (the "2000 Option Plan," and together
with the 1998 Option Plan and the 1999 Option Plan, the "Company Option
Plans"), or (iv) otherwise, shall be treated as set forth in Section 6.10 of
this Agreement. At the Effective Time, all options to purchase Company Common
Stock then outstanding, if any, whether under (i) the Company Option Plans, or
(ii) otherwise, shall be cancelled and Company Option Plans terminated. Rights
outstanding under Company's 1999 Employee Stock Purchase Plan (the "Company
ESPP") shall be treated as set forth in Section 6.10 of this Agreement.
(d) Capital Stock of Merger Sub. Each share of common stock, par value
$.01 per share, of Merger Sub (the "Merger Sub Common Stock") issued and
outstanding immediately prior to the Effective Time shall be converted into one
validly issued, fully paid and nonassessable share of common stock, $.01 par
value per share, of the Surviving Corporation. Following the Effective Time,
each certificate evidencing ownership of shares of Merger Sub common stock
shall evidence ownership of such shares of capital stock of the Surviving
Corporation.
(e) Adjustments to Exchange Ratio. If, during the period between the date
of this Agreement and the Effective Time, any change in the outstanding shares
of capital stock of Parent or Company shall occur, including by reason of any
reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, or any stock dividend thereon with a record date during
such period, the Exchange Ratio, the Merger Consideration and any other amounts
payable pursuant to the Offer, the Merger or otherwise pursuant to this
Agreement shall be appropriately adjusted to reflect such changes.
Section 2.07. Exchange Of Certificates. (a) Exchange Agent. Parent shall
select an institution reasonably acceptable to Company to act as the exchange
agent (the "Exchange Agent") in the Merger.
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(b) Exchange Fund. Promptly after the Effective Time, Parent shall make
available to the Exchange Agent for exchange in accordance with this Article 2,
the shares of Parent Common Stock (such shares of Parent Common Stock, together
with cash in lieu of fractional shares and any dividends or distributions with
respect thereto, are hereinafter referred to as the "Exchange Fund") issuable
pursuant to Section 2.06 in exchange for outstanding shares of Company Common
Stock.
(c) Exchange Procedures. Promptly after the Effective Time, Parent shall
instruct the Exchange Agent to mail to each holder of record of a certificate
or certificates ("Certificates") which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock whose shares were
converted into the right to receive shares of Parent Common Stock pursuant to
Section 2.06, (i) a letter of transmittal in customary form (that shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Exchange Agent
and shall contain such other provisions as Parent may reasonably specify) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Parent Common Stock. Upon
surrender of Certificates for cancellation to the Exchange Agent together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, the holders of such Certificates shall be
entitled to receive in exchange therefor certificates representing the number
of whole shares of Parent Common Stock into which their shares of Company
Common Stock were converted at the Effective Time, payment in lieu of
fractional shares that such holders have the right to receive pursuant to
Section 2.07(e) and any dividends or distributions payable pursuant to Section
2.07(d), and the Certificates so surrendered shall forthwith be canceled. Until
so surrendered, outstanding Certificates will be deemed from and after the
Effective Time, for all corporate purposes, to evidence only the right to
receive the number of full shares of Parent Common Stock into which such shares
of Company Common Stock shall have been so converted and the right to receive
an amount in cash in lieu of the issuance of any fractional shares in
accordance with Section 2.07(e) and any dividends or distributions payable
pursuant to Section 2.07(d). No interest will be paid or accrued on any cash in
lieu of fractional shares of Parent Common Stock or on any unpaid dividends or
distributions payable to holders of Certificates. In the event of a transfer of
ownership of shares of Company Common Stock which is not registered in the
transfer records of Company, a certificate representing the proper number of
shares of Parent Common Stock may be issued to a transferee if the Certificate
representing such shares of Company Common Stock is presented to the Exchange
Agent, accompanied by all documents required to evidence and effect such
transfer and by evidence that any applicable stock transfer taxes have been
paid.
(d) Distributions With Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the date of this Agreement with
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respect to Parent Common Stock with a record date after the Effective Time will
be paid to the holders of any unsurrendered Certificates with respect to the
shares of Parent Common Stock represented thereby until the holders of record
of such Certificates shall surrender such Certificates. Subject to applicable
law, following surrender of any such Certificates, the Exchange Agent shall
deliver to the holders of certificates representing whole shares of Parent
Common Stock issued in exchange therefor, without interest, (i) promptly, the
amount of any cash payable with respect to a fractional share of Parent Common
Stock to which such holder is entitled pursuant to Section 2.07(e) and the
amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of Parent
Common Stock, and (ii) at the appropriate payment date, the amount of dividends
or other distributions with a record date after the Effective Time but prior to
surrender and a payment date occurring after surrender, payable with respect to
such whole shares of Parent Common Stock.
(e) Fractional Shares. As promptly as practicable following the Effective
Time, the Exchange Agent shall determine the excess of (A) the number of full
shares of Parent Common Stock delivered to the Exchange Agent pursuant to
Section 2.07(b), over (B) the aggregate number of full shares of Parent Common
Stock to be distributed to holders of Company Common Stock pursuant to Section
2.07(c) (such excess, the "Excess Shares"). As soon as practicable after the
Effective Time, the Exchange Agent, as agent for the holders of Company Common
Stock, shall sell the Excess Shares at then prevailing prices on the NYSE in
the manner set forth in paragraph (ii) of this Section 2.07(e).
(ii) The sale of the Excess Shares by the Exchange Agent shall be
executed on the NYSE and shall be executed in round lots to the extent
practicable. The Exchange Agent shall use all commercially reasonable
efforts to complete the sale of the Excess Shares as promptly following
the Effective Time as, in the Exchange Agent's reasonable judgment, is
practicable consistent with obtaining the best execution of such sales in
light of prevailing market conditions. Until the net proceeds of such
sales have been distributed to the holders of Company Common Stock, the
Exchange Agent will hold such proceeds in trust for the holders of Company
Common Stock. The Exchange Agent will determine the portion of such net
proceeds to which each holder of Company Common Stock shall be entitled,
if any, by multiplying the amount of the aggregate net proceeds by a
fraction the numerator of which is the amount of the fractional share
interest to which such holder of Company Common Stock is entitled (after
taking into account all shares of Parent Common Stock to be issued to such
holder) and the denominator of which is the aggregate amount of fractional
share interests to which all holders of Company Common Stock are entitled.
As soon as practicable after the determination of the amount of cash, if
any, to be paid to holders of Company Common Stock with respect to
fractional share interests, the
9
Exchange Agent shall promptly pay such amounts to such holders of Company
Common Stock in accordance with the terms of Section 2.07(c).
(iii) Notwithstanding the provisions of paragraphs (i) and (ii) of
this Section 2.07(e), Parent may decide, at its option, exercised prior to
the Effective Time, in lieu of the issuance and sale of Excess Shares and
the making of the payments contemplated in such paragraphs, that Parent
shall pay to the Exchange Agent an amount sufficient for the Exchange Agent
to pay each holder of Company Common Stock the amount such holder would
have received pursuant to Section 2.07(e)(ii) assuming that the sales of
Parent Common Stock were made at a price equal to the average of the
closing prices of the Parent Common Stock on the NYSE for the ten
consecutive trading days immediately following the Effective Time and, in
such case, all references herein to the cash proceeds of the sale of the
Excess Shares and similar references shall be deemed to mean and refer to
the payments calculated as set forth in this paragraph (iii). In such
event, Excess Shares shall not be issued or otherwise transferred to the
Exchange Agent pursuant to Sections 2.07(b) or (e).
(f) Required Withholding. Each of the Exchange Agent, Parent and the
Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement to
any holder or former holder of Company Common Stock such amounts as may be
required to be deducted or withheld therefrom under the Code or under any
provision of state, local or foreign tax law or under any other applicable
Legal Requirement (as defined in Section 3.02(c)). To the extent such amounts
are so deducted or withheld, such amounts shall be treated for all purposes
under this Agreement as having been paid to the person to whom such amounts
would otherwise have been paid.
(g) Lost, Stolen or Destroyed Certificates. In the event that any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent
shall issue in exchange for such lost, stolen or destroyed Certificates, upon
the making of an affidavit of that fact by the holder thereof, certificates
representing the shares of Parent Common Stock into which the shares of Company
Common Stock represented by such Certificates were converted pursuant to
Section 2.06, cash for fractional shares, if any, as may be required pursuant
to Section 2.07(e) and any dividends or distributions payable pursuant to
Section 2.07(d); provided, however, that Parent may, in its discretion and as a
condition precedent to the issuance of such certificates representing shares of
Parent Common Stock, cash and other distributions, require the owner of such
lost, stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Parent, the Surviving Corporation or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
10
(h) No Liability. Notwithstanding anything to the contrary in this Section
2.07, neither the Exchange Agent, Parent, the Surviving Corporation nor any
party hereto shall be liable to a holder of shares of Parent Common Stock or
Company Common Stock for any amount properly paid to a public official pursuant
to any applicable abandoned property, escheat or similar law.
(i) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of Company Common Stock for six months
after the Effective Time shall be delivered to Parent, upon demand, and any
holders of Company Common Stock who have not theretofore complied with the
provisions of this Section 2.07 shall thereafter look only to Parent for the
shares of Parent Common Stock, any cash in lieu of fractional shares of Parent
Common Stock to which they are entitled pursuant to Section 2.07(e) and any
dividends or other distributions with respect to Parent Common Stock to which
they are entitled pursuant to Section 2.07(d), in each case, without any
interest thereon.
Section 2.08. No Further Ownership Rights In Company Common Stock. All
shares of Parent Common Stock issued in accordance with the terms hereof
(including any cash paid in respect thereof pursuant to Sections 2.07(d) and
(e)) shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Company Common Stock, and there shall be no
further registration of transfers on the records of the Surviving Corporation
of shares of Company Common Stock that were outstanding immediately prior to
the Effective Time. If after the Effective Time Certificates are presented to
the Surviving Corporation for any reason, they shall be canceled and exchanged
as provided in this Article 2.
Section 2.09. Taking Of Necessary Action; Further Action. If, at any time
after the Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of Company and Merger Sub, the officers and directors of
Company, Merger Sub and the Surviving Corporation will take all such lawful and
necessary action in the name of Company or Merger Sub. Parent shall cause
Merger Sub to perform all of its obligations relating to this Agreement and the
transactions contemplated hereby.
Section 2.10. Dissenting Shares. Notwithstanding Section 2.06, if the
Merger is effectuated pursuant to Section 253 of Delaware Law, Shares
outstanding immediately prior to the Effective Time and held by a holder who
has demanded appraisal for such Shares in accordance with Delaware Law shall
not be converted into a right to receive the Merger Consideration, unless such
holder fails to perfect or withdraws or otherwise loses his or her right to
appraisal. If after the Effective Time such holder fails to perfect or
withdraws or loses his or her right to appraisal, such Shares shall be treated
as if they had been converted as of the Effective Time into a right to receive
the Merger Consideration. Company shall give Parent prompt notice of any
demands received by Company for
11
appraisal of Shares, and Parent shall have the right to participate in all
negotiations and proceedings with respect to such demands. Company shall not,
except with the prior written consent of Parent, make any payment with respect
to, or settle or offer to settle, any such demands. Any amounts paid to a
holder pursuant to a right of appraisal will be paid by Company.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF COMPANY
As of the date of this Agreement and, except for representations and
warranties that speak only as of a certain date, as of the Appointment Time,
except as disclosed in the disclosure letter delivered by Company to Parent
dated as of the date hereof and certified by a duly authorized officer of
Company (the "Company Disclosure Letter"), Company represents and warrants to
Parent and Merger Sub as follows:
Section 3.01. Organization; Subsidiaries. (a) Company and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority, and all requisite qualifications to do
business as a foreign corporation, to conduct its business in the manner in
which its business is currently being conducted, except where the failure to
have such qualifications would not, individually or in the aggregate, have a
Material Adverse Effect (as defined in Section 9.03) on Company.
(b) Neither Company nor any of its subsidiaries identified in Part 3.01 of
the Company Disclosure Letter owns any capital stock of, or any equity interest
of any nature in, any corporation, partnership, joint venture arrangement or
other business entity. Neither Company nor any of its subsidiaries has agreed
or is obligated to make, or is bound by any written, oral or other agreement,
contract, subcontract, lease, binding understanding, instrument, note, option,
warranty, purchase order, license, sublicense, insurance policy, benefit plan
or legally binding commitment or undertaking of any nature, as in effect as of
the date hereof or as may hereinafter be in effect under which it may become
obligated to make any future material investment in or material capital
contribution to any other entity. Neither Company, nor any of its subsidiaries,
is a general partner of any general partnership, limited partnership or other
similar entity. Part 3.01 of the Company Disclosure Letter indicates the
jurisdiction of organization of each subsidiary of the Company and Company's
direct or indirect equity interest therein.
(c) Company has delivered or made available to Parent a true and correct
copy of the Certificate of Incorporation and Bylaws of Company and similar
governing instruments of each of its subsidiaries, each as amended to date
(collectively, the "Company Charter Documents"), and each such instrument is
12
in full force and effect. Neither Company nor any of its subsidiaries is in
violation of any of the provisions of Company Charter Documents.
Section 3.02. Company Capitalization. (a) The authorized capital stock of
Company consists solely of 100,000,000 shares of Company Common Stock, of which
there were 26,346,281 shares issued and outstanding as of the close of business
on May 18, 2001, and 2,000,000 shares of preferred stock, par value $.01 per
share, of which no shares are issued or outstanding. All outstanding shares of
Company Common Stock are duly authorized, validly issued, fully paid and
nonassessable and are not subject to preemptive rights created by statute, the
Certificate of Incorporation or Bylaws of Company or any agreement or document
to which Company is a party or by which it is bound. As of the date of this
Agreement, there are no shares of Company Common Stock held in treasury by
Company. Company has no outstanding shares of Company Common Stock that are
unvested or are subject to a repurchase option, risk of forfeiture or other
condition providing that such shares may be forfeited or repurchased by Company
upon any termination of stockholders' employment, directorship or other
relationship with Company or any of its subsidiaries under the terms of any
restricted stock purchase agreement or other agreement with Company. Company
has no phantom stock or similar rights outstanding.
(b) As of the close of business on May 18, 2001, (i) 3,548,880.75 shares
of Company Common Stock are subject to issuance pursuant to outstanding options
to purchase Company Common Stock under the Company Option Plans and any other
agreement of the Company pursuant to which the Company has granted an option,
each of which is set forth on Part 3.02(b) of the Company Disclosure Letter
(collectively, the "Non-Plan Option Agreements") (collectively, the "Company
Options"), and (ii) 914,175 shares of Company Common Stock are reserved for
future issuance under the Company ESPP. Part 3.02(b) of the Company Disclosure
Letter sets forth the following information with respect to each Company Option
outstanding as of the date of this Agreement: (i) the name of the optionee;
(ii) the number of shares of Company Common Stock subject to such Company
Option; (iii) the exercise price of such Company Option; (iv) the date on which
such Company Option was granted or assumed; (v) the date on which such Company
Option expires and (vi) whether the exercisability of such option will be
accelerated in any way by the transactions contemplated by this Agreement, and
indicates the extent of any such acceleration. Company has made available to
Parent an accurate and complete copy of each of the Company Option Plans, the
Non-Plan Option Agreements, the Company ESPP and the standard forms of stock
option agreements evidencing Company Options. There are no options outstanding
to purchase shares of Company Common Stock other than pursuant to the Company
Option Plans and the Non-Plan Option Agreements. All shares of Company Common
Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
will be duly authorized, validly issued, fully paid and nonassessable.
13
(c) All outstanding shares of Company Common Stock, all outstanding
Company Options, and all outstanding shares of capital stock of each subsidiary
of Company have been issued and granted in compliance in all material respects
with (i) all applicable securities laws and other applicable Legal Requirements
and (ii) all requirements set forth in applicable agreements or instruments.
For the purposes of this Agreement, "Legal Requirements" means any federal,
state, local, municipal, foreign or other law, statute, constitution, principle
of common law, resolution, ordinance, code, edict, decree, rule, regulation,
ruling or requirement issued, enacted, adopted, promulgated, implemented or
otherwise put into effect by or under the authority of any Governmental Entity
(as defined in Section 3.04).
Section 3.03. Obligations With Respect To Capital Stock. There are no
equity securities, partnership interests or similar ownership interests of any
class of Company equity security, or any securities exchangeable or convertible
into or exercisable for such equity securities, partnership interests or
similar ownership interests, issued, reserved for issuance or outstanding.
Company owns all of the securities of its subsidiaries identified on Part 3.01
of the Company Disclosure Letter, free and clear of all claims and
Encumbrances, and there are no other equity securities, partnership interests
or similar ownership interests of any class of equity security of any
subsidiary of Company, or any security exchangeable or convertible into or
exercisable for such equity securities, partnership interests or similar
ownership interests, issued, reserved for issuance or outstanding. For purposes
of this Agreement, "Encumbrances" means any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on
the voting of any security, any restriction on the transfer of any security or
other asset, any restriction on the receipt of any income derived from any
asset, any restriction on the use of any asset and any restriction on the
possession, exercise or transfer of any other attribute of ownership of any
asset). There are no subscriptions, options, warrants, equity securities,
partnership interests or similar ownership interests, calls, rights (including
preemptive rights), commitments or agreements of any character to which Company
or any of its subsidiaries is a party or by which it is bound obligating
Company or any of its subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, or repurchase, redeem or otherwise acquire, or cause
the repurchase, redemption or acquisition of, any shares of capital stock,
partnership interests or similar ownership interests of Company or any of its
subsidiaries or obligating Company or any of its subsidiaries to grant, extend,
accelerate the vesting of or enter into any such subscription, option, warrant,
equity security, call, right, commitment or agreement. There are no
registration rights with respect to any equity security of any class of Company
or with respect to any equity security, partnership interest or similar
ownership interest of any class of any of its subsidiaries.
14
Section 3.04. Authority; Non-Contravention. (a) Company has all requisite
corporate power and authority to enter into this Agreement and, subject to the
Company Stockholder Approvals (as defined below), to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Company, subject
only to the approval and adoption of this Agreement and the approval of the
Merger by Company's stockholders (the "Company Stockholder Approvals") and the
filing of the Certificate of Merger pursuant to Delaware Law. The affirmative
vote of the holders of a majority of the outstanding shares of Company Common
Stock is sufficient for Company's stockholders to approve and adopt this
Agreement and approve the Merger, and no other approval of any holder of any
securities of Company is required in connection with the consummation of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Company and, assuming the due execution and delivery by Parent and
Merger Sub, constitutes the valid and binding obligation of Company,
enforceable against Company in accordance with its terms, except as
enforceability may be limited by bankruptcy and other similar laws affecting
the rights of creditors generally and general principles of equity.
(b) The execution and delivery of this Agreement by Company does not, and
the performance of this Agreement by Company will not, (i) conflict with or
violate Company Charter Documents, (ii) subject to obtaining Company
Stockholder Approvals and compliance with the requirements set forth in Section
3.04(c), conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to Company or any of its subsidiaries or by which Company or
any of its subsidiaries or any of their respective properties is bound or
affected, or (iii) result in any breach of or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, or
impair Company's rights or alter the rights or obligations of any third party
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of an Encumbrance on any of the
properties or assets of Company or any of its subsidiaries pursuant to, any
note, bond, mortgage, indenture, agreement, lease, license, permit, franchise,
concession or other instrument or obligation to which Company or any of its
subsidiaries is a party or by which Company or any of its subsidiaries or its
or any of their respective assets are bound or affected, except, in the case of
clauses (ii) and (iii), for such conflicts, violations, breaches, defaults,
impairments, or rights which, individually or in the aggregate, would not have
a Material Adverse Effect on Company.
(c) No action by or in respect of, or filing with any court,
administrative agency or commission or other governmental or regulatory
authority or instrumentality, foreign, domestic or supranational ("Governmental
Entity") or other person, is required to be obtained or made by Company in
connection with the execution and delivery of this Agreement or the
consummation by Company of the transactions contemplated hereby, except for (i)
the filing of the Certificate
15
of Merger with the Secretary of State of the State of Delaware and appropriate
documents with the relevant authorities of other states in which Company is
qualified to do business, (ii) compliance with any applicable requirements of
the Securities Act of 1933, as amended (the "Securities Act"), the Exchange
Act, and any other applicable securities law, whether state or foreign, (iii)
compliance with the applicable provisions of laws relating to the regulation of
broker-dealers and the rules and requirements of any self-regulatory
organization, (iv) such other consents, authorizations, filings, approvals and
registrations which if not obtained or made would not have a Material Adverse
Effect on Company or the Surviving Corporation or have a material adverse
effect on the ability of Company to consummate the transactions contemplated by
this Agreement. Part 3.04 of the Company Disclosure Letter contains a list of
those consents, authorizations, filings, approvals and registrations that may
be required in connection with the Transaction.
Section 3.05. SEC Filings; Company Financial Statements. (a) Company has
filed all forms, reports and documents required to be filed by Company with the
SEC since the effective date of the registration statement for Company's
initial public offering and has made available to Parent, via XXXXX or
otherwise, such forms, reports and documents in the form filed with the SEC.
All such required forms, reports and documents (including those that Company
may file subsequent to the date hereof) are referred to herein as the "Company
SEC Reports." As of their respective dates, the Company SEC Reports (i) were
prepared in accordance with the requirements of the Securities Act, or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Company SEC Reports and (ii) did not at the time
they were filed (or if amended or superseded by a filing prior to the date of
this Agreement, then on the date of such filing) 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 the light of
the circumstances under which they were made, not misleading, except to the
extent corrected prior to the date of this Agreement by a subsequently filed
Company SEC Report. None of Company 's subsidiaries is required to file any
forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements of Company (including,
in each case, any related notes thereto) contained in the Company SEC Reports
(the "Company Financials"), including each Company SEC Report filed after the
date hereof until the Closing, (i) complies as to form in all material respects
with the published rules and regulations of the SEC with respect thereto, (ii)
has been or, when filed, will have been prepared in accordance with GAAP
applied on a consistent basis throughout the periods involved (except as may be
indicated in the notes thereto or, in the case of unaudited interim financial
statements, as may be permitted by the SEC under Form 10-Q, 8-K or any
successor form under the Exchange Act) and (iii) fairly presents or, when filed,
will fairly present, the consolidated financial position of Company and its
16
subsidiaries as at the respective dates thereof and the consolidated results of
Company's operations and cash flows for the periods indicated, except that the
unaudited interim financial statements may not contain footnotes and were or
are subject to normal and recurring year-end adjustments.
The balance sheet of Company contained in the Company SEC Reports as of
December 31, 2000 is hereinafter referred to as the "Company Balance Sheet."
Except as disclosed in the Company Financials or in the Company SEC Reports
filed, in each case, prior to the date hereof, neither Company nor any of its
subsidiaries has any material liabilities or obligations (absolute, accrued,
contingent or otherwise) which are, individually or in the aggregate, material
to the business, results of operations or financial condition of Company and
its subsidiaries taken as a whole, except for liabilities incurred since the
date of the Company Balance Sheet in the ordinary course of business consistent
with past practices and liabilities.
(c) As of the date of this Agreement, Company has Net Cash Available (as
defined below) of not less than $9,500,000. The term "Net Cash Available" shall
be determined in the same way, using the same methods, as the line item "Total
Cash Balance On-Hand (April 30, balances)" on Exhibit E hereto.
(d) Company has heretofore furnished to Parent a complete and correct copy
of any amendments or modifications, which have not yet been filed with the SEC
but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by Company with the SEC pursuant to
the Securities Act or the Exchange Act.
(e) Company has delivered to Parent true and complete copies of the FOCUS
Reports filed on Form X-17A-5 (the "FOCUS Reports") as of the dates listed in
Part 3.05(e) of the Company Disclosure Letter with respect to the Company and
its subsidiaries. Each FOCUS Report delivered complied (and with respect to
Focus Reports filed after the date hereof and prior to the Appointment Time,
will comply) at the date thereof in all material respects with the rules and
regulations of the SEC relating thereto and fairly present the information
required to be presented therein pursuant to Rule 17a-5 under the Exchange Act.
Section 3.06. Absence Of Certain Changes Or Events. (a) Since the date of
the Company Balance Sheet the business of Company and its subsidiaries has been
conducted in the ordinary course consistent with past practices (other than the
transactions contemplated by this Agreement) and, there has not been (i)
through the date of this Agreement, any event, occurrence, development or state
of circumstances or facts that has had or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Company, (ii)
any declaration, setting aside or payment of any dividend on, or other
distribution (whether in cash, stock or property) in respect of, any of
Company's or any of its subsidiaries' capital stock, or any purchase,
redemption or other acquisition by Company of any of Company's capital stock or
any other securities of Company
17
or its subsidiaries or any options, warrants, calls or rights to acquire any
such shares or other securities except for repurchases which are not,
individually or in the aggregate, material in amount from employees following
their termination pursuant to the terms of their pre-existing stock option or
purchase agreements, (iii) any material change by Company in its accounting
methods, principles or practices, except as required by concurrent changes in
GAAP, or (iv) any revaluation by Company of any of its material assets, other
than in the ordinary course of business.
Since the date of the Company Balance Sheet and through the date of this
Agreement, there has not been (i) any amendment of any material term of any
outstanding security of the Company or any of its subsidiaries, (ii) any
incurrence, assumption or guarantee by Company or any of its subsidiaries of
any indebtedness for borrowed money other than in the ordinary course of
business and in amounts and on terms consistent with past practices, (iii) any
split, combination or reclassification of any of Company's or any of its
subsidiaries' capital stock, (iv) any granting by Company or any of its
subsidiaries of any increase in compensation or fringe benefits to any of their
officers or employees, or any payment by Company or any of its subsidiaries of
any bonus to any of their officers or employees, or any granting by Company or
any of its subsidiaries of any increase in severance or termination pay, other
than in the ordinary course, consistent with past practice, or any entry by
Company or any of its subsidiaries into, or material modification or amendment
of, any currently effective employment, severance, termination or
indemnification agreement or any agreement the benefits of which are contingent
or the terms of which are materially altered upon the occurrence of a
transaction involving Company of the nature contemplated hereby, (v) any
creation or other incurrence by Company or any of its subsidiaries of any Lien
on any material asset other than in the ordinary course of business consistent
with past practices, (vi) any making of any material loan, advance or capital
contributions to or investment in any Person other than loans, advances or
capital contributions to or investments in its wholly-owned subsidiaries (or
advances to employees) in the ordinary course of business consistent with past
practices, (vii) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of Company or any of its
subsidiaries that has had or would reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect on Company, or (viii) any
material change in the pricing of the trading fees Company charges its
customers.
Section 3.07. Taxes. (a) All material Tax Returns required by applicable
law to be filed with any Taxing Authority by, or on behalf of, Company or any
of its subsidiaries have been filed when due in accordance with all applicable
laws or the time for filing has been extended in accordance with applicable
laws, and all such material Tax Returns are, or will be at the time of filing,
true and complete in all material respects.
18
(b) Company and each of its subsidiaries has paid (or has had paid on its
behalf) or has withheld and remitted to the appropriate Taxing Authority, or,
where payment is not yet due, has established (or has had established on its
behalf and for its sole benefit and recourse) in accordance with GAAP an
adequate accrual for all material Taxes through the end of the last period for
which the Company and its subsidiaries ordinarily record items on their
respective books.
(c) The income and franchise Tax Returns of Company and its subsidiaries
through the Tax year ended December 31, 1997 have been examined and closed or
are Returns with respect to which the applicable period for assessment under
applicable law, after giving effect to extensions or waivers, has expired.
(d) There is no claim, audit, action, suit, proceeding or investigation
now pending or threatened in writing against or with respect to Company or its
subsidiaries in respect of any Tax or Tax Asset.
(e) During the five-year period ending on the date hereof, neither Company
nor any of its subsidiaries was a distributing corporation or a controlled
corporation in a transaction intended to be governed by Section 355 of the
Code.
(f) Neither Company nor any of its subsidiaries owns an interest in real
property in any jurisdiction in which a Tax is imposed, or the value of the
interest is reassessed, on the transfer of an interest in real property and
which treats the transfer of an interest in an entity that owns an interest in
real property as a transfer of the interest in real property.
(g) Part 3.07(g) of the Company Disclosure Letter contains a list of all
jurisdictions (whether foreign or domestic) in which Company or any of its
subsidiaries currently files Tax Returns.
"Tax" means (1) any tax, governmental fee or other like assessment or
charge of any kind whatsoever (including, but not limited to, withholding on
amounts paid to or by any person), together with any interest, penalty,
addition to tax or additional amount imposed by any governmental authority (a
"Taxing Authority") responsible for the imposition of any such tax (domestic or
foreign), and any liability for any of the foregoing as transferee, (2) in the
case of Company or any of its subsidiaries, liability for the payment of any
amount of the type described in clause (i) as a result of being or having been
before the Effective Time a member of an affiliated, consolidated, combined or
unitary group, or a party to any agreement or arrangement, as a result of which
liability of Company or any of its subsidiaries to a Taxing Authority is
determined or taken into account with reference to the activities of any other
person, and (3) liability of Company or any of its subsidiaries for the payment
of any amount as a result of being party to any Tax Sharing Agreement or with
respect to the payment of any amount imposed on any person of the type
described in (i) or (ii) as a result of any existing express or implied
agreement or arrangement (including, but not limited
19
to, an indemnification agreement or arrangement). "Tax Return" shall mean any
report, return, document, declaration or other information or filing required
to be supplied to any Taxing Authority with respect to Taxes, including
information returns, any documents with respect to or accompanying payments of
estimated Taxes, or with respect to or accompanying requests for the extension
of time in which to file any such report, return, document, declaration or
other information. "Tax Asset" shall mean any net operating loss, net
capital loss, investment tax credit, foreign tax credit, charitable deduction
or any other credit or tax attribute that could be carried forward or back to
reduce Taxes (including without limitation deductions and credits related to
alternative minimum Taxes)
Section 3.08. Title To Properties. (a) Part 3.08 of the Company Disclosure
Letter list all real property interests owned by Company or any of its
subsidiaries and all real property leases to which Company is a party and each
amendment thereto that is in effect as of the date of this Agreement. All such
current leases are in full force and effect, are valid and effective in
accordance with their respective terms, and there is not, under any of such
leases, any existing default or event of default (or event which with notice or
lapse of time, or both, would constitute a default) that would give rise to a
material claim against Company.
(b) Company has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Encumbrances, except as reflected in the
Company Financials and except for liens for Taxes not yet due and payable and
such Encumbrances which are not material in character, amount or extent.
Section 3.09. Intellectual Property. For the purposes of this Agreement,
the following terms have the following definitions:
"Intellectual Property" shall mean any or all of the following and all
rights in, arising out of, or associated therewith: (i) all United States,
international and foreign patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether patentable or not),
invention disclosures, improvements, trade secrets, proprietary information,
know how, technology, technical data and customer lists, and all documentation
relating to any of the foregoing; (iii) all copyrights, copyrights
registrations and applications therefor, and all other rights corresponding
thereto throughout the world; (iv) all industrial designs and any registrations
and applications therefor throughout the world; (v) all trade names, URLs,
logos, common law trademarks and service marks, trademark and service xxxx
registrations and applications therefor throughout the world; (vi) all
databases and data collections and all rights therein throughout the world;
(vii) all moral and economic rights of authors and inventors, however
denominated, throughout the world; and (viii) any similar or equivalent rights
to any of the foregoing anywhere in the world.
20
"Company Intellectual Property" shall mean any Intellectual Property that
is owned by, or exclusively licensed to, Company or one of its subsidiaries.
"Registered Intellectual Property" means all United States, international
and foreign: (i) patents and patent applications (including provisional
applications); (ii) registered trademarks, applications to register trademarks,
intent-to-use applications, or other registrations or applications related to
trademarks; (iii) registered copyrights and applications for copyright
registration; and (iv) any other Intellectual Property that is the subject of
an application, certificate, filing, registration or other document issued,
filed with, or recorded by any Governmental Entity.
"Company Registered Intellectual Property" means all of the Registered
Intellectual Property owned by, or filed in the name of, Company or one of its
subsidiaries.
(a) No material Company Intellectual Property or product or service of
Company is subject to any proceeding or outstanding decree, order, judgment,
agreement, or stipulation (other than those imposed by applicable law)
restricting in any manner the use, transfer or licensing thereof by Company, or
which may affect the validity, use or enforceability of such Company
Intellectual Property.
(b) Each material item of Company Registered Intellectual Property is
valid and subsisting, all necessary registration, maintenance and renewal fees
currently due in connection with such Registered Intellectual Property have
been made and all necessary documents, recordations and certificates in
connection with such Registered Intellectual Property have been filed with the
relevant patent, copyright, trademark or other authorities in the United States
or foreign jurisdictions, as the case may be, for the purposes of maintaining
such Registered Intellectual Property, except, in each case, as would not
materially adversely affect such item of Company Registered Intellectual
Property.
(c) Company or one of its subsidiaries owns and has good and exclusive
title to, or has license (sufficient for the conduct of its business as
currently conducted) to, each material item of Company Intellectual Property
free and clear of any Encumbrance (excluding licenses and related
restrictions). The Company Intellectual Property constitutes all the
Intellectual Property necessary to, or used or held for use in, the conduct of
the business as currently conducted. The consummation of the transactions
contemplated by this Agreement will not alter, impair or extinguish any
material Company Intellectual Property.
(d) Neither Company nor any of its subsidiaries has transferred ownership
of, or granted any exclusive license with respect to, any Intellectual Property
that is or was material Company Intellectual Property, to any third party.
21
(e) None of Company or its subsidiaries is a party to any contract with a
term of greater than one year with a long-distance telecommunications provider,
Internet Service Provider, service farm provider or computer hardware provider.
(f) To Company's knowledge, the operation of the business of Company and
its subsidiaries as such business currently is conducted, including the design,
development, marketing and sale of the products or services of Company and its
subsidiaries (including with respect to products currently under development)
has not and does not infringe or misappropriate the Intellectual Property of
any third party or, to its knowledge, constitute unfair competition or trade
practices under the laws of any jurisdiction.
(g) None of Company or any of its subsidiaries has received written or
credible oral notice from any third party that the operation of the business of
Company and its subsidiaries or any act, product or service of Company and its
subsidiaries, infringes or misappropriates the Intellectual Property of any
third party or constitutes unfair competition or trade practices under the laws
of any jurisdiction. There is no claim, action, suit, investigation or
proceeding pending against, or, to the knowledge of Company, threatened against
or affecting, Company, any of its subsidiaries, any present or former officer,
director or employee of Company or any of its subsidiaries (i) based upon, or
challenging or seeking to deny or restrict, the rights of the Company or any
subsidiary in any of the Company Intellectual Property, (ii) alleging that the
use of the Company Intellectual Property or any services provided, processes
used or products manufactured, used, imported or sold by Company or any
subsidiary do or may conflict with, misappropriate, infringe or otherwise
violate any Intellectual Property of any third party or (iii) alleging that
Company or any of its subsidiaries have infringed, misappropriated or otherwise
violated any Intellectual Property of any third party.
(h) Except as set forth in Part 3.09(h) of the Company Disclosure Letter,
to Company's knowledge, no person has or is infringing or misappropriating any
Company Intellectual Property, which infringement or misappropriation,
individually or in the aggregate, would be material to Company.
(i) Company and its subsidiaries have taken reasonable steps to protect
Company's and its subsidiaries' rights in Company's and such subsidiaries'
confidential information and trade secrets, except where the failure to do so
would n ot would reasonably be expected to have a Material Adverse Effect on
Company.
(j) Except under license or service agreements with end users of products
of Company and its subsidiaries, none of Company and any of its subsidiaries
has given an indemnity in connection with any Intellectual Property right to
any person.
22
(k) Company or one of its subsidiaries owns and has good and exclusive
title to, free and clear of any Encumbrance, all Intellectual Property
necessary to, or used or held for use in, the operation of the co-branded Web
site XxxXxxx-XxxXxxxxx.xxx (the "Co-Branded Site"), including all the software
necessary to operate the site, all the Internet domain names used in the
operation of the site and any rights to the design of the site. The Co-Branded
Site operates on computer servers owned or leased by Company or its
subsidiaries.
Section 3.10. Compliance With Laws. (a) Neither Company nor any of its
subsidiaries is in conflict with, or has violated or is in violation of (i) any
law, rule, regulation, order, judgment or decree, including any rule
promulgated by a financial industry self regulatory organization ("SRO"),
applicable to Company or any of its subsidiaries or by which Company or any of
its subsidiaries or any of their respective properties is bound or affected, or
(ii) any note, bond, mortgage, indenture, agreement, lease, license, permit,
franchise or other instrument or obligation to which Company or any of its
subsidiaries is a party or by which Company or any of its subsidiaries or its
or any of their respective properties is bound or affected, except for
conflicts, violations and defaults that, individually or in the aggregate,
would not have a Material Adverse Effect on Company. To Company's knowledge, no
investigation or review by any Governmental Entity or SRO is pending or, has
been threatened in a writing delivered to Company against Company or any of its
subsidiaries, nor, to Company's knowledge, has any Governmental Entity or SRO
indicated an intention to conduct an investigation of Company or any of its
subsidiaries. There is no judgment, injunction, order or decree binding upon
Company or any of its subsidiaries which has or could reasonably be expected to
have the effect of prohibiting or materially impairing any material business
practice of Company or any of its subsidiaries, or any acquisition of material
property by Company or any of its subsidiaries.
(b) Company and its subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals from governmental authorities (including,
without limitation all such permits required under environmental laws) that are
material to or required for the operation of the business of Company as
currently conducted (collectively, the "Company Permits"), and are in
compliance with the terms of Company Permits, except where the failure to hold
such Company Permits, or be in such compliance, would not, individually or in
the aggregate, would reasonably be expected to have a Material Adverse Effect
on Company.
(c) No written notice, notification, demand, request for information,
citation, summons or order has been received, no complaint has been filed, no
penalty has been assessed, and no investigation, action, claim, suit,
proceeding or review is pending or, to the knowledge of the Company, is
threatened by any Governmental Entity or other Person relating to or arising
out of any environmental law. There are no material liabilities of or relating
to the Company or any of its subsidiaries of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise arising
under or relating to any environmental law and there are no facts, conditions,
situations or set of
23
circumstances that could reasonably be expected to result in or be the basis
for any such material liability. For purposes of this Section, the terms
"Company" and "subsidiaries" shall include any entity that is, in whole or in
part, a predecessor of the Company or any of its subsidiaries.
(d) Each of Web Street Securities, Inc., an Illinois corporation ("WSSI"),
and Deerfield Securities, Inc., an Illinois corporation ("Deerfield" and
together with WSSI, the "Regulated Subsidiaries") has filed all material
reports, registrations, applications and statements, together with any
amendments required to be made with respect thereto, that it was required to
file since January 1, 1996 with any Governmental Entity or SRO, and has paid
all fees and assessments due and payable in connection therewith. Each of such
reports, registrations, applications and statements complied (and with respect
to such reports, registrations, applications and statements filed after the
date hereof and prior to the Appointment Time, will comply) at the date thereof
in all material respects with the rules and regulations of the applicable
Governmental Entity or SRO relating thereto and fairly present the information
required to be presented therein. Except for normal examinations conducted by a
Governmental Entity or SRO in the regular course of the business of Company or
the Regulated Subsidiaries, neither Company nor any Regulated Subsidiary has
been the subject of a examination conducted by any Governmental Entity or SRO.
Section 3.11. Litigation. There are no claims, suits, actions,
investigations or proceedings (or any basis therefor) pending or, to the
knowledge of Company, threatened against, relating to or affecting Company, any
of its subsidiaries, any officer, director or employee of Company or any of its
subsidiaries or any person for whom the Company or any subsidiary may be liable
or any of their respective properties, before any Governmental Entity or any
arbitrator that seeks to restrain or enjoin the consummation of the
transactions contemplated by this Agreement or which would reasonably be
expected, either singly or in the aggregate with all such claims, actions or
proceedings, to have a Material Adverse Effect on Company or have a material
adverse effect on the ability of the parties hereto to consummate the
transactions contemplated hereby. As of the date hereof, no director or
executive officer of Company has asserted a claim to seek indemnification from
Company under Company Charter Documents or any indemnification agreement
between Company and such person.
Section 3.12. Employee Benefit Plans. Definitions. For purposes of this
Agreement, the following terms shall have the meanings set forth below:
(i) "Company Employee Plan" shall mean any plan, program, policy,
practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether written or unwritten or otherwise,
funded or unfunded, including without limitation, each "employee benefit
plan," within the meaning of Section 3(3) of ERISA
24
which is or has been maintained, contributed to, or required to be
contributed to, by Company or any ERISA Affiliate for the benefit of any
Employee;
(ii) "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended;
(iii) "DOL" shall mean the Department of Labor;
(iv) "Employee" shall mean any current, former, or retired employee,
officer, or director of Company or any subsidiary of Company;
(v) "Employee Agreement" shall mean each management, employment,
severance, consulting, relocation, repatriation, expatriation, visas, work
permit or similar agreement or contract between Company or any subsidiary
of Company, on the one hand, and any Employee or consultant of Company or
any subsidiary of Company, on the other hand;
(vi) "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended;
(vii) "ERISA Affiliate" shall mean any other person or entity under
common control with Company within the meaning of Section 414(b), (c), (m)
or (o) of the Code and the regulations issued thereunder;
(viii) "FMLA" shall mean the Family Medical Leave Act of 1993, as
amended;
(vix) "International Employee Plan" shall mean each Company Employee
Plan that has been adopted or maintained by Company, whether informally or
formally, for the benefit of Employees outside the United States;
(x) "IRS" shall mean the Internal Revenue Service;
(xi) "Multiemployer Plan" shall mean any "Pension Plan" (as defined
below) which is a "multiemployer plan," as defined in Section 3(37) of
ERISA;
(xii) "PBGC" shall mean the Pension Benefit Guaranty Corporation; and
(xiii) "Pension Plan" shall mean each Company Employee Plan which is
an "employee pension benefit plan," within the meaning of Section 3(2) of
ERISA.
(b) Schedule. Part 3.12 of the Company Disclosure Letter contains an
accurate and complete list of each Company Employee Plan and each Employee
25
Agreement and, to the knowledge of Company, any other material benefit plan,
program, or arrangement of Company in which an Employee is eligible to
participate (each plan other than a Company Employee Plan, an "Outsourced
Plan"). Company does not have any plan or commitment to establish any new
Company Employee Plan, to modify any Company Employee Plan or Employee
Agreement (except to the extent required by law or to conform any such Company
Employee Plan or Employee Agreement to the requirements of any applicable law),
or to enter into any Company Employee Plan or Employee Agreement, nor does it
have any intention or commitment to do any of the foregoing.
(c) Documents. Company has made available to Parent: (i) correct and
complete co pies of all documents embodying each Company Employee Plan and each
Employee Agreement including all amendments thereto and written interpretations
thereof; (ii) the most recent annual actuarial valuations, if any, prepared for
each Company Employee Plan; (iii) the most recent annual report (Form Series
5500 and all schedules and financial statements attached thereto), if any,
required under ERISA or the Code in connection with each Company Employee Plan
or related trust; (iv) if Company Employee Plan is funded, the most recent
annual and periodic accounting of Company Employee Plan assets; (v) the most
recent summary plan description together with the summary of material
modifications thereto, if any, required under ERISA with respect to each
Company Employee Plan; (vi) the most recent IRS determination or opinion
letter, and all rulings relating to Company Employee Plans; (vii) all material
written agreements and contracts relating to each Company Employee Plan,
including, but not limited to, administrative service agreements, group annuity
contracts and group insurance contracts; (viii) all communications material to
any Employee or Employees relating to any Company Employee Plan and any
proposed Company Employee Plans, in each case, relating to any amendments,
terminations, establishments, increases or decreases in benefits, acceleration
of payments or vesting schedules or other events which would result in any
material liability to Company; and (ix) all registration statements and
prospectuses prepared in connection with each Company Employee Plan.
Additionally, the Company has provided information with respect to the
Outsourced Plans to the extent reasonably practicable.
(d) Employee Plan Compliance. Company has performed in all material
respects all obligations required to be performed by it under, is not in
default or violation of, and has no knowledge of any default or violation by
any other party to, each Company Employee Plan, and each Company Employee Plan
has been established and maintained in all material respects in accordance with
its terms and in compliance with all applicable laws, statutes, orders, rules
and regulations, including but not limited to ERISA or the Code; each Company
Employee Plan intended to qualify under Section 401(a) of the Code has received
an opinion, determination, advisory or notification letter from the Internal
Revenue Service that it is so qualified or has remaining a period of time to
obtain
26
such a letter from the IRS, and no event has occurred since the date of
such determination that could reasonably be expected to result in the
revocation of, or materially adversely affect, such qualification; no
"prohibited transaction," within the meaning of Section 4975 of the Code or
Sections 406 and 407 of ERISA, and not otherwise exempt under Section 408 of
ERISA (or any administrative class exemption issued thereunder), has occurred
with respect to any Company Employee Plan; there are no actions, suits or
claims pending, or, to the knowledge of Company, threatened or reasonably
anticipated (other than routine claims for benefits) against any Company
Employee Plan or against the assets of any Company Employee Plan; each Company
Employee Plan (other than currently outstanding stock options) can be amended,
terminated or otherwise discontinued after the Effective Time in accordance
with its terms, without liability to Parent, Company or any of its Affiliates
(other than expenses typically incurred in a termination event); there are no
audits, inquiries or proceedings pending or, to the knowledge of Company,
threatened by the IRS or DOL with respect to any Company Employee Plan; neither
Company nor any Affiliate is subject to any penalty or tax with respect to any
Company Employee Plan under Section 402(i) of ERISA or Sections 4975 through
4980 of the Code; and all contributions due from Company or any Affiliate with
respect to any of Company Employee Plans have been made as required under ERISA
or have been accrued on the Company Balance Sheet.
(e) Pension Plans. Neither Company nor any ERISA Affiliate of Company has
now, nor has it ever, maintained, established, sponsored, participated in, or
contributed to, any Pension Plan which is subject to Title IV of ERISA or
Section 412 of the Code.
(f) Multiemployer Plans. At no time has Company or any ERISA Affiliate of
Company contributed to or been requested to contribute to any Multiemployer
Plan, that would result in material liability to Company.
(g) No Post-Employment Obligations. No Company Employee Plan provides, or
has any liability to provide, retiree health benefits to any person for any
reason, except as may be required by COBRA or other applicable statute, and
Company has never represented, promised or contracted (whether in oral or
written form) to any Employee (either individually or to Employees as a group)
or any other person that such Employee(s) or other person would be provided
with retiree health benefits, except to the extent required by statute.
(h) Effect of Transaction. The execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under any Company Employee Plan, Employee Agreement, trust or loan that will or
may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting (other than full vesting as
a result of partial or full plan termination of a qualified plan),
distribution, increase in benefits or obligation to fund benefits with respect
to any Employee. There is
27
no contract, plan or arrangement (written or otherwise) covering any Employee
or former Employee of Company that, individually or collectively, could give
rise to the payment of any amount that would not be deductible pursuant to the
terms of Section 280G or 162(m) of the Code.
(i) Employment Matters. Company and each of its subsidiaries is in
compliance in all material respects with all applicable foreign, federal, state
and local laws, rules and regulations respecting employment, employment
practices, terms and conditions of employment and wages and hours, in each
case, with respect to Employees. There are no pending, or, to Company's
knowledge, threatened material claims or actions against Company under any
worker's compensation policy or long-term disability policy. To Company's
knowledge, no Employee of Company has materially violated any employment
contract, nondisclosure agreement or noncompetition agreement by which such
Employee is bound due to such Employee being employed by Company and disclosing
to Company or using trade secrets or proprietary information of any other
person or entity.
(j) Labor. Company does not know of any activities or proceedings of any
labor union to organize any Employees that would be material to Company. There
are no actions, suits, claims, labor disputes or grievances pending, or, to the
knowledge of Company, threatened relating to any labor, safety or
discrimination matters involving any Employee, including charges of unfair
labor practices or discrimination complaints, which would reasonably be
expected to, individually or in the aggregate, result in any material liability
to Company. Neither Company nor any of its subsidiaries has engaged in any
unfair labor practices within the meaning of the National Labor Relations Act
which would reasonably be expected to, individually or in the aggregate, result
in any material liability to Company. Company is not presently, nor has it been
in the past, a party to, or bound by, any collective bargaining agreement or
union contract with respect to Employees and no collective bargaining agreement
is being negotiated by Company.
(k) International Employee Plans. Neither Company nor any of its
subsidiaries has established in the past or currently maintains or administers
any International Employee Plan.
Section 3.13. Certain Agreements. As of the date hereof, neither Company
nor any of its subsidiaries is a party to or is bound by: (a) any employment or
consulting agreement or commitment with any employee or member of Company's
Board of Directors, that, individually or in the aggregate, is material to
Company, other than those that are terminable by Company or any of its
subsidiaries on no more than thirty days notice without liability or financial
obligation, except to the extent general principles of law may limit Company's
or any of its subsidiaries' ability to terminate employees at will;
28
(b) any agreement or plan, including any stock option plan, stock
appreciation right plan or stock purchase plan, any of the benefits of which
will be increased, or the vesting of benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement;
(c) any material guaranty or any instrument evidencing indebtedness,
including letters of credit, for borrowed money by way of direct loan or sale
of debt securities;
(d) any material agreement, obligation or commitment containing covenants
purporting to limit or which effectively limit Company's or any of its
subsidiaries' freedom to compete in any line of business or in any geographic
area or which would so limit Company or the Surviving Corporation or any of its
subsidiaries after the Effective Time;
(e) any agreement or commitment currently in force relating to the
disposition or acquisition by Company or any of its subsidiaries after the date
of this Agreement of a material amount of assets not in the ordinary course of
business, or pursuant to which Company has any material ownership or
participation interest in any corporation, partnership, joint venture,
strategic alliance or other business enterprise other than Company's
subsidiaries; or
(f) any agreement or commitment currently in force providing for capital
expenditures by, or revenues of, Company or its subsidiaries in excess of
$50,000.
The agreements required to be disclosed in the Company Disclosure Letter
pursuant to clauses (a) through (f) above or pursuant to Section 3.13 or are
required to be filed with any Company SEC Report ("Company Contracts") are
valid and in full force and effect, except to the extent that such invalidity
would not be material to Company. Neither Company nor any of its subsidiaries,
nor to Company's knowledge, any other party thereto, is in breach, violation or
default under, and neither Company nor any of its subsidiaries has received
written notice that it has breached, violated or defaulted, any of the terms or
conditions of any Company Contract in such a manner as would be material to
Company.
Except for the contracts identified on Part 3.13 of the Company Disclosure
Letter as being between ConSors Discount-Broker AG ("Consors") and Company or
any of its subsidiaries or affiliates (the "Consors Contracts"), neither
Company nor any of its subsidiaries or affiliates is party to or otherwise
obligated under any contract or other agreement, whether written or oral, with
Consors or any of its affiliates. Except for the contracts identified on Part
3.13 of the Company Disclosure Letter as being between Landsbref, Ltd.
("Landsbref") and Company or any of its subsidiaries or affiliates (the
"Landsbref Contracts"), neither Company nor any of its subsidiaries or
affiliates is party to or otherwise
29
obligated under any contract or other agreement, whether written or oral, with
Landsbref or any of its affiliates. Except for the contracts identified on Part
3.13 of the Company Disclosure Letter as being between Sun Hung Kai Online
Limited ("Sun Hung Kai") and Company or any of its subsidiaries or affiliates
(the "Sun Hung Kai Contracts"), neither Company nor any of its subsidiaries or
affiliates is party to or otherwise obligated under any contract or other
agreement, whether written or oral, with Sun Hung Kai or any of its affiliates.
Except for the contracts identified on Part 3.13 of the Company Disclosure
Letter as being between CB Corredores de Bolsa, S.A. ("CB Corredores") and
Company or any of its subsidiaries or affiliates (the "CB Corredores Contracts"
and together with the Consors Contracts, Landsbref Contracts, and Sun Hung Kai
Contracts, the "Foreign Brokerage Contracts"), neither Company nor any of its
subsidiaries or affiliates is party to or otherwise obligated under any
contract or other agreement, whether written or oral, with CB Corredores or any
of its affiliates.
The execution and delivery of this Agreement by Company does not, and the
performance of this Agreement by Company will not, result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or impair Company's rights or alter the rights
or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of an Encumbrance on any of the properties or assets of Company or any
of its subsidiaries pursuant to, any Foreign Brokerage Contract. Each contract
or agreement between Company or any of its subsidiaries, on the one hand, and a
Company customer residing in a foreign jurisdiction, on the other is valid,
binding and enforceable in such foreign jurisdiction.
Part 3.13 of the Company Disclosure Letter sets forth for each Company
Contract Company's expected capital expenditures for the remainder of the
contract's term assuming for purposes of those Company Contracts that have
costs that vary with operational levels of Company's business that Company's
business continues to be operated in the manner and at the levels that it has
been operating in the three months immediately preceding the date of this
Agreement and assuming no reduction in customer use of the Company's services.
With respect to each employment or consulting agreement or commitment with any
employee or member of Company's Board of Directors included on Part 3.13 of the
Company Disclosure Letter (each such person, a "Contracting Employee"),
included in such Part 3.13 is each financial or other liability of Company that
would be triggered by the Transaction or by termination of employment or other
arrangement of such person in connection with the Transaction.
Section 3.14. Brokers' And Finders' Fees. Except for fees payable to Xxxxx
Xxxxxxx pursuant to an engagement letter that has been provided to Parent,
Company has not incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement or any transaction contemplated
hereby.
30
Section 3.15. Insurance. Company and each of its subsidiaries have
policies of insurance and bonds of the type and in amounts customarily carried
by persons conducting business or owning assets similar to those of Company and
its subsidiaries. There is no material claim pending under any of such policies
or bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies have been paid and Company and its subsidiaries are otherwise in
compliance in all material respects with the terms of such policies and bonds.
To the knowledge of Company, there has been no threatened termination of, or
material premium increase with respect to, any of such material policies.
Section 3.16. Disclosure. Neither the Schedule 14D-9, nor any of the
information supplied or to be supplied by the Company or its subsidiaries or
representatives for inclusion or incorporation by reference in the Registration
Statement, the Post-Effective Amendment (as defined below) or the Offer
Documents will, at the respective times any such documents or any amendments or
supplements thereto are filed with the SEC, are first published, sent or given
to stockholders or become effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading. The Schedule 14D-9 will comply as to form in all material respects
with the requirements of all applicable laws, including the Exchange Act and
the rules and regulations thereunder. No representations or warranty is made by
Company with respect to statements made or incorporated by reference in any
such documents based on information supplied by Parent or Merger Sub
specifically for inclusion or incorporation by reference therein.
Section 3.17. Fairness Opinion. Company's Board of Directors has received
a true and correct copy of an opinion from Xxxxxxxx, Xxxxx & Company Inc.,
dated as of the date hereof, to the effect that, as of the date hereof, the
consideration to be received by Company's stockholders in the Offer and the
Merger is fair to Company's stockholders from a financial point of view.
Section 3.18. Affiliates. Part 3.18 of the Company Disclosure Letter is a
complete list of those persons who may be deemed to be, in Company's reasonable
judgment, affiliates of Company within the meaning of Rule 145 promulgated
under the Securities Act. Except as set forth in Company SEC Reports, since the
date of Company's last proxy statement filed with the SEC, to the knowledge of
Company, no event has occurred as of the date of this Agreement that would be
required to be reported by Company pursuant to Item 404 of Regulation S-K
promulgated by the SEC.
Section 3.19. Environmental Matters. (a) Except as set forth in the
Company SEC Documents prior to the date hereof and except as could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Company:
31
(i) no notice, notification, demand, request for information,
citation, summons or order has been received, no complaint has been filed,
no penalty has been assessed, and no investigation, action, claim, suit,
proceeding or review (or any basis therefor) is pending or, to the
knowledge of Company, is threatened by any Governmental Entity or other
Person relating to or arising out of any environmental law, regulation or
permit;
(ii) Company and its subsidiaries are and have been in compliance
with all environmental laws, regulations and permits; and
(iii) there are no liabilities of or relating to Company or any of
its subsidiaries of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise arising under or relating
to any environmental law, regulation or permit and there are no facts,
conditions, situations or set of circumstances that could reasonably be
expected to result in or be the basis for any such liability.
(b) There has been no environmental investigation, study, audit, test,
review or other analysis conducted of which Company has knowledge in relation
to the current or prior business of Company or any of its subsidiaries or any
property or facility now or previously owned or leased by Company or any of its
subsidiaries that has not been delivered to Parent at least five days prior to
the date hereof.
(c) Neither Company nor any of its subsidiaries owns, leases or operates
or has owned, leased or operated any real property, or conducts or has
conducted any operations, in New Jersey or Connecticut.
Section 3.20. Investment Company Act. Company is not an "investment
company," or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
Section 3.21. Related Party Transactions. No director, officer, employee,
or affiliate of Company or any of its subsidiaries is a party to any contract,
arrangement or understanding with Company or any of its subsidiaries.
Section 3.22. Broker-Dealer Compliance. Each of the Regulated Subsidiaries
is registered as a broker-dealer with the SEC, is a member in good standing of
the NASD (as defined below) and is duly qualified or registered as a
broker-dealer in each jurisdiction where the failure to be so qualified or
registered is reasonably likely to have a Material Adverse Effect on Company.
Neither Company nor any subsidiary is required to obtain any registration as an
investment adviser, a commodity trading advisor, a commodity pool operator, a
futures commission merchant, an insurance agent, a sales person or in any
similar capacity with the SEC, the NASD, the Commodity Futures Trading
Commission, any clearing agency, or any other securities commission or
self-regulatory
32
organization in the United States or outside the United States that has not
been obtained or is not in full force and effect, nor has Company or any
Regulated Subsidiary received notice of any requirement to register as any of
the foregoing in any jurisdiction outside the United States. As used herein
"NASD" shall mean the National Association of Securities Dealers, Inc.
None of Company or any of its subsidiaries is in violation of any federal,
state or foreign laws, rules or regulations relating to the regulation of
broker-dealers in connection with the business it conducts under, customer
accounts related to, or fees paid under any Foreign Brokerage Contract.
Section 3.23. Financial Services. Neither Company nor any of its
subsidiaries is engaged in an activity in which it would be impermissible,
pursuant to Section 1467a(c)(9)(B) of Title 12 of the U.S. Code, as added by
Section 401 of the Xxxxx-Xxxxx-Xxxxxx Act, for a savings and loan holding
company that acquired control of a savings association after May 4, 1999, to
engage (an "Impermissible Activity").
Section 3.24. Customer Accounts. As of the date of this Agreement, Company
and its subsidiaries have, in the aggregate, approximately 34,500 Customer
Accounts. For purposes of this Section 3.24, "Customer Account" shall mean a
Company customer account that has a balance of greater than $1.00 or has a
transaction history which includes at least one trade in the previous six
months. During the month of April 2001, Company (together with its
subsidiaries) executed approximately 74,096 trades for its customers, of which
approximately 25,163 were conducted by customers r eferred to Company by
Consors pursuant to the Consors Contract. During the month of April 2001,
approximately 1,172 customers of Company executed more than ten trades through
Company or its subsidiaries, and the total number of trades executed by such
customers in that month through Company or its subsidiaries were approximately
54,764. During the month of April 2001, approximately 5,968 customers of
Company executed more than one trade through Company or its subsidiaries. Part
3.24 of the Company Disclosure Letter sets forth any special margin terms or
rates that Company has extended to any of its customers that are not included
on Company's published margin rate card that has been previously provided to
Parent.
Section 3.25. Risk Management Instruments. Neither Regulated Subsidiary is
a party to any over-the-counter derivative contract, including without
limitation, any swaps, caps, floors, options agreements, futures and forward
contracts, or other similar agreements.
Section 3.26. Investment Securities. Except as disclosed in Part 3.26 of
the Company Disclosure Letter, none of the investments reflected in the Company
Balance Sheet and none of the investments made by the Company or any of its
subsidiaries since the date of the Company Balance Sheet, is subject to any
restriction (contractual, statutory or otherwise) that would materially impair
33
the ability of the entity holding such investment freely to dispose of such
investment at any time. Company has properly reported the value of any
investment securities held by Company or any of its subsidiaries in accordance
with U.S. GAAP as applicable to broker-dealers in securities.
Section 3.27. Repurchase Agreements. Except as set forth on Part 3.27 of
the Company Disclosure Letter neither Company or any of its subsidiaries a
party to any agreements pursuant to which such party has purchased securities
subject to an agreement to resell, and with respect to any such agreement,
Company or one of its subsidiaries has a valid, perfected first lien or
security interest in the government securities or other collateral securing the
repurchase agreement, and, as of the date hereof, the value of such collateral
equals or exceeds the amount of the debt secured thereby.
Section 3.28. Books And Records. The books and records of the Regulated
Subsidiaries have been, and are being, maintained in accordance with, or are
converted monthly from a tax basis method of accounting to, U.S. GAAP as and to
the extent applicable and all applicable legal and regulatory requirements. All
such books and records are accurate and complete in all material respects and
reflect only actual transactions. All such books and records that have been
requested by Parent have been made available to Parent.
Section 3.29. Commission Rates. Since January 1, 2 001, other than to the
extent disclosed in Part 3.29 of the Company Disclosure Letter and other than
(i) as required by any U.S. exchange, (ii) commission rates with respect to any
non-DOT system transactions, or (iii) any monthly adjustment in the ordinary
course of business, there has been no increase or reduction in a Regulated
Subsidiary's commission rates and no Regulated Subsidiary has made any oral or
written commitment to generally reduce such rates.
Section 3.30. Net Capital. From January 1, 1996 through the close of
business on the date which immediately precedes the Effective Time, each
Regulated Subsidiary has continuously been and will be in compliance with SEC
Rule 15c3-1 regarding its net capital and net liquid assets requirements.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
As of the date of this Agreement and, except for representations and
warranties that speak only as of a certain date, as of the Appointment Time,
except as disclosed in the disclosure letter delivered by Parent to Company
dated as of the date hereof and certified by a duly authorized officer of
Parent (the "Parent Disclosure Letter"), Parent and Merger Sub represent and
warrant as follows:
34
Section 4.01. Organization Of Parent And Merger Sub. (a) Each of Parent
and Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority, and all requisite qualifications to do
business as a foreign corporation, to conduct its business in the manner in
which its business is currently being conducted, except where the failure to
have such qualifications would not, individually or in the aggregate, have a
Material Adverse Effect on Parent.
(b) Parent has delivered or made available to Company a true and correct
copy of the Certificate of Incorporation and Bylaws of Parent and Merger Sub,
each as amended to date (collectively, the "Parent Charter Documents" ), and
each such instrument is in full force and effect. Neither Parent nor Merger Sub
is in violation of any of the provisions of the Parent Charter Documents.
Section 4.02. Parent And Merger Sub Capitalization. (a) The authorized
capital stock of Parent consists solely of 600,000,000 shares of Parent Common
Stock, par value $.01 per share, of which there were 319,365,275 shares issued
and outstanding as of the close of business on May 17, 2001, 1,000,000 shares
of Preferred Stock, par value $.01 per share, of which one share is issued and
outstanding as of the close of business on May 17, 2001 (for the purpose of
effecting voting rights for the exchangeable shares of EGI Canada Corporation
identified immediately hereafter), and 10,644,223 shares of EGI Canada
Corporation, exchangeable on a one-for-one basis into shares of Parent Common
Stock at any time, of which there were 2,757,463 shares issued and outstanding
as of the close of business on May 17, 2001. As of May 17, 2001, there were
outstanding employee stock options to purchase an aggregate of 43,304,770
shares of Parent Common Stock (of which options to purchase an aggregate of
21,016,931 shares of Parent Common Stock were exercisable). All outstanding
shares of Parent Common Stock are duly authorized, validly issued, fully paid
and nonassessable and are not subject to preemptive rights created by statute,
the Certificate of Incorporation or Bylaws of Parent or any agreement or
document to which Parent is a party or by which it is bound.
(b) The authorized capital stock of Merger Sub consists of 1,000 shares of
common stock, $0.01 par value, all of which, as of the date hereof, are issued
and outstanding and are held by Parent. All of the outstanding shares of Merger
Sub's common stock have been duly authorized and validly issued, and are fully
paid and nonassessable. Merger Sub was formed for the purpose of consummating
the Merger and has no material assets or liabilities except as necessary for
such purpose.
(c) All outstanding shares of Parent Common Stock, all outstanding Parent
options, and all outstanding shares of capital stock of each subsidiary of
Parent have been issued and granted in compliance with (i) all applicable
securities laws and other applicable material Legal Requirements and (ii) all
material requirements set forth in applicable agreements or instruments.
35
(d) The Parent Common Stock to be issued in the Offer and the Merger when
issued in accordance with the provisions of this Agreement and, assuming that
Company warrants to be assumed by Parent in the Merger are legally valid,
binding and enforceable at the date of this Agreement, the Parent Common Stock
to be issued upon the exercise of such warrants in accordance with the terms
thereof, will be validly issued, fully paid and nonassessable.
Section 4.03. Authority; Non-contravention. (a) Each of Parent and Merger
Sub has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Parent and Merger Sub, subject only to the filing of the
Certificate of Merger pursuant to Delaware Law. No approval of any holder of
any securities of Parent is required in connection with the consummation of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by each of Parent and Merger Sub and, assuming the due authorization,
execution and delivery by Company, constitutes the valid and binding obligation
of Parent and Merger Sub, respectively, enforceable against Parent and Merger
Sub in accordance with its terms, except as enforceability may be limited by
bankruptcy and other similar laws affecting the rights of creditors generally
and general principles of equity.
(b) The execution and delivery of this Agreement by each of Parent and
Merger Sub does not, and the performance of this Agreement by Parent and Merger
Sub will not, (i) conflict with or violate the Certificate of Incorporation or
Bylaws of Parent or Merger Sub, (ii) subject to compliance with the
requirements set forth in Section 4.03(c), conflict with or violate any law,
rule, regulation, order, judgment or decree applicable to Parent or Merger Sub
or by which any of their respective properties is bound or affected, or (iii)
result in any breach of or constitute a default (or an event that with notice
or lapse of time or both would become a default) under, or impair Parent's
rights or alter the rights or obligations of any third party under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
or result in the creation of an Encumbrance on any of the properties or assets
of Parent or Merger Sub pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise, concession or other
instrument or obligation to which Parent or Merger Sub is a party or by which
Parent or Merger Sub or any of their respective properties are bound or
affected, except, in the case of clauses (ii) and (iii), for such conflicts,
violations, breaches, defaults, impairments, or rights which, individually or
in the aggregate, would not have a Material Adverse Effect on Parent. Part
4.03(b) of the Parent Disclosure Letter list all consents, waivers and
approvals under any of Parent's or any of its subsidiaries' agreements,
contracts, licenses or leases required to be obtained in connection with the
consummation of the transactions contemplated hereby, which, if individually or
in the aggregate not obtained,
36
would result in a material loss of benefits to Parent or the Surviving
Corporation as a result of the Merger.
(d) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity or other person is required
to be obtained or made by Parent or Merger Sub in connection with the execution
and delivery of this Agreement or the consummation of the Offer or Merger,
except for (i) the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware, (ii) compliance with any applicable
requirements of the Securities Act, the Exchange Act, and any other applicable
securities law, whether state or foreign, (iii) compliance with the applicable
provisions of laws relating to the regulation of broker-dealers and banks and
the rules and requirements of any self-regulatory organization, and (v) such
other consents, authorizations, filings, approvals and registrations which if
not obtained or made would not be material to Parent or the Surviving
Corporation or have a material adverse effect on the ability of the parties
hereto to consummate the transactions contemplated hereby.
Section 4.04. Sec Filings; Parent Financial Statements. (a) Parent has
filed all forms, reports and documents required to be filed by Parent with the
SEC since the effective date of the registration statement for Parent's initial
public offering, and has made available to Company such forms, reports and
documents in the form filed with the SEC. All such required forms, reports and
documents (including those that Parent may file subsequent to the date hereof)
are referred to herein as the "Parent SEC Reports." As of their respective
dates, the Parent SEC Reports (i) were prepared in all material respects in
accordance with the requirements of the Securities Act or the Exchange Act, as
the case may be, and the rules and regulations of the SEC thereunder applicable
to such Parent SEC Reports, and (ii) did not at the time they were filed (or if
amended or superseded by a filing prior to the date of this Agreement, then on
the date of such filing) 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 the light of the circumstances under
which they were made, not misleading, except to the extent corrected prior to
the date of this Agreement by a subsequently filed Parent SEC Report. None of
Parent's subsidiaries is required to file any forms, reports or other documents
with the SEC.
(b) Each of the consolidated financial statements of Parent (including, in
each case, any related notes thereto) contained in the Parent SEC Reports (the
"Parent Financials"), including any Parent SEC Reports filed after the date
hereof until the Closing, (i) comply as to form in all material respects with
the published rules and regulations of the SEC with respect thereto, (ii) are
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited interim financial statements, as may be permitted by the SEC
under Form 1O-Q, 8-K or any successor form under the Exchange Act) and (iii)
fairly present the consolidated financial position of Parent and its
subsidiaries as at the respective dates thereof and the consolidated results of
Parent's operations and
37
cash flows for the periods indicated, except that the unaudited interim
financial statements may not contain footnotes and were or are subject to
normal and recurring year-end adjustments. The balance sheet of Parent
contained in Parent SEC Reports as of December 31, 2000 is hereinafter referred
to as the "Parent Balance Sheet." Except as disclosed in the Parent Financials
or in the Parent SEC Documents filed, in each case, prior to the date hereof,
neither Parent nor any of its subsidiaries has any material liabilities or
obligations (absolute, accrued, contingent or otherwise) which are,
individually or in the aggregate, material to the business, results of
operations or financial condition of Parent and its subsidiaries taken as a
whole, except for liabilities incurred since the date of the Parent Balance
Sheet in the ordinary course of business consistent with past practices and
liabilities incurred in connection with this Agreement.
(c) Parent has heretofore furnished to Company a complete and correct copy
of any amendments or modifications, which have not yet been filed with the SEC
but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by Parent with the SEC pursuant to
the Securities Act or the Exchange Act.
Section 4.05. Absence Of Certain Changes Or Events. Since the date of the
Parent Balance Sheet there has not been (i) through the date of this Agreement,
any event, occurrence, development or state of circumstances or facts that has
had or would reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect on Parent, (ii) any declaration, setting aside or
payment of any dividend on, or other distribution (whether in cash, stock or
property) in respect of, any of Parent's or any of its subsidiaries' capital
stock, or any purchase, redemption or other acquisition by Parent of any of
Parent's capital stock or any other securities of Parent or its subsidiaries or
any options, warrants, calls or rights to acquire any such shares or other
securities except for repurchases which are not, individually or in the
aggregate, material in amount from employees following their termination
pursuant to the terms of their pre-existing stock option or purchase
agreements, (iii) any material change by Parent in its accounting methods,
principles or practices, except as required by concurrent changes in GAAP or
(iv) any revaluation by Parent of any of its material assets, other than in the
ordinary course of business.
Section 4.06. Disclosure Documents. Neither the Offer Documents or the
Registration Statement or the Post-Effective Amendment, nor any of the
information supplied or to be supplied by Parent or its subsidiaries or
representatives for inclusion or incorporation by reference in the Schedule
14D-9 or the Company Proxy Statement (as defined below) will, at the respective
times any such documents or any amendments or supplements thereto are filed
with the SEC, are first published, sent or given to stockholders or become
effective under the Securities Act or, in the case of the Company Proxy
Statement, at the time of the Company Stockholders Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading. ___
The Offer Documents and the
38
Registration Statement and the Post-Effective Amendment will comply as to form
in all material respects with the requirements of all applicable laws,
including the Securities Act and the Exchange Act, as applicable, and the rules
and regulations thereunder. No representation or warranty is made by Parent or
Merger Sub with respect to statements made or incorporated by reference therein
based on information supplied by Company for inclusion or incorporation by
reference therein.
Section 4.07. Litigation. There is no judgment, decree or order against
Parent or any of its subsidiaries or, to the knowledge of Parent, any of their
respective directors or officers (in their capacities as such) that seeks to
restrain or enjoin the consummation of the transactions contemplated by this
Agreement.
Section 4.08. Compliance With Laws. Neither Parent nor any of its
subsidiaries is in conflict with, or has violated or is in violation of (i) any
law, rule, regulation, order, judgment or decree, including any rule
promulgated by an SRO, applicable to Parent or any of its subsidiaries or by
which Parent or any of its subsidiaries or any of their respective properties
is bound or affected, or (ii) its respective certificate or articles of
incorporation or bylaws or other charter or organizational documents, except
for conflicts and violations that, individually or in the aggregate, would not
have a Material Adverse Effect on Parent.
ARTICLE 5
CONDUCT PRIOR TO THE EFFECTIVE TIME
Section 5.01. Conduct Of Business By Company. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement pursuant to its terms or the Appointment Time, Company and each
of its subsidiaries shall, except to the extent that Parent shall otherwise
consent in writing and except as provided in Part 5.01 of Parent Disclosure
Letter, carry on its business in the ordinary course in substantially the same
manner as heretofore conducted and in compliance in all material respects with
all applicable laws and regulations, pay its debts and Taxes when due subject
to good faith disputes over such debts or Taxes, pay or perform other material
obligations when due, and use its commercially reasonable efforts consistent
with past practices and policies to (i) preserve intact its present business
organization, (ii) keep available the services of its present officers and
employees and (iii) preserve its relationships with customers, suppliers,
licensors, licensees and others with which it has business dealings. In
addition, during that period Company will promptly notify Parent of any
material event involving its business or operations consistent with the
agreements contained herein.
In addition, except as permitted by the terms of this Agreement, and
except as contemplated by this Agreement or provided in Part 5.01 of the
Company Disclosure Letter, without the prior written consent of Parent during
the period from the date of this Agreement and continuing until the earlier of
the
39
termination of this Agreement pursuant to its terms or the Appointment
Time, Company shall not do any of the following and shall not permit its
subsidiaries to do any of the following:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, reprice options
granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any of such
plans;
(b) Grant any severance or termination pay to any officer or employee
except pursuant to written agreements in effect, or policies existing, on the
date hereof (or as required by applicable law) and as previously disclosed in
writing to Parent or adopt any new severance plan;
(c) Transfer or license to any person or entity or otherwise extend, amend
or modify in any material respect any rights to any material Company
Intellectual Property;
(d) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock of Company or split, combine or reclassify any
capital stock of Company or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for any capital stock
of Company;
(e) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of Company or its subsidiaries, except repurchases of
unvested shares at cost in connection with the termination of the employment
relationship with any employee pursuant to stock option or purchase agreements
in effect on the date hereof;
(f) Issue, deliver, sell, authorize, pledge or otherwise encumber any
shares of capital stock or any securities convertible into shares of capital
stock, or subscriptions, rights, warrants or options to acquire any shares of
capital stock or any securities convertible into shares of capital stock, or
enter into other agreements or commitments of any character obligating it to
issue any such shares or convertible securities, other than the issuance,
delivery and/or sale of (i) shares of Company Common Stock pursuant to the
exercise of Company Options, (ii) shares of Company Common Stock pursuant to
the exercise of Company warrants, (iii) shares of Company Common Stock issuable
to participants in the Company ESPP, and (iv) shares of Company Common Stock
issuable to participants in Company's 401(k) Plan, in each case, consistent
with the terms thereof;
(g) Cause, permit or propose any amendments to its Certificate of
Incorporation, Bylaws or other charter documents (or similar governing
instruments of any of its subsidiaries);
40
(h) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a portio n of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof; or otherwise acquire or agree
to acquire any assets which are material, individually or in the aggregate, to
the business of Company or enter into any material joint ventures, strategic
relationships or alliances;
(i) Sell, lease, license, encumber or otherwise dispose of any properties
or assets which are material, individually or in the aggregate, to the business
of Company;
(j) Incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or options,
warrants, calls or other rights to acquire any debt securities of Company,
enter into any "keep well" or other agreement to maintain any financial
statement condition or enter into any arrangement having the economic effect of
any of the foregoing, other than in the ordinary course of business, consistent
with past practice;
(k) Except as required to comply with any Legal Requirement, adopt or
amend any employee benefit plan or employee stock purchase or employee stock
option plan, or enter into any employment contract or collective bargaining
agreement, pay any special bonus or special remuneration to any director or
employee, or increase the salaries or wage rates or fringe benefits (including
rights to severance or indemnification) of its directors, officers, employees
or consultants other than with respect to employees and consultants (other than
officers) in the ordinary course of business, consistent with past practice, or
change in any material respect any management policies or procedures that are
material to the business of Company;
(l) Make any material capital expenditures, except in accordance with the
current Company annual budget and plan, as previously disclosed to Parent;
(m) Modify, amend or terminate any Company Contract to which Company or
any subsidiary thereof is a party or waive, release or assign any material
rights or claims thereunder;
(n) Enter into any licensing or other agreement with regard to the
acquisition, distribution or licensing of any material Intellectual Property
other than licenses, distribution or other similar agreements entered into in
the ordinary course of business consistent with past practice;
(o) Revalue any of its assets or, except as required by GAAP, make any
change in accounting methods, principles or practices;
(p) Materially change the trading fees Company charges its customers;
41
(q) Take any action that would materially delay the consummation of the
transactions contemplated hereby;
(r) Engage in an Impermissible Activity, as specified in Section 3.23; or
(s) Agree in writing or otherwise to take any of the actions described in
Section 5.01 (a) through (r) above.
Section 5.02. Tax Matters. (a) Neither Company nor any of its subsidiaries
shall make or change any material Tax election, change any annual tax
accounting period, adopt or change any method of tax accounting, file any
material amended Tax Returns or claims for material Tax refunds, enter into any
material closing agreement, surrender any material Tax claim, audit or
assessment, surrender any right to claim a material Tax refund, offset or other
reduction in Tax liability surrendered, consent to any extension or waiver of
the limitations period applicable to any Tax claim or assessment or take or
omit to take any other action, if any such action or omission would have the
effect of increasing the Tax liability or reducing any Tax asset of Company or
any of its subsidiaries.
(b) Company and each of its subsidiaries will establish or cause to be
established in accordance with GAAP on or before the Appointment Time an
adequate accrual for all material Taxes due with respect to any period ending
prior to or as of the Appointment Time.
(c) All transfer, documentary, sales, use, stamp, registration, value
added and other such Taxes and fees (including any penalties and interest)
incurred in connection with the Merger (including any real property transfer
tax and any similar Tax) shall be paid by Company when due, and Company will,
at its own expense, file all necessary Tax returns and other documentation with
respect to all such Taxes and fees, and, if required by applicable law, Company
will, and will cause its affiliates to, join in the execution of any such Tax
returns and other documentation.
ARTICLE 6
ADDITIONAL AGREEMENTS
Section 6.01. Stockholder Approval; Preparation Of Registration Statement
And Proxy Statement/Prospectus. If approval of Company's stockholders is
required by applicable law in order to consummate the Merger other than
pursuant to Section 253 of Delaware Law, Parent and Company shall, as soon as
practicable following the acceptance of Shares pursuant to the Offer, prepare
and Company shall file with the SEC a proxy statement (the "Company Proxy
Statement") and Parent and Company shall prepare and Parent shall file with the
SEC a post-effective amendment to the Registration Statement (the
"Post-Effective Amendment") for the offer and sale of the Parent Stock pursuant
42
to the Merger and in which the Company Proxy Statement will be included as a
prospectus. Each of Company and Parent shall use all reasonable efforts to have
the Post-Effective Amendment declared effective under the Securities Act as
promptly as practicable after such filing. Company will use all reasonable
efforts to cause the Company Proxy Statement to be mailed to Company's
stockholders as promptly as practicable after the Post-Effective Amendment is
declared effective under the Securities Act. Parent shall also take any action
(other than qualifying to do business in any jurisdiction in which it is not
now so qualified or to file a general consent to service of process) required
to be taken under any applicable state securities laws in connection with the
issuance of Parent Common Stock in the Offer and the Merger and Company shall
furnish all information concerning Company and the holders of capital stock of
Company as may be reasonably requested in connection with any such action and
the preparation, filing and distribution of the Company Proxy Statement. No
filing of, or amendment or supplement to, or correspondence to the SEC or its
staff with respect to, the Post-Effective Amendment will be made by Parent, or
the Company Proxy Statement will be made by Company, without providing the
other party a reasonable opportunity to review and comment thereon. Parent will
advise Company, promptly after it receives notice thereof, of the time when the
Post-Effective Amendment has become effective or any supplement or amendment
has been filed, the issuance of any stop order, the suspension of the
qualification of the Parent Common Stock issuable in connection with the Merger
for offering or sale in any jurisdiction, or any request by the SEC for
amendment of the Post-Effective Amendment or comments thereon and responses
thereto or requests by the SEC for additional information. Company will advise
Parent, promptly after it receives notice thereof, of any request by the SEC
for the amendment of the Company Proxy Statement or comments thereon and
responses thereto or requests by the SEC for additional information. If at any
time prior to the Effective Time any information relating to Company or Parent,
or any of their respective affiliates, officers or directors, should be
discovered by Company or Parent which should be set forth in an amendment or
supplement to either of the Post-Effective Amendment or the Company Proxy
Statement, so that any of such documents would not include any misstatement of
a material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, the party which discovers such information shall promptly
notify the other parties hereto and an appropriate amendment or supplement
describing such information shall be promptly filed with the SEC and, to the
extent required by law, disseminated to the stockholders of Company.
(b) If approval of the Company's stockholders is required by applicable
law in order to consummate the Merger, Company shall establish, prior to or as
soon as practicable following the date upon which the Post-Effective Amendment
becomes effective, a record date (which shall be prior to or as soon as
practicable following the date upon which the Post-Effective Amendment becomes
effective) for, duly call, give notice of, convene and hold a meeting of its
stockholders (the
43
"Company Stockholders Meeting ") for the purpose of considering and taking
action upon this Agreement and the Merger and (with the consent of Parent) such
other matters as may in the reasonable judgment of Company be appropriate for
consideration at the Company Stockholders Meeting. Once the Company
Stockholders Meeting has been called and noticed, Company shall not postpone or
adjourn the Company Stockholders Meeting (other than for the absence of a
quorum) without the consent of Parent. Subject to Company's right, pursuant to
Section 6.03(b) hereof, to withdraw or modify the Recommendations, the Board of
Directors of Company shall include in the Post-Effective Amendment and the
Company Proxy Statement a copy of the Recommendations as such Recommendations
pertain to the Merger and this Agreement. Notwithstanding the foregoing, if
approval of the Company's stockholders is required by applicable law in order
to consummate the Merger, the Board of Directors of Company shall submit this
Agreement and the Merger for approval to the Company's stockholders whether or
not the Board of Directors of Company determines in accordance with Section
6.03(b) after the date hereof that this Agreement and the Merger are no longer
advisable and recommends that the stockholders of Company reject it. Unless the
Board of Directors of Company has withdrawn its recommendation of this
Agreement and the Merger in compliance with Section 6.03(b), Company shall use
its reasonable best efforts to solicit from stockholders of Company proxies in
favor of this Agreement and the Merger and shall take all other actions
necessary or advisable to secure the vote or consent of stockholders required
by Delaware Law to effect the Merger.
(c) Notwithstanding the foregoing clauses (a) and (b) above, if Merger Sub
shall acquire at least 90% of the outstanding Shares in the Offer, the parties
hereto shall take all necessary actions (including actions referred to in
clause (a) above, as applicable) to cause the Merger to become effective, as
soon as practicable after the expiration of the Offer, without a meeting of
stockholders of Company, in accordance with Section 253 of Delaware Law.
Section 6.02. Regulatory Filings. (a) Promptly after the date of this
Agreement, each of Company and Parent will prepare and file any filings
required to be filed by it, take, or cause to be taken, and do, or cause to be
done, all things necessary, proper or advisable to consummate and make
effective the Merger and the transactions contemplated by this Agreement under
the Exchange Act, the Securities Act or any other federal, state or foreign
laws relating to the Merger and the transactions contemplated by this Agreement
including, without limitation, laws relating to the regulation of
broker-dealers and banks, the rules and requirements of any self-regulatory
organization, the NYSE, the NASD and the Municipal Securities Rulemaking Board
(the "Regulatory Filings"). Company and Parent each shall promptly supply the
other with any information which may be required in order to effectuate any
filings pursuant to this Section 6.02.
(b) Without limiting the generality of the foregoing Section 6.02(a), if
the closing price for Parent Common Stock shall be at least $10.00 for any
44
continuous five trading days prior to the Closing Date, either Company or
Parent may determine, by written notice to the other party, that notification
and report forms are required to be filed by each of Company and Parent with
regard to the Offer pursuant to the Xxxx-Xxxxx-Xxxxxx Antitrust Improvement Act
of 1976, as amended (the "HSR Act"), in which case, both Company and Parent
shall file a notification and report form, and comply with all obligations
under the HSR Act within five business days of such notice, and Company and
Parent shall respond as promptly as practicable to any inquiries or requests
received from the Federal Trade Commission, the Department of Justice, any
state attorney general or other governmental or regulatory body for additional
information or documentation in connection with antitrust or related matters.
Except as may be prohibited by law, Company and Parent will consult and
cooperate with one another, and will consider in good faith the views of one
another, in connection with such determination that notification and report
forms are required to be filed and any analysis, appearance, presentation,
memorandum, brief, argument, opinion or proposal made or submitted in
connection with or relating to the HSR Act or any other federal or state
antitrust or fair trade law.
(c) Each of Company and Parent will notify the other promptly upon the
receipt of any comments from the SEC or its staff or any other government
officials in connection with any filing made pursuant hereto and of any request
by the SEC or its staff or any other government officials for amendments or
supplements to the Registration Statement, the Post-Effective Amendment, the
Company Proxy Statement or any Regulatory Filing or for additional information
and will supply the other with copies of all correspondence between such party
or any of its representatives, on the one hand, and the SEC, or its staff or
any other government officials, on the other hand, with respect to the
Registration Statement, the Post-Effective Amendment, the Company Proxy
Statement, the Merger or any Regulatory Filing. Each of Company and Parent will
cause all documents that it is responsible for filing with the SEC or other
regulatory authorities under Section 6.01 and this Section 6.02 to comply in
all material respects with all applicable requirements of law and the rules and
regulations promulgated thereunder. Whenever any event occurs which is required
to be set forth in an amendment or supplement the Registration Statement, the
Post-Effective Amendment, the Company Proxy Statement or any Regulatory Filing,
Company or Parent, as the case may be, will promptly inform the other of such
occurrence and cooperate in filing with the SEC or its staff or any other
government officials, and/or mailing to stockholders of Company and/or Parent,
such amendment or supplement.
Section 6.03. No Solicitation. (a) From the date hereof until the
Appointment Date or termination of the Agreement in accordance with Article 8
hereof, whichever is earlier, neither Company nor any of its subsidiaries
shall, nor shall Company or any of its subsidiaries authorize or permit any of
its or their officers, directors, employees, investment bankers, attorneys,
accountants, consultants or other agents or advisors to, directly or
indirectly, (i) solicit, initiate
45
or take any action to facilitate or encourage the submission or announcement of
any Acquisition Proposal (as defined below), (ii) enter into or participate in
any discussions or negotiations with, furnish any information relating to
Company or any of its subsidiaries or afford access to the business,
properties, assets, books or records of Company or any of its subsidiaries to,
otherwise cooperate in any way with, or assist, participate in, facilitate or
encourage any effort by any third party that is seeking to make or has made an
Acquisition Proposal, (iii) approve, endorse or recommend any Acquisition
Proposal or (iv) enter into any letter of intent or similar document or any
contract, agreement or commitment contemplating or otherwise relating to any
Acquisition Proposal.
(b) Notwithstanding anything in this Agreement to the contrary, the Board
of Directors of Company, directly or indirectly through advisors, agents or
other intermediaries, may (i) engage in negotiations and discussions with any
third party that, subject to Company's compliance with Section 6.03(a), has
made a bona fide Acquisition Proposal that the Board of Directors of Company
reasonably determines (after consultation with Company's financial advisor) is
or is reasonably likely to result in a Superior Proposal, (ii) furnish to such
third party nonpublic information relating to Company or any of its
subsidiaries pursuant to a confidentiality agreement with terms no less
favorable to Company than those contained in the Confidentiality Agreement,
(iii) take and disclose to its stockholders a position contemplated by Rule
14e-2(a) under the Exchange Act or otherwise make disclosure to them, (iv)
following receipt of such an Acquisition Proposal, withdraw, modify in a manner
adverse to Parent, or fail to make its Recommendations, and/or (v) take any
action ordered to be taken by Company by any court of competent jurisdiction
if, in each case (1) neither Company nor any representative of Company and its
subsidiaries shall have violated any of the restrictions set forth in this
Section 6.03, (2) the Board of Directors of Company determines in good faith,
after consultation with its outside legal counsel, that it is necessary for the
Board of Directors to take such action in order to satisfy its fiduciary
obligations to Company's stockholders under applicable law, (3) prior to
furnishing any such nonpublic information to, or entering into any such
discussions with, such person or group, Company gives Parent written notice
(which notice shall in no event be given less than one business day prior to
furnishing such information or entering into such discussions) of the identity
of such person or group and all of the material terms and conditions of such
Acquisition Proposal and of Company's intention to furnish nonpublic
information to, or enter into discussions with, such person or group, and
Company receives from such person or group an executed confidentiality
agreement containing terms at least as restrictive with regard to Company's
confidential information as the Confidentiality Agreement, and (4)
contemporaneously with furnishing any such nonpublic information to such person
or group, Company furnishes such nonpublic information to Parent (to the extent
such nonpublic information has not been previously furnished by the Company to
Parent). Company and its subsidiaries will immediately cease any and all
existing activities, discussions or negotiations with any parties conducted
heretofore with
46
respect to any Acquisition Proposal. Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in the preceding
two sentences by any officer, director or employee of Company or any of its
subsidiaries or any investment banker, attorney or other advisor or
representative of Company or any of its subsidiaries shall be deemed to be a
breach of this Section 6.03 by Company.
(c) In addition to the obligations of Company set forth in paragraph (a)
of this Section 6.03, Company as promptly as reasonably practicable shall
advise Parent orally and in writing of any Acquisition Proposal, or any inquiry
with respect to or which Company reasonably should believe would lead to any
Acquisition Proposal, the material terms and conditions of such Acquisition
Proposal or inquiry, and the identity of the person or group making any such
Acquisition Proposal or inquiry. Company will keep Parent informed as promptly
as reasonably practicable in all material respects of material amendments of
any such Acquisition Proposal or inquiry.
"Superior Proposal" means any bona fide, unsolicited written Acquisition
Proposal for at least a majority of the outstanding shares of Company Common
Stock on terms that the Board of Directors of Company determines in good faith
by a majority vote, after consultation with Xxxxxxxx, Xxxxx & Company, Inc. or
such other nationally recognized reputation and taking into account all the
terms and conditions of the Acquisition Proposal, are more favorable and
provide greater value to all the Company's stockholders than as provided
hereunder.
For purposes of this Agreement, "Acquisition Proposal" shall mean any
offer or proposal by a third party, other than Parent, Merger Sub or any
affiliate thereof, relating to: (A) any acquisition or purchase from Company by
any person or "group" (as defined under Section 13(d) of the Exchange Act and
the rules and regulations thereunder) of more than a 40% interest in the
outstanding voting securities of Company or any of its subsidiaries or any
tender offer or exchange offer that if consummated would result in any person
or "group" (as defined under Section 13(d) of the Exchange Act and the rules
and regulations thereunder) beneficially owning 40% or more of the outstanding
voting securities of Company or any of its subsidiaries or any merger,
consolidation, business combination or similar transaction involving Company
pursuant to which the s tockholders of Company immediately preceding such
transaction would hold less than 60% of the equity interests in the surviving
or resulting entity of such transaction; (B) any sale, lease (other than in the
ordinary course of business), exchange, transfer, license (other than in the
ordinary course of business), acquisition, or disposition of more than 40% of
the consolidated assets of Company; or (C) any liquidation or dissolution of
Company.
6.04. Obligations Of Merger Sub. Parent will take all action necessary to
cause Merger Sub to perform its obligations under this Agreement
47
and to consummate the Offer and the Merger on the terms and subject to the
conditions set forth in this Agreement.
Section 6.05. Voting Of Shares. Parent and Merger Sub agree to vote all
Shares acquired in the Offer or otherwise beneficially owned by them or any of
their subsidiaries in favor of approval and adoption of this Agreement and the
Merger at the Company Stockholder Meeting or pursuant to Section 253 of the
DGCL, on the terms and subject to the conditions set forth in this Agreement.
Section 6.06. Registration Statement. Parent shall promptly prepare and
file with the SEC under the Securities Act the Registration Statement and shall
use all reasonable efforts to cause the Registration Statement to be declared
effective by the SEC as promptly as practicable. Parent shall promptly take any
action required to be taken under foreign or state securities laws in
connection with the issuance of Parent Common Stock in the Merger. Company and
its counsel shall be given a reasonable opportunity to review and comment on
the Registration Statement and the Offer Documents and any amendments thereto
prior to their being filed with the SEC. Parent shall promptly provide to
Company copies of any SEC comment letters or details of oral SEC comments
relating to the Registration Statement.
Section 6.07. Confidentiality; Access To Information. (a) The parties
acknowledge that Company and Parent have previously executed the
Confidentiality Agreement which Confidentiality Agreement will continue in full
force and effect in accordance with its terms.
(b) Company will afford Parent and its accountants, counsel and other
representatives reasonable access during normal business hours to the
properties, books, records and personnel of Company during the period prior to
the Effective Time to obtain all information concerning the business, including
the status of product development efforts, properties, results of operations
and personnel of Company, as Parent may reasonably request, including without
limitation copies of working papers of accountants, contracts, and other
corporate documents, and access to other parties with whom it has business
dealings. Parent will afford Company and its accountants, counsel and other
representatives reasonable access during normal business hours to the
properties, books, records and personnel of Parent during the period prior to
the Effective Time to obtain all information concerning the business,
properties and results of operations of Parent, as Company may reasonably
request. No information or knowledge obtained in any investigation pursuant to
this Section will affect or be deemed to modify any representation or warranty
contained herein or the conditions to the obligations of the parties to
consummate the Offer and the Merger.
Section 6.08. Public Disclosure. Parent and Company will consult with each
other, and to the extent practicable, agree, before issuing any press release
or otherwise making any public statement with respect to the Offer, Merger,
this Agreement or an Acquisition Proposal and will not issue any such press
release or
48
make any such public statement prior to such consultation, except as may be
required by law or any listing agreement with a national securities exchange;
provided, however, that this Section 6.08 shall terminate in the event the
Board of Directors of Company shall withdraw its Recommendations. The parties
have agreed to the text of the joint press release announcing the signing of
this Agreement.
Section 6.09. Reasonable Efforts; Notification. (a) Upon the terms and
subject to the conditions set forth in this Agreement, each of the parties
agrees to use all reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the Merger and
the other transactions contemplated by this Agreement, including using
reasonable efforts to accomplish the following: (i) the taking of all
reasonable acts necessary to cause the conditions precedent set forth in Annex
I and Article 7 to be satisfied, (ii) the obtaining of all necessary actions or
nonactions, waivers, consents, approvals, orders and authorizations from
Governmental Entities and the making of all necessary registrations,
declarations and filings (including registrations, declarations and filings
with Governmental Entities, if any) and the taking of all reasonable steps as
may be necessary to avoid any suit, claim, action, investigation or proceeding
by any Governmental Entity, (iii) the obtaining of all necessary consents,
approvals or waivers from third parties, (iv) the defending of any suits,
claims, actions, investigations or proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed and (v) the execution or delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
carry out fully the purposes of, this Agreement. Notwithstanding anything in
this Agreement to the contrary, neither Parent nor any of its affiliates shall
be under any obligation to make proposals, execute or carry out agreements or
submit to orders providing for the sale or other disposition or holding
separate (through the establishment of a trust or otherwise) of any assets or
categories of assets of Parent, any of its affiliates or Company or its
subsidiaries or the holding separate of the shares of Company Common Stock (or
shares of stock of the Surviving Corporation) or imposing or seeking to impose
any limitation on the ability of Parent or any of its subsidiaries or
affiliates to conduct their business or own such assets or to acquire, hold or
exercise full rights of ownership of the shares of Company Common Stock (or
shares of stock of the Surviving Corporation).
(b) Each of Company and Parent will give prompt notice to the other of (i)
any notice or other communication from any person alleging that the consent of
such person is or may be required in connection with the transactions
contemplated hereby, (ii) any notice or other communication from any
Governmental Entity in connection with the transactions contemplated hereby,
49
(iii) any litigation relating to, involving or otherwise affecting Company,
Parent or their respective subsidiaries that relates to the consummation of the
transactions contemplated hereby. Company shall give prompt notice to Parent of
any representation or warranty made by it contained in this Agreement becoming
untrue or inaccurate, or any failure of Company to comply with or satisfy in
any material respect any covenant, condition or agreement to be complied with
or satisfied by it under this Agreement, in each case, such that the conditions
set forth in Annex I or Article 7 would not be satisfied, provided, however,
that no such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement. Parent shall give prompt notice to Company of
any representation or warranty made by it or Merger Sub contained in this
Agreement becoming untrue or inaccurate, or any failure of Parent or Merger Sub
to comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement, in each
case, such that the conditions set forth in Annex I or Article 7 would not be
satisfied, provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
Section 6.10. Warrants, Stock Options And ESPP. (a) At the Effective Time,
each outstanding warrant to purchase Company Common Stock, whether or not then
exercisable, will be assumed by Parent. The terms of each outstanding warrant
to purchase Company Common Stock, whether or not exercisable or vested, shall
be adjusted as necessary to provide that, at the Effective Time, each such
warrant outstanding immediately prior to the Effective Time shall be deemed to
constitute a warrant to acquire, on the same terms and conditions as were
applicable under such warrant, (i) that number of shares of Parent Common Stock
as the holder of such warrant would have been entitled to receive pursuant to
the Merger had such holder exercised such warrant in full immediately prior to
the Effective Time, and (ii) at an exercise price per share of Parent Common
Stock equal to (A) the aggregate exercise price for the shares of Company
Common Stock otherwise purchasable pursuant to such warrant divided by (B) the
aggregate number of shares of Parent Common Stock deemed purchasable pursuant
to such warrant, provided that any fractional share of Parent Common Stock
resulting from an aggregation of all the shares of a holder subject to a
warrant shall be rounded down to the nearest whole share. At the Effective
Time, each outstanding Company Option to purchase Company Common Stock, if any,
whether or not then exercisable, will be cancelled without the payment, except
as provided below, of any cash or other consideration.
(b) With respect to each Company Option issued under the 1998 Option Plan,
Company agrees that within five business days of the date of this Agreement it
shall cause the administrator of the 1998 Option Plan to give notice pursuant
to Section 14(c) of such Plan that each such Option shall terminate 15 days
from the date of such notice.
50
(c) With respect to each Company Option issued under the 1999 Option Plan,
Company agrees pursuant to Section 7(a)(iv)(d) of such Plan to, as of the
Appointment Time, settle each Company Option issued under such Plan for an
amount equal to the positive difference between the Change of Control Price (as
defined in such Plan), and the applicable per share exercise price.
(d) With respect to each Company Option issued under the 2000 Option Plan,
Company agrees pursuant to Section 7(a)(iv)(d) of such Plan to, as of the
Appointment Time, settle each Company Option issued under such Plan for an
amount equal to the positive difference between the Change of Control Price (as
defined in such Plan) and the applicable per share exercise price.
(e) With respect to each Company Option issued under any Non-Plan Option
Agreement, Company agrees to cause each such Option, as of the Appointment
Time, to have been exercised or cancelled without the payment of cash or other
consideration by Company.
(f) Pursuant to the terms of the Company ESPP, Company agrees, as of the
Appointment Time, to repurchase each outstanding option under the Company ESPP
as provided in Section 6.3(b)(2) thereof and that no new offering period shall
commence under the Company ESPP subsequent to the date of this Agreement.
Section 6.11. Accounts Maintenance And Transition Period. Prior to the
Appointment Time, Company agrees to use all reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with Parent in doing, all things necessary, proper or advisable
to retain all customer accounts, and the assets therein (the "Accounts"). Prior
to the Appointment Time, the parties agree to use all reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other party in doing, all things necessary,
proper or advisable to facilitate the transition of the control and operations
of the business of Company and its subsidiaries at the Effective Time.
Section 6.12. Company Trademarks. Following the Closing and for a period
of four years, Parent agrees not to, and to cause its subsidiaries not to, sell
or otherwise transfer the "Web Street," "Web Street Securities," the Web St. in
box logo, or the stylized "W" trademarks.
Section 6.13. Indemnification. (a) From and after the Effective Time,
Parent shall, and shall cause the Surviving Corporation to, fulfill and honor
in all respects the obligations of Company pursuant to any indemnification
agreements between Company and its directors and officers as of the Effective
Time (the "Indemnified Parties") and any indemnification provisions under
Company's or the Surviving Corporation's Certificate of Incorporation or Bylaws
as in effect on the date hereof. The Certificate of Incorporation and Bylaws of
the Surviving
51
Corporation will contain provisions with respect to exculpation and
indemnification that are at least as favorable to the Indemnified Parties as
those contained in the Certificate of Incorporation and Bylaws of Company as in
effect on the date hereof, which provisions will not be amended, repealed or
otherwise modified for a period of six years from the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who,
immediately prior to the Effective Time, were directors, officers, employees or
agents of Company, unless such modification is required by law.
(b) For a period of six years after the Effective Time, Parent will either
(i) cause the Surviving Corporation to maintain in effect, if available,
directors' and officers' liability insurance covering those persons who are
currently covered by Company's directors' and officers' liability insurance
policy on terms comparable to those applicable to the current directors and
officers of Company; provided, however, that in no event will Parent or the
Surviving Corporation be required to expend in excess of 150% of the annual
premium currently paid by Company for such coverage (or such coverage as is
available for such 150% of such annual premium), or (ii) if mutually agreed
between Company and Parent, purchase a directors' and officers' liability
insurance on terms comparable to those applicable to the current directors and
officers of Company covering all periods prior to the Effective Time.
(c) This Section 6.13 shall survive the consummation of the Merger, is
intended to benefit Company, the Surviving Corporation and each Indemnified
Party, shall be binding on all successors and assigns of the Surviving
Corporation and Parent, and shall be enforceable by the Indemnified Parties.
Section 6.14. NYSE Listing. Parent agrees to authorize for listing on the
NYSE the shares of Parent Common Stock issuable, and those required to be
reserved for issuance, in connection with the Offer and the Merger, effective
upon official notice of issuance.
Section 6.15. Letters Of Accountants. Company and Parent shall use their
respective reasonable efforts to cause to be delivered to Parent letters of
Company's and Parent's independent accountants, respectively, dated no more
than two business days before the date on which the Registration Statement
becomes effective (and satisfactory in form and substance to Parent), that is
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the
Registration Statement.
Section 6.16. Takeover Statutes. If any Takeover Statute is or may become
applicable to the Merger or the other transactions contemplated by this
Agreement, each of Parent and Company and their respective Boards of Directors
shall grant such approvals and take such lawful actions as are necessary to
ensure that such transactions may be consummated as promptly as practicable on
the terms contemplated by this Agreement and otherwise act to eliminate or
minimize
52
the effects of such statute and any regulations promulgated thereunder
on such transactions. Company agrees that on and after the date hereof, it will
not adopt any "poison pill" rights plan or any similar antitakeover plan or
take any other action that would impede or prevent completion of the Offer, the
Merger or this Agreement.
Section 6.17. Tax Matters. Each of Parent, Merger Sub and Company agrees
that it will not take any action, or fail to take any action, which action or
failure to act would cause or be reasonably likely to cause the Transaction to
fail to qualify as a "reorganization" within the meaning of Section 368(a) of
the Code and the Treasury regulations promulgated thereunder.
Section 6.18. Escrow. (a) Each of Xxxxxx X. Xxx, Avi Xxx, Xxxxxx Xxxx,
Xxxxxx Xxxx, Xxxxxxx Mania, X. X. Xxxxxxxxx and Xxxxxxxx Xxxxxx (each an
"Escrow Executive") hereby agrees as a condition and inducement to Parent's
willingness to enter into this Agreement to enter into, prior to the
Appointment Time, an Escrow Agreement (the "Escrow Agreement") with Parent
substantially in the form of Exhibit C. The amount set forth under the
column entitled "Total" next to each Escrow Executive's name on Exhibit F
hereto, shall, with respect to each executive be referred to as the "Executive
Escrow Total." Each Escrow Executive, the Company and Parent agree that the
payments that would otherwise be owed to such executive pursuant to the terms
of his employment agreement with Company upon consummation of the Offer shall
be reduced by the amount of the Executive Escrow Total and that Parent shall,
within two business days of the Appointment Time, deposit cash in such amount
with American Stock Transfer and Trust Co. (or another institution selected by
Parent with the reasonable consent of the Founders), as escrow agent (the
"Escrow Agent"). All such deposits pursuant to this Section 6.18 shall total
$5,000,000 and (together with any interest earned thereon) shall constitute the
Escrow Fund and be governed by the terms set forth in this Section 6.18 and the
Escrow Agreement (such arrangement, the "Escrow"). Parent shall be solely
responsible for all expenses and fees payable to Escrow Agent in connection
with the Escrow.
(b) With respect to each date (each, a "Determination Date") set forth on
Exhibit D (the "Escrow Threshold Schedule"), Parent shall certify in writing to
each Escrow Executive as soon as reasonably practical following such date (and
in no event more than 30 days thereafter) whether the applicable threshold test
(each, a "Threshold Test") corresponding to such date on the Escrow Threshold
Schedule has been satisfied. No earlier than such delivery to the Escrow
Executives, Parent shall deliver to the Escrow Agent a certificate signed by
Parent directing the Escrow Agent to deliver the applicable threshold amount
(each, a "Threshold Amount") corresponding to such date on the Escrow Threshold
Schedule, together with any interest earned thereon, to either (i) the Escrow
Executives (to each Escrow Executive pro rata based on contributions to the
Escrow Fund with respect to such executive for such Threshold Test as set forth
on Exhibit F) if the applicable Threshold Test has been satisfied or (ii)
Parent if the applicable Threshold Test has not been satisfied. The Escrow
shall
53
terminate when all disputes regarding any distributions from the Escrow Fund
have been settled and all distributions under the Escrow have been made.
(c) Each of Xxxxxx X. Xxx, Avi Fox, Xxxxxx Xxxx, Xxxxxx Xxxx, Xxxxxxx
Mania, X. X. Xxxxxxxxx and Xxxxxxxx Xxxxxx agrees, notwithstanding any
agreement between such executive and Company (including each agreement set
forth on Part 3.04 of the Company Disclosure Letter), that effective as of the
Appointment Time, the maximum amount that Company will be obligated to pay such
executives in order to reimburse such executives for any federal, state, or
local income tax or excise tax (including any interest or penalties imposed
with respect to such taxes) by reason of any payment being made by or on behalf
of Company to such executives that is subject to a "golden parachute" excise
tax under Section 4999 of the Code, shall be a total amount for all such
executives collectively of $140,668.00 (the "Aggregate Excise Tax Gross-up
Cap"). Notwithstanding the foregoing sentence, each Escrow Executive and Parent
agrees that to the extent that Net Cash Available After Termination Related
Payments (as defined on Exhibit F) exceeds $750,000 on the Determination Date
on which Net Cash Available After Termination Related Payments is calculated,
Parent shall pay, on behalf of Company, to the Escrow Executives, collectively,
such excess as if the Escrow Executives had not agreed to the Aggregate Excise
Tax Gross-up Cap, but only to the extent that the Escrow Executives have been
required by a Taxing Authority within six months of the Appointment Time to pay
a "golden parachute" excise tax referred to above.
ARTICLE 7
CONDITIONS TO THE MERGER
Section 7.01. Conditions To Obligations Of Each Party To Effect The
Merger. The obligations of Company, Parent and Merger Sub to consummate the
Merger are subject to the satisfaction of the following conditions:
(a) if required by Delaware law, this Agreement shall have been approved
and adopted by the stockholders of Company;
(b) Merger Sub shall have accepted for exchange and exchanged all of the
Shares validly tendered pursuant to the Offer;
(c) no provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the Merger;
(d) the Registration Statement or the Post-Effective Amendment, as the
case may be, shall have been declared effective and no stop order suspending
effectiveness shall be in effect and no proceedings for such purpose shall be
pending before or threatened by the SEC; and
54
(e) the shares of Parent Common Stock to be issued in the Merger shall
have been approved for listing on the NYSE, subject to official notice of
issuance.
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
Section 8.01. Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Appointment Time (notwithstanding any
approval of this Agreement by the stockholders of Company):
(a) by mutual written agreement of Company and Parent; or
(b) by either Company or Parent, if:
(i) the Offer shall have expired or been terminated in accordance
with the terms of this Agreement without Parent or Merger Sub having
accepted for exchange any Shares pursuant to the Offer; provided, however,
that the right to terminate this Agreement under this Section 8.01(b)(i)
shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the principal cause of or
resulted in the failure of the Offer to have been consummated on or before
such date and such action or failure to act constitutes a material breach
of this Agreement; or
(ii) the Offer has not been consummated on or before September 30,
2001 (the "End Date"); provided, however, that the right to terminate this
Agreement under this Section 8.01(b)(ii) shall not be available to any
party whose failure to fulfill any obligation under this Agreement has
been the principal cause of or resulted in the failure of the Offer to
have been consummated on or before such date and such action or failure to
act constitutes a material breach of this Agreement; or
(iii) there shall be any applicable law or regulation that makes
consummation of the Merger illegal or otherwise prohibited or any
judgment, injunction, order or decree of any court or governmental body
having competent jurisdiction enjoining Company or Parent from
consummating the Merger is entered and such judgment, injunction, judgment
or order shall have become final and nonappealable; or
(iv) (A) any representation or warranty of the other party contained
in this Agreement shall be or have become inaccurate such that, in the
aggregate, such inaccuracies would reasonably be expected to have a
Material Adverse Effect on such other party, or (B) the other party fails
to perform any material covenant contained in this Agreement; provided,
however, that such inaccuracy or failure to perform has not been or is
55
incapable of being cured by such other party within 30 days following
receipt by the terminating party of notice of such inaccuracy or failure
to perform; or
(c) by Parent if a Triggering Event shall have occurred.
For purposes of this Agreement, a "Triggering Event" shall be deemed to
have occurred if, prior to the Appointment Time: (i) the Board of Directors of
Company or any committee thereof shall have approved or recommended to Company
stockholders any Acquisition Proposal, (ii) the Board of Directors of Company
or any committee thereof shall for any reason have withdrawn or shall have
amended or modified in a manner adverse to Parent its Recommendations (except
as required by any applicable Legal Requirement and in a manner that is not
materially adverse to Parent); (iii) Company shall have failed to include the
Recommendations in the Offer Documents, the Schedule 14D-9 or the
Post-Effective Amendment; or (iv) a tender or exchange offer relating to 40% or
more of the Shares shall have been commenced by a person unaffiliated with
Parent, and Company shall not have sent to its securityholders pursuant to Rule
14e-2 promulgated under the Exchange Act, within 10 business days after such
tender or exchange offer is first published, sent or given, a statement
disclosing that Company recommends rejection of such tender or exchange offer.
The party desiring to terminate this Agreement pursuant to this Section
8.01 (other than pursuant to Section 8.01(a)) shall give written notice of such
termination to the other party.
Section 8.02. Notice Of Termination; Effect Of Termination. Any proper
termination of this Agreement under Section 8.01 above will be effective
immediately upon the delivery of written notice of the terminating party to the
other parties hereto. In the event of the termination of this Agreement under
Section 8.01, this Agreement shall be of no further force or effect without
liability of any party (or any stockholder, director, officer, employee, agent,
consultant or representative of such party) to the other parties hereto, except
(i) as set forth in this Section 8.02, Section 8.03 and Article 9, each of
which shall survive the termination of this Agreement, and (ii) that nothing
herein shall relieve any party from liability for any willful breach of this
Agreement. No termination of this Agreement shall affect the obligations of the
parties contained in the Confidentiality Agreement, all of which obligations
shall survive termination of this Agreement in accordance with their terms.
Section 8.03. Fees And Expenses. (a) General. Except as set forth in this
Section 8.03, all fees and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such expenses whether or not the Merger is consummated; provided, however, that
Parent shall pay all fees and expenses, other than attorneys' and accountants
fees and expenses, incurred in relation to the printing and filing with the SEC
of the
56
Registration Statement (including financial statements and exhibits) and
any amendments or supplements thereto.
(b) Company Payments. If this Agreement is terminated by Parent or
Company, as applicable, pursuant to Sections 8.01(b)(i) or (ii) or Section
8.01(c), Company shall promptly, but in any event no later than two days after
the date of such termination, pay Parent a fee equal to $1.35 million in
immediately available funds (the "Termination Fee"); provided, that in the case
of a termination under Section 8.01(b)(i) or (ii) prior to which no Triggering
Event has occurred, (i) such payment shall be made only if (A) following the
date of this Agreement and prior to the termination of this Agreement, any
Acquisition Proposal shall have been publicly announced or shall have become
publicly known, and (B) within 12 months following the termination of this
Agreement, either a Company Acquisition (as defined below) is consummated, or
Company enters into an agreement providing for a Company Acquisition and such
Company Acquisition is later consummated, and (ii) such payment shall be made
promptly, but in any event no later than two days after the consummation of
such Company Acquisition. Company acknowledges that the agreements contained in
this Section 8.03(b) are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, Parent would not enter into
this Agreement. Accordingly, if Company fails to pay in a timely manner the
amounts due pursuant to this Section 8.03(b), and, in order to obtain such
payment, Parent makes a claim that results in a judgment against Company,
Company shall pay to Parent its reasonable costs and expenses (including
reasonable attorneys' fees and expenses) in connection with such suit, together
with interest on the amounts set forth in this Section 8.03(b) at the prime
rate of X.X. Xxxxxx Xxxxx & Co. in effect on the date such payment was required
to be made. Payment of the fees described in this Section 8.03(b) shall not be
in lieu of damages incurred in the event of breach of this Agreement.
For the purposes of this Agreement, "Company Acquisition" shall mean any
of the following transactions (other than the transactions contemplated by this
Agreement): (i) a sale or other disposition by Company of a business or assets
representing 40% or more of the net revenues, net income or assets of Company
immediately prior to such sale; (ii) the acquisition by any person or group
(including by way of a tender offer or an exchange offer or issuance by
Company), directly or indirectly, of beneficial ownership or a right to acquire
beneficial ownership of shares representing 40% or more of any class of equity
securities of Company; or (iii) a merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
Company.
Section 8.04. Amendment. Subject to applicable law, this Agreement may be
amended by the parties hereto at any time by execution of an instrument in
writing signed on behalf of each of Parent and Company.
57
Section 8.05. Extension; Waiver. At any time prior to the Effective Time
any party hereto may, to the extent legally allowed, (i) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions for the benefit
of such party contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party. Delay in exercising any right under
this Agreement shall not constitute a waiver of such right.
ARTICLE 9
GENERAL PROVISIONS
Section 9.01. Non-survival Of Representations And Warranties. The
representations and warranties of Company, Parent and Merger Sub contained in
this Agreement shall terminate at the Effective Time, and only the covenants
that by their terms survive the Effective Time shall survive the Effective
Time.
Section 9.02. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given upon delivery either personally
or by commercial delivery service, or sent via facsimile (receipt confirmed) to
the parties at the following addresses or facsimile numbers (or at such other
address or facsimile numbers for a party as shall be specified by like notice):
if to Parent or Merger Sub, to:
E*Trade Group, Inc.
0000 Xxxxxxxx Xxxxx
Xxxxx Xxxx, XX 00000
Attention: Xxxxxxx Xxxxx
Facsimile No.: 000-000-0000
with a copy to:
Xxxxx Xxxx & Xxxxxxxx
0000 Xx Xxxxxx Xxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxx, Xx.
Facsimile No.: 000-000-0000
(b) if to Company, to:
Web Street, Inc.
000 Xxxx Xxxx Xxxx
Xxxxxxxxx, XX 00000
58
Attention: Xxxxxx Xxx
Facsimile No.: 000-000-0000
with a copy to:
Xxxxxx Xxxxxx Xxxxx
000 Xxxx Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000-0000
Attention: Xxxxxxx Xxxx
Facsimile No.:
Section 9.03. Interpretation; Certain Defined Terms. (a) When a reference
is made in this Agreement to Exhibits, such reference shall be to an Exhibit to
this Agreement unless otherwise indicated. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of this Agreement
unless otherwise indicated. The words "include," "includes" and "including"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. When reference is made herein to
"the business of" an entity, such reference shall be deemed to include the
business of all direct and indirect subsidiaries of such entity. Reference to
the subsidiaries of an entity shall be deemed to include all direct and
indirect subsidiaries of such entity.
(b) For purposes of this Agreement, the term "knowledge " means with
respect to a party hereto, with respect to any matter in question, that any of
the executive officers of such party has actual knowledge of such matter, after
reasonable inquiry of such matter. For purposes of this definition, the
"executive officers" of Company shall be those person listed on Part 9.03(b) of
the Company Disclosure Letter.
(c) For purposes of this Agreement, the term "Material Adverse Effect"
when used in connection with an entity means any change, event, circumstance or
effect that is or would be materially adverse to the business, assets
(including intangible assets), financial condition, operations or results of
operations of such entity taken as a whole with its subsidiaries, except to the
extent that any such change, event, circumstance or effect results from (i)
changes in general economic conditions, (ii) changes affecting the industry
generally in which such entity operates (provided that such changes do not
affect such entity in a substantially disproportionate manner), (iii) changes
in the trading prices for such entity's capital stock or (iv) the announcement
or pendency of this Agreement (including a reduction in customer revenues, a
disruption in or termination of any vendor or strategic relationship or a loss
of employees).
(d) For purposes of this Agreement, the term "person" shall mean any
individual, corporation (including any non-profit corporation), general
59
partnership, limited partnership, limited liability partnership, joint venture,
estate, trust, company (including any limited liability company or joint stock
company), firm or other enterprise, association, organization, entity or
Governmental Entity.
(e) For purposes of this Agreement, "subsidiary" of a specified entity
will be any corporation, partnership, limited liability company, joint venture
or other legal entity of which the specified entity (either alone or through or
together with any other subsidiary) owns, directly or indirectly, 50% or more
of the stock or other equity or partnership interests the holders of which are
generally entitled to vote for the election of the Board of Directors or other
governing body of such corporation or other legal entity; provided, however
that for purposes of Section 3.23 and Section 5.01(r), "subsidiary" shall mean
any legal entity of which Company has direct or indirect, rebuttable or
conclusive "control" as such term is defined in Part 574 of Title 12 of the
U.S. Code of Federal Regulations.
Section 9.04. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
Section 9.05. Entire Agreement; Third Party Beneficiaries. This Agreement,
its Exhibits and the documents and instruments and other agreements among the
parties hereto as contemplated by or referred to herein, including the Company
Disclosure Letter and the Parent Disclosure Letter (a) constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, it being understood that
the Confidentiality Agreement shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement; and (b) are not
intended to confer upon any other person any rights or remedies hereunder,
other than the Continuing Directors, except as specifically provided in Section
6.13.
Section 9.06. Severability. In the event that any provision of this
Agreement or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
Section 9.07. Other Remedies; Specific Performance. Except as otherwise
provided herein, any and all remedies herein expressly conferred upon a party
will be deemed cumulative with and not exclusive of any other remedy conferred
hereby, or by law or equity upon such party, and the exercise by a party
60
of any one remedy will not preclude the exercise of any other remedy. 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 seek 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 9.08. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of law thereof.
Section 9.09. Rules Of Construction. The parties hereto agree that they
have been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
Section 9.10. Assignment. No party may assign either this Agreement or any
of its rights, interests, or obligations hereunder without the prior written
consent of the other parties hereto. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns. Any purported
assignment in violation of this Section shall be void.
Section 9.11. Waiver Of Jury Trial. EACH OF PARENT, COMPANY AND MERGER SUB
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, COMPANY OR MERGER SUB
IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
* * * * *
61
IN WITNESS WHEREOF, the parties hereto have caused this Agreement and Plan
of Merger to be executed by their duly authorized respective officers as of the
date first written above. E*TRADE GROUP, INC.
By: /s/ Xxxxxxxx X. Xxxxxxxx
-------------------------------
Name: Xxxxxxxx X. Xxxxxxxx
Title: Chairman & CEO
OPUS ACQUISITION CORP.
By: /s/ Xxxxxxx X. Xxxxxx
-------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: President, CFO and Secretary
WEB STREET, INC.
By: /s/ Avi Fox
-------------------------------
Name:. Avi Fox
Title: Co-CEO
Each Escrow Executive
hereby agrees to comply with all
obligations under Section 6.18.
XXXXXX X. XXX
/s/ Xxxxxx Xxx
-------------------------
AVI FOX
/s/ Avi Fox
-------------------------
62
XXXXXX XXXX
/s/ Xxxxxx Xxxx
-------------------------
XXXXXX XXXX
/s/ Xxxxxx Xxxx
-------------------------
XXXXXXX MANIA
/s/ Xxxxxxx Mania
-------------------------
X. X. XXXXXXXXX
/s/ X.X. Xxxxxxxxx
-------------------------
XXXXXXXX XXXXXX
/s/ Xxxxxxxx Xxxxxx
-------------------------
63
ANNEX I
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer, subject to the terms of
this Agreement, Merger Sub shall not be required to accept for exchange or
exchange or deliver any shares of Parent Common Stock for (subject to any
applicable rules and regulations of the SEC, including Rule 14e-1(c) under the
Exchange Act (relating to Merger Sub's obligation to pay for or return tendered
Shares after the termination or withdrawal of the Offer)) any Shares tendered,
if by the expiration of the Offer (as it may be extended by a Mandatory
Extension), (1) the Minimum Condition shall not have been satisfied, (2) any
broker-dealer or bank regulatory approvals required to consummate the Offer
shall not have been obtained, (3) the Registration Statement shall not have
become effective under the Securities Act or shall be the subject of any stop
order or proceedings seeking a stop order, (4) the shares of Parent Common
Stock to be issued in the Offer and the Merger shall not have been approved for
listing on the NYSE, subject to official notice of issuance, (5) if any Company
Option or option under th(a) e Company ESPP shall be outstanding immediately
following acceptance of shares in the Offer, (6) any Escrow Executive shall not
have executed and delivered to Parent an Escrow Agreement, (7) any of Xxxxxx X.
Xxx or Avi Fox shall not have executed and delivered to Parent a
Non-Competition Agreement with Parent substantially in the form of Exhibit G,
(8) any shares of Parent Common Stock to be issued in the Offer or the Merger
(excluding shares of Parent Common Stock to be issued upon exercise of any
Company warrants assumed in the Merger) would be subject to any registration
rights granted by Company that have not been fully waived by the holder
thereof, or (9) at any time on or after the date of this Agreement and prior to
the acceptance for exchange of Shares pursuant to the Offer, any of the
following conditions exist and are continuing:
(a) there shall be instituted or pending any action or proceeding by any
government or governmental authority or agency, domestic, foreign or
supranational, before any court or governmental authority or agency, domestic,
foreign or supranational challenging or seeking to make illegal, to delay
materially or otherwise directly or indirectly to restrain or prohibit the
making of the Offer, the acceptance for payment of or payment for some or all
of the Shares by Parent or Merger Sub or the consummation of the Merger; or
(b) a judgment, order, decree, statute, law, ordinance, rule or
regulation, entered, enacted, promulgated, enforced or issued by any court,
government or governmental authority or agency, domestic, foreign or
supranational or any other legal restraint or prohibition preventing the
consummation of the Offer or making the Offer illegal shall be in effect; or
(c) Company shall have failed to perform in any material respect any of
its covenants, obligations or agreements under this Agreement such that the
aggregate of all such breaches would have a Material Adverse Effect on Company;
or
(d) the representations and warranties of Company contained in this
Agreement, disregarding all qualifications and exceptions contained therein
relating to materiality or Material Adverse Effect or any similar standard or
qualification, shall be true at and as of the expiration of the Offer (as it
may be extended by a Mandatory Extension) as if made at and as of such time
(other than representations or warranties that address matters only as of a
certain date, which shall be true and correct as of such date), with such
exceptions as would not have, individually or in the aggregate, a Material
Adverse Effect on Company; or
(e) the NASD shall not have approved the Offer in accordance with NASD
registration rule 1017; or
(f) the Merger Agreement shall have been terminated in accordance with its
terms.
The foregoing conditions are for the sole benefit of Parent and Merger Sub
and may, subject to the terms of the Merger Agreement, be waived by Parent and
Merger Sub in their reasonable discretion in whole at any time or in part from
time to time.
The foregoing conditions shall not be conditions to any Optional Extension
following the Appointment Time.
2
