SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): October 31, 1996
Kinnard Investments, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Minnesota
(State or Other Jurisdiction of Incorporation)
0-9377 41-0972952
(Commission File Number) (I.R.S. Employer Identification Number)
920 Second Avenue South
Kinnard Financial Center
Minneapolis, Minnesota 55402
(Address of Principal Executive Offices) (Zip Code)
612-370-2700
(Registrant's Telephone Number, Including Area Code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
As of the close of business on October 31, 1996, Kinnard Investments,
Inc. (the "Registrant" or "the Company") disposed of all of the outstanding
stock of PRIMEVEST Financial Services, Inc. ("PRIMEVEST" or "PFS"), formerly a
wholly-owned subsidiary of the Registrant which provides investment products and
financial services to customers of banks, thrifts and credit unions. PRIMEVEST
was sold to ReliaStar Financial Corp. ("ReliaStar") for $15.5 million in cash,
of which $1.5 million was placed in escrow securing the Registrant's
indemnification obligations to ReliaStar. In addition, prior to the sale
PRIMEVEST made a dividend of its investment account with a market value of
$854,000 to the Company. The after-tax gain on the sale is estimated to be $6.5
million or $1.08 per share. The sale price was determined by negotiation between
the Registrant and ReliaStar. There are no material relationships between
ReliaStar and the Registrant or any of its affiliates, directors or officers and
any associates of any such director or officer.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired:
Not applicable.
(b) Pro forma Financial Information.
The following unaudited condensed consolidated statement of financial
condition was prepared to reflect the sale of PFS as if the transaction had
occurred as of September 30, 1996, and the unaudited pro forma condensed
consolidated statements of operations as if the transaction occurred at the
beginning of the respective nine and twelve month periods. These financial
statements have been prepared based on the foregoing and on certain assumptions
described in the notes thereto. Such statements should be read in conjunction
with the historical financial statements of the Company, including the notes
thereto, which are included in the Company's Annual Report on form 10-K for the
year ended December 31, 1995. The following pro forma financial statements do
not purport to be indicative of the results of operations which may be reported
in the future:
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
FINANCIAL POSITION (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Net assets Pro forma Pro forma
September 30, 1996 As reported of PFS adjustments statements
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $8,599 ($415) $8,184
Restricted cash 0 0 1,500 a 1,500
Receivables 24,888 (19,398) 5,490
Trading securities, at market 8,027 (214) 7,813
Office equipment, net 1,950 (645) 1,305
Investment securities 10,068 (854) 17,854 a,b,c 27,068
Other assets 808 (600) 208
------- --------- ------------- -------
Total assets $54,340 ($22,126) $19,354 $51,568
======= ========= ============= =======
Liabilities
Notes payable $5,100 ($8,100) $3,000 b $0
Payable to broker-dealers and customers 4,656 (4,655) 1
Securities sold but not yet purchased 1,406 (112) 1,294
Compensation and related taxes payable 6,869 (1,329) 5,540
Other accounts payable and accruals 5,745 (2,161) 3,584
Income taxes payable 55 (306) 4,357 d 4,106
Deferred tax liability 482 (327) 327 c 482
------- --------- ------------- -------
Total liabilities 24,313 (16,990) 7,684 15,007
------- --------- ------------- -------
Shareholders' equity
Common stock 120 (815) 815 e 120
Additional paid-in capital 12,679 (1,301) 1,301 e 12,679
Retained earnings 17,228 (3,020) 9,554 d,e 23,762
------- --------- ------------- -------
Total shareholders' equity 30,027 (5,136) 11,670 36,561
------- --------- ------------- -------
Total liabilities and shareholders' equity $54,340 ($22,126) $19,354 $51,568
======= ========= ============= =======
</TABLE>
<PAGE>
PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF
OPERATIONS (Unaudited) (In thousands, except per share data)
<TABLE>
<CAPTION>
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Operations Pro forma Pro forma
Nine months ended September 30, 1996 As reported of PFS adjustments statements
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Commission income $30,484 ($19,979) $10,505
Principal transactions 28,884 (1,645) (181) g 27,058
Investment account income 5,128 (116) 116 h 5,128
Investment banking 4,737 (32) 4,705
Interest 2,062 (946) 1,116
Other 3,470 (2,051) 145 f 1,564
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Total revenues 74,765 (24,769) 80 50,076
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Compensation and benefits 35,826 (5,553) 30,273
Bank commissions 13,063 (13,063) 0
Other 16,319 (3,868) 115 f 12,566
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Total expenses 65,208 (22,484) 115 42,839
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Income before income taxes 9,557 (2,285) (35) 7,237
Income tax expense 3,829 (925) (14) i 2,890
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Net income $5,728 ($1,360) ($21) $4,347
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Primary earnings per share $0.94 ($0.22) $0.00 $0.71
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
</TABLE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited) (In thousands, except per share data)
<TABLE>
<CAPTION>
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Operations Pro forma Pro forma
Year ended December 31, 1995 As reported of PFS adjustments statements
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Commission income $26,810 ($15,539) $11,271
Principal transactions 31,787 (1,462) (255) g 30,070
Investment account income 6,563 (378) 378 h 6,563
Investment banking 5,303 (42) 5,261
Interest 1,926 (619) 1,307
Other 2,944 (1,511) 204 f 1,637
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Total revenues 75,333 (19,551) 327 56,109
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Compensation and benefits 38,748 (5,112) 33,636
Bank commissions 9,775 (9,775) 0
Other 21,124 (4,104) 59 f 17,079
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Total expenses 69,647 (18,991) 59 50,715
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Income before income taxes 5,686 (560) 268 5,394
Income tax expense 2,310 (225) 107 i 2,192
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Net income $3,376 ($335) $161 $3,202
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Primary earnings per share $0.54 ($0.05) $0.03 $0.51
- -------------------------------------------------- ---------------- ----------------- ---------------- -----------------
</TABLE>
<PAGE>
Notes to Unaudited Pro Forma Condensed Financial Statements
a) Of the $15.5 million of proceeds from the sale of PFS, $1.5 million that
is held in escrow is recorded as restricted cash, and the remaining $14.0
million is classified as investments.
b) Elimination of $3.0 million of intercompany loans between PFS and the
Company that were repaid by ReliaStar prior to closing of the sale.
c) Reflects the dividend of investment securities with a market value of
$854,000 from PFS to the Company, and transfer of the associated deferred
tax liability.
d) Represents the after-tax gain on sale of PFS, estimated at $6.5 million,
net of accrued income taxes of $4.4 million.
e) Elimination of the Company's investment in PFS.
f) Entries to reflect the elimination of inter-company activity between PFS
and other entities of the Company.
g) Represents a decrease in principal revenues relating to PFS
discontinuing the routing of its order flow through the Company.
h) Represents the income earned on investment securities held at PFS that
were transferred to the Company prior to the sale in the form of a
dividend.
i) To record the estimated income tax expense (benefit), computed at an
incremental effective rate of 40%, on the pro forma adjustments.
Earnings on the $15.5 million of proceeds from the sale of PFS were not
factored into either interest income or investment account earnings in the
unaudited pro forma condensed consolidated statements of operations.
(c) Exhibits:
2 Stock Purchase Agreement By and Between ReliaStar Financial
Corp. and Kinnard Investments, Inc. dated September 23, 1996
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
KINNARD INVESTMENTS, INC.
Date: November 12, 1996 By /s/ Hilding C. Nelson
Chairman
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBIT INDEX
to
FORM 8-K
KINNARD INVESTMENTS, INC.
- ------------------------------------------------------------------------------
Exhibit
Number Exhibit Description
2 Stock Purchase Agreement By and Between ReliaStar Financial Corp. and
Kinnard Investments, Inc. dated September 23, 1996 (The schedules and
exhibits attached to the Agreement are not filed herewith. The
Registrant agrees to furnish supplementally a copy of any such
schedule or exhibit to the Commission upon request.)
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
RELIASTAR FINANCIAL CORP.
(a Delaware corporation)
AND
KINNARD INVESTMENTS, INC.,
(a Minnesota corporation)
THE SOLE SHAREHOLDER
OF
PRIMEVEST FINANCIAL SERVICES, INC.
(a Minnesota corporation)
dated as of September 23, 1996
<PAGE>
TABLE OF CONTENTS
1. PURCHASE AND SALE OF SHARES................................................1
2. PURCHASE PRICE.............................................................1
3. PAYMENT OF PURCHASE PRICE; ESCROW..........................................1
(a) Payment at Closing.....................................................1
(b) Escrow.................................................................1
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY AND ITS SUBSIDIARIES.2
(a) Organization and Existence.............................................2
(b) Qualification to do Business...........................................2
(c) No Conflicts with Other Instruments....................................3
(d) Notices, Consents and Approvals........................................3
(e) Capitalization.........................................................3
(f) Subsidiaries...........................................................4
(g) Compliance with Laws; Permits and Licenses.............................4
(h) Financial Statements...................................................5
(i) Absence of Certain Changes or Events...................................5
(j) Real and Personal Property.............................................6
(k) Insurance..............................................................7
(l) Tax Matters............................................................7
(m) Claims and Proceedings.................................................9
(n) Contracts, etc.........................................................9
(o) License Agreements....................................................11
(p) Transactions with Affiliates..........................................11
(q) No Defaults...........................................................11
(r) Employment Matters....................................................12
(s) Employee Benefit Plans................................................12
(t) Notes and Accounts Receivable.........................................15
(u) Relationships with Customers..........................................15
(v) Guaranties............................................................15
(w) Intellectual Property.................................................15
(x) Banking Matters, etc..................................................16
(y) Environmental Matters.................................................16
(z) Full Disclosure.......................................................16
5. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER.........................16
(a) The Shares............................................................16
(b) Organization and Existence............................................16
(c) Authorization; Execution and Delivery.................................16
(d) No Conflicts with Other Instruments...................................17
(e) Notices, Consents and Approvals.......................................17
(f) Claims and Proceedings................................................17
6. REPRESENTATIONS AND WARRANTIES OF THE BUYER...............................17
(a) Organization and Existence............................................17
(b) Authorization, Execution and Delivery.................................17
(c) No Conflicts with Other Instruments...................................18
(d) Notices, Consents and Approvals.......................................18
(e) Claims and Proceedings................................................18
(f) Investment Intent.....................................................18
7. COVENANTS CONCERNING THE COMPANY AND ITS SUBSIDIARIES.....................18
(a) Normal Course of Business.............................................18
(b) Actions Prior to Closing..............................................18
(c) Access to Properties and Records......................................19
(d) Employee Benefit Matters..............................................19
(e) Employee Bonuses......................................................21
8. COVENANTS OF THE SHAREHOLDER..............................................22
(a) Compliance with HSR Act; Approvals, Consents and Other Matters........22
(b) Confidentiality.......................................................22
(c) Transactions Relating to Company or Shares............................22
(d) Release of Information................................................23
(e) Executive Bonuses.....................................................23
(f) Business Practices....................................................23
9. COVENANTS OF THE BUYER....................................................24
(a) Confidentiality.......................................................24
(b) Compliance with HSR Act; Approvals, Consents and Other Matters........24
(c) Release of Information................................................25
(d) Employee Benefit Matters..............................................25
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SHAREHOLDER...................25
(a) Representations and Warranties of the Buyer Correct...................25
(b) Compliance with Covenants and Conditions..............................26
(c) Delivery of Certificate...............................................26
(d) Opinion of Counsel....................................................26
(e) Corporate Proceedings.................................................26
(f) HSR Act; Approvals and Consents.......................................26
(h) Company Non-Competition Agreement.....................................26
(a) Representations and Warranties of the Shareholder Correct.............27
(b) Compliance with Covenants and Conditions..............................27
(c) No Material Adverse Change............................................27
(d) Delivery of Certificates..............................................27
(e) Opinion of Counsel for the Shareholder................................27
(f) Audit Firm Report.....................................................27
(g) Corporate Proceedings.................................................27
(h) Resignations..........................................................27
(i) Shareholder Non-Competition Agreement.................................28
(j) Employment Arrangements...............................................28
(k) HSR Act; Approvals and Consents.......................................28
(l) Estoppel Certificates.................................................28
(m) Claims and Proceedings................................................28
(n) Margin Accounts.......................................................29
(o) Prime Portfolio Agreements............................................29
12. CLOSING..................................................................29
13. TERMINATION OF AGREEMENT.................................................30
14. SURVIVAL OF REPRESENTATIONS AND WARRANTIES...............................30
15. INDEMNIFICATION..........................................................30
(a) Tax Indemnification...................................................30
(b) Other Indemnification by Shareholder..................................31
(c) Other Indemnification by the Buyer....................................32
(d) Losses Net of Insurance, etc..........................................32
(e) Termination of Indemnification........................................32
(f) Procedures Relating to Indemnification (Other than Under Section 15(a)32
(g) Procedures Relating to Indemnification of Tax Claims..................33
16. TAX MATTERS..............................................................34
(a) Tax Sharing Agreements................................................34
(b) Returns for Periods Through the Closing Date..........................35
(c) Audits and Notices of Deficiencies....................................35
(d) Section 338(h)(10) Election...........................................35
(e) Allocation of Purchase Price..........................................36
(f) Distribution of Assets................................................36
(g) Cooperation in Tax Matters............................................36
17. BROKERS..................................................................36
18. EXPENSES.................................................................37
19. SUCCESSORS AND ASSIGNS...................................................37
20. NOTICES..................................................................37
21. COMPLETE AGREEMENT.......................................................38
22. SUPPLEMENTS AND SCHEDULES................................................38
23. AMENDMENTS; WAIVERS......................................................38
24. GOVERNING LAW............................................................38
25. INVALID PROVISIONS.......................................................38
26. FURTHER ASSURANCES.......................................................39
27. CAPTIONS.................................................................39
28. COUNTERPARTS.............................................................39
<PAGE>
SCHEDULES
Organization and Existence.................................................4(a)
Qualification to do Business...............................................4(b)
No Conflict with Other Instruments.........................................4(c)
Notices, Consents and Approvals............................................4(d)
Subsidiaries...............................................................4(f)
Compliance with Laws; Permits and Licenses.................................4(g)
Absence of Certain Changes or Events.......................................4(i)
Real and Personal Property.................................................4(j)
Insurance..................................................................4(k)
Tax Matters................................................................4(l)
Claims and Proceedings.....................................................4(m)
Contracts..................................................................4(n)
License Agreements.........................................................4(o)
Transactions with Affiliates...............................................4(p)
Employee Benefit Plans.....................................................4(s)
Relationships with Customers...............................................4(u)
Intellectual Property......................................................4(w)
Banking Matters............................................................4(x)
Full Disclosure............................................................4(z)
Allocation of Purchase Price..............................................16(e)
EXHIBITS
Escrow Agreement.............................................................A
Opinion of Counsel to the Buyer..............................................B
Opinion of Counsel to the Shareholder........................................C
Company Non-Competition Agreement............................................D
Shareholder Non-Competition Agreement........................................E
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT made and entered into as of the 23rd day of
September, 1996, by and between RELIASTAR FINANCIAL CORP., a Delaware
corporation (the "Buyer"), and KINNARD INVESTMENTS, INC., a Minnesota
corporation (the "Shareholder"), which owns all of the issued and outstanding
capital stock of PRIMEVEST FINANCIAL SERVICES, INC., a Minnesota corporation
(the "Company"). The Buyer and the Shareholder are referred to collectively
herein as the "Parties."
WHEREAS, the Shareholder owns beneficially and of record all of the
outstanding shares of capital stock of the Company; and
WHEREAS, subject to and on the terms and conditions contained herein, the
Shareholder desires to sell to the Buyer and the Buyer desires to purchase from
the Shareholder all of the outstanding shares of capital stock of the Company;
NOW THEREFORE, in consideration of the premises, the mutual covenants and
the agreements of the Parties contained herein, and of other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged by
each of the Parties, the Parties do hereby represent, warrant, covenant and
agree as follows:
1. Purchase and Sale of Shares. Subject to and on the terms and conditions
contained herein, and in reliance on the representations and warranties
contained herein, the Buyer hereby agrees to purchase from the Shareholder, and
the Shareholder hereby agrees to sell to the Buyer, at the Time of Closing (as
defined in Section 12 below), all of the outstanding shares of capital stock of
the Company (the "Shares") at the purchase price specified in Section 2 hereof.
2. Purchase Price. The purchase price to be paid by the Buyer for the
Shares and the Shareholder Non-Competition Agreement (as defined in Section
11(i) below) shall be an aggregate of $15,500,000 (the "Purchase Price"). The
Purchase Price shall be payable on the Closing Date (as defined in Section 12
below) in accordance with the provisions of Section 3 hereof.
3. Payment of Purchase Price; Escrow.
(a) Payment at Closing. At the Time of Closing, subject to the terms
and conditions herein contained, the Buyer shall pay by wire transfer of
immediately available funds $14,000,000.
(b) Escrow. At the Closing (as defined in Section 12 below), an escrow
(the "Escrow") shall be established with Resource Trust Company (the
"Escrow Agent"), into which there shall be placed $1,500,000. The Escrow
shall be established pursuant to an agreement among the parties hereto and
the Escrow Agent in the form attached hereto as Exhibit A (the "Escrow
Agreement"). The cash so delivered to the Escrow Agent, any additional cash
placed with the Escrow Agent pursuant to the terms of the Escrow Agreement
and any income earned with respect thereto, all as from time to time held
by the Escrow Agent pursuant to the terms of the Escrow Agreement is herein
referred to as the "Escrow Funds". The Escrow Funds shall be held by the
Escrow Agent in escrow subject to the terms and conditions of the Escrow
Agreement until February 27, 1998, at which time, in accordance with the
terms of the Escrow Agreement, the Escrow Funds, if any, shall be paid to
the Shareholder.
<PAGE>
4. Representations and Warranties Concerning the Company and Its
Subsidiaries. The Shareholder represents and warrants to the Buyer that the
statements contained in this Section 4 are correct and complete as of the date
of this Agreement, except as set forth in the Disclosure Schedule provided
pursuant to the next paragraph hereof. The Shareholder also represents and
warrants to the Buyer that the statements contained in this Section 4 will be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date hereof throughout this Section
4).
On the date hereof, the Shareholder has delivered to the Buyer a disclosure
schedule (the "Disclosure Schedule") listing any exceptions to the
representations and warranties in this Section 4 required for making the
representations and warranties in this Section 4 accurate and complete as of
this date, without regard to any documents or disclosures previously provided to
the Buyer. The Disclosure Schedule describes any such required exceptions in
reasonable detail and is arranged in paragraphs corresponding to the numbered
and lettered paragraphs contained in this Section 4, provided that any
exceptions described in response to one paragraph shall be deemed to be
exceptions to all applicable paragraphs.
(a) Organization and Existence. Each of the Company and its
Subsidiaries (as defined in this Section 4(a)) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. True and correct copies of the articles
of incorporation and bylaws of each of the Company and its Subsidiaries, as
amended to date, and all minutes and actions of the shareholders and
directors of each of the Company and its Subsidiaries have been delivered
or made available to the Buyer, and all actions taken and required to be
taken prior to the date hereof are properly reflected in such minutes and
actions of said shareholders and directors. Set forth in Schedule 4(a)
hereto are true and correct lists of the wholly-owned subsidiaries of the
Company or those corporations controlled, directly or indirectly, by the
Company (individually a "Subsidiary", collectively, "Subsidiaries"). Except
for PrimeVest Insurance Agency of Texas, Inc., PrimeVest Insurance Agency
of Oklahoma, Inc. and PrimeVest Insurance Agency of Ohio, Inc.
(individually sometimes hereinafter referred to as a "Controlled
Subsidiary" or collectively, the "Controlled Subsidiaries") the Company
owns and holds 100% of the issued and outstanding capital stock of each
such Subsidiary. With respect to the Controlled Subsidiaries, the Company,
through valid and enforceable agreements, controls, directly or indirectly,
100% of the issued and outstanding capital stock of each such Controlled
Subsidiary. Set forth in Schedule 4(a) hereto are true and correct lists of
the directors and officers of each of the Company and its Subsidiaries.
(b) Qualification to do Business. Except as set forth in Schedule 4(b)
hereto, each of the Company and its Subsidiaries is duly qualified or
licensed to do business and is in good standing under the laws of each
jurisdiction wherein the nature of its activities or of its properties
owned or leased makes such qualification necessary and failure to be so
qualified or licensed would have a material adverse effect upon the
business of the Company or such Subsidiary.
(c) No Conflicts with Other Instruments. Except as set forth in
Schedule 4(c) hereto, the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will
not (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge or other restriction of any
government, governmental agency or court to which the Company or any of its
Subsidiaries is subject or any provision of the Articles of Incorporation
or Bylaws of the Company or the Articles of Incorporation or Bylaws of any
Subsidiary, or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right
to accelerate, terminate, modify or cancel, or require any notice under any
agreement, contract, lease, license, instrument or other arrangement to
which the Company or any Subsidiary is a party or by which the Company or
any Subsidiary is bound or to which any of the Company's or any
Subsidiary's assets is subject (or result in the imposition of any lien or
other encumbrance upon any of the Company's or any Subsidiary's assets).
<PAGE>
(d) Notices, Consents and Approvals. The Company and each Subsidiary
does not need to give any notice to, make any filing with, or obtain any
authorization, consent or approval of any governmental authority or other
person or entity in order for the Parties hereto to consummate the
transactions contemplated by this Agreement, except requirements arising
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), the Investment Company Act of 1940, as amended (the
"Investment Company Act"), the Investment Advisers Act of 1940, as amended
(the "Investment Advisers Act"), the rules and regulations of the National
Association of Securities Dealers, Inc. (the "NASD") and the Chicago Stock
Exchange, Inc. (the "CSE") and the Permits (as defined in Section 4(g)
below). Set forth in Schedule 4(d) is a list of all Permits and agreements
which require notice, consent or approval prior to the consummation of the
transactions contemplated under this Agreement.
(e) Capitalization. The entire authorized capital stock of the Company
consists of 1,000,000 shares of common stock, par value $10.00 per share,
of which 81,468 shares are issued and outstanding. All of the Shares have
been duly and validly authorized and issued and are fully paid and
nonassessable. There are no outstanding subscriptions, contracts,
conversion privileges, options, warrants, calls or other rights obligating
the Company to issue, sell or otherwise dispose of, or to purchase, redeem
or otherwise acquire, any shares of capital stock of the Company. There is
no outstanding agreement, restriction or encumbrance to which the Company
is a party or by which it is bound (such as a right of first refusal, right
of first offer, option, voting trust, proxy, power of attorney or the like)
with respect to the acquisition, disposition or voting of the Shares.
(f) Subsidiaries. Schedule 4(f) sets forth for each Subsidiary of the
Company (i) its name and jurisdiction of incorporation, (ii) the number of
shares of authorized capital stock of each class of its capital stock,
(iii) the number of issued and outstanding shares of each class of its
capital stock, the names of the holders thereof, and the number of shares
held by each such holder, and (iv) the number of shares of its capital
stock held in treasury. All of the issued and outstanding shares of capital
stock of each Subsidiary of the Company have been duly authorized and are
validly issued, fully paid, and nonassessable. The Company holds or
controls all of the outstanding shares of each Subsidiary of the Company,
free and clear of any restrictions on transfer (other than restrictions
under the Securities Act of 1933, as amended (the "Securities Act") and
state securities laws), options, warrants, purchase rights, contracts,
commitments, equities, claims, and demands of any third party. There are no
outstanding or authorized options, warrants, purchase rights, conversion
rights, exchange rights, or other contracts or commitments that could
require any of the Company and its Subsidiaries to sell, transfer, or
otherwise dispose of any capital stock of any of its Subsidiaries to any
third party or that could require any Subsidiary of the Company to issue,
sell, or otherwise cause to become outstanding any of its own capital stock
to any third party. There are no outstanding stock appreciation, phantom
stock, profit participation, or similar rights with respect to any
Subsidiary of the Company. Other than those agreements set forth in
Schedule 4(f) between the Company and its employees and agents with respect
to the Controlled Subsidiaries, there are no voting trusts, proxies, or
other agreements or understandings with respect to the voting of any
capital stock of any Subsidiary of the Company. Other than equity
securities held from time to time by the Company in the ordinary course of
its business, none of the Company and its Subsidiaries controls, directly
or indirectly, or has any direct or indirect equity participation in any
corporation, partnership, trust or other business association which is not
a Subsidiary of the Company.
<PAGE>
(g) Compliance with Laws; Permits and Licenses. Except as set forth in
Schedule 4(g) hereto, the Company and each Subsidiary is in compliance in
all material respects with all Federal, state, local, territorial or
foreign laws, ordinances and regulations, and all judgments, awards,
orders, writs, injunctions and decrees, with which it is or was required to
comply and has received no notice of any failure to comply which remains
uncorrected. The Company is a registered broker-dealer in every state of
the United States and in the District of Columbia, and except as set forth
in Schedule 4(g) hereto, the Company and each Subsidiary has obtained and
is now in possession of all governmental permits, licenses, approvals,
authorizations, permissions and similar filings including, without
limitation, all registrations, licenses and authorizations required by the
Securities and Exchange Commission (the "SEC"), the Internal Revenue
Service, the Commodity Futures Trading Commission, the NASD, federal or
state banking authorities, state insurance authorities (including those
required of third party administrators), state securities authorities and
the CSE, those relating to environmental laws, occupational safety and
health and equal employment practices (collectively, the "Permits") that
are required for the operation of the business of the Company and each of
its Subsidiaries. Except as set forth in Schedule 4(g) hereto, no notice,
citation, summons or order has been issued, no complaint has been filed and
no penalty has been assessed which is outstanding or has not been resolved
by the Company or any Subsidiary, and no investigation or review is pending
or threatened, by any governmental, self-regulatory or other entity with
respect to the Permits. The Permits are in full force and effect and
provided the notice, consent or approval requirements set forth in Schedule
4(d) are satisfied, the Permits shall not be affected by the consummation
of the transactions contemplated by this Agreement. The Company and its
Subsidiaries have provided access to the Buyer to true, complete and
correct copies of all correspondence between the Company, any Subsidiary
and any regulatory authority during the one year preceding the date of this
Agreement.
(h)Financial Statements. The (i) balance sheets, statements of income
and retained earnings and statements of cash flows for the twelve months
ended December 31, 1994 and 1995 and the balance sheets and statements of
income for the six months ended June 30, 1995 and 1996 for the Company and
its Subsidiaries, and (ii) the FOCUS filings as of June 30, 1996, true,
complete and correct copies of which have been furnished to the Buyer by
the Shareholder, each present fairly the financial position of the Company
and its Subsidiaries on the dates thereof and the results of operations of
the Company and its Subsidiaries for the periods then ended, in conformity
with generally accepted accounting principles applied on a consistent
basis. The Company has made available to the Buyer all the work papers
requested by the Buyer which were used by the Company and its Subsidiaries
or its independent certified public accountants to create such financial
statements. Other than as and to the extent disclosed or reserved against
in the balance sheet dated as of June 30, 1996 (the "Balance Sheet"), the
Company and its Subsidiaries have no liabilities or obligations of any
nature whatsoever (whether accrued, absolute, contingent, asserted,
unasserted or otherwise, whether due or to become due, and whether known or
unknown, including, without limitation, tax liabilities, and whether
incurred in respect of or measured by income for any period up to and
including the Closing Date or arising out of transactions entered into, or
any state of facts existing, prior to or on the Closing Date) except (i)
liabilities and obligations incurred in the ordinary course of business
since the date of the Balance Sheet, (ii) liabilities and obligations set
forth in, or arising under, leases, agreements, contracts or commitments
set forth in any schedule hereto and (iii) liabilities and obligations
which would otherwise be required to be disclosed pursuant to the
representations and warranties set forth in this Section 4 but are not
disclosed by reason of the express exceptions to disclosure included in
this Section 4. The Balance Sheet includes appropriate reserves for all
taxes and other liabilities accrued at the date of the Balance Sheet but
not yet payable.
<PAGE>
(i) Absence of Certain Changes or Events. Except as disclosed in
Schedule 4(i) hereto or agreed to by the Buyer prior to execution of this
Agreement, since the date of the Balance Sheet, (i) neither the Company nor
its Subsidiaries have incurred any obligations or liabilities other than in
the ordinary course of business and have not incurred any indebtedness for
money borrowed; made any loans to or guaranteed any indebtedness of others;
prepaid any indebtedness; changed or modified any existing accounting
method, principle or practice; mortgaged, pledged or subjected to a lien,
charge or encumbrance any of its assets, tangible or intangible; sold,
transferred or otherwise disposed of any of its tangible assets, except for
sales of securities in the ordinary course of business; sold, assigned or
transferred any patents, trademarks, trade names, service marks or other
intangible assets; suffered any business interruption or disruption or
labor disputes, whether or not covered by insurance; entered into or
modified any agreement, contract or commitment outside the ordinary course
of business or involving payments or obligations in excess of $10,000 for
each such agreement, contract or commitment in any month or $100,000 for
all such agreements in the aggregate, or waived any rights of substantial
value; purchased any capital assets for use in the ordinary course of
business of the Company or a Subsidiary in excess of $10,000 in the
aggregate; leased any assets as lessee or lessor; terminated or modified
any lease to which it is a party or by which it is bound, except for
terminations of leases which expired in accordance with their terms;
suffered any destruction of its properties, whether or not covered by
insurance; suffered any material and adverse changes in its business,
management, assets, operations, financial condition or prospects; or
entered into any other transaction other than in the ordinary course of
business; (ii) no dividends or other distributions have been declared, set
aside, made or paid to the Shareholder; (iii) no shares of capital stock of
the Company or any of its Subsidiaries have been purchased, redeemed or
otherwise acquired, directly or indirectly, by the Company from the
Shareholder; (iv) no stocks, bonds or other Shares of the Company or any of
its Subsidiaries, or options or other rights of the type referred to in
Sections 4(e) or 4(f) hereof, have been issued or authorized for issuance;
(v) the Company and its Subsidiaries have not increased or decreased the
compensation of any of their respective officers, directors or employees,
except pursuant to existing compensation plans and practices, and no sums
or other corporate assets have been paid to or withdrawn by the directors
or officers of the Company or its Subsidiaries, except for ordinary
compensation and fees, payments under established compensation or incentive
plans, and ordinary expense reimbursement and similar payments; and (vi)
neither the Company nor any of its Subsidiaries have entered into any
commitment to do any of the foregoing.
(j) Real and Personal Property. Neither the Company nor any of its
Subsidiaries owns any real property. Set forth in Schedule 4(j) hereto is a
complete and accurate list of each parcel of real property leased to the
Company and its Subsidiaries other than real property leased from customers
of the Company or any Subsidiary pursuant to any contract set forth in
Schedule 4(n)(iv) hereto (the "Leased Parcels"). No person or entity has
any rights in, or rights to acquire any interest in, the Company's or any
Subsidiary's interest in any Leased Parcel. There is no pending or
<PAGE>
threatened condemnation or transfer in lieu thereof affecting any Leased
Parcel, or any proposed or pending special assessments against any Leased
Parcel which may give rise to special assessments against such Leased
Parcel and which is not reflected on the Balance Sheet. All leases of real
property held by the Company and each of its Subsidiaries will continue in
full force and effect immediately after the consummation of the
transactions contemplated by this Agreement, and there are no material
disputes pending or threatened under any of such leases. All improvements
on the Leased Parcels and all parts thereof, including, without limitation,
all mechanical, electrical and plumbing systems, roofs and structures, are
in good condition without any defects or deficiencies that would inhibit or
interfere with the operation of the Company's or any Subsidiary's business.
There are no defects or inadequacies in any Leased Parcel or any
improvements thereof which would adversely affect the insurability of such
improvements or the premiums for the insurance thereof. Each of the Leased
Parcels is zoned to permit its current use, without special permit,
condition or other conditional approvals or arrangements of any kind under
applicable zoning laws, and there are no variances, special exceptions,
conditions or agreements pertaining to any Leased Parcel imposed or granted
by any state, county or municipal governmental authority, any neighborhood
or civic group or any similar body. No written notice from any city, county
or other governmental authority has been received by the Company or any
Subsidiary requiring or calling attention to the need for any work, repair,
construction, alteration or installation on, or in connection with, any
Leased Parcel or any improvement thereon. Neither the Company nor any of
its Subsidiaries has received any written notice or communication advising
it of any general or special assessment relating to any Leased Parcel which
is not fully paid. The Leased Parcels have connection to sanitary sewer,
storm sewer, water, electricity, gas, telephone and all other necessary
utilities for their current use and none of the Shareholder, the Company or
any Subsidiary knows of any existing circumstances or conditions which
could result in the termination of such access or connections for any
significant period of time.
The Company and its Subsidiaries have good and marketable title to all
of the personal properties, tangible and intangible, owned by such entity,
including without limitation (except for sales of securities in the
ordinary course of business) the properties reflected on the Balance Sheet
or in the books and records of the Company and its Subsidiaries as being
owned by the Company or a Subsidiary, free and clear of any liens,
mortgages, pledges, encumbrances, defects or other restrictions or rights
of third parties, except such as are reflected on the Balance Sheet or set
forth in Schedule 4(j) hereto. In the case of personal properties used by
the Company or any of its Subsidiaries in connection with its trade or
business, but not owned by it, the Company or a Subsidiary has a valid,
binding and enforceable right to use such properties pursuant to a written
lease, license or other agreement or understanding. All leases of personal
property held by the Company or a Subsidiary will continue in full force
and effect immediately after the consummation of the transactions
contemplated by this Agreement and there are no material disputes pending
or threatened under any of such leases. Except for ordinary wear and tear,
all tangible personal property owned or leased by the Company and its
Subsidiaries is in good operating condition. No representation or warranty
is made herein with respect to trademarks, trade names, service marks,
copyrights or other intellectual property which is the subject of the
representation set forth in Section 4(w) hereof.
(k) Insurance. All insurance policies in force relating to the Company
or any of its Subsidiaries or their respective businesses or assets are
listed in Schedule 4(k) hereto. True and correct copies of all such
policies have been delivered to the Buyer.
<PAGE>
(l) Tax Matters.
(i) Neither the Company nor any of its Subsidiaries has been a
member of an Affiliated Group (as such term is defined in Section 1504
of the Internal Revenue Code of 1986, as amended (the "Code")) filing
a consolidated federal income tax return for any tax year open under
the statute of limitations other than a group the common parent of
which is the Shareholder.
(ii) Each Affiliated Group has filed all income tax returns that
it was required to file for each taxable period during which any of
the Company and its Subsidiaries was a member of the group. All income
taxes owed by an Affiliated Group (whether or not shown on any tax
return) have been paid for each taxable period during which the
Company or any of its Subsidiaries was a member of the group.
(iii) There is no dispute or claim concerning any income tax
liability of any Affiliated Group for any taxable period during which
any of the Company and its Subsidiaries was a member of the group
either (A) claimed or raised by any authority in writing, or (B) as to
which the Shareholder has knowledge. Except as disclosed on Schedule
4(l), no Affiliated Group has waived any statute of limitations in
respect of any income taxes or agreed to any extension of time with
respect to an income tax assessment or deficiency for any taxable
period during which any of the Company and its Subsidiaries was a
member of the group.
(iv) None of the Company and its Subsidiaries has any liability
for the taxes of any person other than the Company and its
Subsidiaries (A) under Reg. ss. 1.1502-6 under the Code (or any
similar provision of state, local or foreign law), (B) as a transferee
or successor, (C) by contract, or (D) otherwise.
(v) The Company and each of its Subsidiaries has timely filed all
Federal, state, county, local and foreign tax returns, information
returns, and estimates required to be filed by it, including but not
limited to those with respect to premiums, withholding, social
security, unemployment, franchise, ad valorem, excise and sales taxes,
and has paid all taxes shown on such returns and all assessments made
against it to the extent such have become due.
(vi) All returns and estimates filed by any Affiliated Group for
any taxable period during which any of the Company and its
Subsidiaries was a member of such group, were complete and accurate in
all material respects. Except as set forth in Schedule 4(l) hereto, no
tax returns filed by any Affiliated Group, the Company or any of its
Subsidiaries have been audited and no claims for additional taxes for
any years have been made by any taxing authority and are pending.
Neither the Shareholder, the Company nor any of its Subsidiaries has
received a notice of deficiency or assessment of additional taxes
which notice or assessment remains unresolved, and no taxing authority
has asserted or, to the best knowledge of the Shareholder, proposed to
assert any deficiency or assessment or has any reasonable basis for
such an assertion or assessment. The Company and each of its
Subsidiaries has not extended the time for assessment or payment of
any tax.
(vii) Proper and accurate amounts have been withheld by the
Company and each of its Subsidiaries from its employees for tax
purposes in compliance with all applicable laws.
(viii) The Company and its Subsidiaries have complied with all
applicable information reporting requirements of the Code, including
preparation and distribution of Form 1099s to each customer.
(ix) Except as set forth in Schedule 4(l) hereto, the Company and
each of its Subsidiaries has collected and/or paid all sales and use
tax due with respect to all periods ended before the date of this
Agreement, and there exists no potential liability for unpaid sales or
use tax assessments with respect to events or transactions occurring
before such date which has not been reserved against on the books and
records of the Company and its Subsidiaries.
(x) The Shareholder has delivered to the Buyer true and correct
copies of all requested Federal and state income tax returns with
respect to the Company and each of its Subsidiaries, together with
true and correct copies of all requested accountants' work papers
relating to the preparation thereof.
<PAGE>
(m) Claims and Proceedings. Except as disclosed in Schedule 4(m)
hereto, (i) there is no legal action, arbitration, proceeding or
investigation pending or threatened against or affecting the Company or any
of its Subsidiaries (nor, to the best knowledge of the Shareholder, the
Company or its Subsidiaries are there any reasonable grounds therefor), and
neither the Company nor any of its Subsidiaries is subject to any
outstanding order, judgment, writ, injunction or decree of any court,
governmental or regulatory authority; (ii) there is no legal action,
arbitration, administrative action, proceeding or investigation pending or
threatened against or affecting the Shareholder (nor, to the best knowledge
of the Shareholder, the Company or any Subsidiary, is there any reasonable
grounds therefor), that could adversely affect the financial condition,
results of operations, assets, business, management or prospects of the
Company or any of its Subsidiaries, taken as a whole, or prevent the
purchase and sale of the Shares; and (iii) neither the Company nor any of
its Subsidiaries has experienced any worker's compensation claims since
July 1, 1994.
(n) Contracts, etc. Except as set forth in Schedule 4(n) hereto and
further except for License Agreements (as defined in Section 4(o) hereof),
neither the Company nor any of its Subsidiaries is a party to or bound by
any:
(i) contract with any labor union or any collective bargaining
agreement;
(ii) bonus, pension, profit sharing, retirement, deferred
compensation, savings, stock purchase, stock option, hospitalization,
insurance or other plan providing similar employee benefits or
compensation;
(iii) employment (exclusive of employment at will without written
agreement), agency, consulting or similar service contract;
(iv) agreement (including brokerage, lease, correspondent, sales
representative or distributorship agreement) for the payment of fees,
commissions, rents or other compensation by the Company or any of its
Subsidiaries;
(v) lease, whether as lessor or lessee, with respect to any
Leased Parcel or personal property;
(vi) contract as licensor or licensee for the license of any
patent, know-how, trademark, trade name, service mark, copyright or
other intangible asset, except for the License Agreements;
(vii) guaranty, suretyship, indemnification or contribution
agreement;
(viii) loan agreement, promissory note or other document
evidencing any indebtedness of or to the Company or any of its
Subsidiaries (other than trade accounts payable or receivable and
other indebtedness incurred in the ordinary course and not for money
borrowed);
(ix) mortgage, security agreement, sale-leaseback agreement or
other agreement which effectively creates (or could, in the future,
create) a lien on any assets of the Company or any of its
Subsidiaries;
(x) contract for the purchase of capital assets or for remodeling
or construction which involves payment of $10,000 or more per year;
<PAGE>
(xi) contract for advertising or promotional services to be
rendered for the Company or any of its Subsidiaries;
(xii) contract concerning confidentiality or restricting the
Company or any of its Subsidiaries from engaging in business or from
competing with any other parties or providing that the Company or any
of its Subsidiaries shall be restricted in any way from selling,
marketing or distributing any product or other merchandise;
(xiii) contract with any officer or director of the Company or
any of its Subsidiaries or the Shareholder or any entity owned, in
whole or in part, directly or indirectly, by any such officer,
director or the Shareholder;
(xiv) purchase or sale order for merchandise or supplies which
(A) was not entered into in the ordinary course of business, involves
payments of $10,000 or more and is not terminable by the Company or
any of its Subsidiaries without cost or penalty upon 30 days' or less
notice, or (B) is a standing or similar order with a remaining term of
more than one year and is not terminable by the Company or any of its
Subsidiaries without cost or penalty upon 30 days' or less notice;
(xv) plan of reorganization;
(xvi) contract involving the acquisition or disposition of
$10,000 or more in assets, other than contracts involving such
acquisitions or dispositions in the ordinary course of the Company's
brokerage business;
(xvii) agreement concerning a partnership, limited liability
company or joint venture;
(xviii) contract under which the consequences of a default or
termination could have a material adverse effect on the financial
condition, results of operations, assets, business or prospects of the
Company or any of its Subsidiaries; or
(xix) any other contract (excluding purchase and sale orders not
required by the terms of the foregoing clauses (xiv) or (xvi) to be
set forth in Schedule 4(n)) not otherwise disclosed in a schedule to
this Agreement which involves payments of $10,000 or more a year and
is not terminable by the Company or any of its Subsidiaries without
cost or penalty upon 30 days' or less notice.
All of the foregoing are hereinafter collectively called "Contracts." To
the extent Contracts are evidenced by documents, true and correct copies
thereof have been delivered or made available to the Buyer unless otherwise
noted in Schedule 4(n). All Contracts are valid, subsisting and legally
binding on the parties thereto.
(o) License Agreements. As set forth in Schedule 4(o) hereto, the
Shareholder has made available to the Buyer true and correct copies of all
license agreements pursuant to which the Company or any of its Subsidiaries
licenses intellectual property disclosed in Schedule 4(w) (collectively,
the "License Agreements"). All such License Agreements are valid,
subsisting and legally binding on the Parties thereto.
<PAGE>
(p) Transactions with Affiliates. Except as set forth in Schedule 4(p)
hereto, none of the Shareholder, its subsidiaries or affiliates, any
director or officer of the Shareholder, its subsidiaries, affiliates, the
Company or any of its Subsidiaries, or any person who is a member of the
immediate family of any such director or officer, (i) has any material
direct or indirect interest, as director, officer, partner, shareholder or
otherwise, in any entity that does business with the Company or any of its
Subsidiaries, or in any property, asset or right which is used by the
Company or any of its Subsidiaries in the conduct of its business, or (ii)
has any contractual relationship with the Company or any of its
Subsidiaries. Set forth in Schedule 4(p) hereto is a list of all agreements
between the Shareholder, its subsidiaries or affiliates and the Company or
any of its Subsidiaries, and a list of all public offerings in which the
Company or any Subsidiary participated as a member of a selling group.
Neither the Company nor any Subsidiary has been an "underwriter" (as such
term is defined under the Securities Act).
(q) No Defaults. Neither the Company nor any of its Subsidiaries is in
default and no event has occurred which, with the lapse of time or the
giving of notice, or both, would constitute a default by the Company or any
of its Subsidiaries, under any lease, indenture, loan agreement, contract,
instrument or other agreement to which it is a party or by which it or any
of its assets is bound. To the best knowledge of the Shareholder, the
Company and its Subsidiaries, all parties with whom the Company or any of
its Subsidiaries has leases or other agreements or contracts are in
compliance in all material respects therewith.
(r) Employment Matters. Except as set forth in Schedule 4(n) hereto,
neither the Company nor any of its Subsidiaries is, nor has the Company nor
any of its Subsidiaries ever been a party to any collective bargaining
agreement. Neither the Company nor any of its Subsidiaries is subject to
any unfair labor practice charge, work stoppage, picketing union organizing
campaign or other similar activity. The Company and each of its
Subsidiaries is in compliance in all material respects with all
requirements of applicable Federal, state and local laws and regulations
governing employee relations, including but not limited to,
anti-discrimination laws, wage/hour laws, labor relations laws and
occupational safety and health laws. Set forth in Schedule 4(m) is a
summary of all claims, notices or demands asserted by any person against
the Company or any of its Subsidiaries with respect to the violation of any
such laws. Neither the Company nor any of its Subsidiaries has engaged in
any workforce reduction or other action which has resulted or could result
in liability under the Workers Adjustment and Retraining Notification Act
and has not issued any notice that any such action is to occur in the
future. The Company and each of its Subsidiaries is in compliance with all
applicable requirements of the Immigration Reform and Control Act and has
in its file properly completed copies of Form I-9 for all employees to whom
that requirement applies.
(s) Employee Benefit Plans.
(i) Schedule 4(s) lists each employee pension, retirement, profit
sharing, stock bonus, stock option, stock purchase, bonus, incentive,
deferred compensation, hospitalization, medical, dental, vision,
vacation, insurance, sick pay, disability, severance, or other plans,
funds, programs, policies, contracts or arrangements, including
without limitation any Employee Benefit Plan (as defined in this
Section 4(s)), that the Company and each of its Subsidiaries maintains
or to which the Company or any of its Subsidiaries contributes or in
which any current or former employee of the Company or any of its
Subsidiaries has accrued any benefits which they remain entitled to
receive.
(A) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in
all respects with the applicable requirements of ERISA (as
defined in this Section 4(s)), the Code, and other applicable
laws.
(B) All required reports and descriptions (including Form
5500 Annual Reports, Summary Annual Reports, PBGC-1's, and
Summary Plan Descriptions) have been filed or distributed
appropriately with respect to each such Employee Benefit Plan.
The requirements of Part 6 of Subtitle B of Title I of ERISA and
of Section 4980B of the Code have been met with respect to each
such Employee Benefit Plan which is an Employee Welfare Benefit
Plan (as defined in this Section 4(s)).
<PAGE>
(C) All contributions (including all employer contributions
and employee salary reduction contributions) which are due have
been paid to each such Employee Benefit Plan which is an Employee
Pension Benefit Plan (as defined in this Section 4(s)) and all
contributions for any period ending on or before the time of
closing which are not yet due have been paid to each such
Employee Pension Benefit Plan or accrued in accordance with the
past custom and practice of the Company or any of its
Subsidiaries. All premiums or other payments for all periods
ending on or before the time of closing have been paid with
respect to each such Employee Benefit Plan which is an Employee
Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which is an Employee
Pension Benefit Plan meets the requirements of a "qualified plan"
under Section 401(a) of the Code and has received, within the
last two years, a favorable determination letter from the
Internal Revenue Service.
(E) The market value of assets under each such Employee
Benefit Plan which is an Employee Pension Benefit Plan (other
than any Multiemployer Plan (as defined in this Section 4(s)))
equals or exceeds the present value of all vested and nonvested
liabilities thereunder determined in accordance with PBGC (as
defined in this Section 4(s)) methods, factors and assumptions
applicable to an Employee Pension Benefit Plan terminating on the
date for determination.
(F) The Shareholder has delivered to the Buyer correct and
complete copies of all plan documents and summary plan
descriptions, the most recent determination letter received from
the Internal Revenue Service, if any, the most recent Form 5500
Annual Report, if any, and all related trust agreements,
insurance contracts and other funding agreements which implement
each such plan.
(ii) With respect to each Employee Benefit Plan that the Company,
each Subsidiary, and the Controlled Group of Corporations (as defined
in this Section 4(s)) which includes the Company or any of its
Subsidiaries maintains or ever has maintained or to which any of them
contributes, ever has contributed, or ever has been required to
contribute:
(A) No such Employee Benefit Plan which is an Employee
Pension Benefit Plan (other than any Multiemployer Plan) has been
completely or partially terminated or been the subject of a
Reportable Event (as defined in this Section 4(s)) as to which
notices would be required to be filed with the PBGC. No
proceeding by the PBGC to terminate any such Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been
instituted or, to the knowledge of the Shareholder, the Company
and its Subsidiaries, threatened.
(B) There have been no Prohibited Transactions (as defined
in this Section 4(s)) with respect to any Employee Benefit Plan.
No Fiduciary (as defined in this Section 4(s)) has any liability
for breach of fiduciary duty or any other failure to act or
comply in connection with the administration or investment of the
assets of any Employee Benefit Plan. No action, suit, proceeding,
hearing, or investigation with respect to the administration or
the investment of the assets of any plan (other than routine
claims for benefits) is pending or, to the knowledge of the
Shareholder, the Company and its Subsidiaries, threatened.
<PAGE>
(C) Neither the Company nor any of its Subsidiaries has
incurred, and the Shareholder, the Company, and each Subsidiary
has no reason to expect that the Company or any of its
Subsidiaries will incur, any liability to the PBGC (other than
PBGC premium payments) or otherwise under Title IV of ERISA
(including any withdrawal liability) or under the Code with
respect to any such Employee Benefit Plan which is an Employee
Pension Benefit Plan.
(iii) Neither the Company, any of its Subsidiaries or any other
member of the Controlled Group of Corporations that includes the
Company or any of its Subsidiaries contributes to, ever has
contributed to, or ever has been required to contribute to any
Multiemployer Plan or has any liability (including withdrawal
liability) under any Multiemployer Plan.
(iv) Neither the Company nor any of its Subsidiaries maintains
and has never maintained or contributed, or ever has been required to
contribute to any Employee Welfare Benefit Plan providing medical,
health or life insurance or other welfare-type benefits for current or
future retired or terminated employees, their spouses or their
dependents (other than in accordance with Section 4980B of the Code).
(v) For purposes of this Agreement:
(A) "Fiduciary" has the meaning set forth in ERISA Sec.
3(21).
(B) "Controlled Group of Corporations" has the meaning set
forth in Section 1563 of the Code.
(C) "Employee Benefit Plan" means any (a) nonqualified
deferred compensation or retirement plan or arrangement which is
an Employee Pension Benefit Plan, (b) qualified defined
contribution retirement plan or arrangement which is an Employee
Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including
any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or
material fringe benefit plan or program.
(D) "Employee Pension Benefit Plan" has the meaning set
forth in ERISA Sec. 3(2).
(E) "Employee Welfare Benefit Plan" has the meaning set
forth in ERISA Sec. 3(1).
(F) "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
(G) "Multiemployer Plan" has the meaning set forth in ERISA
Sec. 3(37).
(H) "PBGC" means the Pension Benefit Guaranty Corporation.
(I) "Prohibited Transaction" has the meaning set forth in
ERISA Sec. 406 and Code Sec. 4975.
(J) "Reportable Event" has the meaning set forth in ERISA
Sec. 4043.
<PAGE>
(t) Notes and Accounts Receivable. All notes and accounts
receivable of the Company and its Subsidiaries are reflected properly
in the books and records of the Company, are valid receivables subject
to no setoffs or counterclaims, are current and collectable and will
be collected in accordance with their terms and their recorded amount
subject to the reserve for bad debts.
(u) Relationships with Customers. To the best knowledge of the
Shareholder, the Company and its Subsidiaries, the relationship of the
Company and each of its Subsidiaries with its current customers is
satisfactory. Set forth in Schedule 4(u) is a list of any claims for
indemnification against the Company or any of its Subsidiaries by its
customers.
(v) Guaranties. Neither the Company nor any of its Subsidiaries
is a guarantor or otherwise liable for any liability or obligation
(including indebtedness) of any other person.
(w) Intellectual Property. Set forth in Schedule 4(w) hereto is a
list of all patents (including applications therefor), trademarks,
trade names, service marks and copyrights owned or licensed by the
Company or any of its Subsidiaries. Except as set forth in Schedule
4(w) hereto, the Company and each of its Subsidiaries (i) owns or has
the right to use, as currently being used, free and clear of all
liens, restrictions and claims, all patents, trademarks, trade names,
service marks and copyrights used in the conduct of its business, (ii)
is not obligated or under any liability whatsoever to make any
payments of a material nature by way of royalties, fees or otherwise
to any owner of, licensor of, or other claimant to, any patent,
trademark, trade name, copyright or other intangible asset, with
respect to the use thereof or in connection with the conduct of its
business or otherwise, (iii) owns or has the right to use, as
currently being used, all trade secrets, including know-how,
inventions, designs, processes, computer programs and technical data
necessary to the development, operation and sale of all products and
services sold by it, free and clear of any rights, liens or claims of
others, and (iv) is not using any proprietary confidential information
or trade secrets of others so as to give rise to a claim by others.
Neither the Company nor any of its Subsidiaries has received notice
with respect to infringing upon or otherwise acting adversely to any
right or claimed right of any person under or with respect to any
patents, trademarks, service marks, trade names, copyrights, licenses
or rights with respect to the foregoing.
(x) Banking Matters, etc. Set forth in Schedule 4(x) hereto is a
true and correct copy of the name of each bank in which the Company or
any of its Subsidiaries has an account or safe deposit box and the
names of all persons authorized to draw thereon or having access
thereto. Except as set forth in Schedule 4(x) hereto, no persons hold
powers of attorney from the Company or any of its Subsidiaries.
(y) Environmental Matters. To the best knowledge of the
Shareholder, neither the Company nor any of its Subsidiaries are in
violation of any applicable statute, law or regulation relating to the
environment and no material expenditures are or will be required in
order to comply with any such existing statute, law or regulation. The
operations of the Company and its Subsidiaries do not involve any
asbestos, urea-formaldehyde foamed-in-place insulation, polyclorinated
biphenyls ("PCBs") or any other hazardous substances or materials
including, but not limited to, hazardous substances or materials under
the Comprehensive Environmental Response, Compensation and Liability
Act, as amended by the Superfund Amendments and Reauthorization Act,
the Resource Conservation and Recovery Act, the Minnesota
Environmental Response and Liability Act, or any other federal, state
or local statute, regulation, code or ordinance.
(z) Full Disclosure. No representation or warranty contained in
this Section 4 contains any untrue statement of a material fact, or
omits any material fact necessary to make the representations and
warranties contained herein not misleading.
<PAGE>
5. Representations and Warranties of the Shareholder. The Shareholder
represents and warrants to the Buyer as follows:
(a) The Shares. The Shareholder holds of record and owns
beneficially all of the Shares, free and clear of any liens, charges,
pledges, encumbrances, defects, restrictions or rights of third
parties. As of the Closing Date (as a result of the sale and transfer
of the Shares by the Shareholder to the Buyer pursuant to this
Agreement), the Buyer will receive title to the Shares free and clear
of any liens, charges, pledges, encumbrances, defects, restrictions or
rights of third parties.
(b) Organization and Existence. The Shareholder is a corporation
duly organized, validly existing and in good standing under the laws
of the State of Minnesota.
(c) Authorization; Execution and Delivery. The Shareholder has
full power and authority to execute and deliver this Agreement and to
perform the Shareholder's obligations hereunder. This Agreement has
been duly authorized by all necessary corporate action on behalf of
the Shareholder, and, when executed and delivered by an authorized
officer of the Shareholder will be a legal, valid and binding
agreement upon the part of the Shareholder, enforceable against the
Shareholder in accordance with its terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the enforcement of creditors'
rights generally and judicial limitations on the enforcement of the
remedy of specific performance and other equitable remedies.
(d) No Conflicts with Other Instruments. The execution, delivery
and performance of this Agreement and the consummation of the
transactions contemplated hereby will not (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge or other restriction of any government,
governmental agency or court to which the Shareholder is subject or
any provision of the Articles of Incorporation or Bylaws of the
Shareholder, or (ii) conflict with, result in a breach of, constitute
a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify or cancel, or require any
notice under any agreement, contract, lease, license, instrument or
other arrangement to which the Shareholder is a party or by which the
Shareholder is bound or to which any of the Shares are subject (or
result in the imposition of any lien or other encumbrance upon any of
the Shares).
(e) Notices, Consents and Approvals. Except for requirements
arising under the HSR Act, the Investment Company Act, the Investment
Advisers Act, the rules and regulations of the SEC, the Internal
Revenue Service, the Commodity Futures Trading Commission, the NASD
and the CSE, and applicable federal and state banking, insurance and
securities rules and regulations, no authorization, approval or
consent of, or, filings with, any governmental authority or other
person or entity is required in connection with the execution,
delivery and performance by the Shareholder of this Agreement.
(f) Claims and Proceedings. There is no legal action,
arbitration, proceeding or investigation pending or threatened against
or affecting the Shareholder (nor are there any reasonable grounds
therefor), that could adversely affect or prevent the purchase and
sale of the Shares.
6. Representations and Warranties of the Buyer. The Buyer represents and
warrants to the Shareholder as follows:
(a) Organization and Existence. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware.
(b) Authorization, Execution and Delivery. The Buyer has full
power and authority to execute and deliver this Agreement and to
perform the Buyer's obligations hereunder. This Agreement has been
duly and validly authorized by all necessary corporate action on
behalf of the Buyer, and, when executed and delivered by an authorized
officer of the Buyer will be a valid and binding agreement upon the
part of the Buyer, enforceable against the Buyer in accordance with
its terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency, moratorium, reorganization or similar laws
affecting the enforcement of creditors' rights generally and judicial
limitations on the enforcement of the remedy of specific performance
and other equitable remedies.
<PAGE>
(c) No Conflicts with Other Instruments. The execution, delivery
and performance of this Agreement will not (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge or other restriction of any government,
governmental agency or court to which the Buyer is subject or any
provision of the Certificate of Incorporation or Bylaws of the Buyer,
or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice under
any agreement, contract, lease, license, instrument or other
arrangement to which the Buyer is a party or by which the Buyer is
bound.
(d) Notices, Consents and Approvals. Except for requirements
arising under the HSR Act, the Investment Company Act, the Investment
Advisers Act, the rules and regulations of the SEC, the Internal
Revenue Service, the Commodity Futures Trading Commission, the NASD
and the CSE, and applicable federal and state banking, insurance and
securities rules and regulations, no authorization, approval or
consent of, or, filings with, any governmental authority or other
person or entity is required in connection with the execution,
delivery and performance by the Buyer of this Agreement.
(e) Claims and Proceedings. There is no legal action,
arbitration, or governmental proceeding or investigation pending or
threatened against or affecting the Buyer that could adversely affect
or prevent the purchase and sale of the Shares.
(f) Investment Intent. The Buyer is acquiring the Shares for its
own account for investment and not with a view to any resale or
distribution thereof such as would require registration under Section
5 of the Securities Act.
7. Covenants Concerning the Company and its Subsidiaries. The Shareholder
covenants and agrees with the Buyer as follows:
(a) Normal Course of Business. From the date hereof until the
Time of Closing, the Shareholder will cause the Company and each of
its Subsidiaries to maintain its corporate existence in good standing;
maintain the general character of its business and proper business and
accounting records; maintain its tangible properties in good repair
and condition, ordinary wear and tear excepted; maintain all presently
existing insurance coverage under which it is a beneficiary; use its
best efforts to preserve its business organization intact, to keep the
services of its present principal employees and to preserve its good
will and the good will of its suppliers, customers and others having
business relationships with it; pay its trade payables in a manner
consistent with past business practice; and in all other respects
conduct its business in the usual and ordinary manner.
<PAGE>
(b) Actions Prior to Closing. From the date hereof until the Time
of Closing, the Shareholder will not permit the Company or any of its
Subsidiaries (without the prior consent of the Buyer) to amend or
otherwise modify its Articles of Incorporation (other than an
amendment to the Articles of Incorporation to change the par value of
the common stock of the Company from $0.01 per share to $10.00 per
share), Bylaws or any other contract set forth in Schedule 4(n) hereto
other than in the ordinary course of business or as required by
regulatory agencies to whose regulatory oversight the Company or any
of its Subsidiaries are subject; make any changes affecting its
banking or safe deposit arrangements; merge or consolidate with, or
sell all or substantially all of its assets to, any other person or
corporation; acquire any other business; take any of the actions
described in Section 4(i) hereof; enter into any other transaction
other than in the ordinary course of business; or enter into any
commitment to do any of the foregoing. Notwithstanding anything to the
contrary in this Section 7(b), on or prior to the Closing Date, the
Shareholder shall (i) cause the Company to distribute 15,500 shares of
common stock of Techne Corporation and 8,000 shares of common stock of
Medtronic Inc. to the Shareholder, and (ii) cause the Company to
repay, in full, all outstanding indebtedness including accrued
interest of the Company or any Subsidiary to the Shareholder or any of
its subsidiaries and affiliates, including without limitation, (A) the
subordinated note due May 31, 1997 of the Company in the original
principal amount of $300,000, (B) the promissory note due December 31,
1996 of the Company in the original principal amount of $700,000, and
(C) the promissory note due December 31, 1996 of the Company in the
original principal amount of $2,000,000.
(c) Access to Properties and Records. From the date hereof
through the Closing Date, the Shareholder shall cause the Company and
each of its Subsidiaries to permit the Buyer and its representatives
reasonable access during regular business hours to the properties of
the Company and each of its Subsidiaries and shall make its management
and other employees and agents and authorized representatives
(including counsel and independent public accountants), as well as
those of the Company and its Subsidiaries, available to confer with
the Buyer and its representatives regarding the Company or any of its
Subsidiaries, and the Shareholder shall, and shall cause the Company
and each of its Subsidiaries to, disclose and make available to the
Buyer, and shall use its best efforts to cause the agents and
authorized representatives of the Shareholder, the Company and each of
its Subsidiaries to disclose and make available to the Buyer, all
books, papers and records of the Shareholder, the Company or any
Subsidiary relating to the assets, properties, operations, obligations
and liabilities of the Company and each of its Subsidiaries, including
but not limited to all books of account (including the general
ledger), financial statements, tax records, tax returns, minute books
of meetings of directors, committees and shareholders, organizational
documents, bylaws, contracts and agreements, loan files, filings with
any regulatory authority, accountants' work papers, litigation files,
employment agreements or employee plans affecting employees and any
other business activities or prospects of the Company and each of its
Subsidiaries, as the Buyer may from time to time reasonably request;
provided, however, that no such access or disclosure shall in any way
affect, diminish or terminate any of the representations, warranties
or covenants of the Shareholder herein expressed.
<PAGE>
(d) Employee Benefit Matters.
(i) Qualified Plans. The Shareholder shall retain all
liabilities and obligations in respect to benefits accrued by
Acquired Employees (as defined in Section 9(d)) prior to the
Closing Date under (A) the John G. Kinnard and Company,
Incorporated Profit Sharing and Savings Plan, (B) the John G.
Kinnard and Company, Incorporated Pension Plan, and (C) the John
G. Kinnard and Company, Incorporated Employee Stock Ownership
Plan (collectively, the "Kinnard Qualified Plans"). The Acquired
Employees ongoing accrual of benefits under the Kinnard Qualified
Plans shall cease as of the Closing Date (i.e., the Acquired
Employees' benefits under the Kinnard Qualified Plans shall be
"frozen" as of the Closing Date), with the exception that,
notwithstanding the purchase and sale of the Shares, Acquired
Employees shall nevertheless be entitled to receive a pro rata
share of any profit sharing, money purchase, or ESOP
contributions made by the Shareholder to the Kinnard Qualified
Plans attributable to the plan year in which the Closing occurs,
to be calculated based upon the covered compensation paid for
such Acquired Employees, during the portion of the plan year the
Acquired Employees were in the Shareholder controlled group
(i.e., through the Closing Date). The Kinnard Qualified Plans
shall be amended to allow the Acquired Employees to receive such
a pro rata share of employer contributions. The Shareholder shall
timely take whatever corporate action is necessary to freeze
benefit accruals under the Kinnard Qualified Plans and shall
timely provide any notices required regarding the cessation of
benefit accruals under the Kinnard Qualified Plans, and the
Shareholder shall cause each Acquired Employee to become 100%
vested in the Acquired Employee's accounts in the Kinnard
Qualified Plans as of the Closing Date. As soon as practicable
after the Closing Date, after the receipt of any pro rata share
of employer contributions for the year, and after receipt of
favorable determination letters from the Internal Revenue Service
regarding the amended Kinnard Qualified Plans, the Shareholder
shall take such action as may be necessary, if any, to allow the
Kinnard Qualified Plans to make immediate distributions of each
Acquired Employee's full account balances in the Kinnard
Qualified Plans to said Acquired Employee. Each Acquired Employee
shall be given the right to elect to receive his or her full
account balances in the Kinnard Qualified Plans in cash, or to
elect a tax-free rollover of the taxable portion of his or her
account balances to the ReliaStar Success Sharing Plan (the
"ReliaStar Plan") or to an individual retirement account (said
tax-free rollover constituting a "Direct Rollover" within the
meaning of Section 401(a)(31)) of the Code. The Shareholder and
the Buyer shall work together in order to facilitate any such
distribution or rollover, and to effect a Direct Rollover for
those Acquired Employees who elect to rollover their account
balances directly into the ReliaStar Plan; provided, however,
that nothing contained herein shall obligate the ReliaStar Plan
to accept a Direct Rollover in a form other than cash.
(ii) Other Employee Plans and Benefit Arrangements.
(A) The Shareholder shall retain all obligations and
liabilities under its employee benefit arrangements in
respect of any employee or prior employee of the Company or
its Subsidiaries (including any beneficiary or dependent
thereof) who is not an Acquired Employee. In addition, the
Shareholder shall retain all obligations and liabilities for
continuation coverage under its employee benefits
arrangements arising under the Consolidated Omnibus Budget
Reconciliation Act of 1985 or any similar federal, state or
local law or regulation with respect to any employee, former
employee or dependent thereof (including any dependent of an
Acquired Employee but not including any Acquired Employee)
which relates to any "qualifying event" as defined in
Section 4980B of the Code (or any similar occurrence as
defined under state or local law) that occurred on or prior
to the Closing Date.
<PAGE>
(B) With respect to Acquired Employees, the Shareholder
shall retain all obligations and liabilities relating to or
arising under its employee benefit arrangements which are
attributable to claims incurred or benefits accrued or
otherwise payable on or prior to the Closing Date. The
liabilities retained by the Shareholder under this
subsection include, but are not limited to (i) in the case
of medical or dental plans, liabilities incurred with
respect to services performed for Acquired Employees or
their dependents on or prior to the Closing Date, (ii) in
the case of life insurance plans, liabilities payable with
respect to any person who dies on or prior to the Closing
Date, (iii) in the case of workers compensation, liabilities
relating to claims asserted on or prior to the Closing Date,
and (iv) in the case of an Acquired Employee who, on the
Closing Date, is absent by reason of short term disability
and after the Closing Date becomes eligible for long term
disability benefits, liabilities under the long term
disability plan of the Shareholder, and liabilities under
other employee benefit arrangements attributable to claims
incurred or benefits accrued after such Acquired Employee
has become eligible for such long term disability benefits.
(C) The Buyer shall be responsible for all claims for
severance benefits or wrongful termination claims made by
Acquired Employees who are discharged by the Buyer, the
Company or any of its Subsidiaries after the Closing Date.
In addition, the Shareholder shall have no obligations with
respect to any acts or omissions of the Buyer, the Company
or any Subsidiary (and their respective officers, agents and
employees) relating to Acquired Employees which occur after
the Closing Date.
(e) Employee Bonuses. In addition to the obligations of the
Shareholder set forth in Section 8(e) and the obligations of the Buyer set
forth in Section 9(d)(iii), on or prior to the Closing Date, the
Shareholder shall cause the Company to pay an aggregate of $150,000 to the
employees of the Company and its Subsidiaries designated by the President
and Chief Executive Officer of the Company in such amounts as such officer
shall determine.
8. Covenants of the Shareholder. The Shareholder covenants and agrees with
the Buyer as follows:
(a) Compliance with HSR Act; Approvals, Consents and Other Matters.
The Shareholder will use all reasonable efforts necessary on the part of
the Shareholder to (i) file as promptly as possible and in any event within
five days after the date of this Agreement with the Department of Justice
and the Federal Trade Commission any premerger notification required of it
under the HSR Act, (ii) respond promptly to any inquiries from the
Department of Justice or the Federal Trade Commission in connection with
the transactions contemplated hereby and (iii) obtain the earliest possible
termination or waiver of any applicable HSR Act waiting period. The
Shareholder, its subsidiaries and affiliates, including, without
limitation, the Company and its Subsidiaries, will take all necessary
action and use their best efforts to obtain any approvals of regulatory
authorities, consents and other approvals required to carry out the
transactions contemplated by this Agreement, and will cooperate with the
Buyer to obtain all such approvals and consents. The Shareholder will use
its best efforts to satisfy at or before the Time of Closing each of the
other conditions set forth in Section 11 hereof.
(b) Confidentiality. The Shareholder will hold in strict confidence,
and will cause the Company and each of its Subsidiaries to hold in strict
confidence, all documents and information concerning the Buyer furnished to
the Shareholder, the Company, any of its Subsidiaries and their respective
representatives in connection with the transactions contemplated by this
Agreement and will not release or disclose such information to any other
person, except as required by law, and except to its accountants, attorneys
and personnel in connection with this Agreement, with the same undertaking
from such accountants, attorneys and personnel. Regardless of whether the
transactions contemplated by this Agreement shall be consummated, such
confidence shall be maintained and such information shall not be used in
competition with the Buyer and all such documents shall immediately after
the Closing or the termination of this Agreement, as the case may be, be
returned to the Buyer. Notwithstanding the foregoing, such information
shall not be considered confidential if it (i) was already in the
Shareholder's, Company's or Subsidiary's possession, (ii) is or becomes
generally available to the public other than as a result of disclosure by
the Shareholder, the Company, any Subsidiary or their respective
representatives, (iii) becomes available to any of the Shareholder, the
Company, Subsidiary or respective representatives on a non-confidential
basis from a source other than the Buyer, provided such source is not and
was not bound by a confidentiality agreement with the Buyer, or (iv) is
independently developed by the Shareholder or the Company through persons
who have not had, directly or indirectly, access to any non-public
information.
<PAGE>
(c) Transactions Relating to Company or Shares. From and after the
date hereof until the Time of Closing, the Shareholder, its affiliates and
subsidiaries shall not, directly or indirectly, through any director,
officer, employee, agent, representative or otherwise (i) solicit,
initiate, encourage and approve, or discuss, participate in negotiations or
discussions or provide any information about the Company or any of its
Subsidiaries with respect to any inquiries or proposals for, a merger or
other business combination involving the Company or any of its Subsidiaries
or for the acquisition of a substantial equity interest in, or a
substantial portion of the assets, of the Company or any of its
Subsidiaries (any of the foregoing being herein called an "Acquisition
Proposal"), or (ii) agree or agree in principle to any Acquisition
Proposal. The Shareholder shall advise the Buyer of the receipt of any
unsolicited Acquisition Proposal and the details thereof within 24 hours of
the receipt thereof. From and after the date hereof until the Time of
Closing, the Shareholder will not enter into (directly or indirectly) any
discussions, negotiations or agreements to, sell, transfer, pledge,
encumber or otherwise dispose of any of the Shares, except pursuant to this
Agreement, or to restrict in any way the ability of the Shareholder to sell
the Shares to the Buyer on the Closing Date.
(d) Release of Information. Neither the Shareholder nor the Company
and its Subsidiaries will release any information to the public concerning
this Agreement or the transactions contemplated herein without the prior
written consent of the Buyer; provided, however, that nothing contained
herein shall prevent the Shareholder, the Company or any of its
Subsidiaries from disclosing any information required to be disclosed in
accordance with any law, regulation or order of a court or regulatory
agency of competent jurisdiction, or any rule of the NASD, provided that
the Shareholder agrees to provide the Buyer with prompt written notice of
the Shareholder's, the Company's or any Subsidiaries' intention to make
such a disclosure.
(e) Executive Bonuses. In addition to the obligations of the
Shareholder set forth in Section 7(e) and the obligations of the Buyer set
forth in Section 9(d)(iii), on or prior to the Closing Date, the
Shareholder shall pay, or cause the Company to pay, an aggregate of
$100,000 to a group of individual executive employees of the Company and
its Subsidiaries designated by the Shareholder in such amounts and to such
persons as the Shareholder shall determine.
(f) Business Practices.
(i) Research Reports. The Shareholder agrees, from the date
hereof through a period ending 90 days following the Closing Date, to
continue the Shareholder's or its subsidiaries' or affiliates'
practice of distributing all Research Reports (as hereinafter defined)
to the Company, in the same manner and on the same terms as the
Shareholder, its subsidiaries and affiliates currently distribute such
Research Reports to the Company. "Research Reports" shall mean all
research data and reports created or prepared by the Shareholder or
any of its subsidiaries or affiliates, in connection with the sale,
distribution and marketing of financial services products, brokerage
services and/or the competitive equivalents thereof, including,
without limitation, stocks, bonds, mutual funds, margin contracts,
insurance products, limited partnership interests or securities, in
the ordinary course of business.
(ii) Prime Portfolio. The Shareholder agrees to execute, or cause
its subsidiary, as appropriate, to execute, agreements, mutually
satisfactory to the Shareholder, the Company and the Buyer, with
respect to the Prime Portfolio services and fee arrangements currently
in effect between a subsidiary of the Shareholder and the Company.
(iii) Inter-company agreements. Subject to the provisions of
Sections 8(f)(i) and (ii) and any other written agreements mutually
satisfactory to the Shareholder, the Company and the Buyer, on or
prior to the Closing Date, the Shareholder agrees to terminate, and
cause its subsidiaries, if appropriate, to terminate the agreements
between the Shareholder, its subsidiaries and the Company set forth in
Schedule 4(p)(IV) hereto.
<PAGE>
9. Covenants of the Buyer. The Buyer covenants and agrees with the
Shareholder as follows:
(a) Confidentiality. The Buyer will hold in strict confidence all
documents and information concerning the Shareholder, the Company or any of
its Subsidiaries furnished to the Buyer and its representatives in
connection with the transactions contemplated by this Agreement and will
not release or disclose such information to any other person, except as
required by law, and except to its accountants, attorneys and personnel in
connection with this Agreement, with the same undertaking from such
accountants, attorneys and personnel. In the event of termination of this
Agreement, such confidence shall be maintained and such information shall
not be used in competition with the Shareholder, the Company or any of its
Subsidiaries and all such documents shall immediately be returned to the
Shareholder. Notwithstanding the foregoing, such information shall not be
considered confidential if it (i) was already in the Buyer's possession,
(ii) is or becomes generally available to the public other than as a result
of disclosure by the Buyer or its representatives, (iii) becomes available
to any of the Buyer or its representatives on a non-confidential basis from
a source other than the Shareholder, the Company or any of its
Subsidiaries, provided that such source is not and was not bound by a
confidentiality agreement with the Shareholder, the Company or any of its
Subsidiaries, or (iv) is independently developed by the Buyer through
persons who have not had, directly or indirectly, access to any non-public
information.
(b) Compliance with HSR Act; Approvals, Consents and Other Matters.
The Buyer will use all reasonable efforts to (i) file as promptly as
possible and in any event within five days after the date of this Agreement
with the Department of Justice and the Federal Trade Commission any
premerger notification required of it under the HSR Act, (ii) respond
promptly to any inquiries from the Department of Justice or the Federal
Trade Commission in connection with the transactions contemplated hereby,
and (iii) obtain the earliest possible termination or waiver of any
applicable HSR Act waiting period. The Buyer will take all necessary action
and use its best efforts to obtain any approvals of regulatory authorities,
consents and other approvals required to carry out the transactions
contemplated by this Agreement, and will cooperate with the Shareholder to
obtain all such approvals and consents. The Buyer will use its best efforts
to satisfy at or before the Time of Closing each of the conditions set
forth in Section 10 hereof.
(c) Release of Information. The Buyer will not release information to
the public concerning this Agreement or the transactions contemplated
herein without the prior written consent of the Shareholder; provided,
however, that nothing contained herein shall prevent the Buyer from
disclosing any information required to be disclosed in accordance with any
law, regulation or order of a court or regulatory agency of competent
jurisdiction, or any rule of the New York Stock Exchange, provided that the
Buyer agrees to provide the Shareholder with prompt written notice of the
Buyer's intention to make such a disclosure.
(d) Employee Benefit Matters.Toc367519863_Toc368108266(d)
(i) Employee Benefits. With respect to individuals who, as of the
Closing Date, are employed by the Company or its Subsidiaries
("Acquired Employees"), the Buyer shall cause the Company and each of
its Subsidiaries to continue the employment of each such Acquired
Employee on the Closing Date, provided that nothing stated herein
shall limit the right of the Buyer, the Company or its Subsidiaries to
terminate the employment of any Acquired Employee following the
Closing Date or to reduce or otherwise modify the position,
responsibilities, compensation or benefits of any Acquired Employee at
any time.
(ii) Third Party Beneficiaries. No provision of this Section 9(d)
shall create any third party beneficiary rights in any employee or
former employee of the Shareholder, the Company or any of its
Subsidiaries (including any beneficiary or dependent thereof) in
respect of continued employment or resumed employment, and no
provision of this Section 9(d) shall create any rights in any such
persons in respect of any benefits that may be provided, directly or
indirectly, under any employee benefit plan or arrangement.
(iii) Executive Bonuses. In addition to the obligations of the
Shareholder set forth in Sections 7(e) and 8(e), the Buyer shall (A)
within three years of the Closing Date, pay an aggregate of $150,000
to a group of individual executive employees of the Company and its
Subsidiaries as determined by the Buyer, and (B) consider the payment
of an additional bonus in cash, options or other property (in an
amount to be determined by the Buyer) to a group of individual
executive employees of the Company and its Subsidiaries in
consideration of their continuation in employment to a date or dates
subsequent to the Closing Date established by the Buyer.
<PAGE>
10. Conditions Precedent to Obligations of the Shareholder. The obligations
of the Shareholder to perform and observe the covenants, agreements and
conditions hereof to be performed and observed by it at or before the Time of
Closing shall be subject to the satisfaction at or before the Time of Closing of
the following conditions, any one or more of which may be waived by the
Shareholder:
(a) Representations and Warranties of the Buyer Correct. The
representations and warranties contained in Section 6 hereof shall be true
and correct in all material respects as of the Time of Closing as though
such representations and warranties had been made on and as of the Closing
Date.
(b) Compliance with Covenants and Conditions. The Buyer shall have
performed and observed, or caused to be performed and observed in all
material respects, all covenants, agreements and conditions hereof to be
performed or observed by it at or before the Time of Closing.
(c) Delivery of Certificate. The Shareholder shall have received a
favorable certificate, dated as of the Closing Date, signed by the
President or a Vice President of the Buyer, as to the matters set forth in
subsections (a) and (b) of this Section 10.
(d) Opinion of Counsel. The Shareholder shall have received a
favorable opinion of Faegre & Benson LLP, counsel to the Buyer, dated as of
the Closing Date, in the form of Exhibit B hereto.
(e) Corporate Proceedings. All corporate proceedings and related
actions taken by the Buyer in connection with the transactions contemplated
by this Agreement shall have been reasonably satisfactory to the
Shareholder.
(f) HSR Act; Approvals and Consents. The waiting period (and any
extension thereof) under the HSR Act applicable to consummation of the
transactions contemplated by this Agreement shall have expired or been
terminated. The Shareholder and the Buyer shall have obtained all approvals
and consents and all applicable waiting periods shall have expired which
are required to carry out the transactions contemplated by this Agreement
without creating any violations by the Shareholder, the Buyer, the Company
or any of its Subsidiaries of any laws or any defaults by the Shareholder,
the Buyer, the Company or any of its Subsidiaries (or liens on assets)
under, or breaches or terminations by the Shareholder, the Buyer, the
Company or any of its Subsidiaries of, or increases in the consideration
payable by the Shareholder, the Buyer, the Company or any of its
Subsidiaries under, any agreements, except for such approvals and consents
of private persons where the failure to obtain such approvals and consents
would not, in the aggregate, have a material adverse effect on the
financial condition, results of operations, assets or business of the
Company and its Subsidiaries, taken as a whole. The Shareholder shall have
also received satisfactory documentation concerning the release and/or
modification of the Shareholder's guaranty of the obligations of the
Company set forth in the Disclosure Schedule.
(g) Claims and Proceedings. No person, firm, corporation or
governmental agency shall have instituted (or indicated an intention to
institute) an action or proceeding seeking to restrain, enjoin or prohibit
the consummation of the transactions contemplated by this Agreement.
(h) Company NonCompetition Agreement. The Buyer and the Company shall
have entered into a non-competition agreement with the Shareholder in the
form of Exhibit D hereto (the "Company Non-Competition Agreement").
11. Conditions Precedent to Obligations of the Buyer. The obligations of
the Buyer to perform and observe the covenants, agreements and conditions hereof
to be performed and observed by it at or before the Time of Closing shall be
subject to the satisfaction at or before the Time of Closing of the following
conditions, any one or more of which may be waived by the Buyer:
(a) Representations and Warranties of the Shareholder Correct. The
representations and warranties contained in Sections 4 and 5 hereof shall
be true and correct in all material respects as of the Time of Closing, as
though such representations and warranties had been made on and as of the
Closing Date.
<PAGE>
(b) Compliance with Covenants and Conditions. The Shareholder shall
have performed and observed, or caused to be performed or observed in all
material respects, all covenants, agreements and conditions hereof to be
performed or observed by the Shareholder, the Company or any of its
Subsidiaries at or before the Time of Closing.
(c) No Material Adverse Change. Since June 30, 1996, no material
adverse change in the financial condition, results of operations, assets,
or business of the Company and its Subsidiaries, taken as a whole, shall
have occurred.
(d) Delivery of Certificates. The Buyer shall have received favorable
certificates, dated as of the Closing Date, signed by the Chairman of the
Shareholder and officers of the Company, as to the matters set forth in
subsections (a), (b) and (c) of this Section 11.
(e) Opinion of Counsel for the Shareholder. The Buyer shall have
received a favorable opinion of Fredrikson & Byron, P.A., with respect to
the Shareholder, the Company and each of its Subsidiaries, dated as of the
Closing Date, in the form of Exhibit C hereto.
(f) Audit Firm Report. Provided financial statements of the Company
and its Subsidiaries as of September 30, 1996 are available prior to the
Closing Date, Deloitte & Touche LLP shall have completed and delivered to
the Company, and the Shareholder shall have caused the Company to deliver
to the Buyer, a report containing reviewed financial statements as of such
date in form and substance satisfactory to the Buyer.
(g) Corporate Proceedings. All corporate proceedings and related
actions taken by the Shareholder, the Company and any of its Subsidiaries
in connection with the transactions contemplated by this Agreement shall
have been reasonably satisfactory to counsel for the Buyer.
(h) Resignations. All directors of the Company and each of its
Subsidiaries shall have tendered to the Buyer such written resignations as
requested by the Buyer, effective as of the Closing Date.
(i) Shareholder Non-Competition Agreement. The Shareholder shall have
entered into a non-competition agreement with the Buyer and the Company in
the form of Exhibit E hereto (the "Shareholder Non-Competition Agreement").
(j) Employment Arrangements. Recognizing that the continued service of
Mr. Stephen H. Fischer to the Company and its Subsidiaries on and after the
Closing Date may be material to the successful operation of the Company and
its Subsidiaries by the Buyer, (i) the Buyer shall have determined, in its
sole business judgment, based upon continuing discussions with Mr. Fischer
regarding the future operations of the Company and its Subsidiaries, the
integration of such business with the business of the Buyer, and the
organizational structure to be established by the Buyer for the business of
the Company and its Subsidiaries, that Mr. Fischer can function effectively
in an executive capacity after the Closing in the continued operation of
the business and the Company and its Subsidiaries as integrated with the
business of the Buyer, and (ii) if the Buyer shall have made the
determination referred to in the foregoing clause (i), the Buyer shall have
reached agreement on terms reasonably satisfactory to the Buyer with Mr.
Fisher for his continued employment by the Company.
(k) HSR Act; Approvals and Consents. The waiting period (and any
extension thereof) under the HSR Act applicable to consummation of the
transactions contemplated by this Agreement shall have expired or been
terminated. The Shareholder and the Buyer shall have obtained all approvals
and consents and all applicable waiting periods shall have expired which
are required to carry out the transactions contemplated by this Agreement
without creating any violations by the Shareholder, the Buyer, the Company
or any of its Subsidiaries of any laws or any defaults by the Shareholder,
the Buyer, the Company or any of its Subsidiaries (or liens on assets)
under, or breaches or terminations by the Shareholder, the Buyer, the
Company or any of its Subsidiaries of, or increases in the consideration
payable by the Shareholder, the Buyer, the Company or any of its
Subsidiaries under, any agreements, except for such approvals and consents
of private persons where the failure to obtain such approvals and consents
would not, in the aggregate, have a material adverse effect on the
financial condition, results of operations, assets or business of the
Company and its Subsidiaries, taken as a whole.
<PAGE>
(l) EstoppelCertificates. The Buyer shall have received estoppel
certificates, in form and substance satisfactory to the Buyer, from the
landlord under the lease for each of the Leased Parcels, identifying such
lease and certifying to the Buyer that such lease is in full force and
effect without default on the part of the Company and any of its
Subsidiaries thereunder.
(m) Claims and Proceedings. No person, firm, corporation or
governmental agency shall have instituted (or indicated an intention to
institute) an action or proceeding seeking to restrain, enjoin or prohibit
the consummation of the transactions contemplated by this Agreement.
(n) Margin Accounts. Margin accounts maintained by the Company, as
specified by the Buyer, shall be closed and paid in full and the Company
will have no continuing obligations with respect to such accounts.
(o) Prime Portfolio Agreements. The Shareholder or its subsidiaries,
as appropriate, and the Company shall have entered into the agreements
contemplated by Section 8(f)(ii).
12. Closing. The closing of the purchase and sale of the Shares as
contemplated hereby (the "Closing") shall be held at the offices of Faegre &
Benson LLP, Minneapolis, Minnesota at 9:00 a.m., Minneapolis, Minnesota time, on
a date to be mutually agreed to by the Parties (the date of Closing being herein
referred to as the "Closing Date" and the time of Closing on the Closing Date
being herein referred to as the "Time of Closing"). Nothing contained in this
Agreement shall require the Buyer to purchase less than all of the Shares. At
the Closing, simultaneously:
(a) the Shareholder shall deliver to the Buyer stock certificates in
the name of the Shareholder for all of the Shares duly endorsed in blank by
the Shareholder or accompanied by stock powers or other instruments of
transfer duly executed in blank such that the Shares evidenced by such
certificates are suitable for transfer to the Buyer;
(b) the Buyer shall pay to the Shareholder the portion of the Purchase
Price to be paid to the Shareholder in accordance with Section 3 hereof;
(c) the Shareholder, the Buyer and the Escrow Agent shall execute and
deliver the Escrow Agreement, and the portion of the Purchase Price to be
escrowed shall be paid to the Escrow Agent in accordance with the terms of
the Escrow Agreement;
(d) the Shareholder shall deliver to the Company all books and
records, including the stock records, of the Company and any of its
Subsidiaries not already in the possession of the Company;
(e) the Buyer, the Company and the Shareholder shall execute and
deliver the Company Non-Competition Agreement;
(f) the Buyer, the Company and the Shareholder shall execute and
deliver the Shareholder Non-Competition Agreement; and
(g) the Company, each of the Subsidiaries, the Shareholder and the
Buyer shall execute and deliver, or cause to be executed and delivered, the
opinions, resignations, closing certificates and other documents and
consents in support of satisfaction of the conditions to closing contained
herein.
<PAGE>
13. Termination of Agreement. This Agreement may be terminated:0829113.
(a) by mutual consent of the Shareholder and the Buyer at any time
prior to the Time of Closing;
(b) by the Shareholder or the Buyer at any time prior to the Time of
Closing, if the purchase and sale of the Shares as contemplated hereby
shall not have been consummated by December 31, 1996, unless such failure
of consummation shall be due to the breach by the Party seeking to
terminate the covenants and agreements hereof to be performed by such
Party; or
(c) by the Shareholder or the Buyer at any time prior to the Time of
Closing, if any court or governmental authority of competent jurisdiction
shall have issued an order, decree or ruling permanently restraining,
enjoining or otherwise prohibiting the consummation of the transactions
contemplated by this Agreement, and such order, decree or ruling shall have
become final and nonappealable.
The termination of this Agreement pursuant to this Section 13 shall
not terminate, limit or otherwise affect the right of a Party hereto to
recover damages (including, without limitation, if deemed appropriate by a
court of competent jurisdiction, lost profits from failure to consummate
the transaction contemplated by this Agreement) or exercise any other
remedies (except specific performance of this Agreement) against a Party
hereto based upon breach by such Party of any representations and
warranties contained in this Agreement or any covenant or agreement of such
other Party under this Agreement. The obligations of the Shareholder and
the Buyer to pay expenses pursuant to Section 18 hereof, the obligations of
the Shareholder and the Buyer with respect to confidentiality of
information pursuant to Sections 8(b) and 9(a) hereof and the obligations
of the Shareholder and the Buyer with respect to release of information
pursuant to Sections 8(d) and 9(c) hereof shall survive termination of this
Agreement.
14. Survival of Representations and Warranties. Except as otherwise
provided in Section 15 hereof, the representations and warranties contained
herein and in any certificate delivered pursuant hereto shall survive the
execution of this Agreement and the consummation of the transactions
contemplated hereby.
15. Indemnification.
(a) Tax Indemnification. The Shareholder shall indemnify the Buyer and
its affiliates including the Company and its Subsidiaries, and hold them
harmless from (i) all liability for Taxes (as defined in this Section
15(a)) of the Company and its Subsidiaries (including, without limitation,
those entities which the Company controls as a result of an irrevocable
assignment of voting rights), not otherwise specifically required to be
paid by the Company and its Subsidiaries as contemplated by Section 16, for
all taxable periods ending on or before the Closing Date and for the
portion of the Straddle Period (as defined in this Section 15(a)) ending on
the Closing Date of any taxable period that includes (but does not end on)
such day (the "Pre-Closing Tax Period"), (ii) all liability (as a result of
Treasury Regulation ss. 1.1502-6(a) or otherwise) for Taxes of the
Shareholder or any other corporation which is or has been affiliated with
the Company or any of its Subsidiaries, (iii) all liability for Taxes
resulting from the Section 338(g) and 338(h)(10) elections (or any
comparable elections under any state, local or foreign tax laws)
contemplated by Section 16(d), (iv) all liability for Taxes resulting from
intercompany transactions occurring prior to the Closing Date or as a
result of the transactions contemplated by this Agreement including,
without limitation, liability under Treasury Regulations ss. 1.1502-13, (v)
all liability for Taxes arising from the distribution permitted by Section
7(b)(i), (vi) all transfer, documentary, sales, use, stamp, registration
and other such Taxes and fees (including any penalties and interest)
incurred in connection with this Agreement, and (vii) all liability for
reasonable professional fees and expenses and any related interest and
penalties attributable to any item in clause (i), (ii), (iii), (iv), (v)
and (vi) above.
<PAGE>
The Buyer shall, and shall cause the Company and its Subsidiaries to,
indemnify the Shareholder and its affiliates and hold them harmless from
(i) all liability for Taxes of the Company for any taxable period ending
after the Closing Date (except to the extent such taxable period began
before the Closing Date, in which case the Buyer's indemnity will cover
only that portion of such Taxes that are not attributable to the
Pre-Closing Tax Period), (ii) all liability for a breach by the Buyer of
its obligations under this Agreement, and (iii) all liability for
reasonable professional fees and expenses and any related interest and
penalties attributable to any item in clause (i) or (ii) above.
For purposes of this Section 15 and Section 16, "Tax" means any
federal, state, local or foreign income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall
profits, environmental, customs, duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value
added, alternative or add on minimum, estimated or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not, and "Straddle Period" means any taxable period that
includes but does not end on the Closing Date.
(b) Other Indemnification by Shareholder. The Shareholder shall
indemnify the Buyer and its affiliates, including the Company and its
Subsidiaries, and hold them harmless from any loss, liability, claim,
damage or expense (including reasonable professional fees and expenses)
suffered or incurred by any such indemnified party, other than any relating
to Taxes, for which indemnification provisions are set forth in Section
15(a), to the extent arising from (i) any breach of any representation or
warranty of the Shareholder contained in this Agreement or in any schedule,
certificate, instrument or other document delivered pursuant hereto, (ii)
any breach of any covenant of the Shareholder contained in this Agreement,
and (iii) the operations of the Company and its Subsidiaries prior to the
Closing Date; provided, however, that the Shareholder shall not be
obligated to indemnify the Buyer for any such loss, liability, claim,
damage or expense until the Buyer has suffered or incurred in excess of
$100,000 of such losses, liabilities, claims, damages or expenses (at which
point the Shareholder will be obligated to indemnify the Buyer for all such
losses, liabilities, claims, damages or expenses, including the first
$100,000).
(c) Other Indemnification by the Buyer. After the Closing Date, the
Buyer shall, and shall cause the Company and its Subsidiaries to, indemnify
the Shareholder and its affiliates against and hold them harmless from any
loss, liability, claim, damage or expense (including reasonable
professional fees and expenses) suffered or incurred by any such
indemnified party, other than any relating to Taxes, for which
indemnification provisions are set forth in Section 15(a), to the extent
arising from (i) any breach of any representation or warranty of the Buyer
contained in this Agreement or in any schedule, certificate, instrument or
other document delivered pursuant hereto, (ii) any breach of any covenant
of the Buyer contained in this Agreement, and (iii) the operations of the
Company and its Subsidiaries after the Closing Date (other than those for
which indemnification by the Shareholder is expressly provided under
Section 15(a) or Section 15(b)).
(d) Losses Net of Insurance, etc. The amount of any loss, liability,
claim, damage or expense for which indemnification is provided under this
Section 15 shall be net of any amounts recovered (regardless of time) or
indisputably recoverable with diligent effort by the indemnified party
under insurance policies with respect to such loss, liability, claim,
damage or expense and shall be (i) increased to take account of any net Tax
cost incurred by the indemnified party arising from the receipt of
indemnity payments hereunder (grossed up for such increase) and (ii)
reduced to take account of any net Tax benefit realized by the indemnified
party arising from the incurrence or payment of any such loss, liability,
claim, damage or expense. In computing the amount of any such Tax cost or
Tax benefit, the indemnified party shall be deemed to use all other items
of income, gain, loss, deduction or credit before using any item arising
from the incurrence or payment of any indemnified loss, liability, claim,
damage or expense or of any indemnity payment pursuant to this Section 15.
(e) Termination of Indemnification. The obligations to indemnify and
hold harmless a party to the indemnification provided for under this
Agreement, (i) pursuant to Section 15(a), shall terminate 90 days following
the expiration of the applicable statutes of limitations with respect to
the Tax liabilities in question (giving effect to any waiver, mitigation or
extension thereof); and (ii) pursuant to Section 15(b) and Section 15(c)
shall terminate 24 months following the Closing Date, provided that the
representations and warranties of the Shareholder set forth in Section 5(a)
shall not terminate, and, provided further, that any obligation to
indemnify and hold harmless shall not terminate with respect to any item as
to which the person to be indemnified shall have, before the expiration of
the applicable period, previously made a claim by delivering a notice
pursuant to the party to be providing the indemnification.
<PAGE>
(f) Procedures Relating to Indemnification (Other than Under Section
15(a)). In order for a party (the "indemnified party") to be entitled to
any indemnification provided for under this Agreement (other than under
Section 15(a)) in respect of, arising out of or involving a claim or demand
made by any person, firm, governmental authority, corporation or other
entity against the indemnified party (a "Third Party Claim"), such
indemnified party must notify the indemnifying party in writing of the
Third Party Claim within 20 business days after receipt by such indemnified
party of written notice of the Third Party Claim; provided, however, that
failure to give such notification shall not affect the indemnification
provided hereunder except to the extent the indemnifying party shall have
been actually prejudiced as a result of such failure (except that the
indemnifying party shall not be liable for any expenses incurred during the
period in which the indemnified party failed to give such notice).
Thereafter, the indemnified party shall deliver to the indemnifying party,
within five business days after the indemnified party's receipt thereof,
copies of all notices and documents (including court papers) received by
the indemnified party relating to the Third Party Claim; provided, however
that failure to give such notification shall not affect the indemnification
provided hereunder except to the extent the indemnifying party shall have
been actually prejudiced as a result of such failure.
If a Third Party Claim is made against an indemnified party, the
indemnifying party will be entitled to participate in the defense thereof
and, if it so chooses, to assume the defense thereof with counsel selected
by the indemnifying party and reasonably satisfactory to the indemnified
party. Should the indemnifying party so elect to assume the defense of a
Third Party Claim, which election must be made within 20 business days
after the indemnifying party receives notice of the Third Party Claim from
the indemnified party, the indemnifying party will not be liable to the
indemnified party for legal expenses subsequently incurred by the
indemnified party in connection with the defense thereof. If the
indemnifying party assumes such defense, the indemnified party shall have
the right, but not the obligation, to participate in the defense thereof
and to employ counsel, at its own expense, separate from the counsel
employed by the indemnifying party, it being understood that the
indemnifying party shall control such defenses. The indemnifying party
shall be liable for the fees and expenses of counsel employed by the
indemnified party for any period during which the indemnifying party has
not assumed the defense thereof (other than during any period in which the
indemnified party shall have failed to give notice of the Third Party Claim
as provided above). If the indemnifying party chooses to defend or
prosecute any Third Party Claim, the Parties shall cooperate in the defense
or prosecution thereof with reimbursement by the indemnifying party of
out-of-pocket expenses of the indemnified party. Such cooperation shall
include the retention and (upon the indemnifying party's request) the
provision to the indemnifying party of records and information which are
reasonably relevant to such Third Party Claim, and making employees
available on a mutually convenient basis to provide additional information
and explanation of any material provided hereunder. Whether or not the
indemnifying party shall have assumed the defense of a Third Party Claim,
the indemnified party shall not admit any liability with respect to, or
settle, compromise or discharge, such Third Party Claim without the
indemnifying party's prior written consent, which consent shall not be
unreasonably withheld. All Tax Claims (as defined in Section 15(g)) shall
be governed by Section 15(g).
(g) Procedures Relating to Indemnification of Tax Claims. If a written
claim shall be made by any taxing authority, which, if successful, might
result in an indemnity payment to the Buyer or one of its affiliates
pursuant to Section 15(a), the Buyer shall promptly notify the Shareholder
in writing of such claim (a "Tax Claim"). If notice of a Tax Claim ("Tax
Notice") received by the Buyer, the Company or any of its Subsidiaries
after the Closing Date is not given to the Shareholder within a sufficient
period of time to allow the Shareholder to effectively contest such Tax
Claim (provided, that in no event will such period be less than 20 business
days), the Shareholder shall not be liable to the Buyer or any of its
affiliates to the extent that the Shareholder's position is actually
prejudiced as a result thereof.
<PAGE>
With respect to any Tax Claim (except to the extent it relates to
Taxes of the Company and its Subsidiaries for a Straddle Period), the
Shareholder shall control all proceedings taken in connection with such Tax
Claim (including, without limitation, selection of counsel) and, without
limiting the foregoing, may in its sole discretion pursue or forego any and
all administrative appeals, proceedings, hearings and conferences with any
taxing authority with respect thereto, and may, in its sole discretion,
either pay the Tax claimed and sue for a refund where applicable law
permits such refund suits or contest the Tax Claim in any permissible
manner, provided that the Shareholder shall take no position that would
adversely affect the Company and its Subsidiaries after the Closing Date.
The Shareholder and the Buyer shall jointly control all proceedings taken
in connection with any Tax Claim to the extent it relates to Taxes of the
Company and its Subsidiaries for a Straddle Period. The Buyer, the Company
and its Subsidiaries and each of their respective affiliates shall
cooperate with the Shareholder in contesting any Tax Claim at the expense
of the Shareholder, which cooperation shall include, without limitation,
the retention and (upon the Shareholder's request) the provision to the
Shareholder of records and information which are reasonably relevant to
such Tax Claim, and making employees available on a mutually convenient
basis to provide additional information or explanation of any material
provided hereunder or to testify at proceedings relating to such Tax Claim.
In no case shall the Buyer or the Company settle or otherwise
compromise any Tax Claim without the Shareholder's prior written consent,
which consent shall not be unreasonably withheld.
16. Tax Matters.
(a) Tax Sharing Agreements. For Tax returns of the Company and its
Subsidiaries attributable to calendar year 1995 and so much of calendar
year 1996 as is includible in the consolidated Tax return of the
Shareholder or for the portion of the Straddle Period ending on the Closing
Date, the consolidated or combined Tax for federal, state, local or foreign
Taxes relating to operating income and not to the extraordinary
transactions contemplated by this Agreement shall be allocated to the
Company and its Subsidiaries consistent with past practices.
Notwithstanding the foregoing, in no event will the Tax so allocated exceed
the amount of Tax computed as if the Company and its Subsidiaries filed
their income Tax returns as a separate affiliated or combined group of
which the Company was the common parent corporation for purposes of Section
1504(a) of the Code or comparable state or local statute. Any amounts so
allocable to the Company and its Subsidiaries in excess of related payments
made by the Company and its Subsidiaries to the Shareholder or any
affiliate of the Shareholder prior to the Closing shall be paid to the
Shareholder within 60 business days of the filing of the returns to which
the Tax allocation has been provided to the Buyer. To the extent that Tax
related payments made by the Company and its Subsidiaries to the
Shareholder prior to the Closing exceed the amount of Tax properly
allocable to the Company and its Subsidiaries, such excess shall be
refunded within 60 business days of the filing of the related income Tax
return. Advance payments of estimated Tax installments, if any, made prior
to the Closing shall be estimated consistent with past business practice.
Any tax sharing agreement between the Shareholder and any of the Company
and its Subsidiaries, other than the foregoing, shall be terminated as of
the Closing Date and will have no further effect for any taxable year
(whether the current year, a future year or a past year).
(b) Returns for Periods Through the Closing Date. The Shareholder
shall include the income of the Company and its Subsidiaries (including any
deferred income triggered into income by Reg. ss. 1.1502-13 and Reg. ss.
1.1502-13T and any excess loss accounts taken into income under Reg. ss.
1.1502-19) on the Shareholder's consolidated federal income Tax returns for
all periods through the Closing Date and pay any federal income Taxes
attributable to such income. The Company and its Subsidiaries shall furnish
Tax information to the Shareholder for inclusion in the Shareholder's
federal consolidated income Tax return for the period which includes the
Closing Date in accordance with the Company's past custom and practice. The
Shareholder shall allow the Buyer an opportunity to review and comment upon
such Tax returns (including any amended returns) to the extent that they
relate to the Company and its Subsidiaries. The Shareholder shall take no
position on such returns that relate to the Company and its Subsidiaries
that would adversely affect the Company and its Subsidiaries. The income of
the Company and its Subsidiaries shall be apportioned to the period up to
and including the Closing Date and the period after the Closing Date by a
method that reasonably allocates the income of the Company and its
Subsidiaries before and after the Closing Date.
<PAGE>
(c) Audits and Notices of Deficiencies. The Shareholder shall allow
the Company and its Subsidiaries to participate at its own expense in any
audits or notices of deficiencies of the Shareholder's consolidated federal
income Tax returns to the extent that such returns relate to the Company
and its Subsidiaries. The Shareholder shall not settle any such audit or
notice in a manner which would adversely affect the Company and its
Subsidiaries after the Closing Date without the prior written consent of
the Buyer, which consent shall not unreasonably be withheld.
(d) Section 338(h)(10) Election. The Shareholder and the Buyer shall
join in making a timely, effective and irrevocable election under Section
338(h)(10) of the Code (and any corresponding elections under state, local
or foreign tax law) (collectively a "Section 338(h)(10) Election") with
respect to the purchase and sale of the Shares. The Shareholder and the
Buyer shall jointly prepare the Section 338 Forms (as defined in this
Section 16(d)) to the extent such preparation has not been completed prior
to the Closing and shall timely make any required filings and take any and
all other actions necessary to effect the Section 338(h)(10) Election. The
Shareholder shall include in its consolidated federal income tax return for
its taxable period which includes the Closing Date any Section 338 Forms
that are required to be so included on account of the Section 338(h)(10)
Election. The Shareholder and the Buyer shall cooperate fully, and in good
faith, with each other in making the Section 338(h)(10) Election and in
allocating the Purchase Price among the Company and its Subsidiaries assets
in accordance with Section 338 of the Code and Schedule 16(e). The
Shareholder and the Buyer agree that the allocation set forth in Schedule
16(e) represents a good faith determination of such allocation, and the
Parties shall report, act and file in all respects and for all purposes
consistent with such determination. "Section 338 Forms" means all returns,
documents, statements, and other forms that are required to be submitted to
the Internal Revenue Service by a selling consolidated return group or a
purchasing corporation in connection with a Section 338(h)(10) Election,
including without limitation IRS Form 8023-A (together with any schedules
or attachments thereto) and any other forms that are required pursuant to
Treasury Regulations Section 1.338(h)(10)-1 or any other Treasury
Regulations promulgated under Section 338(h)(10)(C) of the Code and any
analogous forms that are required to be filed for state or local tax
purposes.
(e) Allocation of Purchase Price. Except as otherwise required by law,
the Parties shall follow and use the final allocation of the Purchase Price
(including the amount allocated to the Shareholder Non-Competition
Agreement) as of the Closing Date balance sheet determined in a manner
consistent with a tentative allocation based on the June 30, 1996 balance
sheet, as set forth in Schedule 16(e). Schedule 16(e) will be delivered at
Closing by the Buyer. Such final allocation will be used in all Tax
returns, Tax filings and other Tax reports made by them to any governmental
agencies.
(f) Distribution of Assets. The Shareholder shall take such action as
is necessary to avoid recognition of income attributable to the excess of
the fair market value over tax basis of Company's assets distributed to the
Shareholder pursuant to Section 7(b). In the event the Shareholder is
unable to avoid such income recognition, any federal, state, local or
foreign tax thereon shall be the sole responsibility of the Shareholder.
(g) Cooperation in Tax Matters. The Parties agree to cooperate with
and to provide each other with all information for periods prior to or
after the Closing Date that is relevant in preparing the Tax returns
pertaining to the Company and its Subsidiaries. The Shareholder, on the one
hand, and the Buyer, on the other, agree to furnish or cause to be
furnished to each other upon request, as promptly as practicable, such
information (including access to books or records and returns (or portions
thereof)) pertinent to the Company and its Subsidiaries, and shall preserve
all such information, records and documents in accordance with its
generally applicable record retention policies.
<PAGE>
17. Brokers. The Parties hereto represent to each other that they have not
engaged any broker or finder in connection with this Agreement and the
transactions contemplated hereby, and each Party shall hold the other harmless
from any claim, demand or liability for any broker's, finder's or similar fees
alleged to have been incurred by such Party or any of its officers, directors or
employees in connection with this Agreement or the transactions contemplated
hereby. The Shareholder represents that neither the Company nor any of its
Subsidiaries has engaged any broker or finder in connection with this Agreement
and the transactions contemplated hereby, and the Shareholder shall hold the
Buyer, the Company and its Subsidiaries harmless from any claim, demand or
liability for any broker's, finder's or similar fees alleged to have been
incurred by the Company, any of its Subsidiaries, or any of their officers,
directors or employees in connection with this Agreement or the transactions
contemplated hereby.
18. Expenses. All expenses incurred by the Buyer in connection with this
Agreement and the transactions contemplated hereby shall be borne by the Buyer.
All expenses incurred by the Shareholder in connection with this Agreement and
the transactions contemplated hereby, including, without limitation, those
incurred by the Company or its Subsidiaries in connection with this Agreement
and the transactions contemplated hereby, shall be borne by the Shareholder.
19. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the Parties hereto and their respective successors and
assigns, but shall not be assignable by either Party hereto without the prior
written consent of the other Parties hereto, which consent will not be
unreasonably withheld.
20. Notices. Any notice or other communication provided for herein or given
hereunder to either Party hereto shall be in writing and shall be deemed to be
received when delivered in person or at the close of the second full business
day following the day on which such notice is mailed by first class registered
or certified mail, postage prepaid, addressed as follows:
If to the Buyer:
ReliaStar Financial Corp.
20 Washington Avenue South
Minneapolis, Minnesota 55401
Attention: General Counsel
with a copy to:
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402
Attention: Thomas G. Morgan
If to the Shareholder:
Kinnard Investments, Inc.
920 Second Avenue South
Kinnard Financial Center
Minneapolis, Minnesota 55402
Attention: Hilding C. Nelson
with a copy to:
Fredrikson & Byron, P.A.
1100 International Centre
900 Second Avenue South
Minneapolis, Minnesota 55402
Attention: Timothy M. Heaney
or to such other address with respect to any Party as such Party shall notify
the others in writing as above provided.
21. Complete Agreement. This Agreement contains the complete agreement of
the Parties hereto with respect to the transaction contemplated by this
Agreement and supersedes all prior agreements and understandings between the
Parties hereto with respect thereto.
22. Supplements and Schedules. As used herein, the expression "this
Agreement" means the body of this Agreement and the schedules and exhibits
hereto, and the expressions "herein", "hereof", and "hereunder" and other words
of similar import refer to this Agreement and such schedules and exhibits as a
whole and not to any particular part or subdivision thereof.
<PAGE>
23. Amendments; Waivers. Except as otherwise specifically stated herein,
any provision of this Agreement may be amended by, and only by, a written
instrument executed by the Parties. The Shareholder may extend the time for or
waive the performance of any obligation of the Buyer, waive any inaccuracies in
the representations or warranties by the Buyer, or waive compliance by the Buyer
with any of the terms and conditions contained in this Agreement. Any such
extension or waiver shall be in writing and executed by the Shareholder. The
Buyer may extend the time for or waive the performance of any obligation of the
Shareholder, waive any inaccuracies in the representations or warranties by the
Shareholder or waive compliance by the Shareholder with any of the terms and
conditions contained in this Agreement. Any such extension or waiver shall be in
writing and executed by the Buyer.
24. GoverningLaw. This Agreement shall be construed and enforced in
accordance with the laws of the State of Minnesota.
25. Invalid Provisions. If any provision hereof is held to be illegal,
invalid or unenforceable under present or future laws effective during the term
hereof, such provision shall be fully severable. This Agreement shall be
construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof, and the remaining provisions hereof shall
remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance herefrom. In lieu of such
illegal, invalid or unenforceable provision there shall be added automatically
as a part hereof a provision as similar in terms and economic effect to such
illegal, invalid or unenforceable provision as may be possible and be legal,
valid and enforceable.
26. Further Assurances. From and after the Closing Date, the Shareholder
shall, from time to time, at the request of the Buyer and without further
consideration (but at the expense of the Buyer) do, execute, acknowledge and
deliver all such further acts, deeds, assignments, transfers, conveyances,
powers of attorney and assurances as may be reasonably required to confirm the
conveyance and transfer of the Shares to the Buyer.
27. Captions. The captions, headings and arrangements used in this
Agreement are for convenience only and do not affect, limit or amplify the terms
and provisions hereof.
28. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute but one instrument.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed and delivered as of the date first above written.
THE BUYER: RELIASTAR FINANCIAL CORP.
By:
Its:
THE SHAREHOLDER: KINNARD INVESTMENTS, INC.
By:
Its:
