Exhibit 99.1
AGREEMENT AND PLAN OF MERGER
among
NEWTEK CAPITAL, INC.,
EXPONENTIAL BUSINESS DEVELOPMENT COMPANY, INC.
and
THE STOCKHOLDERS OF
EXPONENTIAL BUSINESS DEVELOPMENT COMPANY, INC.
Dated
January 9, 2002
AGREEMENT AND PLAN OF MERGER
This Agreement And Plan of Merger ("Agreement"), together with all the
Exhibits, Schedules and other attachments is effective as of this date, January
9, 2002 ("Effective Date") and is made among Newtek Capital, Inc., a New York
corporation ("Newtek"), Exponential Merger Subsidiary, Inc., a New York
Corporation and a wholly-owned subsidiary of Newtek ("Merger Sub"), Exponential
Business Development Company, Inc., a New York corporation ("Exponential") and
each one of the stockholders of Exponential Business Development Company, Inc
("Exponential Stockholders"). Newtek, Merger Sub, Exponential and the
Exponential Stockholders may be referred to in this Agreement individually as a
"Party" and collectively as the "Parties."
PRELIMINARY STATEMENTS
Newtek has caused Merger Sub to be organized as a New York corporation
and wholly-owned subsidiary of Newtek for the purpose of facilitating the
acquisition of Exponential by Newtek.
The Boards of Directors of Newtek, Merger Sub and Exponential, and the
stockholders of Merger Sub and Exponential have approved and authorized the
acquisition of Exponential by Newtek pursuant to the merger of Merger Sub with
and into Exponential, pursuant to the terms hereof (the "Merger").
Each share of Exponential Common Stock outstanding at the Closing (as
defined in herein) shall be exchanged for 8,333.3334 shares of Newtek Common
Stock, par value $0.02 per share ("Newtek Common Stock"), as more fully provided
in this Agreement.
The Parties intend that the Merger constitute a tax-free reorganization
for purposes of the Internal Revenue Code of 1986, as amended ("Code").
AGREEMENT
Now, therefore, in consideration of the premises and the mutual and
dependent promises set forth, the Parties agree as follows:
ARTICLE I
ACQUISITION
Section 1.01 Merger. As promptly as practicable following the
satisfaction or waiver of the conditions to the parties' respective obligations
hereunder, at the Effective Time (as defined in Section 1.02, ) Merger Sub shall
pursuant to the terms hereof be merged into Exponential. Exponential shall be
the surviving corporation of the Merger (the "Surviving Corporation"). At the
Effective Time, the separate existence of Merger Sub shall cease and all of the
rights, privileges, powers, franchises, properties, assets, liabilities and
obligations of Merger Sub and Exponential shall be vested in and assumed by
Surviving Corporation.
Section 1.02 Effective Time. The Merger shall be effected by the
filing of a certificate of merger (the "Certificate of Merger") with the
Secretary of State of New York (the "Secretary of State") in accordance with New
York law to become effective on the day of the Closing
provided for in Section 1.09 hereof. "Effective Time" shall mean the actual time
of filing of the Certificate of Merger.
Section 1.03 Certificate of Incorporation and By-laws. The Certificate
of Incorporation and By-laws of the Surviving Corporation shall be the
Certificate of Incorporation and By-laws of Exponential as in effect immediately
prior to the Effective Time, until thereafter amended as provided therein and by
applicable law.
Section 1.04 Directors of Surviving Corporation. The directors of
Exponential immediately prior to the Effective Time, with the addition of one
director to be designated by Newtek shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of Surviving Corporation.
Section 1.05 Officers of Surviving Corporation. The officers of
Exponential immediately prior to the Effective Time shall be the initial
officers of Surviving Corporation, in each case until their respective
successors are duly elected or appointed and qualified.
Section 1.06 Conversion of Exponential Common Stock. At the Effective
Time, each share of Exponential Common Stock issued and outstanding immediately
prior to the Effective Time shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into and exchangeable for
8,333.3334 shares (the "Exchange Ratio") of Newtek Common Stock. The shares of
Newtek Common Stock issued in connection with the Merger shall be referred to as
"Merger Shares." The aggregate number of Merger Shares to be issued shall be
1,000,000 shares of Newtek Common Stock. Certificates representing one half of
the Merger Shares issued to each Exponential Stockholder (or 500,000 Merger
Shares in the aggregate) shall be delivered to the Exponential Stockholders at
the Closing (the "Delivered Merger Shares") and the other one half (or 500,000
Merger Shares in the aggregate) shall be placed in escrow at the Closing (the
"Escrowed Merger Shares") pursuant to an Escrow Agreement in the form of Exhibit
A, to be released to the Exponential Stockholders only under the circumstances
described in Exhibit B hereof. No fractional shares of Newtek Common Stock shall
be issued and all shares of such stock to be issued will be rounded to the
nearest whole number.
Section 1.07 Restrictions on Transfer; Escrow; Registration.
(a) The 500,000 Delivered Merger Shares shall be subject to the
following contractual restrictions on transfer; provided, however, that the
Delivered Merger Shares may nonetheless be transferred to an immediate family
member of the Exponential Stockholder or a trust or other entity for the benefit
of any of them.
(i) One hundred fifty thousand (150,000) Delivered Merger
Shares (or 1,250 shares of Newtek Common Stock for each share of
Exponential Common Stock) will be transferable by the holder thereof
upon the effectiveness of the resale registration statement referred to
in Subsection (d) below.
(ii) One hundred seventeen thousand (117,000) Delivered
Merger Shares (or 975 shares of Newtek Common Stock for each share of
Exponential Common Stock) will be transferable by the holder thereof
twelve (12) months after the Closing.
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(iii) One hundred seventeen thousand (117,000) Delivered
Merger Shares (or 975 shares of Newtek Common Stock for each share of
Exponential Common Stock) will be transferable by the holder thereof
twenty four (24) months after the Closing.
(iv) One hundred sixteen thousand (116,000) Delivered
Merger Shares (or 967 shares of Newtek Common Stock for each share of
Exponential Common Stock) will be transferable by the holder thereof
thirty six (36) months after the Closing.
For purposes of this Agreement the term "immediate family member" shall have the
meaning set forth in section (e) of Rule 16a-1 of the Securities and Exchange
Commission.
(b) The 500,000 Escrowed Merger Shares (or 4,166.6667 shares of
Newtek Common Stock for each outstanding share of Exponential Common Stock),
shall be placed in escrow on behalf of the Exponential Stockholders pursuant to
the terms of the Escrow Agreement in the form as set forth in Exhibit A, with
the firm of Cozen X'Xxxxxx as the escrow agent ("Escrow Agent"). Such Escrowed
Merger Shares shall be released from escrow or, if any remain at the termination
of the Escrow Agreement, returned to Newtek, pursuant to the terms of the
provisions set forth in Exhibit B to this Agreement. The Exponential
Stockholders shall, subject to the following sentence, have the right to vote
and receive dividends with respect to the Escrow ed Merger Shares but to the
extent that dividends are declared and paid or accrued, as the case may be, with
respect to the Escrowed Merger Shares, such dividends shall be held in escrow
along with the Escrowed Merger Shares and delivered to the Exponential
Stockholders at the time of and in proportion to the delivery of the Escrowed
Merger Shares. Notwithstanding the foregoing, the Exponential Stockholders agree
that with respect to the Escrow Shares, they shall in any matter presented to
the Newtek shareholders during the existence of the Escrow Agreement vote their
respective Escrowed Merger Shares in proportion to all other votes cast by the
holders of Newtek Common Stock.
(c) All certificates representing the shares of Newtek Common
Stock to be issued to the Exponential Stockholders in exchange for their shares
of Exponential Common Stock shall bear a legend setting forth the foregoing
transfer restrictions as well as those which Newtek reasonably deems legally
required by state and federal securities laws.
(d) Newtek shall file with the Securities and Exchange Commission
a resale registration statement to permit the immediate resale by the
Exponential Stockholders of a total of one hundred fifty thousand (150,000)
shares of Newtek Common Stock no later than fifteen (15) calendar days following
the date of Closing, and shall use its best efforts to cause such registration
statement to be declared effective as promptly as practicable, subject to the
terms of Section 5.03 hereof.
(e) Upon a "change in control" of Newtek, as defined below, which
occurs prior to January 31, 2005, the transfer restrictions in subparagraphs
(ii), (iii) and (iv) of Section 1.07(a) shall automatically terminate, and the
remaining Escrowed Merger Shares shall immediately be delivered to the
Exponential Stockholders and the escrow shall terminate. "Change in control" for
the purposes of this Section 1.07 means the occurrence of any one or more of the
following: (i) Xxxxx Xxxxxx, Xxxxx X. Xxxxxxxxx and Xxxxxxx X. Xxxxx all three
together fail to hold, as beneficial or record holders, or in conjunction with
their immediate family members or trusts established for the benefit of any of
them, in total at least thirty five percent (35%) of the outstanding Newtek
Common Stock, (ii) Xxxxx Xxxxxx and either Xxxxx X. Xxxxxxxxx or Xxxxxxx X.
Xxxxx fail to continue to serve as on Newtek's Board of Directors, or (iii)
Xxxxx Xxxxxx and
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either Xxxxx X. Xxxxxxxxx or Xxxxxxx X. Xxxxx fail to continue to serve in their
respective current capacities as Chief Executive Officer, Chief Financial
Officer and President of Newtek.
Section 1.08. Merger Sub Common Stock. Each share of common stock of
Merger Sub issued and outstanding immediately prior to the Effective Time shall
be converted into one (1) share of common stock of the Surviving Corporation at
the Effective Time.
Section 1.09 Closing; Surrender of Certificates.
(a) The parties shall agree to a mutually acceptable closing date,
time and location ("Closing") that must be not later than ten (10) calendar days
after receipt of all necessary regulatory approvals, including any mandatory
waiting periods.
(b) At the Closing, the Exponential Stockholders shall surrender
certificate(s) evidencing all the Exponential Common Stock ("Certificate(s)") to
Newtek in exchange for shares of Newtek Common Stock to be issued and delivered
in the amounts as provided herein, all pursuant to Newtek's standard procedures
for the issuance of Newtek Common Stock.
Section 1.10 Award of Options. In addition to the exchange of Merger
Shares, at the Closing, Newtek shall grant to each Exponential Stockholder an
option to purchase fifty five thousand, eight hundred thirty four (55,834)
shares of Newtek Common Stock (collectively, the "Newtek Stock Options"), which
shall be issued pursuant to Newtek's 2000 Stock Incentive and Deferred
Compensation Plan ("Newtek's Stock Incentive Plan"). The exercise price for the
Newtek Stock Options shall be the fair market value of Newtek's Common Stock at
the date of the Closing. As long as the Exponential Stockholder is in compliance
with his obligations under the Consulting Agreement, as set forth as Exhibit C,
fifty percent (50%) of the Newtek Stock Options granted to him shall vest on the
first anniversary of the Closing and the remaining fifty percent (50%) shall
vest on the second anniversary of the Closing. All Newtek Stock Options shall be
exercisable for no more than five (5) years from the date of vesting, or
immediately upon a change of control of Newtek as set forth in Newtek's Stock
Incentive Plan. Newtek shall use its reasonable efforts to maintain the current
status of the prospectus or prospectuses in the registration statement
applicable to such Newtek Stock Options for so long as such options remain
outstanding.
Section 1.11. Effects of the Merger. At and after the Effective Time,
the Merger shall have the effects set forth in Section 906 of the Business
Corporation Law of The State of New York, as amended.
Section 1.12 Additional Actions. If, at any time after the Effective
Time, Surviving Corporation shall consider or be advised that any further
assignments or assurances in law or any other acts are necessary or desirable
(a) to vest, perfect or confirm, of record or otherwise, in Surviving
Corporation, title to and possession of any property or right of Exponential
acquired or to be acquired by reason of, or as a result of, the Merger, or (b)
otherwise to carry out the purposes of this Agreement, Exponential and its
proper officers and directors shall be deemed to have granted to Surviving
Corporation an irrevocable power of attorney to execute and deliver all such
proper deeds, assignments and assurances in law and to do all acts necessary or
proper to vest, perfect or confirm title to and possession of such property or
rights in Surviving Corporation and otherwise to carry out the purposes of this
Agreement; and the proper officers and directors of Surviving Corporation are
fully authorized in the name of Exponential or otherwise to take any and all
such action.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE EXPONENTIAL STOCKHOLDERS
In order to induce Newtek to enter this Agreement, the Exponential
Stockholders severally and not jointly represent and warrant as follows:
Section 2.01 Ownership of Exponential Common Stock. Each of the
Exponential Stockholders owns the number of shares of Exponential Common Stock
as set forth next to his or her name on Schedule 2.01. Such shares of
Exponential Common Stock are legally and beneficially owned as set forth on
Schedule 2.01 and are now and will be at Closing free and clear of all liens,
pledges, claims, security interests, encumbrances, charges or restrictions of
any kind.
Section 2.02 No Transfer Restrictions. Except for the Cross-Purchase,
Redemption and Restrictive Sale Agreement dated July 20, 1993 among the
Exponential Stockholders, which is terminated pursuant to Section 5.06, below,
there are no outstanding agreements, restrictions, contracts, commitments or
demands of any character to which any Exponential Stockholder is a party or of
which any Exponential Stockholder is aware which relate to or restrict the
transfer of any of the shares of Exponential Common Stock. Upon consummation of
the Merger as contemplated by this Agreement, Newtek will acquire good and
marketable title to the Exponential Common Stock, free and clear of all liens,
pledges, claims, security interests, encumbrances charges or restrictions of any
kind, other than (i) those created by Newtek, if any, and (ii) those
non-contractual transfer restrictions generally applicable under New York
securities and federal securities laws with respect to non-public transactions.
Section 2.03 Execution and Delivery. Each Exponential Stockholder
represents and warrants that this Agreement is valid and binding on him
according to its terms and shall be binding on his heirs, personal
representatives or assigns.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EXPONENTIAL
AND THE EXPONENTIAL STOCKHOLDERS
In order to induce Newtek to enter this Agreement, Exponential
represents and warrants, and the Exponential Stockholders severally and not
jointly represent and warrant that, except as set forth on a disclosure schedule
delivered in connection with this Agreement:
Section 3.01 Organization and Standing.
(a) Exponential is a corporation duly organized, existing
and in good standing under the laws of the State of New York with full power and
authority (corporate and other) to own, lease, use and operate its properties
and to conduct its business as it is currently conducted. Exponential is not in
default of any provision of its Certificate of Incorporation, By-laws or other
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agreement relating to corporate governance or organization. Exponential is
qualified to do business in each jurisdiction where the nature of its activities
would require it to qualify, except where the failure to qualify would not have
a material adverse effect on Exponential's business, financial condition or
results of operations ("Exponential Material Adverse Effect").
(b) Exponential Business Development Company, LP
("Exponential LP") is a limited partnership duly organized, existing and in good
standing under the laws of the State of New York with full power and authority
to own, lease, use and operate its properties and to conduct its business as it
is currently conducted. Exponential LP is not in default of any provision of its
Certificate of Limited Partnership, Articles of Limited Partnership or other
agreement relating to its governance or formation. Exponential LP is qualified
to do business in each jurisdiction where the nature of its activities would
require it to qualify.
(c) Exponential of New York, LLC is a limited liability
company ("Exponential LLC") duly organized, existing and in good standing under
the laws of the State of New York with full power and authority (corporate and
other) to own, lease, use and operate its properties and to conduct its business
as it is currently conducted. Exponential LLC is not in default of any provision
of its Articles of Organization, Operating Agreement or other agreement relating
to its governance or formation. Exponential LLC is qualified to do business in
each jurisdiction where the nature of its activities would require it to
qualify.
Section 3.02 Corporate Power and Authority. Exponential has all
requisite corporate power and authority to enter into and perform this
Agreement. This Agreement has been duly and validly authorized by all necessary
corporate action of Exponential. Exponential has duly executed and delivered
this Agreement and this Agreement is a legal, valid and binding obligation of
Exponential, enforceable according with its terms, subject only to the approval
and adoption of any items required to be adopted by Exponential's Stockholders.
Section 3.03 Conflicts; Consents and Approvals. Except as set forth on
Schedule 3.03, Exponential's execution or performance of this Agreement will
not:
(a) result in a breach or default or entitle any third
party to terminate or accelerate any of the terms, conditions or provisions of
Exponential's Certificate of Incorporation or By-laws, the Certificate of
Limited Partnership and Articles of Limited Partnership of Exponential LP, or
the Articles of Organization or Operating Agreement of Exponential LLC, or any
agreement or obligation of Exponential, Exponential LP or Exponential LLC; or
(b) violate any order, writ, injunction, decree, statute,
rule, or regulation applicable to Exponential, Exponential LP or Exponential LLC
or their properties or assets.
Section 3.04 Litigation. There is no legal action or any proceeding or
investigation ("Action") pending or, to the knowledge of Exponential, threatened
against Exponential, Exponential LP or Exponential LLC, which could have an
Exponential Material Adverse Effect or a material adverse effect on
Exponential's ability to execute and perform this Agreement.
Section 3.05 Brokerage and Finder's Fees. Neither Exponential nor any
of its directors, officers or employees has incurred, or will incur, any
brokerage, finder's or similar fee in connection with the Merger or this
Agreement which is the obligation of Exponential, Exponential LP or Exponential
LLC.
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Section 3.06 Authorization and Issuance of Exponential Common Stock.
The authorized capital stock of Exponential consists of 200 shares of common
stock, no par value per share, and no shares of preferred stock, of which 120
shares of common stock are issued and outstanding. Each share outstanding of
Exponential Common Stock has been duly authorized, validly issued and is fully
paid and nonassessable, and no Exponential Common Stock has, except as set forth
in Schedule 3.06, been issued in violation of preemptive or similar rights.
Except as set forth in Schedule 3.06, there are no outstanding options,
subscriptions, warrants, puts, calls, agreements, understandings, claims or
other commitments or rights of any type relating to the issuance, sale or
transfer by Exponential or any of the Exponential Stockholders of any securities
or interests of Exponential, Exponential LP or Exponential LLC, nor are there
outstanding any securities which are convertible into or exchangeable for shares
or equity interests of Exponential, Exponential LP or Exponential LLC.
Section 3.07 Certified Capital Company Status and Investments.
Exponential LLC is operating as a certified capital company (a "Capco") under
provisions of Section 11 of the New York Tax Law and is, in all respects, fully
licensed and legally qualified to do so. Exponential LLC has been certified as a
Capco by the New York State Insurance Department and neither Exponential nor
Exponential LLC has received written or oral information from the New York State
Insurance Department that grounds do or may exist for decertification as a Capco
under the provisions of applicable law. Except as set forth on Schedule 3.07,
all loans or investments made by Exponential LLC are in compliance with
applicable New York State Insurance Department regulations as Capco investments.
Section 3.08 Complete Disclosure. The representations and warranties
by Exponential in this Agreement or the related Schedules and Exhibits delivered
by or on Exponential's behalf do not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
herein or therein, in light of the circumstances in which they are made, not
misleading.
Section 3.09 Environmental Matters. Exponential, Exponential LP and
Exponential LLC have at all times operated their respective businesses in
material compliance with all Environmental Laws, and no material expenditures
are or will be required in order to comply therewith. Except as disclosed in
Schedule 3.09, Exponential, Exponential LP and Exponential LLC have not received
any notice or communication that relates to or alleges any actual or potential
violation or failure to comply with any Environmental Laws that will result in
an Exponential Material Adverse Effect. In this Agreement "Environmental Laws"
means all applicable laws and regulations, including any licensing, permits or
reporting requirements, and any action by a federal state or local government
entity pertaining to the protection of the environment, protection of public
health, protection of worker health and safety, or the handling of hazardous
materials, including without limitation, the Clean Air Act, 42 U.S.C. ss. 7401,
et seq., the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA"), 42 U.S.C. ss. 9601, et seq., the Federal Water Pollution
Control Act, 33 U.S.C. ss. 1321, et seq., the Hazardous Materials Transportation
Act, 49 U.S.C. ss. 1801, et seq., the Resource Conservation and Recovery Act, 42
U.S.C. ss. 690-1, et seq. ("RCRA"), and the Toxic Substances Control Act, 15
U.S.C. ss. 2601, et seq.
Section 3.10 Insurance. Exponential, Exponential LP and Exponential
LLC have been and are insured with respect to all aspects of their businesses in
amounts and against any risks sufficient to comply with the law. Exponential has
provided Newtek a true, correct and complete
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list of all insurance policies, including key man insurance, and bonds in which
Exponential, Exponential LP or Exponential LLC is named as an insured party or
for which it has paid any premiums ("Policies"), and the list correctly states
the name of the insurer, the name of each insured party, the type and amount of
coverage, deductible amount, if any, and the expiration date and premium amount
of each policy or bond. All the Policies are currently in full force and effect
and Exponential, Exponential LP and Exponential LLC have received no notice of
cancellation or termination for any policy. Exponential, Exponential LP and
Exponential LLC shall continue all Policies in full effect through the Closing.
All premiums due and payable on the Policies have been paid.
Section 3.11 Exponential's Officers and Employees. Except as disclosed
in Schedule 3.11, to the knowledge of Exponential and the Exponential
Stockholders, no present or former director or officer of Exponential or 5
percent or more Exponential Stockholder has any financial interest, direct or
indirect, in any vendor, client, or account of, or other outside business which
has transactions with, Exponential, Exponential LP or Exponential LLC involving
consideration in excess of $10,000, in the aggregate. Neither Exponential nor
any 5 percent or more Exponential Stockholder has any agreement or understanding
with any person associated with or employed by Exponential, Exponential LP or
Exponential LLC which would influence that person not to remain associated with
or employed by Exponential after the Closing or from serving Exponential after
the Closing in a capacity similar to the capacity presently served.
Section 3.12 Audited and Unaudited Financial Statements. Exponential
has furnished to Newtek Financial Statements (as defined below) of Exponential,
Exponential LP and Exponential LLC. The Financial Statements (including the
related notes, where applicable) fairly present (subject, in the case of the
unaudited and review statements, to audit adjustments normal in nature and
amount and the addition of customary notes) the assets, liabilities, results of
the operations and changes in stockholders' equity and financial position of
Exponential, Exponential LP and Exponential LLC for the respective periods or as
of the respective dates therein set forth; and the Financial Statements
(including the related notes, where applicable) have been prepared in accordance
with generally accepted accounting principles ("GAAP") consistently applied
during the periods involved, except as indicated in the notes thereto. The books
and records of Exponential, Exponential LP and Exponential LLC are true and
complete in all material respects and have been, and are being, maintained in
all material respects in accordance with applicable legal and accounting
requirements. "Financial Statements" as used in this Section 3.12 means (i) the
balance sheets (including related notes and schedules, if any) of Exponential,
Exponential LP and Exponential LLC as of December 31, 2000, and the statements
of operations, changes in stockholders' equity and cash flows (including related
notes and schedules, if any) of Exponential, Exponential LP and Exponential LLC
for the year ended December 31, 2000, together with the audit report of Xxxxxxx,
Xxxxx and Xxxxx, Certified Public Accountants, LLC thereon with respect to
Exponential LLC and the review report of Xxxxxxx, Xxxxx and Xxxxx, Certified
Public Accountants, LLC thereon with respect to Exponential and Exponential LP;
and (ii) the unaudited balance sheets of Exponential, Exponential LP and
Exponential, LLC as of October 31, 2001, and the related unaudited statements of
income and changes in stockholders' equity for each such entity for the
ten-month period then ended. The unaudited balance sheet of Exponential as of
October 31, 2001 is referred to as the "Latest Balance Sheet" and October 31,
2001 is the "Latest Balance Sheet Date."
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Section 3.13 Undisclosed Liabilities. Exponential, Exponential LP and
Exponential LLC have no liabilities or obligations of any nature except those:
(a) disclosed on Schedule 3.13;
(b) reflected in the Latest Balance Sheet which have not
been paid or discharged since the Latest Balance Sheet Date; or
(c) current liabilities (including provisions for current
and deferred income tax) incurred since the Latest Balance Sheet Date, in
transactions entered into in the ordinary course of business consistent with
past practices which are properly reflected on its books and which are not
inconsistent with this Agreement; or
(d) obligations to be performed in the ordinary course of
business, consistent with past practice, under the Contracts (as defined in
Section 3.22) or under agreements not required to be disclosed pursuant to
Section 3.22.
Section 3.14 Absence of Certain Changes. Since the Latest Balance
Sheet Date, other than those disclosed on Schedule 3.14, there has not been:
(a) any Exponential Material Adverse Effect, or anything
which reasonably could be expected to result in an Exponential Material Adverse
Effect, including, without limitation, a material adverse change relating to a
relationship with an existing investor, borrower, or agent;
(b) any declaration relating to a distribution or payment
to any Exponential Stockholder or any direct or indirect redemption, repurchase
or other acquisition by Exponential of any Exponential Common Stock or any
agreements to purchase or acquire any Exponential Common Stock, or the issuance
of any option, warrant or right to acquire any Exponential Common Stock;
(c) any transaction entered into or carried out by
Exponential, Exponential LP or Exponential LLC other than in the ordinary and
usual course of Exponential's business consistent with past practices;
(d) any borrowing or agreement to borrow funds, or
incurring of any other obligation or liability of any type, except those
incurred in the usual and ordinary course of the business of Exponential,
Exponential LP or Exponential LLC consistent with past practices, nor has
Exponential, Exponential LP or Exponential LLC endorsed, assumed or guaranteed
any payment or performance of a loan or obligation of any other entity;
(e) any material change in the accounting procedures or
practices of Exponential, Exponential LP or Exponential LLC or changes in the
method of application of those procedures or practices;
(f) any mortgage or other encumbrance of any type
whatsoever imposed or agreed to be imposed on or with respect to the property or
assets of Exponential, Exponential LP or Exponential LLC;
(g) any disposition of any type whatsoever of any of the
properties, rights or assets of Exponential, Exponential LP or Exponential LLC;
(h) any loan, advance or equity investment made by
Exponential, Exponential LP or Exponential LLC to any entity except in the
ordinary and usual course of business;
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(i) any modification of any type whatsoever of any
provision of an agreement with any entity other than in accordance with the
terms of the agreement or in the usual and ordinary course of business;
(j) any labor dispute or disturbance adversely affecting
Exponential's business operations or condition (financial or otherwise),
including, without limitation, the filing of any petition or charge of unfair or
discriminatory labor practice with any governmental or regulatory authority,
efforts to effect a union representation election, actual or threatened employee
strike, work stoppage or slowdown;
(k) any material damage, destruction or property loss,
whether or not covered by insurance, affecting adversely the properties or
business of Exponential, Exponential LP or Exponential LLC; or
(l) any contract or agreement entered into by
Exponential, Exponential LP or Exponential LLC that is not able to be terminated
on 30 days or fewer advance notice without payment of a penalty or premium in
excess of $100.
Section 3.15 Taxes.
(a) Except as disclosed in Schedule 3.15, Exponential,
Exponential LP and Exponential LLC have timely paid or accrued all federal,
state, local and foreign taxes, assessments, fees and other governmental charges
required to be paid or accrued as of the date hereof ("Taxes"). Except as
disclosed in Schedule 3.15, Exponential, Exponential LP and Exponential LLC have
filed all federal, state, local and foreign tax returns and tax reports that
each is required to file, these returns and reports are true, correct and
complete and have not been amended, and all taxes arising under these returns
and reports have either been fully paid or are adequately reserved for in the
Financial Statements, and will be timely paid when due. No claim has been made
by authorities in any jurisdiction where Exponential, Exponential LP or
Exponential LLC did not file tax returns that it is or may be subject to
taxation by that jurisdiction. All tax payments relating to employees, including
income tax withholding, FICA, FUTA, unemployment and workers' compensation
payments due and payable as of the date of this Agreement have been fully and
timely paid or accrued.
(b) Except as set forth in Schedule 3.15, Exponential has
delivered to Newtek copies of all federal, state, local, and foreign income tax
returns filed with respect to Exponential, Exponential LP and Exponential LLC
for taxable periods ended on or before December 31, 2000. Except as disclosed in
Schedule 3.15, there have been no audits by taxing authorities prior to the date
of Closing with respect to any tax year for which assessment is not barred by
any applicable statute of limitations. Exponential<184> Exponential LP and
Exponential LLC have made no waiver of any applicable statute of limitations or
other defense for filing a tax return or for paying any taxes or assessments of
a deficient or unpaid taxes. Exponential, Exponential LP or Exponential LLC have
paid or settled all deficiencies resulting from any audits. To Exponential's
knowledge there is no pending or threatened federal, state, local or foreign tax
audit or assessment nor any agreement by Exponential, Exponential LP or
Exponential LLC with any federal, state, local or foreign taxing authority that
may affect the tax liability of Exponential, Exponential LP or Exponential LLC.
(c) Except as disclosed in Schedule 3.15, Exponential has
properly reflected in the Financial Statements at or through the date of such
Financial Statements in accordance
10
with GAAP consistently applied, all taxes due as of such date and not already
paid and any required reserves related to such taxes that are attributable to
the existence or operations of Exponential, Exponential LP and Exponential LLC.
(d) Except as disclosed in Schedule 3.15, Exponential,
Exponential LP or Exponential LLC have not been a member of an affiliated,
consolidated, combined or unitary group for purposes of taxes and have no
liability under Treasury Regulation 1.1502-6. Exponential, Exponential LP or
Exponential LLC are not obligated to pay the tax liability of any other entity
or to indemnify any other person with respect to any tax.
Section 3.16 Compliance with Law. Each of Exponential, Exponential LP
and Exponential LLC has complied and is in compliance in all material respects
with all laws, orders, and regulations, and all judgments, decisions and orders
of any government entity applicable to it ("Applicable Laws"), except where
failure to comply would not have an Exponential Material Adverse Effect. Each of
Exponential, Exponential LP and Exponential LLC has all licenses, permits,
approvals and certifications or similar items of any type necessary for the
conduct of its business as currently conducted ("Permits"). Schedule 3.16 lists
all Permits, each of which is valid and in full force and effect and, to the
knowledge of Exponential, such status will be unaffected by the Closing. To
Exponential's knowledge (i) neither it nor Exponential LP or Exponential LLC is
in violation of any of the Permits and (ii) there is no pending or threatened
proceeding which could result in the revocation, cancellation or inability to
renew any Permit.
Section 3.17 Proprietary Rights.
(a) Schedule 3.17 sets forth a true and correct list of all,
patents, inventions, trade secrets, proprietary rights, computer
software, trademarks, trade names, service marks, trade names,
copyrights and franchises owned or licensed by any of Exponential,
Exponential LP or Exponential LLC ("Proprietary Rights"), the loss of
which could have an Exponential Material Adverse Effect.
(b) Except as set forth in Schedule 3.17, Exponential,
Exponential LP or Exponential LLC either owns or has the right to use (pursuant
to perpetual, fully paid-up licenses) all Proprietary Rights used by
Exponential, Exponential LP or Exponential LLC in connection with or necessary
to the operation of its business, without infringing on or otherwise acting
adversely to the rights or claimed rights of any person. Neither Exponential,
Exponential LP or Exponential LLC is obligated to pay any royalty or other
consideration to any person in connection with the use of any such Proprietary
Rights. No claim has been asserted against Exponential, Exponential LP or
Exponential LLC to the effect that the use of any Proprietary Rights by
Exponential, Exponential LP or Exponential LLC infringes the rights of any
person.
(c) Except as set forth on Schedule 3.17:
(i) Exponential, Exponential LP or Exponential LLC
have not transferred or encumbered the Proprietary Rights in any way;
(ii) to Exponential's knowledge, Exponential,
Exponential LP or Exponential LLC have not infringed in any way the proprietary
rights of any other entity;
(iii) to Exponential's knowledge, the Proprietary
Rights are not subject to any pending or threatened challenge, investigation,
proceedings, inquiries, reviews, claims of infringement, unfair competition, or
other claims of any entity;
11
(iv) Exponential, Exponential LP or Exponential LLC
have not given any indemnification against patent, trademark or copyright
infringement to any entity nor is Exponential restricted by any third party
because of any alleged infringement from using any of the Proprietary Rights
Exponential uses in its business.
Section 3.18 Restrictive Documents or Laws. Other than as set forth on
Schedule 3.18, Exponential, Exponential LP and Exponential LLC are subject to no
restrictions in any agreement or in any law, order, judgment or decree not of
general application which adversely affects, or that reasonably could be
expected to adversely affect their respective (a) business in any way (b)
continued business operations after the Closing on substantially the same basis
as it is currently operated; or (c) the performance by Exponential of this
Agreement.
Section 3.19 Bank Accounts, Depositories, Powers of Attorney. A true,
correct and complete list of the names and locations of all banks or other
depositories where Exponential, Exponential LP or Exponential LLC have accounts
or safe deposit boxes with the names of the persons authorized to have access in
anyway to these items is set forth in Schedule 3.19. Except as set forth in
Schedule 3.19 no person has power of attorney with respect to Exponential,
Exponential LP or Exponential LLC.
Section 3.20 Title to and Condition of Properties. Except as set forth
in Schedule 3.20, Exponential, Exponential LP and Exponential LLC have good,
valid and marketable title or ownership, held free and clear of any encumbrance
whatsoever to all of their respective assets and properties of every kind,
tangible or intangible, wherever located now used in the present conduct of
their businesses. All such properties are suitable for their current uses
without violating any Applicable Laws, or any private restrictions. Except as
set forth in Schedule 3.20, no financing statement under the Uniform Commercial
Code or similar law has been filed in any jurisdiction naming Exponential,
Exponential LP or Exponential LLC or any of their predecessors, and Exponential,
Exponential LP or Exponential LLC are not subject to any agreement or obligation
authorizing any party to file a financing statement of any sort. All tangible
personal property owned, leased or used by Exponential, Exponential LP or
Exponential LLC is suitable for the purpose or purposes for which it is being
used and has been maintained in all material respects in accordance with the
terms of any applicable lease and no term of a lease will be materially affected
by the Merger.
Section 3.21 ERISA.
(a) Except as set forth in Schedule 3.21, Exponential is
not a party to an "employee benefit plan", as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974 ("ERISA") which (i) is subject
to any provision of ERISA and (ii) is or was at any time maintained,
administered or contributed to by Exponential and covers any employee or former
employee of Exponential and under which Exponential or any ERISA Affiliate (as
defined hereafter) has any liability. These plans are referred to collectively
in this Agreement as the "Employee Plans." For purposes of this Section,
"Affiliate" of any person or entity means any other person or entity which,
together with that person or entity, could be treated as a single employer under
Section 414(m) of the Code or is an "affiliate," whether or not incorporated, as
defined in Section 407(d)(7) of ERISA, of the person or entity.
(b) Schedule 3.21 identifies each employment, severance
or other similar arrangement or policy and each plan or arrangement (written or
oral) (other than those disclosed on Schedule 3.28) providing for insurance
coverage (including any self-insured arrangements),
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workers' compensation, disability benefits, severance benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits or for deferred
compensation, profit-sharing, bonuses, stock options, stock appreciation or
other forms of incentive compensation, or post-retirement insurance,
compensation or benefits which (i) is not an Employee Plan, (ii) is entered
into, maintained or contributed to, as the case may be, by Exponential or any of
its ERISA Affiliates, and (iii) covers any employee or former employee of
Exponential or any of its ERISA Affiliates. These contracts, plans and
arrangements as are described above, copies or descriptions of all of which have
been furnished or made available previously to Newtek are referred to
collectively in this Agreement as the "Benefit Arrangements." Each Benefit
Arrangement has been maintained in substantial compliance with its terms and
with requirements prescribed by any and all statutes, orders, rules and
regulations that are applicable to that Benefit Arrangement.
(c) Except as set forth in Schedule 3.21, there is no
liability in respect of post-retirement health and medical benefits for retired
employees of Exponential or any of its ERISA Affiliates other than medical
benefits required to be continued under applicable law, determined using
assumptions that are reasonable in the aggregate, over the fair market value of
any fund, reserve or other assets segregated for the purpose of satisfying such
liability (including for such purposes any fund established pursuant to Section
401(h) of the Code). Exponential has reserved its right to amend or terminate
any Employee Plan or Benefit Arrangement providing health or medical benefits in
respect of any active employee of Exponential or ERISA Affiliates under the
terms of any applicable plan and written descriptions thereof given to
employees. With respect to any of Exponential's Employee Plans which are "group
health plans" under Section 4980B of the Code and Section 607(1) of ERISA, there
has been material compliance with all requirements imposed there under so that
Exponential and its ERISA Affiliates have no (and will not incur any) loss,
assessment, tax penalty, or other sanction with respect to any such plan.
(d) Except as set forth in Schedule 3.21, there has been
no amendment to, written interpretation or announcement (whether or not written)
by Exponential or any of its ERISA Affiliates relating to any Employee Plan or
Benefit Arrangement which would increase the expense of maintaining the Employee
Plan or Benefit Arrangement above the level of the expense incurred in respect
to the Employee Plan for the year ended immediately prior to the Closing Date.
(e) Other than as set forth in Schedule 3.21, Exponential
is not a party to or subject to any employment contract or arrangement providing
for annual future compensation, or the opportunity to earn annual future
compensation (whether through fixed salary, bonus, commission, options or
otherwise) of more than $25,000 to any officer, consultant, director or
employee.
(f) The execution of this Agreement and consummation of
the Merger does not constitute a triggering event under any Employee Plan or any
other employment contract, whether or not legally enforceable, which (either
alone or upon the occurrence of any additional or subsequent event) will or may
result in any payment (of severance pay or otherwise), acceleration, increase in
vesting, or increase in benefits to any current or former participant, employee
or director of Exponential other than an event that (i) is specifically
disclosed on Schedule 3.21 or (ii) is not material to the financial condition or
business of Exponential.
13
(g) Any reference to ERISA or the Code or any section
thereof shall be construed to include all amendments thereto and applicable
regulations and administrative rulings issued there under.
Section 3.22 Contracts. Schedule 3.22 lists all agreements of any type
(written or oral) of Exponential, Exponential LP or Exponential LLC (i) which
are material to their respective financial condition, operations, assets or
business, (ii) to which any present or former 5 percent or more Exponential
Stockholder, director or officer of Exponential, or any person related by blood
or marriage to any such person ("Related Parties"), is a party; (iii) to which
any person controlling, controlled by or under common control with any such
person is a party; or (iv) to which any employee, agent or consultant of
Exponential is a party. All such agreements ("Contracts") are, with respect to
those set forth in clause (i), valid and binding on the parties thereto, are in
full force and effect, and are enforceable in accordance with their terms, and
with respect to those set forth in clauses (ii), (iii) and (iv), are in full
force and effect, and are valid and binding on, and enforceable in accordance
with their terms against, Exponential, Exponential LP or Exponential LLC, as the
case may be, and, to the knowledge Exponential and the Exponential Stockholders,
the other parties thereto, in both cases except to the extent enforceability may
be limited by (a) applicable bankruptcy, insolvency, moratorium, reorganization,
fraudulent conveyance or similar laws governing creditors' rights or (b) general
principles of equity, whether considered in a proceeding at law or in equity. To
Exponential's knowledge, neither it nor any other party to a Contract is in
violation of or in default nor has anything occurred which would or could
constitute a default under a Contract.
Section 3.23 Affiliated Transactions. Schedule 3.23 lists all amounts
in excess of $1,000 in the aggregate payable to Exponential, Exponential LP or
Exponential LLC by any Related Party ("Related Party Receivables") and all
amounts payable by Exponential, Exponential LP or Exponential LLC to any Related
Party ("Related Party Payables") as of the date of this Agreement. The list
includes the payor, payee, amount, terms of repayment, maturity date and any set
off rights of the payor of each Related Party Receivable and Related Party
Payable. Except as disclosed in Schedule 3.23 and subject to the $1,000
exclusion, to the knowledge of Exponential and the Exponential Stockholders, no
Related Party has any financial interest, direct or indirect, in any vendor,
client, or account of, or other outside business which has transactions with,
Exponential, Exponential LP or Exponential LLC, including the companies which
Exponential considers a "portfolio company". Exponential has no knowledge of any
agreement or understanding with any Related Party which would influence that
person not to remain associated with or employed by Newtek from and after the
Closing or from serving Newtek after the Closing in a capacity similar to the
capacity presently held with Exponential, Exponential LP or Exponential LLC.
Section 3.24 No Conflict or Default. Other than as set forth in
Schedule 3.24 Exponential's execution and performance of this Agreement will
not: (i) violate any Applicable Laws or Permits, (ii) cause a lien, security
interest or encumbrance of any nature whatsoever with respect to the properties
or assets of Exponential, Exponential LP or Exponential LLC, or (iii) give any
entity an interest or rights, including rights of termination, acceleration or
cancellation, with respect to any of the properties, assets, Contracts or
business of Exponential, Exponential LP or Exponential LLC.
Section 3.25 Books of Account; Records. Except as set forth in
Schedule 3.25, the stock records books, minute books, and other records relating
to the assets, properties, contracts
14
and outstanding legal obligations of Exponential, Exponential LP and Exponential
LLC are complete and correct in all material respects and have been maintained
in accordance with good business practices.
Section 3.26 Subsidiaries. Except as set forth in the Financial
Statements or Schedule 3.26:
(a) none of Exponential, Exponential LP or Exponential
LLC has any controlling or ownership interest in excess of 5 percent in any
other entity ("Subsidiary"); and
(b) all of the limited partnership interests in
Exponential LP and limited liability company interests in Exponential LLC have
been issued in compliance with applicable corporate and securities laws, without
any violation or breach of any contractual obligation to any third party.
Section 3.27 Intentionally Omitted.
Section 3.28 Employment Agreements; Severance. Except for the
employment agreements listed in Schedule 3.28, neither Exponential, Exponential
LP nor Exponential LLC is a party to any employment or severance agreement. The
consummation of the Merger will not result, either immediately or through the
passage of time or the occurrence of a contingency, in any payment becoming due
from Exponential, Exponential LP or Exponential LLC, or any Subsidiary to any
officer or employee of Exponential, Exponential LP or Exponential LLC.
ARTICLE IV
NEWTEK'S REPRESENTATIONS AND WARRANTIES
To induce Exponential and the Exponential Stockholders to enter this
Agreement, Newtek represents and warrants to Exponential and the Exponential
Stockholders that:
Section 4.01 Organization and Standing. Newtek is a corporation duly
organized, existing and in good standing under the laws of the State of New
York, with full power and authority (corporate and other) to conduct its
business as currently conducted. Newtek is duly qualified to do business and is
in good standing in each jurisdiction where its activities would require
qualification, except where the failure to qualify would not have a material
adverse effect upon Newtek's business, financial condition or results of
operation (a "Newtek Material Adverse Effect"). Newtek is not in default of any
provision of its Certificate of Incorporation or Bylaws.
Section 4.02 Capitalization and Security Holders. The authorized
capital stock of Newtek consists of 39,000,000 shares of Common Stock, of which
22,212,517 shares are issued and outstanding, and 1,000,000 shares of Preferred
Stock, of which none are issued and outstanding. Each outstanding share of
Newtek Common Stock has been duly authorized and validly issued and is fully
paid and non-assessable, and no Newtek Common Stock has been issued in violation
of preemptive or similar rights.
Except as set forth in Schedule 4.02, there are no outstanding options,
subscriptions, warrants, puts, calls, agreements, understandings, claims or
other commitments or rights of any type relating to the issuance, sale or
transfer by Newtek or, to Newtek's knowledge, any stockholder of Newtek, of any
securities or interests of Newtek, nor are there outstanding any securities
which are convertible into or exchangeable for shares or equity interests of
Newtek. The issuance and sale of all securities of Newtek have been in full
compliance in all material
15
respects with the registration requirements of all applicable federal and state
securities laws or pursuant to valid exemptions. The shares of Newtek Common
Stock to be issued pursuant to this Agreement will be duly authorized and
validly issued and (upon delivery to the Exponential Stockholders in accordance
with the terms of this Agreement and the Escrow Agreement) will be fully paid,
nonassessable, and free of preemptive rights.
Section 4.03 Corporate Power and Authority. Newtek has all requisite
corporate power and authority to enter into and perform this Agreement and to
carry out its obligations under this Agreement. This Agreement and the
transactions contemplated by this Agreement have been duly and validly
authorized by all necessary corporate and Stockholder action on the part of
Newtek. This Agreement has been duly executed and delivered and constitutes the
legal, valid and binding obligation of Newtek.
Section 4.04 Consents and Approvals. Newtek's execution, delivery or
performance of this Agreement does not and will not require any consents or
approvals of, filings with, or action by any third party.
Section 4.05 Audited and Unaudited Financial Statements. Newtek has
furnished to Exponential the Newtek Financial Statements (as defined below). The
Newtek Financial Statements (including the related notes, where applicable)
fairly present (subject, in the case of the unaudited statements, to audit
adjustments normal in nature and amount and the addition of customary notes) the
assets, liabilities, results of the operations and changes in stockholders'
equity and financial position of Newtek for the respective periods or as of the
respective dates therein set forth; and the Financial Statements (including the
related notes, where applicable) have been prepared in accordance with generally
accepted accounting principles ("GAAP") consistently applied during the periods
involved, except as indicated in the notes thereto. The books and records of
Newtek are true and complete in all material respects and have been, and are
being, maintained in all material respects in accordance with applicable legal
and accounting requirements. "Newtek Financial Statements" as used in this
Section 4.05 means (i) the consolidated balance sheets (including related notes
and schedules, if any) of Newtek as of December 31, 2000, and the statements of
operations, changes in stockholders' equity and cash flows (including related
notes and schedules, if any) of Newtek for the year ended December 31, 2000,
together with the audit report of PricewaterhouseCoopers, LLP thereon; and (ii)
the unaudited balance sheets of Newtek as of September 30, 2001, and the related
unaudited statements of income, changes in stockholders' equity and cash flows,
as set forth in Newtek's Form 10-Q as filed with the Securities Exchange
Commission ("SEC"), for the nine-month period then ended.
Section 4.06 Undisclosed Liabilities. Newtek has no liability or
obligation of any nature except those:
(a) set forth in the Newtek Financial Statements which
have not been paid or discharged since the date thereof;
(b) contractual obligations arising after the date of
this Agreement; and
(c) current liabilities (including provisions for current
and deferred income tax) incurred since September 30, 2001, in transactions
entered into in the ordinary course of business consistent with past practices
which are properly reflected on their books and which are not inconsistent with
Newtek's other representations, warranties in this Agreement.
16
Section 4.07 Absence of Certain Changes. Since December 31, 2000,
other than as set forth in the Newtek Financial Statements or in filings with
the SEC on Form 10-K or 10-Q, there has not been any:
(a) Newtek Material Adverse Effect, or anything which
reasonably could be expected to result in an Newtek Material Adverse Effect;
(b) declaration, setting aside or payment of a dividend
or distribution (in cash or in kind) to any Newtek Stockholder, nor any direct
or indirect redemption, purchase or other acquisition by Newtek of any capital
stock or the issuance of any options, warrants, rights or agreements to purchase
or acquire such stock;
(c) transaction entered into or carried out by Newtek or
Affiliates (as defined hereafter) other than in the ordinary and usual course of
Newtek's business consistent with past practices;
(d) borrowing or agreement to borrow funds by Newtek or
incurring by Newtek of any other obligation or liability (contingent or
otherwise), except liabilities incurred in the usual and ordinary course of
Newtek's business consistent with past practices, or any endorsement, assumption
or guarantee of payment or performance of any loan or obligation of any other
person by Newtek; or
(e) material change in Newtek's accounting procedures or
practices or its method of application of these principles or practices.
(f) For purposes hereof, "Affiliates" means, with respect
to Newtek, any entity that directly or indirectly, through one or more
intermediaries, controls, is controlled by Newtek. For the purpose of this
definition, the term "control" means, with respect to any entity, the beneficial
ownership of 50% or more of the equity or voting interests in such entity.
Section 4.08 Newtek Reports; Public Company Status. Newtek has
previously made available to Exponential a true and complete, in all material
respects, copy of each final registration statement, prospectus, report,
schedule and definitive proxy statement filed since January 1, 1996 by Newtek
with the SEC pursuant to the Securities Act of 1933, as amended (the "Securities
Act") or the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(the "Newtek Reports"). As of their respective dates, the Newtek Reports
complied in all material respects with all applicable requirements of the
Securities Act and the Exchange Act, and the rules and regulations promulgated
thereunder, and did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Newtek is eligible to use Form S-3 for the registration of the
Newtek Common Stock to be issued to the Exponential Stockholders hereunder.
Section 4.09 Taxes. Newtek and its Affiliates have paid all federal,
state, local and foreign taxes, assessments, fees and other governmental charges
they are legally required to pay. Newtek and its Affiliates have filed all
federal, state, local and foreign tax returns and tax reports they are legally
required to file and these returns and reports are true, correct and complete
and have not been amended, and all taxes arising under the returns and reports
have been either fully paid or adequately reserved for in the Financial
Statements, and will be timely paid when due. For purposes of this Section, a
"Newtek Affiliate" includes only those entities identified as
17
subsidiary companies of Newtek in its most recent filings with the SEC and does
not include the "Partner Companies" identified therein.
Section 4.10 Compliance with Law. Except where the failure to comply
would not have a Material Adverse Effect, Newtek has materially complied with
all laws, statutes, ordinances, orders, rules, and all judgments, decisions and
orders entered, by any federal, state, local or foreign court or governmental
authority or instrumentality applicable or relate to Newtek or its businesses or
properties ("Newtek Applicable Laws"). Newtek has all governmental,
self-regulatory and other non-governmental franchises, licenses, permits,
consents, authorizations, approvals and certifications necessary for the conduct
of its business as currently conducted ("Newtek Permits"). Newtek is not in
violation of any of the Newtek Permits, and there are no pending or, to the
knowledge of Newtek no threatened proceedings which could result in the
revocation, cancellation or inability of Newtek to renew any Newtek Permit.
Section 4.11 Brokerage and Finder's Fees. Newtek has not incurred nor
will incur any brokerage, finder's or similar fee in connection with the
transactions contemplated by this Agreement.
Section 4.12 No Conflict or Default. Newtek's execution, delivery or
performance of this Agreement will not violate any Newtek Applicable Laws or
Newtek Permits, or conflict with or result in the breach of any provision of
Newtek's Certificate of Incorporation, Bylaws, or other organizational document,
nor of any material Contract, writ, order, judgment, injunction, decree,
restriction, legal obligation or instrument to which Newtek is a party or by
which Newtek or any of its assets or properties are or may be bound or affected,
or constitute a default (or an event which, with the giving of notice, the
passage of time, or both would constitute a default), or result in the creation
or imposition of any lien, security interest, charge or encumbrance, or
restriction of any nature whatsoever with respect to any of Newtek's properties
or assets, or give to others any interest or rights, including rights of
termination, acceleration or cancellation in or with respect to any of the
properties, assets, Contracts or business of Newtek.
Section 4.13 Litigation. There is no legal action or any proceeding or
investigation ("Action") pending or, to the knowledge of Newtek, threatened
against Newtek or any Affiliate which could have a Newtek Material Adverse
Effect or a material adverse effect on Newtek's ability to execute and perform
this Agreement.
Section 4.14 Certified Capital Company Status and Investments. Newtek
has not received written or oral information from any applicable state authority
that grounds do or may exist under applicable law for decertification as a Capco
of any certified capital company affiliated with Newtek.
Section 4.15 Complete Disclosure. The representations and warranties
by Newtek in this Agreement or the related Schedules and Exhibits delivered by
or on Newtek's behalf, do not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements herein
or therein, in light of the circumstances in which they are made, not
misleading.
18
ARTICLE V
COVENANTS OF THE PARTIES
Section 5.01 Mutual Covenants.
(a) General. Each Party shall use its best efforts to
-------
take all actions promptly and do all things necessary, proper or advisable to
perform as required by this Agreement, including without limitation using all
commercially reasonable efforts to cause the satisfaction of the all conditions
set forth in this Agreement for which the Party is responsible as soon as
reasonably practicable and to prepare, execute, acknowledge or verify, deliver,
and file the additional documents, and take or cause to be taken the additional
actions, as any Party may reasonably request to carry out the purposes or intent
of this Agreement.
(b) Approvals and Consents. Each Party shall use its best
----------------------
efforts to take promptly any additional action that may be necessary, proper or
advisable in connection with any other notices, filings, authorizations,
consents or approvals of any court, administrative agency or commission, or
other governmental entity or other third party, including but not limited to the
New York State Department of Insurance, that it may be required to give, make or
obtain in connection with the completion of performance of this Agreement.
(c) Cooperation. On and after the Closing, each Party
-----------
shall execute any and all further documents and writings and perform any other
commercially reasonable actions reasonably requested by the other Party to
perform this Agreement. Exponential shall instruct its officers and employees
not to take any action that is reasonably likely to discourage any of
Exponential's lessors, licensors customers, suppliers or other business
relationships from maintaining the same relationships with Exponential after the
Closing as existed prior to the Closing.
(d) Confidential Information. No Party shall at any time
------------------------
directly or indirectly copy, disseminate or use, for such Party's own benefit or
the benefit of any third party, any information that has been disclosed in
confidence by the other Party ("Confidential Information"), regardless of how
the Confidential Information was acquired, except for the disclosure or use of
the Confidential Information (x) upon the advice of counsel required by law or
legal process or (y) authorized in writing by the Party that owns the
Confidential Information. The Parties may disclose each other's Confidential
Information to their respective responsible officers, directors or employees
(collectively, "Employees") with a bona fide need-to-know, but only to the
extent necessary to carry out the purpose for which the Confidential Information
was disclosed. Newtek and Exponential each agree to instruct all such Employees
not to disclose such Confidential Information to third parties, without the
prior written permission of the Party disclosing such Confidential Information.
Notwithstanding anything to the contrary contained in this paragraph,
Confidential Information does not include information (i) generally available to
the public other than as a direct or indirect result of a disclosure by a Party
in violation of this Agreement; (ii) that is already in the receiving Party's
possession at the time of the disclosing Party's disclosure of such Confidential
Information, except as a result of the receiving Party's or any third party's
breach of a legal obligation; (iii) that becomes known to the Party through
disclosure by sources other than another Party having the legal right to
disclose such information; or (iv) is independently developed by the Party
without reference to or reliance upon the Confidential Information, where the
burden of proof will be on the Party to demonstrate
19
independent development from its written records. Each Party acknowledges that
all of the Confidential Information is and shall remain the exclusive
proprietary property of the Party that discloses it, whether or not disclosed in
connection with this Agreement.
If this Agreement is terminated, upon the written request of the
disclosing Party, the receiving Party shall return to the disclosing Party,
within ten days, all Confidential Information and all copies thereof whether in
writing or other tangible form. Where impractical to return copies, such copies
shall be destroyed. Within such ten-day period, an affidavit of the receiving
Party shall be delivered to the disclosing Party attesting to the return and
destruction of all Confidential Information.
Each Party acknowledges and agrees that remedies at law for a violation
or attempted violation of any of the obligations in this Section 5.01(d) would
be inadequate and would cause immediate irreparable harm to the other Parties,
and agree that in the event of any such violation or attempted violation, each
Party is entitled to a temporary restraining order, temporary and permanent
injunctions, and other equitable relief, without the necessity of posting any
bond or proving any actual damage, in addition to all other rights and remedies
which may be available.
(e) Notices of Certain Events. Newtek and Exponential
-------------------------
shall promptly notify the other of any:
(i) notice or other communication from any
entity alleging that their or any other entity's consent is or may be required
in connection with any provision of this Agreement;
(ii) notice or other communication from any
governmental or regulatory agency or authority relating in any way to this
Agreement; and
(iii) actions commenced or threatened in any way
relating to it or its property, or any disputes, conflict or circumstance
providing the basis for any dispute or conflict, which if in existence on the
date of this Agreement would have been required to be disclosed pursuant to this
Agreement or which relates directly or indirectly to the consummation of the
Merger.
(f) Obligation to Update Schedules. Until the Closing,
------------------------------
each Party shall promptly disclose to the others any information contained in
the representations and warranties or Schedules which at any time is materially
incomplete or is no longer materially correct or any material adverse
development affecting the results of either Newtek's or Exponential's respective
operations; provided, however, that no disclosure to this Agreement shall be
deemed to modify, amend or supplement the representations and warranties of a
Party or the Schedules attached unless the Party to whom the representations and
warranties are made has consented in writing.
Section 5.02 Reasonable Access by Newtek Pending Closing. Exponential
shall give to Newtek, its counsel, accountants, financial advisers and lenders,
and other representatives, after reasonable notice, reasonable access, during
normal business hours, throughout the period prior to the Closing, to all of the
properties, books, contracts, commitments and records relating exclusively to
Exponential's business, and Exponential shall reasonably cooperate with Newtek
and its accountants in connection with the preparation of timely and complete
audited and unaudited financial statements; and, during such period, Exponential
shall make available to Newtek a copy of each material report, schedule,
correspondence and other document delivered
20
to, filed with or received by it pursuant to the requirements of New York law in
connection with this Agreement. Newtek agrees that any information provided
pursuant to this Section shall be Confidential Information subject to the
provisions of Section 5.01(d) above.
Section 5.03 Registration of Newtek Common Stock.
(a) Newtek agrees that it shall, within fifteen (15) calendar
days after the Closing, cause to be filed a registration statement (a "Shelf
Registration") on Form S-3 or any other appropriate form under the Securities
Act for an offering to be made on a delayed or continuous basis pursuant to Rule
415 thereunder covering 150,000 shares of Newtek Common Stock issued to the
Exponential Stockholders hereunder. Prior to the filing of the Shelf
Registration or any supplement or amendment thereto, Newtek shall furnish copies
of the Shelf Registration or such supplement or amendment to one counsel
designated by the Exponential Stockholders, and Newtek shall not file the Shelf
Registration or such supplement or amendment without the prior consent of such
counsel, which consent shall not be unreasonably withheld. Newtek shall pay all
expenses incurred in connection with the Shelf Registration, except for the fees
of Exponential's counsel.
(b) Newtek shall use its best efforts (a) to cause the Shelf
Registration to be declared effective by the SEC as promptly as practicable and
(b) to keep the Shelf Registration continuously effective until the earlier of
(i) the second anniversary of the date hereof and (ii) the date when all shares
covered by the Shelf Registration have been sold in the public securities
markets.
(c) Newtek agrees promptly to supplement or make amendments to
the Shelf Registration, (A) if required by the registration form used by Newtek
for the Shelf Registration or by the instructions applicable to such
registration for or by the Securities Act or the rules or regulations
thereunder, (B) if required in order that the Shelf Registration will not
contain an 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,
in light of the circumstances under which they were made, not misleading, or (C)
as may reasonably be requested by the Exponential Stockholders.
(d) Newtek shall furnish to each Exponential Stockholder such
number of copies of the Shelf Registration, each amendment and supplement
thereto (in each case including all exhibits thereto), the prospectus included
in such Shelf Registration and such other documents as such Exponential
Stockholder may reasonably request in order to facilitate the disposition of the
shares of Newtek Common Stock owned by such Exponential Stockholder.
(e) Exponential shall fully cooperate with Newtek in the
preparation of the Registration Statement and shall promptly furnish to Newtek
the information with respect to Exponential and the Exponential Stockholders
required to be included in the Registration Statement and any related
amendments.
(f) Newtek shall take all actions required to register or
qualify, or obtain exemptions from registration or qualification, for the Newtek
Common Stock to be issued hereunder under applicable state "Blue Sky" securities
laws, as appropriate.
(g) Newtek agrees to indemnify, to the extent permitted by law
and subject to the terms of this Agreement, each Exponential Stockholder against
all losses, claims, damages, liabilities and expenses (including reasonable
attorneys' fees) arising out of or based upon any
21
untrue or alleged untrue statement of a material fact contained in the Shelf
Registration (or any amendment thereto) or a prospectus (or any amendment or
supplement thereto) or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
made therein in the light of the circumstances under which they were made not
misleading.
(h) The Exponential Stockholders agree that, as among
themselves, they shall each be entitled to sell, pursuant to the Shelf
Registration, their pro rata portion of the 150,000 shares of Newtek Common
Stock registered thereunder, based on the respective ownership interests in the
Newtek Common Stock held by the Exponential Stockholders as of the date of
Closing.
Section 5.04. Rule 144. Newtek covenants that it shall use its best
efforts to file the reports required to be filed by it under the Exchange Act,
and it shall take such further action as any Exponential Stockholder may
reasonably request, all to extent required from time to time to enable such
Exponential Stockholder to sell shares of Common Stock delivered hereunder
without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may
be amended from time to time or (b) any similar rules or regulations hereafter
adopted by the SEC. Upon the written request of any Exponential Stockholder,
Newtek shall deliver to such Exponential Stockholder a written statement as to
whether it has complied with such requirements.
Section 5.05 Expanding Exponential's Relationships. Immediately after
the Closing, the Parties shall cooperate and use their best efforts to expand
and adapt Exponential's relationship with the New York State Common Retirement
Fund ("Fund"), in particular, to assist in the conversion of that relationship
into an operating venture capital fund, including efforts to raise the funds
required for that conversion. If this can be accomplished on term and conditions
fully acceptable to Newtek, it shall cause a Newtek subsidiary to invest $5
million, on terms and conditions reasonably acceptable to Exponential and
Newtek, and Newtek shall also (assuming acceptable terms and conditions) use its
best efforts to raise at least $15 million in additional funds, for the purpose
of the conversion of the fund. Newtek will not communicate with the Fund or its
agents prior to the Closing without the consent of Exponential.
Section 5.06 Termination of Cross-Purchase, Redemption and Restrictive
Sale Agreement. Each of the Exponential Stockholders hereby agrees that,
effective upon the Closing hereof, that certain Cross-Purchase, Redemption and
Restrictive Sale Agreement dated July 20, 1993 by and among the Exponential
Stockholders, and all rights and obligations of the parties thereto thereunder,
shall be terminated. Each of the Exponential Stockholders also agrees for
himself, his heirs, personal representatives and assigns, that by execution of
this Agreement, such stockholder hereby waives any and all preemptive rights to
which he may have been, or may be, entitled to in connection with his ownership
of the Exponential Common Stock.
22
ARTICLE VI
CONDITIONS
Section 6.01 Mutual Conditions. The Parties' obligations to consummate
the Merger and to perform this Agreement are subject to all the following
conditions:
(a) No Action. No Action before any court or governmental
---------
body is pending or threatened wherein a judgment, decree or order would
restrain, prohibit or invalidate any of the transactions contemplated by this
Agreement or cause the transactions to be declared unlawful or rescinded.
(b) Corporate Action. All corporate action necessary to
----------------
authorize the execution and delivery of this Agreement and consummation of the
Merger (including without limitation, and if deemed legally required by counsel
to Exponential or Newtek, respectively, the approval of this Agreement by the
requisite vote of the Stockholders of Exponential or Newtek) has been duly and
validly taken.
(c) Governmental Approvals. Any governmental or other
----------------------
approvals or review of this Agreement, the Merger or the transactions
contemplated by this Agreement required under any applicable laws, statutes,
orders, rules, regulations, or policies, or any related guidelines to consummate
the transactions contemplated by this Agreement have been received, including,
without limitation, the approval of the New York State Insurance Department to
the change in ownership of Exponential without the imposition of any condition
to that approval which is, in Newtek's reasonable discretion, excessively
burdensome in connection with the future operation of Exponential.
Section 6.02 Conditions to Obligations of Newtek. Newtek's obligation
to consummate the Merger and to perform this Agreement is subject to the
fulfillment of all of the following conditions unless waived by Newtek in
writing:
(a) Representations and Warranties. The representations
------------------------------
and warranties of Exponential and the Exponential Stockholders set forth in this
Agreement are true and correct as of the Closing as though made at and as of the
Closing except where any untruth or inaccuracy will not, either individually or
in the aggregate, have an Exponential Material Adverse Effect.
(b) Performance of Agreement. Exponential and the
------------------------
Exponential Stockholders shall have performed and observed in all material
respects all obligations and conditions to be performed or observed by it or
them under this Agreement at or prior to the Closing.
(c) Officers' Certificate. Exponential has furnished to
---------------------
Newtek a certificate, dated the date of the Closing and signed by the President
of Exponential on behalf of Exponential that the conditions set forth in
Sections 6.02(a) and (b) have been fulfilled.
(d) Releases. Each of the Exponential Stockholders has
--------
provided Newtek with a release of any and all claims they may have against
Exponential through the date of the Closing, with only those exceptions as are
acceptable to Newtek.
(e) Material Adverse Changes. Since the Latest Balance
------------------------
Sheet Date, there has occurred no change in the operations, prospects, assets,
business, or condition (financial or
23
otherwise) of Exponential, Exponential LP or Exponential LLC which would have an
Exponential Material Adverse Effect.
(f) Continuation of Business. Since the Latest Balance
------------------------
Sheet Date, and except as otherwise provided in this Agreement, Exponential,
Exponential LP and Exponential LLC have operated their businesses in the normal
course, consistent with past practice, and have not suffered any damage,
destruction, loss or occurrence, whether covered by insurance or not, which
would result in an Exponential Material Adverse Effect.
Section 6.03 Conditions to Obligations of Exponential. Exponential's
and the Exponential Stockholders' obligation to consummate the Merger and to
perform this Agreement is subject to the fulfillment of all of the following
conditions, unless waived by Exponential in writing:
(a) Representations and Warranties. Newtek's
------------------------------
representations and warranties set forth in this Agreement are true and correct
as of the Closing as though made at the Closing except where any untruth or
inaccuracy will not, either individually or in the aggregate, have a Newtek
Material Adverse Effect.
(b) Performance of Agreement. Newtek shall have performed
------------------------
and observed in all material respects all obligations and conditions to be
performed or observed by it under this Agreement at or prior to the Closing.
(c) Officers' Certificate. Newtek has furnished a
---------------------
certificate, dated the date of the Closing and signed by the President of Newtek
on behalf of Newtek that the conditions set forth in Sections 6.03(a) and (b)
have been fulfilled.
(d) Financial Statements. Newtek has delivered the
--------------------
Financial Statements to Exponential.
(e) Material Adverse Changes. There has occurred no
------------------------
change in the operations, prospects, assets, business, or condition (financial
or otherwise) of Newtek or any Affiliates which would have a Newtek Material
Adverse Effect.
(f) Continuation of Business. Except as otherwise
------------------------
provided in this Agreement, Newtek and Affiliates have operated their businesses
in the normal course, consistent with past practice, and have not suffered any
damage, destruction, loss or occurrence, whether covered by insurance or not,
which would result in a Newtek Material Adverse Effect.
(g) Opinion of Counsel. Exponential has received an
------------------
opinion, addressed to it and dated as of the Closing, from Cozen X'Xxxxxx,
counsel for Newtek, to the following effect:
(i) Newtek is incorporated, validly existing and
in good standing under the laws of the State of New York and has full power and
authority to carry on its business as now conducted and to own or lease its
properties;
(ii) this Agreement has been duly authorized by
all necessary corporate action on the part of Newtek and is a valid and binding
obligation of Newtek;
24
(iii) the execution and performance of this
Agreement will not conflict with or result in a violation of, or constitute a
default under, any provision of the Certificate of Incorporation and Bylaws of
Newtek nor of any judgment, order or decree applicable to Newtek; and
(iv) no consent, approval, order, authorization,
declaration or filing with any governmental authority or other entity is
required in connection with Newtek's execution and delivery of this Agreement,
except for the consents, approvals, orders or authorizations obtained or
registrations, declarations and filings made prior to the date of Closing.
(v) The shares of Newtek Common Stock to be
issued pursuant to this Agreement will be duly authorized and validly issued and
(upon delivery to the Exponential Stockholders in accordance with the terms of
this Agreement and the Escrow Agreement) will be fully paid, nonassessable, and
free of preemptive rights.
In rendering its opinion, Newtek's counsel may rely (without
independent investigation) to the extent counsel deems necessary or appropriate,
as to matters of fact, upon representations and certificates of public officials
and of the officers of Newtek.
(g) Employment & Consulting Agreements. Xxxx X. Xxxxxxxxx
----------------------------------
shall have executed an employment agreement with Exponential, in the form set
forth in Exhibit C, and directors Xxxx X. Xxxxxxxxx, Xxxxxx X. Xxxxxxx, Xxxxxxx
X. Xxxxxx, J. Xxxxxxx Xxxxxxx, Xxxx X. Xxxxxxx and Xxxxxxxx X. Xxxxxx shall each
have entered into a consulting agreement with Exponential in the form set forth
in Exhibit C. The Chief Executive Officer of Newtek shall also have provided a
letter to Xxxxxxxx Xxxxxxxx stipulating the terms of her continuing employment
with Exponential including a provision for a minimum term of six months.
ARTICLE VII
TERMINATION, AMENDMENT, WAIVER AND SURVIVAL
Section 7.01 Termination. This Agreement may be terminated at any time
prior to the Closing (a) by mutual written consent of Exponential and Newtek;
(b) by either Newtek or Exponential if the other has breached or failed to
perform in any material respect any of its representations, warranties,
covenants or other agreements contained in this Agreement which is incapable of
being cured or is not cured within 45 days of written notice; or (c) by either
Newtek or Exponential if Closing has not occurred within sixty (60) days of the
date of this Agreement.
Section 7.02 Effect of Termination. In the event of termination of
this Agreement by either Exponential or Newtek pursuant to Section 7.01(a) or
(c), this Agreement shall be void and have no effect, without any liability or
obligation of the part of Exponential, any Exponential Stockholder or Newtek. If
terminated pursuant to Section 7.01(b), Sections 5.01(d) and 9.09 shall survive
the termination and remain in full force and effect.
Section 7.03 Survival of Representations and Warranties. Any
investigation, review or audit made by or on behalf of Exponential, Exponential
Stockholders or Newtek, or the availability of information shall not affect the
covenants, representations and warranties contained in this Agreement, and such
covenants, representations and warranties shall survive the Closing for a period
ending January 31, 2004, whereupon they shall terminate, expire and be of no
further effect; provided however, that those representations and warranties
included in Section 3.07 shall survive the Closing for a period ending January
31, 2005.
25
ARTICLE VIII
INDEMNIFICATION
Section 8.01 Indemnification of Newtek. Subject to the conditions and
provisions set forth herein, Exponential hereby agrees to indemnify, defend and
hold harmless Newtek, any Affiliate, and the officers, directors, employees,
agents and representatives of each (collectively, the "Newtek Indemnified
Parties"), and the Exponential Stockholders, severally and not jointly, hereby
agree to indemnify, defend and hold harmless the Newtek Indemnified Parties,
from and against all demands, claims, actions or causes of action, assessments,
losses, damages, liabilities, costs and expenses, including, without limitation,
interest, penalties and reasonable attorneys' fees and expenses (a "Claim" or
collectively "Claims"), asserted against or imposed upon or incurred by any of
the Newtek Indemnified Parties:
(a) resulting from, or by reason of any facts
constituting, a breach of any covenant, agreement, representation or warranty of
Exponential or the Exponential Stockholders contained in this Agreement or a
schedule or certificate required pursuant to this Agreement; provided, however,
that Newtek waives any right of indemnification as to any representation or
warranty of Exponential or an Exponential Stockholder contained in this
Agreement as to which Newtek both (i) knew prior to Closing to be materially
incorrect, untrue or incomplete and (ii) failed to disclose such knowledge to
Exponential prior to Closing;
(b) resulting from any action taken by any of the Newtek
Indemnified Parties to enforce successfully the provisions of this
indemnification.
The indemnity under this Section 8.01 extends only to the net amount of
any Claim sustained by any of the Newtek Indemnified Parties after deducting
there from any tax benefit actually recognized by such party as a result of such
action, assessment, loss, damage, liability, cost or expense (after taking into
account the effect if any, of timing differences resulting from the acceleration
of the deferral of items of gain or loss) and any amount which any of the Newtek
Indemnified Parties recovers as proceeds of insurance in respect of such Claim,
net of any cost of collection, deductible, reimbursement obligation or other
cost directly related to the insurance claim for such Claim.
Notwithstanding anything herein to the contrary, if the Exponential
Stockholders shall be required to indemnify any of the Newtek Indemnified
Parties, with respect to the same item of damage and amount, the satisfaction of
such indemnity to one of them shall discharge the Exponential Stockholders'
obligations to the others to the extent of the amount paid.
Section 8.02 Indemnification of the Exponential Stockholders. Subject
to the conditions and provisions set forth herein, Newtek hereby agrees to
indemnify, defend and hold harmless the Exponential Stockholders from and
against all Claims asserted against or imposed upon or incurred by any of them
resulting from, or by reason of any facts constituting, a breach of any
covenant, agreement, representation or warranty of Newtek contained in this
Agreement or a schedule or certificate required pursuant to this Agreement, or
resulting from any action taken by any of the Exponential Stockholders to
enforce successfully the provisions of this indemnification.
The indemnity under this Section 8.02 extends only to the net amount of
any Claim sustained by the Exponential Stockholders after deducting there from
any tax benefit actually recognized by Exponential Stockholders as a result of
such action, assessment, loss, damage,
26
liability, cost or expense (after taking into account the effect if any, of
timing differences resulting from the acceleration of the deferral of items of
gain or loss) and any amount which any Exponential Stockholder recovers as
proceeds of insurance in respect of such Claim, net of any cost of collection,
deductible, reimbursement obligation or other cost directly related to the
insurance claim for such Claim.
Section 8.03. Limitation of Exponential Stockholders' Liability. The
obligations and liabilities of the Exponential Stockholders hereunder with
respect to indemnification for Claims by Newtek and otherwise shall be subject
to the following limitations:
(a) The Exponential Stockholders shall be obligated to
indemnify Newtek only with respect to those Claims as to which Newtek has given
the Exponential Stockholders written notice on or prior to January 31, 2004, or
with respect to matters related to the breach of a representations contained in
Section 3.07, notice on or prior to January 31, 2005 (the periods between
Closing and January 31, 2004 or January 31, 2005, as the case may be, are
referred to herein as the "Indemnification Period"). No indemnification shall be
required to be made by Exponential Stockholders hereunder unless the amount of
Newtek Claims exceeds $25,000 in the aggregate, in which case the Exponential
Stockholder indemnification obligations shall apply to the aggregate amount of
such Claims in excess of $25,000.
(b) All claims for indemnification pursuant to Section 8.01
hereof shall be recovered by Newtek solely by (i) first, the return to Newtek of
up to one half of the Delivered Merger Shares delivered to the Exponential
Stockholders hereunder pursuant to Section 1.06 (or if the Exponential
Stockholders no longer own sufficient shares of Newtek Common Stock, the
delivery of an amount of cash representing the fair market value of the
returnable shares on the date of Closing), (ii) next, by the return of up to
250,000 former Escrowed Merger Shares which may have pursuant to the terms
hereof been released from escrow (or cash as with respect to the Delivered
Merger Shares), and (iii) next, by the reduction of the number of remaining
Escrowed Merger Shares, up to a total (along with shares returned pursuant to
clause (ii), preceding) of 250,000 shares. In no event shall the aggregate
number of Delivered Merger Shares returnable to Newtek in payment of the
Exponential Stockholders' indemnification obligations hereunder exceed 250,000
shares, nor shall the aggregate number of Escrowed Merger Shares returned or
removed from escrow exceed 250,000 shares. No Exponential Stockholder shall be
obligated to return to Newtek more than such Exponential Stockholder's pro rata
portion of such 250,000 Delivered Merger Shares, and any return of former
Escrowed Merger Shares or reduction in the Escrowed Merger Shares shall also be
done on a pro rata basis, in each case based on the respective ownership
interests in the Newtek Common Stock held by the Exponential Stockholders as of
the date of Closing. In addition, if any reduction in the Escrowed Merger Shares
shall be made pursuant to clause (iii) of this subsection, the release of the
remaining Escrowed Merger Shares shall occur only after amounts that
subsequently become "Available for Distribution" (as defined in Exhibit B
hereof) exceed the amounts that would have been necessary to effect the release
of the reduced Escrowed Merger Shares if such Escrowed Merger Shares had
remained in escrow.
(c) For purposes of determining the number of shares of Newtek
Common Stock recoverable from the Exponential Stockholders (or reducible from
escrow) sufficient to satisfy a Claim by Newtek subject to indemnification
hereunder, the value of a share of Newtek Common Stock shall be equal to the
Average Indemnification Price (as hereinafter defined). For purposes hereof,
"Average Indemnification Price" means the average of the closing prices of the
Newtek
27
Common Stock, as such prices are reported by the Wall Street Journal, on the 30
trading days immediately preceding: (i) the date of the award (with respect to
any recovery hereunder determined by judicial proceeding), (ii) the date of
agreement (with respect to any a recovery hereunder determined by written
agreement between Newtek and the Exponential Stockholders), or (iii) the date
that is 30 days after the Exponential Stockholders were given notice of such
Claim pursuant to Section 8.05(b) (with respect to any recovery hereunder where
the Exponential Stockholders are deemed not to dispute the Claim or the amount
because they have not responded as provided in Section 8.05(b)). In the event
one or more Exponential Stockholder no longer owns sufficient shares of Newtek
Common Stock to satisfy his obligation hereunder, he shall be obligated to pay
an amount in cash equal to the number of shares as determined by this subsection
multiplied by the fair market value of such shares on the date of Closing.
(d) Any recovery by Newtek from the Exponential Stockholders
of shares of Newtek Common Stock to satisfy a Claim hereunder shall be done so
as to reduce each Exponential Stockholder's interest in the Newtek Common Stock
on a pro rata basis, based on the respective ownership interests in the Newtek
Common Stock held by the Exponential Stockholders as of the date following
Closing.
8.04. Limitation of Newtek's Liability. The obligations and liabilities
of Newtek with respect to indemnification for Claims by Exponential Stockholders
shall be subject to the following limitations:
(a) Newtek shall be obligated to indemnify the Exponential
Stockholders only with respect to those Claims as to which the Exponential
Stockholders have given Newtek written notice during the Indemnification Period
ending December 31, 2004.
(b) All claims for indemnification pursuant to Section 8.02
hereof shall be limited in amount to the fair market value of Exponential as of
the Closing date pursuant to GAAP. No indemnification shall be required to be
made by Newtek hereunder unless the amount of Shareholder Claims exceeds $25,000
in the aggregate, in which case Newtek's indemnification obligations shall apply
to the aggregate amount of such Claims in excess of $25,000.
(c) No indemnification shall be required to be made by Newtek
hereunder in an amount in excess of the value of 500,000 of the shares of Newtek
Common Stock issued to the Exponential Stockholders hereunder, plus such
additional shares as shall have been released from the Escrow, such value to be
determined in accordance with Section 8.03(c).
Section 8.05 Process of Indemnification. The obligations and
liabilities of a party for which indemnification is sought (an "indemnifying
party") by a person or entity seeking indemnification (an "indemnified party")
under this Article VIII shall be subject to the following conditions:
(a) Notice from Indemnified Party. The indemnified party shall
-----------------------------
promptly notify the indemnifying party in writing of the assertion of any Claim
or the discovery of any fact upon which the indemnified party intends to base a
Claim hereunder. Such notice shall set forth the amount of the Claim and specify
the alleged basis of the Claim. The delay or failure of an indemnified party to
provide notice hereunder shall not in any way limit the indemnified party's
indemnification rights hereunder except to the extent that the indemnifying
party shall have been
28
materially adversely affected by such delay or failure and except that in any
event such notice shall be made within the Indemnification Period.
(b) Recovery by Indemnified Party. If the indemnifying party
-----------------------------
does not dispute the basis or amount of any Claim within 30 days of receiving
written notice thereof, the indemnified party shall have the right promptly to
recover indemnity as and to the extent provided herein. If the indemnifying
party disagrees with the basis of the Claim or the amount of damages caused
thereby, then within 30 days of receiving written notice thereof, the
indemnifying party shall give notice to the indemnified party of such
disagreement and, in that case, the indemnified party shall have no right to
recover indemnity hereunder until such time, if at all, as (a) a court of
competent jurisdiction issues a final, non-appealable order specifying the
amount of the indemnified party's recovery, in which case the indemnified party
shall have the right promptly to recover the amount so specified (subject to the
limitations contained in Sections 8.03 or 8.04 hereof) and (b) the indemnified
party and the indemnifying party agree in writing to the amount of the recovery,
in which case the indemnified party shall have the right promptly to recover the
amount so agreed.
(c) Third-Party Claims. (i) If any claim, action, suit or
------------------
proceeding (an "Action") is brought by a third party against an indemnified
party, the Action shall be defended by the indemnifying party and such defense
shall include all appeals or reviews that counsel for the indemnifying party
shall deem appropriate. Until the indemnifying party shall have assumed the
defense of any such Action, or if the indemnified party shall have reasonably
concluded that there are likely to be defenses available to the indemnified
party that are different from or in addition to those available to the
indemnifying party (in which case the indemnifying party shall not be entitled
to assume the defense of such Action), all legal or other expenses reasonably
incurred by the indemnified party shall be borne by the indemnifying party.
(ii) In any Action initiated by a third party and defended by
the indemnifying party, subject to the confidentiality provisions of this
Agreement, (A) the indemnified party shall have the right to be represented by
advisory counsel and accountants, at its own expense, (B) the indemnifying party
shall keep the indemnified party fully informed as to the status of such Action
at all stages thereof, whether or not the indemnified party is represented by
its own counsel, (C) the indemnified party shall make available to the
indemnifying party, and its attorneys and accountants, all books and records of
the indemnified party relating to such Action and (D) the parties shall render
to each other such assistance as may be reasonably required for the proper and
adequate defense of such Action.
(iii) In any Action initiated by a third party and defended by
the indemnifying party, the indemnifying party shall not make any settlement of
any claim without the written consent of the indemnified party, which consent
shall not be unreasonably withheld or delayed. Consent shall be presumed in the
case of settlements of $100,000 or less where the indemnified party has not
responded within ten business days of notice of a proposed settlement. Without
limiting the generality of the foregoing, it shall not be deemed unreasonable to
withhold consent to a settlement involving injunctive or other equitable relief
against the indemnified party or its assets, employees or business. Consent
shall be presumed in the case of settlements of $100,000 or less where the
indemnified party has not responded within ten business days of notice of a
proposed settlement.
Section 8.06 Exclusive Remedy. Neither of Newtek nor the Exponential
29
Stockholders shall have a claim or cause of action, whether in contract, tort,
under statute or otherwise (excepting fraud), against the other for monetary
damages arising out of or related to this Agreement, the representations,
warranties, covenants and agreements contained herein or any of the transactions
contemplated hereby apart from the remedies set forth in this Article VIII.
ARTICLE IX
MISCELLANEOUS
Section 9.01 Notices. All notices and other communications under this
Agreement to any Party shall be in writing and shall be deemed given when
delivered to that Party, sent by facsimile transmission (with electronic
confirmation) to that Party at the facsimile number for that Party set forth
below, mailed by b mail (postage prepaid and return receipt requested) to that
Party at the address for that Party set forth below, or delivered by Federal
Express or any similar express delivery service for delivery to that Party at
that address:
If to Exponential:
Exponential Business Development Company, Inc.
000 Xxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Attn: Xxxx X. Xxxxxxxxx
fax: 000-000-0000
With a copy to:
Xxxxx Xxxx & Xxxxx LLP
Xxx Xxxx Xxxxxx Xxxxxx
Xxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxxxxx, Esq.
fax: 000-000-0000
If to Newtek:
Newtek Capital, Inc.
000 Xxxxx Xxx.
Xxx Xxxx, XX 1002
Attn: Xxxxx Xxxxxx
fax: 000-000-0000
With a copy to:
Cozen X'Xxxxxx.
0000 X Xxxxxx, X.X.
Xxxxxxxxxx, XX 00000
Attn: Xxxxxx Xxx, Esq.
fax: 000-000-0000
If to an Exponential Stockholder:
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Exponential Business Development Company, Inc.
000 Xxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Attn (Name of Stockholder)
fax: 00-000-0000
Any Party may change its facsimile number or address for notices under
this Agreement at any time by giving the other Parties written notice of the
change.
Section 9.02 Non-Waiver. No failure by a Party to insist upon strict
compliance with a term or provision of this Agreement, to exercise any right, or
to seek a remedy is a waiver of the right to insist upon such strict compliance,
to exercise that or any other right, or seek that or any other remedy at any
other time. This Agreement may not be modified by custom or practice in the
trade, by the actions of the Parties or in any other manner except in writing
signed by the party against whom enforcement is sought.
Section 9.03 Headings. The headings of the various Articles and
Sections of this Agreement are not part of the context of this Agreement, are
merely labels to assist in locating such Articles and Sections, and shall be
ignored in construing this Agreement.
Section 9.04 Counterparts. This Agreement may be executed in multiple
counterparts, each of which is an original, but all of which taken together are
one and the same Agreement.
Section 9.05 Entire Agreement. This Agreement (including the Exhibits
and Schedules hereto) constitutes the entire agreement between the Parties with
respect to its subject matter and supersedes all prior or contemporaneous
discussions, negotiations, agreements and understandings (both written and oral)
among the Parties with respect to such subject matter.
Section 9.06 No Third-Party Beneficiaries. Nothing in this Agreement,
express or implied shall give any legal entity, other than the Parties, any
rights, remedies or other benefits.
Section 9.07 Governing Law. This Agreement is governed by and shall be
construed in accordance with the laws of the State of New York, without regard
to New York's principles of conflicts of law. The Parties irrevocably submit to
the jurisdiction and venue of any Federal or State court in New York over any
dispute arising out of this Agreement and agree that all claims related to any
dispute related to this Agreement shall be heard and determined in any
applicable New York court. The Parties irrevocably waive, to the fullest extent
permitted by law, any objection they may have to the venue of any dispute
brought in any such court or any defense of inconvenient forum for the
maintenance of the dispute. The Parties irrevocably consent to process being
served upon them in any site, action or proceeding before any such court by
delivering as provided for notices in Section 9.01 of this Agreement. All rights
and remedies of each Party under this Agreement are cumulative and are in
addition to all other rights and remedies available to the Party from time to
time, whether under this Agreement otherwise.
Section 9.08 Binding Effect; Assignment. This Agreement is binding
upon, inures to the benefit of and is enforceable by and against the Parties and
their respective heirs, personal representatives, successors and permitted
assigns. Neither this Agreement nor any of the rights, interests or obligations
under this Agreement may be transferred or assigned by any of the
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Parties without the prior written consent of the other Parties and any attempted
assignment in violation of this provision is void.
Section 9.09 Expenses. Except as otherwise specifically provided in
this Agreement:
(a) Exponential shall pay its costs and expenses
associated with the transactions contemplated by this Agreement, including
without limitation the fees and expenses of its legal counsel, accountants and
financial advisors.
(b) Newtek shall pay its own costs and expenses
associated with this Agreement, the Merger, and the other the transactions
contemplated by this Agreement, including without limitation the fees and
expenses of its legal counsel, accountants and financial advisors, and costs and
expenses of filing the Registration Statement with the SEC.
Section 9.10 Public Announcements. Neither Newtek, on the one hand,
nor Exponential or the Exponential Stockholders, on the other hand, shall,
without the prior written consent of the other, make any public announcement or
statement with respect anything related to this Agreement, except as may be
necessary to comply with applicable requirements of the federal or state
securities laws or any governmental order or regulation or any obligations
pursuant to any listing agreement with any national securities exchange.
Section 9.11 Severability. If any provision of this Agreement
determined by a court or other government entity to be unenforceable, the
Parties shall cooperate in good-faith to rewrite such provision so that it is
enforceable to the maximum extent permitted by applicable law, and the Parties
shall abide by the provisions as re-written. If any provision of this Agreement
cannot be rewritten, the provision shall be severed from this Agreement, but
every other provision of this Agreement shall remain in full force and effect.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed
as of the Effective Date:
EXPONENTIAL BUSINESS DEVELOPMENT
COMPANY, INC.
By: /s/ Xxxx X. Xxxxxxxxx
-------------------------------
Title: Secretary
NEWTEK CAPITAL INCORPORATED
By: /s/ Xxxxx Xxxxxx
-------------------------------
Title: Chairman and Chief Executive
Officer
EXPONENTIAL MERGER SUBSIDIARY, INC.
By: /s/ Xxxxx Xxxxxx
-------------------------------
Title: President, Chief Executive
Officer
EXPONENTIAL STOCK HOLDER
/s/ Xxxxxxxx X. Xxxxxx
--------------------------------------------
Print Name: Xxxxxxxx X. Xxxxxx
EXPONENTIAL STOCK HOLDER
/s/ Xxxx X. Xxxxxxx
--------------------------------------------
Print Name: Xxxx X. Xxxxxxx
EXPONENTIAL STOCK HOLDER
/s/ J. Xxxxxxx Xxxxxxx
--------------------------------------------
Print Name: J. Xxxxxxx Xxxxxxx
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EXPONENTIAL STOCK HOLDER
/s/ Xxxx X. Xxxxxxxxx
--------------------------------------------
Print Name: Xxxx X. Xxxxxxxxx
EXPONENTIAL STOCK HOLDER
/s/ Xxxxxxx X. Xxxxxx
--------------------------------------------
Print Name: Xxxxxxx X. Xxxxxx
EXPONENTIAL STOCK HOLDER
/s/ Xxxxxx X. Xxxxxxx
--------------------------------------------
Print Name: Xxxxxx X. Xxxxxxx
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EXHIBIT A
ESCROW AGREEMENT
Omitted.
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EXHIBIT B
RELEASE OF SHARES FROM ESCROW
The 500,000 shares of Newtek common stock to be deposited in escrow
(the "Escrow Shares") shall be released to the Exponential Stockholders as
amounts become Available for Distribution (as defined below), as follows:
. Until such time as an amount equal to the Initial Recovery (as defined
and adjusted below) becomes Available for Distribution, no Escrow
Shares will be released to the Exponential Stockholders.
. Beginning with the first calendar quarter following the Initial
Recovery, and continuing for each succeeding calendar quarter until the
quarter that ends first following the seventh anniversary of the
Closing, the Exponential Stockholders shall be entitled to receive up
to 500,000 shares of Newtek common stock, ratably, for the next $2
million that becomes Available for Distribution, or one share for each
$4.00 that becomes Available for Distribution.
. Newtek will direct the Escrow Agent within the 20 day period following
the end of each calendar quarter, to direct the transfer agent to
deliver to the Exponential Stockholders certificates for Newtek common
stock representing the number of shares (in whole shares only)
determined by the foregoing formula.
. Following the quarter end which occurs first following the seventh
anniversary of the Closing, and any delivery of Escrow Shares to the
Exponential Stockholders resulting from amounts that become Available
for Distribution during such quarter, Newtek shall have no further
obligation to cause additional Escrow Shares to be delivered to the
Exponential Stockholders, and such shares shall be returned to Newtek.
For purposes of this Exhibit B, the following terms shall be defined as follows:
. Amounts that are "Available for Distribution" shall mean (i) cash
proceeds from the liquidation of assets held by Exponential, and
Exponential's pro rata portion of the cash proceeds from the
liquidation of assets held by Exponential LP or Exponential LLC, to the
extent that such entities may legally distribute such cash to their
equity holders, plus (ii) all cash actually distributed to Newtek from
such sources.
. "Initial Recovery" shall mean $1,000,000, plus simple interest on such
amount at a rate of ten percent per annum, calculated quarterly;
provided, however, that interest shall accrue only on the portion of
the Initial Recovery that is not yet Available for Distribution, also
calculated quarterly. For example, if no amounts become Available for
Distribution during the first year following the Closing, then at the
end of such year the Initial Recovery shall be $1,100,000. If, however,
$250,000 becomes Available for Distribution during the first quarter
after Closing and no other amounts become Available for Distribution
during the first year, then interest will only accrue on $750,000, and
at the end of the year the amount of the Initial Recovery remaining
will be $825,000 ($750,000 plus $75,000 interest at ten percent per
annum). If, during the quarter after the first anniversary of the
Closing, an additional $825,000 becomes Available for Distribution,
thereafter all additional amounts that become Available for
Distribution will be applied toward the release of Escrow Shares to the
Exponential Stockholders.
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EXHIBIT C
EMPLOYMENT AGREEMENT FORM
CONSULTING AGREEMENT FORM
Omitted.
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Schedules Omitted.
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