April 11, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: The Sherwood Group, Inc.
Report on Form 10-Q for the Nine Months Ended February 28, 1997
Gentlemen:
Enclosed please find the following material submitted on behalf of The Sherwood
Group, Inc. ("Company"):
One complete copy of the Company's report on Form 10-Q for the nine
months ended February 28, 1997 including financial statements and exhibits.
Thank you for your attention to this matter.
Very truly yours,
/s/ Denise Isaac
Denise Isaac
Chief Financial Officer and
Principal Accounting Officer
CONFORMED
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended February 28, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
-------------- -------------
Commission file number 1-9480
- ---------------------------------------------------------------------
The Sherwood Group, Inc.
- ----------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 22-2394480
- ----------------------------------------------------------------------
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
10 Exchange Place Centre, Jersey City, New Jersey 07302
- ----------------------------------------------------------------------------
Address of principal executive offices) (Zip code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
12,750,443 shares of Common Stock, par value $.01 per share, were
outstanding on March 31, 1997.
<TABLE>
THE SHERWOOD GROUP, INC.
AND SUBSIDIARIES
INDEX
<CAPTION>
PAGE
--------
<S> <C>
Part I - Financial Information
Item 1. - Financial Statements
Consolidated Statements of Financial Condition -
February 28, 1997 (Unaudited)and May 31, 1996 3
Consolidated Statements of Operations (Unaudited) -
Three Months and Nine Months Ended February 28, 1997
and February 29, 1996 4
Consolidated Statements of Cash Flows (Unaudited) -
Nine Months Ended February 28, 1997 and February 29, 1996 5 - 6
Notes to Consolidated Financial Statements (Unaudited) -
February 28,1997 7 - 8
Item 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 14
Part II - Other Information
Item 1. - Legal Proceedings 14
Item 6. - Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
<TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THE SHERWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
February 28,
1997 May 31,
ASSETS (Unaudited) 1996
------------------- ------------------
<S> <C> <C>
Cash $ 1,042,843 $ 470,313
Receivables:
Brokers and dealers 58,166,334 78,628,199
Other 274,642 519,631
Securities owned, at market value 47,308,703 32,181,980
Investment securities not readily marketable, at fair value 501,320 401,320
Investment in partnerships 12,984 261,286
Notes receivable 832,845 697,258
Furniture, fixtures and equipment, and leasehold improvements - at
cost, net of accumulated depreciation and amortization of $6,473,155
at February 28, 1997 and $8,132,165 at May 31, 1996 19,176,505 12,955,614
Computer software - at cost, net of accumulated amortization of
$805,071 at February 28, 1997 and $493,936 at May 31, 1996 781,623 766,256
Identified intangible assets, net of accumulated amortization of
$1,667,741 at February 28, 1997 and $1,245,176 at May 31, 1996 2,709,319 2,943,104
Exchange memberships (market value $3,318,750 at February 28,
1997 and $2,827,500 at May 31, 1996) 2,616,496 1,166,496
US Treasury Obligations, held as collateral 7,870,777 7,782,514
Subordinated notes receivable 3,500,000 3,250,000
Deferred tax asset (net of valuation allowance) 4,447,435 -
Other assets 2,886,761 1,260,822
------------------- ------------------
$ 152,128,587 $ 143,284,793
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Securities sold, not yet purchased, at market value $ 17,847,934 $ 18,827,302
Accounts payable and accrued expenses, including
compensation payable to officers and employees of
$8,554,106 at February 28, 1997 and $15,583,055
at May 31, 1996 33,326,807 24,242,102
Secured demand notes payable 3,000,000 3,250,000
Income taxes payable 1,048,635 5,338,326
Minority interest in Equitrade 6,523,929 5,057,508
------------------- ------------------
Total liabilities 61,747,305 56,715,238
------------------- ------------------
Commitments and contingencies (Note 4)
Stockholders' equity (Note 5):
Preferred stock - $.01 par value;
authorized 1,000,000 shares; none issued - -
Class A common stock - $.01 par value;
authorized 50,000,000 shares; none issued - -
Common stock - $.01 par value; authorized
50,000,000 shares; issued 14,343,201 shares 143,432 143,432
Additional paid-in capital 57,189,985 56,958,790
Retained earnings 43,992,114 37,936,140
------------------- ------------------
101,325,531 95,038,362
Less: Treasury stock - at cost, 1,526,936 shares at
February 28, 1997 and 1,313,469 shares at May 31, 1996 (10,944,249) (8,468,807)
------------------- ------------------
Total stockholders' equity 90,381,282 86,569,555
------------------- ------------------
$ 152,128,587 $ 143,284,793
=================== ==================
</TABLE>
The accompanying notes are an integral part of these statements.
<TABLE>
(3)
THE SHERWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------------------------------------------
February 28, 1997 February 29, 1996 February 28, 1997 February 29, 1996
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Firm securities transactions - net $ 35,930,363 $ 34,197,630 $ 92,368,915 $ 87,136,730
Commission income 9,271,776 7,855,709 25,024,168 20,856,454
Floor brokerage income 3,946,786 3,112,314 10,320,924 8,177,832
Equity income (loss) in partnerships (10,844) 26,697 (26,176) 40,309
Interest income 1,981,003 1,448,607 5,899,232 4,276,140
Fee income 759,668 341,926 1,848,266 961,531
Other revenues 136,184 213,566 624,490 614,128
------------------- ------------------ ----------------- ------------
52,014,936 47,196,449 136,059,819 22,063,124
------------------- ------------------ ----------------- ------------
Expenses:
Compensation and benefits 15,200,418 15,249,586 43,677,551 37,939,862
Clearing and related charges 15,643,471 14,522,707 43,589,723 42,053,430
Communications 2,823,138 2,599,538 8,330,942 7,670,908
Litigation settlement 9,187,500 - 9,187,500 -
Depreciation and amortization 1,276,153 1,224,549 3,300,386 2,407,068
Occupancy costs and equipment rental 638,146 655,268 2,039,686 2,060,238
Other expenses 4,696,176 3,622,190 10,909,901 8,398,820
Interest expense 140,274 125,634 273,872 201,923
------------------- ------------------ ----------------- ------------
49,605,276 37,999,472 121,309,561 100,732,249
------------------- ------------------ ----------------- ------------
Income before minority interest and income taxes 2,409,660 9,196,977 14,750,258 21,330,875
Income of Equitrade allocated to
minority partners (2,113,802) (994,821) (2,866,762) (2,282,213)
------------------- ------------------ ----------------- ------------
Income before income taxes 295,858 8,202,156 11,883,496 19,048,662
------------------- ------------------ ----------------- ------------
Income taxes:
Federal, currently payable 3,259,257 1,922,687 6,838,384 4,084,163
State and local, currently payable 1,726,388 1,138,843 3,436,573 2,182,622
------------------- ------------------ ----------------- ------------
Total current income tax expense 4,985,645 3,061,530 10,274,957 6,266,785
------------------- ------------------ ----------------- ------------
Federal, deferred (3,107,540) - (3,107,540) -
State and local, deferred (1,339,895) - (1,339,895) -
------------------- ------------------ ----------------- ------------
Total deferred income tax expense (4,447,435) - (4,447,435) -
------------------- ------------------ ----------------- ------------
Total income taxes 538,210 3,061,530 5,827,522 6,266,785
------------------- ------------------ ----------------- ------------
Net (loss) income $ (242,352) $ 5,140,626 $ 6,055,974 $12,781,877
=================== ================== ================= ============
Net (loss) income per common and common equivalent share (a)<F1>(b)<F2>:
Net (loss) income $ (0.02) $ 0.39 $ 0.47 $ 0.97
=================== ================== ================= ============
Weighted average common shares outstanding 12,883,718 13,227,253 12,988,146 13,238,583
=================== ================== ================= ============
<FN>
<F1>(a) For presentation purposes, primary and fully diluted are identical.
<F2>(b) The sum of the individual quarters' earnings per common share does not
equal the total amount for the nine months ended February 28, 1997 or
February 29, 1996 due to the effect of averaging the number of shares of
common stock and common stock equivalents throughout the year.
</FN>
</TABLE>
The accompanying notes are an integral part of these statements.
<TABLE>
(4)
THE SHERWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(Unaudited)
Nine Months Ended
---------------------------------------
February 28, 1997 February 29, 1996
------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,055,974 $ 12,781,877
Non-cash items included in net income:
Equity (income) loss in partnerships 26,176 (40,309)
Depreciation and amortization 3,300,386 2,407,068
Income of Equitrade allocated to minority partners 2,866,762 2,282,213
Provision for deferred taxes (4,447,435) -
Loss on sale of subsidiary 123,006 -
(Increase) decrease in operating assets:
Receivables:
Brokers and dealers 20,803,603 (4,475,890)
Other (66,918) (197,896)
Securities owned, at market value (14,888,440) 5,069,923
US Treasury Obligations, held as collateral (88,263) (6,883)
Other assets (net of deposits made on furniture, fixtures
and equipment, and leasehold improvements) 337,284 492,826
Increase (decrease) in operating liabilities:
Securities sold, not yet purchased, at market value (979,368) (9,636,824)
Accounts payable and accrued expenses 8,529,299 3,323,491
Income taxes payable (4,241,744) 1,543,325
------------------- ------------------
Net cash provided by operating activities 17,330,322 13,542,921
------------------- ------------------
Cash flows from investing activities:
Purchase of investment securities not readily marketable (100,000) -
Distributions from partnerships, net 5,150 31,000
Issuance of notes receivable (105,740) (502,948)
Principal collected on notes receivable 102,340 548,573
Purchases of furniture, fixtures and
equipment, and leasehold improvements (9,007,891) (11,309,345)
Deposits made on furniture, fixtures and equipment,
and leasehold improvements (1,569,347) -
Purchases of computer software (326,502) (105,468)
Payment for purchase of non-compete agreement (188,780) -
Purchase of exchange membership (1,450,000) -
Issuance of subordinated note (500,000) -
------------------- ------------------
Net cash used in investing activities (13,140,770) (11,338,188)
------------------- ------------------
(Continued)
(5)
THE SHERWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
Nine Months Ended
---------------------------------------
February 28, 1997 February 29, 1996
------------------------------------------
Cash flows from financing activities:
Purchase of treasury stock (2,239,421) (1,115,771)
Proceeds from exercise of options - 400,000
Capital contributions by minority interest 135,659 29,575
Capital withdrawals by minority interest (1,536,000) (1,298,167)
------------------- ------------------
Net cash used in financing activities (3,639,762) (1,984,363)
------------------- ------------------
Net increase in cash 549,790 220,370
Cash acquired due to consolidation of Anvil 22,740 -
Cash at beginning of period 470,313 593,473
------------------- ------------------
Cash at end of period $ 1,042,843 $ 813,843
=================== ==================
Supplemental disclosure of non-cash financing activities:
As a result of the sale of its subsidiary, Stock Market Index, Inc., during
December 1996, the Company wrote off the remaining book value of certain
computer software and intangible assets aggregating $255,193. In addition, as
part of the sale, the Company received a note in the face amount of $132,187
from the buyer, resulting in a net loss of $123,006.
On January 24, 1997, the Company acquired, from its joint venture partner, the
remaining 51% of Anvil Institutional Services Company (the "Anvil Joint
Venture") that it did not previously own. The Company, therefore, became the
100% owner of Anvil Institutional Services Inc. ("Anvil"), a broker-dealer
previously owned by the Anvil Joint Venture. Accordingly, the assets,
liabilities and stockholder's equity of Anvil have been consolidated with
those of the Company as of the acquisition date. The increases or decreases in
operating assets and liabilities reflected in the consolidated statement of
cash flows for the nine months ended February 28, 1997 exclude amounts for the
assets and liabilites of Anvil which were assumed as part of the acquisition.
During February 1997, an executive of the Company exercised an aggregate of
94,027 options for the purchase of 94,027 shares of the Company's common stock
with exercise prices ranging from $7.9375 per share to $9.1875 per share. In
order to pay for the exercise price ($838,324) and to reimburse the Company
for the personal income taxes ($54,569) on the gain related to the
transaction, the executive remitted to the Company 88,187 shares of the
Company's common stock with a market value of $892,893.
The accompanying notes are an integral part of these statements.
</TABLE>
(6)
THE SHERWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
February 28, 1997
Note 1 - Business and organization
The Sherwood Group, Inc. and its subsidiaries (the "Company") are primarily
engaged in the securities business and in providing related financial services.
The Company has a principal registered broker-dealer wholly owned subsidiary,
Sherwood Securities Corp. ("Sherwood Securities"). National Discount Brokers
("NDB"), another registered broker-dealer, is a division of the Company's wholly
owned subsidiary, Triak Services Corp. The Company has a 60% special limited
partnership interest in Equitrade Partners ("Equitrade"), which is a specialist
for securities listed on The New York Stock Exchange ("NYSE"). Sherwood
Securities is also a specialist for securities listed on the American Stock
Exchange. During May 1996, the Company commenced operations of a new wholly
owned subsidiary, MXNet Inc. ("MXNet"), formerly Market Distribution Concepts
Inc. MXNet delivers comprehensive technical solutions to trading organizations.
As of December 31, 1996, the Company divested itself of its investment in Stock
Market Index, Inc., a wholly owned subsidiary. Finally, on January 24, 1997, the
Company acquired, from its joint venture partner, the remaining 51% of Anvil
Institutional Services Company (the "Anvil Joint Venture") that it did not
previously own. The Company, therefore, became the 100% owner of Anvil
Institutional Services Inc. ("Anvil"), a broker-dealer previously owned by the
Anvil Joint Venture.
Note 2 - Basis of presentation
The accompanying unaudited consolidated financial statements do not include
all of the information and notes required by generally accepted accounting
principles for complete consolidated financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation of
consolidated financial condition and results of operations for the periods
presented have been included. All adjustments are of a normal and recurring
nature. It is suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and the related notes
included in the Company's 1996 Annual Report on Form 10-K. Certain prior year
amounts have been reclassified to conform with the three and nine months ended
February 28, 1997 presentations.
Note 3 - Net income per common share
Net income per common share is computed using the weighted average number
of shares of common stock and common stock equivalents outstanding. Common stock
equivalents include stock issuable under stock options. The treasury stock
method of accounting was used in computing the common stock equivalents for the
computation of earnings per common share.
Note 4 - Commitments and contingencies
Certain significant legal proceedings and matters were previously disclosed
in the Company's 1996 Annual Report on Form 10-K incorporated herein by
reference. The Company's subsidiaries, and in some cases the Company, have been
named as defendants in lawsuits that allege violations of Federal and state
securities and related laws. Sherwood Securities has received additional
subpoenas in connection with the SEC's ongoing investigation In the Matter of
Certain Market Making Activities on NASDAQ, HO-2974. Sherwood Securities is
continuing to cooperate with the SEC's investigation. Although there can be no
assurance that such lawsuits and investigations involving the Company are not
likely to have a material, adverse effect on the results of operations of the
Company in any future period, depending in part on the results for such period,
based on information currently available, management of the Company believes
that any such lawsuits and investigations are not likely to have a material
adverse effect on the consolidated financial condition and results of operations
or liquidity of the Company in future periods.
See Item 2, "Management's Discussion and Analysis of Financial Condition
and Results of Operations Subsequent Events" regarding the settlement of the
matter entitled In Re: NASDAQ Market-Makers Antitrust Litigation .
(7)
<PAGE>
Note 5 - Net capital requirements
As registered broker-dealers, Sherwood Securities, NDB, Equitrade and Anvil
are subject to the Securities and Exchange Commission Uniform Net Capital Rule
15c3-1 (the "Rule"). As of February 28, 1997, the net capital of Sherwood
Securities, NDB, Equitrade and Anvil exceeded their required net capital by
$25,461,000, $1,878,000, $23,086,000 and $353,000, respectively.
The Rule also provides that equity capital may not be withdrawn or cash
dividends be paid if the resulting net capital of a broker-dealer would be less
than the amount required under the Rule. Accordingly, at February 28, 1997, the
payment of dividends and advances to the Company by Sherwood Securities, NDB,
Equitrade and Anvil is limited to $25,261,000, $1,806,000, $23,036,000 and
$343,000, respectively, under the most restrictive of these requirements. The
Securities and Exchange Commission ("SEC") may, by order, restrict the
withdrawal of equity capital on a net basis if the SEC determines that such
withdrawal would be detrimental to the financial integrity of the broker-dealer
or the financial community.
(8)
Item - 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The results of The Sherwood Group, Inc. and subsidiaries (the "Company")
for the three months and nine months ended February 28, 1997 reflect primarily
the activities of Sherwood Securities Corp. ("Sherwood Securities"), National
Discount Brokers ("NDB"), a division of the Company's subsidiary, Triak Services
Corp. ("Triak") and Equitrade Partners ("Equitrade"). Sherwood Securities is
primarily engaged in the securities business as a wholesale market maker in
NASDAQ National Market System and Small-Cap securities. NDB is a deep discount
brokerage firm specializing in trade execution for individual investors while
Equitrade is a registered specialist in equity securities on The New York Stock
Exchange ("NYSE"). During May 1996, the Company commenced operations of a new
wholly owned subsidiary, MXNet Inc. ("MXNet"), formerly Market Distribution
Concepts Inc. MXNet delivers comprehensive technical solutions to trading
organizations. As of December 31, 1996, the Company divested itself of its
investment in Stock Market Index, Inc., a wholly owned subsidiary. Finally, on
January 24, 1997, the Company acquired, from its joint venture partner, the
remaining 51% of Anvil Institutional Services Company (the "Anvil Joint
Venture") that it did not previously own. The Company, therefore, became the
100% owner of Anvil Institutional Services Inc. ("Anvil"), a broker-dealer
previously owned by the Anvil Joint Venture.
The Company's consolidated net loss for the three months ended February 28,
1997 was $(242,000) compared to net income of $5,141,000 for the three months
ended February 29, 1996. Subsequent to February 28, 1997, but prior to the
issuance of its third quarter consolidated financial statements, Sherwood
Securities entered into a Settlement Agreement dated April 9, 1997 with
Plaintiffs' Co-lead counsel on behalf of the class in the case In Re: NASDAQ
Market-Makers Antitrust Litigation, 94 Civ. 3996(RWS) currently pending in the
United States District Court for the Southern District of New York. Accordingly,
the Company has adjusted its consolidated financial statements at February 28,
1997 by recognizing a charge to operations amounting to $9,187,500 (see
"Subsequent Events"). For the quarter ended February 28, 1997, the principal
subsidiaries, Sherwood Securities and Triak, had a net loss of $(1,893,000) and
net income of $327,000, respectively, compared to net income of $4,010,000 and
$831,000 for the quarter ended February 29, 1996, respectively. Equitrade had a
net profit of $4,653,000 for the three months ended February 28, 1997 (of which
the Company's share was $2,539,000) as compared to a net profit of $2,636,000
for the three months ended February 29, 1996 (of which the Company's share was
$1,641,000). The Company's consolidated net income for the nine months ended
February 28, 1997 was $6,056,000 compared to $12,782,000 for the nine months
ended February 29, 1996. For the nine months ended February 28, 1997, the
principal subsidiaries, Sherwood Securities and Triak had net income of
$3,237,000 and $559,000, respectively, compared to net income of $8,376,000 and
$2,108,000 for the nine months ended February 29, 1996, respectively. Equitrade
had a net profit of $7,286,000 for the nine months ended February 28, 1997 (of
which the Company's share was $4,420,000) as compared to a net profit of
$6,183,000 for the nine months ended February 29, 1996 (of which the Company's
share was $3,901,000).
Total revenue for the Company increased by approximately $4,818,000, or
10%, for the three months ended February 28, 1997, and $13,997,000, or 11%, for
the nine months ended February 28, 1997, as compared with the previous year's
respective periods. The reasons for the increases in revenues are set forth
below.
Revenue from firm securities transactions increased $1,733,000, or 5%, and
$5,232,000, or 6%, for the three and nine month periods ended February 28, 1997,
respectively, as compared with the previous year. Revenues from firm securities
transactions at Sherwood Securities increased approximately $544,000, or 2%, and
$6,455,000, or 8%, for the three and nine month periods ended February 28, 1997,
respectively, when compared to the prior year, while Sherwood Securities'
overall trading volume increased approximately 8% and 4% for the same periods.
This increase in trading volume along with an increase in the average number of
shares per ticket led to an increase in opportunities which resulted in trading
profits. For the three months ended February 28, 1997, revenues from securities
transactions at Equitrade increased by approximately $1,190,000. The increase in
revenues from firm securities transactions at Sherwood Securities for the nine
months ended February 28, 1997 was partially offset by a decline of $1,222,000
in revenues from firm securities transactions at Equitrade which was primarily
due to trading losses sustained.
The Company's commission income, primarily generated by NDB, increased by
$1,416,000, or 18%, and $4,168,000, or 20%, for the three and nine months ended
February 28, 1997, respectively, when compared with the prior year. The
increases are due largely to the fact that NDB's average daily ticket count
increased from approximately 4,700 to 5,400 tickets per day, an increase of 15%,
for the three months ended February 28, 1997 and from 4,100 to 4,800 tickets per
day, an increase of 17%, for the nine month period ended February 28, 1997 when
compared with the
(9)
previous year.
Floor brokerage income increased by approximately $834,000, or 27%, and
$2,143,000, or 26%, for the three and nine months ended February 28, 1997,
respectively, when compared to the prior year. The increases, which arose from
the activities of Equitrade, resulted from an increase in the number of stocks
in which Equitrade is a specialist, from 82 stocks at May 31, 1995 to 100 stocks
at February 28, 1997.
The principal portion of equity loss in partnerships is equity loss from
the Company's 49% limited partnership interest it held in Anvil through January
24, 1997. Subsequently, Anvil's results are consolidated with those of the
Company.
Interest income increased by approximately $532,000, or 37%, and
$1,623,000, or 38%, for the three and nine months ended February 28, 1997,
respectively, as compared to the previous year. The increase is due to a
significant rise in NDB's customer debit and credit balances held with the
Company's clearing broker and an increase in the agreed upon rate used to
compute interest earned on such customer balances. Also contributing to the
increase was the availability of larger amounts of cash for investment.
Fee income increased by $418,000, or 122%, and $887,000, or 92%, for the
three and nine months ended February 28, 1997, respectively, as compared to the
prior year. The increase is principally due to larger 12b-1 fees received from
mutual funds as NDB's customers' balances in those funds have increased since
the prior year.
Total expenses for the three months ended February 28, 1997 increased
approximately $11,606,000, or 31%, from $37,999,000 in 1996 to $49,605,000 in
1997. Total expenses for the nine months ended February 28, 1997 increased
approximately $20,578,000, or 20%, from $100,732,000 in 1996 to $121,310,000 in
1997. The reasons for the increase in expenses are set forth below.
Compensation and benefits decreased $49,000, or 1%, and increased
$5,738,000, or 15%, for the three and nine month periods ended February 28,
1997, respectively, compared with the prior year. The differences are due
primarily to higher commissions paid to traders and salespeople because of
higher trading profits at Sherwood Securities and to an increase in office
salaries and related benefits due principally to an approximate 20% increase in
NDB's staff size offset by a reduction in the CEO bonus plan bonus accrual due
to the decline in income because of the litigation settlement charge during the
quarter ended February 28, 1997.
Clearing and related charges increased by approximately $1,121,000, or 8%,
and $1,536,000, or 4%, for the three and nine month periods ended February 28,
1997, respectively, as compared to the prior year. The increases were due
principally to the operations of NDB for which clearance charges rose by
approximately $960,000 and $1,792,000 during the three and nine months ended
February 28, 1997, respectively, compared to the prior year due to the increase
in the volume of transactions. The increase for the nine months ended February
28, 1997 was partially offset by a decline of approximately $416,000 in
clearance, correspondent and execution charges on Sherwood Securities' OTC
market making activities.
Communications expense increased by approximately $224,000, or 9%, and
$660,000, or 9%, for the three and nine months ended February 28, 1997,
respectively, as compared to the previous year. The increases are mainly due to
an increase in the activities of NDB, primarily the expansion of its 1-800
customer quotation service and increase in trading volume.
Litigation settlement, for the three and nine months ended February 28,
1997, represents a charge in connection with the case In Re: NASDAQ
Market-Makers Antitrust Litigation, 94 Civ. 3996(RWS) as discussed above and in
"Subsequent Events", below.
Depreciation and amortization increased by approximately $52,000, or 4%,
and $893,000, or 37%, for the three and nine months ended February 28, 1997,
respectively, as compared to the prior year. This increase can be attributed to
capital expenditures incurred in connection with the relocation of NDB's and
SSC's headquarters, as well as the commencement of operations of MXNet.
Occupancy and equipment rental expenses decreased $17,000, or 3%, and
$21,000, or 1%, for the three and nine month periods ended February 28, 1997,
respectively, as compared to the prior year. The decreases are due to a decrease
for Sherwood Securities which, last year, incurred rent concurrently on two main
office locations as they awaited their move from New York to New Jersey.
Offsetting this decrease were higher occupancy rates incurred as a result of the
signing of a new lease for the relocation of NDB's main offices.
(10)
Other expenses increased by approximately $1,074,000, or 30%, and
$2,511,000, or 30%, for the three and nine months ended February 28, 1997,
respectively, as compared to the prior year. During the three months ended
February 28, 1997, the Company incurred approximately $535,000 in legal,
accounting and investment banker fees and expenses, financial institution
commitment fees and out-of-pocket expenses in connection with the Company's
review of a possible acquisition which was not consummated. The Company also
incurred additional legal fees in connection with the litigation settlement
negotiations. These fees, coupled with an increase in advertising expenses, led
to the increases in other expenses.
Interest expense increased by approximately $15,000, or 12%, and $72,000,
or 36%, for the three and nine months ended February 28, 1997, respectively, as
compared to the previous year due to the operations of Equitrade. Interest
expense on the capital of Equitrade's minority partners has increased as the
level of such capital rose since a year earlier.
Income of Equitrade allocated to minority partners represents the share of
Equitrade's net income allocated to the minority partners during the three and
nine months ended February 28, 1997 and February 29, 1996, respectively.
The Company's effective tax rate increased from approximately 37% for the
three months ended February 29, 1996 to approximately 182% for the three months
ended February 28, 1997. The effective tax rate increased from approximately 33%
for the nine months ended February 29, 1996 to approximately 49% for the nine
months ended February 28, 1997. The difference in rates is due to several
factors. The first reason relates to the lower taxable income basis in the
current year periods as a result of the litigation settlement charge. Other
factors include the Company's relocation of its headquarters from New York to
New Jersey during November 1995 which led to a retroactive reduction in the
Company's effective tax rate during the quarter ended February 29, 1996. In
addition, during the quarter ended February 29, 1996, the Company recognized
certain tax benefits primarily related to employee compensation arrangements
which were not available during the quarter ended February 28, 1997. Moreover,
as a result of significant capital additions in New York City during the
quarter, the Company's consolidated state tax rate increased. Finally, the
timing of Equitrade's earnings affects the amount of unincorporated business
taxes accrued when compared to prior periods.
During the three months ended February 28, 1997, the expense for the class
action settlement that the Company has recorded as a subsequent event is deemed
to be nondeductible for current income tax purposes as the economic performance
rules have not been met. The Company has, therefore, recorded a deferred tax
benefit for the future tax consequences of events that have been recognized in
the financial statements or tax returns, based upon enacted tax laws and rates,
subject to management's judgment that realization is more likely than not. For
the three and nine months ended February 28, 1997, deferred taxes principally
relate to the future deductibility of the expense for the class action
settlement that the Company has recorded and which is expected to be paid. In
conjunction with the deferred tax asset the Company has recorded, the Company
has booked a valuation allowance of approximately $61,000 due to management's
judgment of the likelihood of realization.
Liquidity
The Company's tangible assets are highly liquid with more than 72% of these
tangible assets consisting of cash or assets readily convertible into cash. The
Company's operations have generally been financed by internally generated funds.
In addition, at February 28, 1997, margin account borrowings of approximately
$175,000,000 were available to the Company from its clearing brokers.
The Company's broker-dealer entities, Sherwood Securities, NDB, Equitrade
and Anvil, are subject to the minimum net capital requirement of the SEC which
is designed to measure the general financial soundness and liquidity of
broker-dealers. As of February 28, 1997, Sherwood Securities, NDB, Equitrade and
Anvil had approximately $25,261,000, $1,878,000, $23,086,000 and $353,000,
respectively, in excess of the required minimum net capital. The net capital
rule imposes financial restrictions upon Sherwood Securities', NDB's,
Equitrade's and Anvil's businesses which are more severe than those imposed on
most other businesses.
Cash flows from operations will vary on a daily basis as the Company's
portfolio of marketable securities changes. The Company's ability to convert
marketable securities owned into cash is determined by the depth of the market
and the size of the Company's security positions in relation to the market as a
whole. The portfolio mix also affects the regulatory capital requirements
imposed on Sherwood Securities, NDB and Equitrade which directly affects the
amount of funds available for operating, investing and financing activities.
(11)
In connection with the relocation of NDB's headquarters during December
1996, the Company made deposits of approximately $1,569,000 on various fixed
assets and computer software, accounting for the increase in other assets
reflected on the statement of financial condition as of February 28, 1997.
Additionally, fixed assets and computer software of approximately $7,100,000
were purchased and placed into service by NDB during the nine months ended
February 28, 1997. The Company anticipates that it will spend an additional
$2,200,000 over the next 3 months for the ongoing upgrade of NDB's technological
infrastructure and intends to finance this upgrade out of internally generated
funds.
In connection with the commencement of operations of MXNet, the Company
expended approximately $2,200,000 for operating costs and purchases of fixed
assets during the nine months ended February 28, 1997. Such funds were provided
from internally generated sources. No further capital expenditures are planned
at this time.
The operations of the Company's American Stock Exchange Specialist book
continue to be funded by the income generated by the book.
Cash flows from the Company's investment activities are directly related to
market conditions.
During July 1996, Equitrade purchased an additional seat on the NYSE for
$1,450,000.
On August 13, 1996, the Company purchased 100,000 restricted shares of
Intra Serve Corp. for $100,000.
On November 21, 1996, Equitrade loaned RSF Partners, a NYSE specialist
firm, $500,000 under a subordination agreement with interest payable at 8% per
annum and a maturity date of November 30, 1997. As additional consideration for
the loan, RSF Partners granted to Equitrade the exclusive right of first refusal
to acquire RSF Partners' specialist unit, subject to NYSE approval.
On November 22, 1996, the Company loaned $100,000 to Eurotech Ltd. In
addition to a promissory note bearing interest at the rate of 12% per annum, the
Company received 50,000 shares of Eurotech Ltd. Common stock.
As of December 31, 1996, the Company entered into an agreement with the
president of its subsidiary, Stock Market Index, Inc. ("SMI"), pursuant to which
the Company sold all the shares of SMI to the president of SMI in exchange for a
personal note of the president in the amount of $132,187. The note is secured by
the shares of SMI. The Company recognized a loss, after taxes, of approximately
$63,000 on this sale.
On January 24, 1997, the Company purchased from its partner in the Anvil
Joint Venture the partner's 51% joint venture interest for $188,780. As part of
the agreement, the partner signed a covenant not to compete for a period of one
year.
During the quarter ended February 28, 1997, the Company made a loan to NDB,
in the form of a subordination agreement and also made an additional capital
contribution to Anvil, in the form of a U.S. Treasury obligation. These funds
were expended in order for NDB and Anvil to maintain adequate regulatory capital
levels. Additional loans or contributions will be made by the Company to its
broker-dealer subsidiaries, as necessary, to ensure regulatory compliance.
During the nine months ended February 28, 1997, the Company repurchased
219,307 additional shares in connection with its December 1992 plan to buy back
up to 1,500,000 shares of the Company's common stock from time to time in the
open market or through privately negotiated transactions. As of February 28,
1997, 1,229,882 shares had been reacquired under this plan. The source of funds
for these purchases were internally generated.
The Company has entered into a definitive agreement with Dresdner Bank A.G.
to acquire from it all the stock of Dresdner-NY Incorporated ("DNY") for cash.
The Company intends to finance this acquisition with internally generated funds
(see "Subsequent Events").
Subsequent Events
Subsequent to February 28, 1997, but prior to the issuance of its third
quarter consolidated financial statements, Sherwood Securities entered into a
Settlement Agreement (the "Settlement Agreement") dated April 9, 1997 with
Plaintiffs' Co-lead counsel on behalf of the class plaintiffs in the case In Re:
NASDAQ Market-Makers Antitrust Litigation, 94 Civ. 3996(RWS) currently pending
in the United States District Court for the Southern District of New
(12)
York ("the Court"). This case is described in the Company's Form 10-K for the
year ended May 31, 1996 under Item 3, Legal Proceedings. The Settlement
Agreement, recorded as of February 28, 1997 as a subsequent event, provides for
payment by Sherwood Securities of $4,375,000 per percentage point of its market
share of the "Defendants' Market" which is defined as the 35 NASDAQ market-maker
defendants' total number of shares traded as market-makers in the Class
Securities (a designated list of NASDAQ securities) during the period May 1,
1989 to May 27, 1994. Sherwood Securities' market share of the Defendants'
Market is estimated in the Settlement Agreement to be 2.10% which estimate would
result in a total principal payment of $9,187,500. Accordingly, the Company has
adjusted its consolidated financial statements at February 28, 1997 by
recognizing a charge to operations for the total estimated principal payment of
$9,187,500. The market share estimate, however, is subject to a verification
procedure and adjustment set forth in the Settlement Agreement. The Settlement
Agreement provides for the payment of the verified amount in two installments,
50% ten days after the date of the Settlement Agreement, and the other 50%, plus
accrued interest, 365 days later. There are also non-monetary covenants in the
Settlement Agreement which do not become effective unless and until 23 or more
future settling defendants agree to the entry of a stipulation and order
containing the same covenants. In the non-monetary covenants, Sherwood
Securities has agreed to refrain from engaging in certain types of activities in
connection with its NASDAQ market making. One or more of these non-monetary
covenants are subject to being voided in circumstances set forth in the
Settlement Agreement. The Settlement Agreement provides for a release by "Class
Members" of "Released Claims" against Sherwood Securities and certain related
persons and affiliates as such terms are defined in the Settlement Agreement.
The Settlement Agreement is subject to the approval of the Court. There can be
no assurance that the Court will approve the Settlement Agreement as submitted
or that if the Court approves the Settlement Agreement the final judgment of the
Court will not be appealed. If appealed, there can be no assurance that the
final judgment of the Court will be affirmed. If the Settlement Agreement is not
approved by the Court or, if appealed, if the judgment of the Court is not
affirmed on appeal, the Settlement Agreement will be terminated except to the
extent provided in the Settlement Agreement. The Settlement Agreement also
provides that Sherwood Securities may terminate the Settlement Agreement in
certain other circumstances. The foregoing description of the Settlement
Agreement is a summary, is not complete and is qualified by reference to the
Settlement Agreement, a copy of which has been filed as Exhibit 10(a) to this
Form 10-Q.
The Company has entered into a definitive agreement with Dresdner Bank A.G.
to acquire from it all the stock of DNY, which is engaged in the specialist
business on the NYSE, for a purchase price of $5,215,000 plus the total
stockholder's equity of DNY which at December 31, 1996 was $12,187,753. DNY
serves as a specialist in 54 securities on the NYSE. The acquisition will
include four seats on the NYSE and DNY's receivable for floor brokerage. The
assets including four seats on the NYSE (except cash) and liabilities of DNY
will be transferred by the Company to Equitrade. Two employees of DNY are to
retain a portion of the specialist book of DNY and become limited partners of
Equitrade. The balance of the specialist book will remain with Equitrade, and
the Company will be entitled to 38.4% of the "net profits" and "net losses" from
the specialist activities of this specialist book. The transaction is subject to
the approval of the NYSE and review under the Hart-Scott-Rodino Antitrust
Improvement Act of 1976. While the Company believes it will receive the required
approvals for this acquisition, there can be no assurance that the required
approvals for the DNY acquisition will be obtained. Management of the Company
believes the acquisition will be completed prior to the end of May 1997.
Effects of Inflation
The Company's assets are not significantly affected by inflation because
they are primarily monetary in nature. Management believes that replacement
costs of furniture, equipment and leasehold improvements will not materially
affect operations. However, the rate of inflation affects the Company's
principal expenses such as employee compensation, rent and communication, which
may not be readily recoverable from increased revenues. Because of market forces
and competitive conditions in the securities industry, a broker-dealer may be
unable to unilaterally increase spreads and commissions in order to recover
increased costs related to inflation. Consequently, the Company must rely on
increased volume for this purpose. However, the Company has significant cash
balances on deposit with its principal clearing brokers on which interest is
paid which, in the event there are higher interest rates which normally result
from inflation, would offset some of the costs.
(13)
New Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("Statement 128"),
for periods ending after December 15, 1997. Statement 128 replaces the current
standard used to calculate primary earnings per share, Accounting Principles
Board Opinion No. 15 ("APB 15"). Statement 128 requires a calculation of basic
earnings per share, as well as a dual presentation of basic and diluted earnings
per share on the face of the statement of income. Basic earnings per share
differs from primary earnings per share under APB 15 in that dilution for common
stock equivalents is excluded. Basic earnings per share under Statement 128, for
the three and nine months ended February 28, 1997 would not have been materially
different than primary earnings per share under APB 15.
Forward Looking Statements
Statements regarding the Company's expectations as to its future operations
and financial condition and certain other information contained in this Form
10-Q or in documents incorporated herein by reference constitute forward looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Although the Company believes that its expectations are based on
reasonable assumptions within the bounds of its knowledge of its business and
operation, there can be no assurance that actual results will not differ
materially from its expectations. Factors which could cause actual results to
differ from expectations include a general downturn in the economy, changes in
the level of activity of securities markets in which the Company participates,
changes in government policy or regulation and unforeseen costs and other
effects related to legal proceedings or investigations of governmental and
self-regulatory organizations.
PART II - OTHER INFORMATION
Item 1 - LEGAL PROCEEDINGS
In Part I, Item 3 "Legal Proceedings" of its Form 10-K for the fiscal year
ended May 31, 1996, the Company reported upon a class action complaint entitled
In re NASDAQ Market-Makers Antitrust Litigation, 94 Civ. 3996(RWS), in which
Sherwood Securities is one of several defendants. The Honorable Robert W. Sweet,
U.S.D.J., by opinion issued on November 26, 1996, granted in part plaintiffs'
motion in this action for class certification pursuant to Rules 23(b)(2) and
23(b)(3) of the Federal Rules of Civil Procedure. Sherwood Securities entered
into a Settlement Agreement with Plaintiffs' Co-lead counsel on behalf of the
class plaintiffs in this matter. The Settlement Agreement is described under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Subsequent Events" and is filed as Exhibit 10(a) to this Form
10-Q and is incorporated herein by reference.
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 10(a) - Settlement Agreement
Exhibit 10(b) - Stock Purchase Agreement dated as of
April 11, 1997 between Dresdner Bank A.G.
and The Sherwood Group, Inc.
Exhibit 11 - Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule
(b) The Company filed no reports on Form 8-K during the quarter ended
February 28, 1997.
(14)
<PAGE>
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 thereunto duly authorized.
The Sherwood Group, Inc.
---------------------------
Date: April 11, 1997 By: Dennis Marino
---------------- ---------------------------
Dennis Marino
Executive Vice President
and Chief Administrative
Officer
Date: April 11, 1997 By: Denise Isaac
--------------- -------------------------
Denise Isaac
Chief Financial Officer
and Principal Accounting
Officer
(15)
- 55 -
UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
...........................................................
94 Civ. 3996 (RWS)
IN RE:
M.D.L. No. 1023
NASDAQ MARKET-MAKERS
ANTITRUST LITIGATION
This Document Relates To:
All Actions
...........................................................
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT is made this 9th day of April, 1997, by
defendant Sherwood Securities Corp. (the "Settling Defendant") and plaintiffs,
through Plaintiffs' Co-Lead Counsel in the In Re: Nasdaq Market-Makers Antitrust
Litigation, 94 Civ. 3996 (RWS), M.D.L. No. 1023, a multidistrict consolidated
class action, acting on behalf of the Class defined herein (collectively, the
"Class" or "class plaintiffs").
WHEREAS, plaintiffs have alleged, among other things, that the Settling
Defendant has acted unlawfully by, among other things, engaging in a conspiracy
to inflate the bid-ask spread of certain Nasdaq securities in violation of the
Sherman Act, 15 U.S.C. ss.1, and plaintiffs contend that they have suffered
damages, including damages measured by the difference between the spreads
charged and the spreads that would have prevailed in a competitive market,
absent violations of the antitrust laws;
WHEREAS, the Settling Defendant vigorously denies each and every one of
plaintiffs' allegations of unlawful conduct and has alleged a number of defenses
to plaintiffs' claims and disclaims any wrongdoing or liability whatsoever;
WHEREAS, plaintiffs and Settling Defendant agree that this Settlement
Agreement shall not be deemed or construed to be an admission or evidence of any
violation of any statute or law or of any liability or wrongdoing by Settling
Defendant or of the truth of any of the claims or allegations alleged in the
Class Action;
WHEREAS, arm's length settlement negotiations have taken place between
Plaintiffs' Co-Lead Counsel and Settling Defendant, and this Settlement
Agreement has been reached, subject to the final approval of the Court;
WHEREAS, Plaintiffs' Co-Lead Counsel have concluded, after substantial
discovery and investigation of the facts and after carefully considering the
circumstances of the Class Action and the applicable law, that it would be in
the best interests of the Class to enter into this Settlement Agreement in order
to avoid the uncertainties of litigation, particularly complex litigation such
as this, and to assure a benefit to the Class, and further, that Plaintiff's
Co-Lead Counsel consider the settlement set forth herein to be fair, reasonable,
and adequate and in the best interests of plaintiffs, including all members of
the Class;
WHEREAS, in determining the amount of monetary compensation to be paid
by this Settling Defendant, Plaintiffs' Co-Lead Counsel have taken into account,
inter alia, (a) the Settling Defendant's position as the first Settling
Defendant, (b) the Settling Defendant's net worth relative to the net worth of
Other Defendants; and (c) the fact that Plaintiffs' motion to include
institutional investors in the class is undecided at the time of the entry into
this Settlement Agreement;
WHEREAS, Settling Defendant has concluded, despite the belief of
Settling Defendant that it is not liable for the claims asserted and has good
defenses thereto, that it will enter into this Settlement Agreement to avoid the
further expense, inconvenience and burden of this protracted litigation, and the
distraction and diversion of its personnel and resources, and to put to rest
this controversy with valued business customers, and to avoid the risks inherent
in uncertain complex litigation, and to avoid the expense and risks inherent in
any possible future litigation raising similar claims;
NOW THEREFORE, it is agreed by the undersigned, on behalf of the
Settling Defendant and the Class, that the Class Action and all claims of the
class plaintiffs be settled, compromised and dismissed on the merits and with
prejudice as to the Settling Defendant, and, except as hereinafter provided,
without costs as to plaintiffs or Settling Defendant, subject to the approval of
the Court, on the following terms and conditions:
1. Terms Used In This Agreement.
The words and terms used in this Settlement Agreement which are
expressly defined in Section 36 ("Definitions.") of this Agreement shall have
the meaning ascribed to them in the said Section.
2. Class Definition.
The Class is defined for settlement purposes ("Settlement Class"
or "Class") as follows: All persons, firms, corporations, and
other entities (excluding Defendants and other Nasdaq
market-makers, and their respective affiliates) who purchased
or sold Class Securities on the Nasdaq National Market,
trading directly (or through agents) with the Defendants or
their co-conspirators, or with their respective affiliates,
during the period May 1, 1989 to May 27, 1994 ("Class
Period"); and
A subclass consisting of those members of the class defined in
the immediately preceding clause, who at the time Class Notice
(as defined in the Refiled Consolidated Complaint) are current
brokerage customers of defendants (or their affiliates), or
whose brokerage accounts are cleared by defendants (or their
affiliates), and to whom defendants (or their affiliates) send
periodic mailings.
For purposes of this settlement, all brokers are deemed agents and,
therefore, the Class includes, but is not limited to, all persons, firms,
corporations and other entities, as described above, who traded through brokers.
For purposes of this settlement, institutional investors (including but not
limited to banks, savings and loan associations, insurance companies, registered
investment companies, investment advisors and all private and public mutual,
retirement, pension, profit sharing or other types of funds) are "firms,
corporations and other entities" included in the Class to the extent that they
purchased or sold Class Securities in the manner and during the period described
in the Class definition. The inclusion of all such persons, firms, corporations
and other entities who traded through brokers and all such institutional
investors in the Court approved Settlement Class is a condition precedent to
this Settlement Agreement becoming final. The term "affiliates" as used in the
Class definition includes parents, subsidiaries and other commonly owned or
commonly controlled affiliates. If the definition of the Class or the list of
Class Securities is expanded, by order of the Court for litigation purposes, or
in connection with any Future Settlement (the "Class Redefinition"), the
definition of the Class or list of Class Securities shall be identically
expanded for purposes of this settlement, without the need for additional
consideration, as more specifically set forth as follows:
a. If Class Redefinition occurs prior to the mailing of
the Class Notice and Notice of Settlement for this
settlement ("Sherwood Settlement Notice"), then the
corresponding redefinition of the class for purposes
of this settlement shall occur at the time of Class
Redefinition, and the Class Notice and Sherwood
Settlement Notice shall be given to the redefined
class, and the Sherwood Settlement Notice shall
specifically reflect settlement with the redefined
class.
b. If the Class Redefinition occurs (i) subsequent to
mailing of Class Notice and Sherwood Settlement
Notice, but (ii) prior to the time that this
settlement becomes final in accordance with Section
7(a)-(c), then the corresponding redefinition of the
class for purposes of this settlement shall occur at
the time of Class Redefinition, and if any subsequent
notice to the Class occurs, that notice shall include
notice of the redefinition of the Class for purposes
of this settlement, without any additional cost to
Sherwood.
c. If Class Redefinition occurs subsequent to the time
that this settlement becomes final in accordance
with Section 7, then the parties agree that said
Class Redefinition shall constitute a reason
justifying relief to Sherwood from the operation of
the judgment within the meaning of Fed. R. Civ.
P. 60(b)(6) to the extent necessary to effectuate the
corresponding redefinition of the class for purposes
of this settlement. The parties further agree that
they shall jointly ask the Court for such relief for
Sherwood and for such further relief as is necessary
to redefine the class for purposes of this
settlement and for the provision of such notice to
the redefined class, without additional cost to
Sherwood, as the Court deems necessary in light of
the Class Redefinition. This subsection 2(c) shall
be severable and subject to separate Court approval.
3. Best Efforts to Effectuate This Settlement.
Counsel for the Settling Defendant and Plaintiffs' Co-Lead Counsel
agree to recommend approval of this Settlement Agreement by the Court and to
undertake their best efforts, including all steps and efforts contemplated by
this Settlement Agreement and any other steps and efforts that may be necessary
or appropriate, by order of the Court or otherwise, to carry out the terms of
this Settlement Agreement.
4. Motion for Preliminary Approval.
Within thirty (30) business days of the date hereof, Plaintiffs'
Co-Lead Counsel shall submit to the Court a motion for preliminary approval of
the settlement and this Settlement Agreement. A proposed form of order is
attached hereto as Exhibit A. Plaintiffs' Co-Lead Counsel and counsel for the
Settling Defendant shall request that a decision be made promptly on the papers,
or that a hearing on the motion for preliminary approval of the settlement be
held within 30 days of the date of such motion.
5. Combination of Class Notice and Settlement Notice.
Counsel for the Settling Defendant and Plaintiffs' Co-Lead Counsel will
ask the Court to combine the notice of this settlement with the class notice to
be given generally, pursuant to Rule 23(c), (d) and (e) of the Federal Rules of
Civil Procedure. Plaintiffs' Co-Lead Counsel shall recommend to the Court, and
Settling Defendant shall not oppose, a program and form of notice to the
Settlement Class consistent with the goals of providing economical, efficacious
and expeditious notice consistent with the requirements of Rule 23 and due
process. After the Court approves a program and form of notice and finds that
the program and form of notice satisfy the requirements of Rule 23 and due
process, up to one-half of the Settlement Fund (as adjusted and including
accrued interest) may be used to pay the costs of class notice. However, if
prior to class notice Plaintiffs' Co-Lead Counsel enter into Future Settlements
with one or more Future Settling Defendants, which are preliminarily approved by
the Court, the amount of the Settlement Fund that may be used to pay the costs
of class notice shall not exceed the lesser of (a) one-half of the Settlement
Fund or (b) 100% of the costs of class notice divided by the number of
defendants, including the Settling Defendant, who have settled, regardless of
whether or not the Future Settling Defendants are required by the Future
Settlements to contribute to the cost of class notice. (For example, if a
settlement with one Other Defendant is preliminarily approved, the amount of the
Settlement Fund that may be used to pay the costs of class notice shall be the
lesser of one-half of the Settlement Fund or 50% of the class notice costs, and
if settlements with two Other Defendants are preliminarily approved, the amount
of the Settlement Fund that may be used to pay the costs of class notice shall
be the lesser of one-half of the Settlement Fund or one-third of the total costs
of giving notice.) For purposes of this Settlement Agreement, the costs of
giving notice include all costs and expenses associated with notice to the
class, including but not limited to the costs and expenses associated with
identifying class members, providing mailed notice and published notice, and
providing any notice by means of the Internet, toll-free telephone service or
otherwise. The Settling Defendant shall provide all information, within its
possession, custody or control, relating to the identity of class members to the
same extent agreed to by 19 or more defendants or, in the absence of an
agreement, ordered by the Court. The Settling Defendant will not object to the
inclusion of notice in its periodic mailings to class members, if any, to the
extent agreed to by 19 or more defendants or, in the absence of an agreement,
ordered by the Court.
6. Motion for Entry of Final Judgment.
If, after notice to the Class, the Court approves this Settlement
Agreement, then the parties hereto shall jointly seek entry of an order and
final judgment, in substantially the form attached hereto as Exhibit B,
a. finally approving this settlement and its terms as
being a fair, reasonable and adequate settlement as
to the Class within the meaning of Rule 23 of the
Federal Rules of Civil Procedure, and directing its
consummation pursuant to its terms;
b. directing that, as to the Settling Defendant, the
Class Action be dismissed with prejudice and, except
as provided for herein, without costs in favor of the
Settling Defendant and against the members of the
Class who did not timely request exclusion from the
Class;
c. permanently barring and enjoining all members of the
Class (other than those members of the Class who have
filed a valid request for exclusion from the Class)
from the institution, maintenance, prosecution or
enforcement, either directly or indirectly, of any
Released Claim against any Released Party;
d. discharging and releasing each Released Party from
the institution, maintenance, prosecution or
enforcement, either directly or indirectly, of any
Released Claim;
e. determining pursuant to Fed.R.Civ.P. 54(b) that there
is no just reason for delay and directing that the
judgment of dismissal shall be final and appealable;
f. reserving continuing and exclusive jurisdiction over
the settlement and this settlement agreement,
including the administration and consummation of this
settlement; and
g. directing that Plaintiffs' Co-Lead Counsel shall file
with the Clerk of the Court a list of those members
of the Class who have timely excluded themselves from
the Class and a copy of all requests for exclusion
from the Class.
7. Finality.
This Settlement Agreement shall become final upon the occurrence of all
of the following three events:
(a) approval in all respects by the Court as
required by Rule 23(e) of the Federal
Rules of Civil Procedure;
(b) entry, as provided for in Section 6 herein,
is made of the final judgment (Exhibit B
hereto) of dismissal with prejudice as to
the Settling Defendant against all
plaintiffs and members of the Class who have
not timely excluded themselves from the
Class; and
(c) expiration of the time for appeal or the
time to seek permission to appeal from the
Court's approval of this Settlement
Agreement as described in (a) hereof and
entry of a final judgment as described in
(b) hereof or, if appealed, approval of this
Settlement Agreement and the final judgment
have been affirmed in their entirety by the
court of last resort to which such appeal
has been taken and such affirmance has
become no longer subject to further appeal
or review.
It is agreed that the provisions of Rule 60 of the Federal Rules of Civil
Procedure shall not be taken into account in determining the above-stated times.
Notwithstanding the foregoing, nothing in this Section shall prejudice the
ability of the parties to make the joint application contemplated by ss.2(c)
above nor relieve the parties of their obligation to do so.
8. Monetary Terms.
Subject to the provisions hereof, and in full, complete and final
settlement of the Class Action, the Settling Defendant agrees that it shall pay
$4,375,000.00 per percentage point for its market share of the Defendants'
Market. For this purpose, "Defendants' Market" is defined as the 35 defendants'
total number of shares traded as market makers in the class securities currently
set forth in, and within the time periods set forth in, Exhibit A to the Refiled
Consolidated Complaint, excluding trades outside the Nasdaq National Market
(e.g., Instinet or Posit), excluding trades between market makers, and excluding
trades by non-defendant market makers. The Settling Defendant's volume of shares
traded shall be determined in like manner and with like exclusions; and the
Settling Defendant's market shall be determined to the nearest tenth of one
percent.
The Settling Defendant has agreed to pay this consideration with the
specific contemplation that it is adequate not only to compensate the current
Class but also to compensate potential future additions to the Class by reason
of any Class Redefinition. Plaintiffs' Co-Lead Counsel also consider the amount
of the Settlement Fund together with the other terms of this Settlement
Agreement, fair, reasonable and adequate to accommodate the interests of any
such potential future additions to the Class. Nonetheless, the Class shall
retain the entire Settlement Fund, with no reversion to the Settling Defendant,
even if no expansion of the Class ever occurs.
The Settling Defendant shall pay the first half of its principal
obligation, within ten (10) business days after the date hereof, into an escrow
account to be invested in instruments secured by the full faith and credit of
the United States. The escrow account shall be established and administered
pursuant to an escrow agreement in a form satisfactory to the parties, and held
and administered by an escrow agent satisfactory to the parties. Plaintiffs'
Co-Lead Counsel and Counsel for the Settling Defendant shall be joint trustees
of this escrow account. It is intended that any taxes due as a result of income
earned by the Settlement Fund will be paid from the Settlement Fund. In the
event federal income tax liability is final, assessed against and paid by the
Settling Defendant as a result of income earned by the Settlement Fund, Settling
Defendant shall be entitled to reimbursement of such payment from the Settlement
Fund. Settling Defendant will notify Plaintiffs' Co-Lead Counsel of any notice
of assessment or payment and will use its best efforts to resist any such
assessment or payment.
For purposes of the Settling Defendant's initial payment of one-half of
its principal obligation, the Settling Defendant's market share is estimated to
be 2.1%, which would require total principal payments of $9,187,500 under this
Settlement Agreement. However, this estimate shall be subject to verification,
as follows: within 30 days after this Settlement Agreement is signed, the
Settling Defendant shall provide to Plaintiffs' Co-Lead Counsel a written report
by a consultant ("Settling Defendant's Consultant") computing the Settling
Defendant's share of the Defendants' Market through the use of a methodology as
similar as practical to that described in Exhibit C to this Settlement
Agreement, as well as all of the back-up data (in computerized form to the full
extent available) and programs actually used in performing the calculation. The
report of the Settling Defendant's Consultant shall include a thorough
explanation of sampling, if any, and methodology. The Settling Defendant and
Settling Defendant's Consultant shall cooperate fully with Plaintiffs' Co-Lead
Counsel and plaintiffs' consultants so that Plaintiffs' Co-Lead Counsel and
plaintiffs' consultants can evaluate the appropriateness and accuracy of the
computation of the Settling Defendant's market share. Such cooperation shall not
include, however, the taking of formal discovery of Settling Defendant's
Consultant nor the provision by Settling Defendant's Consultant of any materials
that are the subject of any privilege or work product protection belonging to
persons or entities that are not parties to this Agreement.
Within 30 days after receipt of the Settling Defendant's Consultant's
Report, Plaintiffs' Co-Lead Counsel shall either accept or challenge in writing
Settling Defendant's Consultant's computation of market share. Any challenge
shall be accompanied, within 30 additional days, by a written report from
plaintiffs' consultant calculating, to the extent practical, Settling
Defendant's share of the Defendant's Market through the use of a methodology as
similar as practical to that described in Exhibit C, together with a thorough
explanation, to the extent practical, of methodology and together with any
additional data and programs. In the absence of any such timely challenge, the
Settling Defendant's Consultant's Report will be deemed accepted. If this
computation is timely challenged for any reason by Plaintiffs' Co-Lead Counsel,
then, in the absence of agreement or compromise, Settling Defendant's Consultant
and plaintiffs' consultants shall jointly select a neutral economist as an
arbitrator, and the computation shall be subject to binding arbitration, without
appeal, subject to the rules of the American Arbitration Association, the
expense of which will be paid from or reimbursed from the Settlement Fund. Any
requests for additional data or information by either consultant shall be
resolved voluntarily or by the arbitrator.
It is the joint belief, understanding and contemplation of the parties
that the calculation of Settling Defendant's share of Defendants' Market as
described herein and in Exhibit C hereto is designed to be a pragmatic approach
to reasonably estimate the Settling Defendant's market share for the purpose of
arriving at one appropriate measure of monetary consideration for this
settlement. No calculation or method of calculation would be perfect. Neither
party believes that the fairness, adequacy or reasonableness of this settlement
is a function of the precise accuracy of this calculation. Instead, the parties
believe that the efficient procedure set forth herein and in Exhibit C hereto is
itself fair, reasonable and adequate and will result in an appropriate measure
- -- not necessarily the only appropriate measure -- of this Settling Defendant's
comparative share of the activity at issue in this Class Action.
If Settling Defendant's Consultant's computation of the Settling
Defendants' share of Defendant's Market is greater than 2.1%, or if the parties
subsequently agree that it is greater than 2.1%, or if the arbitrator
subsequently decides that it is greater than 2.1%, then within 30 days after the
Settling Defendant's Consultant's report or arbitrator's decision, Settling
Defendant shall pay half of the difference times $4,375,000.00 into the escrow
account, plus interest equaling the amount that would have been earned had this
half of the difference been paid at the time of the initial payment. The
remaining half of the difference shall be included with interest (as computed
below) in the Settling Defendant's second payment. If Settling Defendant's
Consultant or the arbitrator decide that the Settling Defendant's share of
Defendants' Market is less than 2.1%, then the difference times $4,375,000.00
shall be credited against the Settling Defendant's second payment described
below.
The Settling Defendant shall pay the second half of its principal
obligation 365 days after signing this Settlement Agreement into the same escrow
account set forth above, to be invested in like manner (or, if applicable, the
escrow account established under Section 11 of this Settlement Agreement).
Simple interest shall be earned over the 365 day period at the Broker's Call
Rate ("Call Money") as published in the Wall Street Journal as of the date of
the signing of this Settlement Agreement, which is 7.25%. If, prior to
distribution of the Settlement Fund, plaintiffs enter into any Future Settlement
in which a Future Settling Defendant is permitted to defer payment of
consideration and is charged an interest rate below the Call Money rate on the
date of such Future Settlement, then the interest rate paid by the Settling
Defendant shall be reduced by an equal number of points, or reduced to zero in
the event the Future Settling Defendant is charged no interest, and the
Settlement Fund appropriately credited or refunded.
Nothing contained in this Settlement Agreement shall limit the Settling
Defendant's right to prepay the second half of its principal obligation with
interest through the date of actual payment, and without prepayment penalty,
which right, if exercised, will fulfill the Settling Defendant's payment
obligation hereunder in full.
If the Settling Defendant fails to pay in full the second half of its
principal obligation (as adjusted above) with interest (as computed above) 365
days after the date of signing of this Settlement Agreement, then Plaintiffs'
Co-Lead Counsel, on 10 days written notice to Settling Defendant's counsel,
during which 10-day period Settling Defendant shall have the opportunity to cure
the default without penalty, may withdraw from this Settlement Agreement or
elect to enforce it, with the full expenses of any enforcement effort, including
legal fees, to be taxed against Settling Defendant. The Settling Defendant's
obligation to pay may be enforced by motion in this multidistrict litigation.
9. All Claims Satisfied by Settlement Fund.
Plaintiffs and other members of the Class who have not timely excluded
themselves from the Class shall look solely to the Settlement Fund for
settlement and satisfaction against the Settling Defendant of all claims that
are released hereunder. Except as provided herein, or by subsequent order of the
Court, no class member shall have any interest in the Settlement Fund or any
portion thereof.
10. Expenses Paid From Settlement Fund.
The Settling Defendant shall not be liable for any costs, or fees or
expenses of any of plaintiffs' respective attorneys, experts, consultants,
agents and representatives, but all such costs, fees and expenses as approved by
the Court may be paid out of the Settlement Fund.
11. Establishment of Escrow Account.
Ten days after final settlement approval, the Settlement Fund
(including the principal obligation and interest) shall be paid into a further
escrow account with Plaintiffs' Co-Lead Counsel as sole trustees. Except as
provided in Section 5 herein, no distribution of the Settlement Fund shall be
made until the conditions contained in Section 7 shall have been fulfilled.
12. Plan of Distribution.
Plaintiffs' Co-Lead Counsel shall propose a plan of distribution to the
Court, either before or after final settlement approval. The Settling Defendant
shall not directly or indirectly take any position with respect to any plan of
distribution or amount of distribution to any plaintiff or class member,
counsel, expert or consultant, or any other person whatsoever, except as set
forth in Section 27 hereof. In no event shall any portion of the Settlement Fund
(including principal or interest) be distributed or revert to the Settling
Defendant, under any circumstances, after this Settlement Agreement becomes
final pursuant to Section 7 herein. After this Settlement Agreement becomes
final pursuant to the provisions of Section 7 herein, the Settlement Fund shall
be distributed as ordered by the Court.
To facilitate processing of claims and distribution of the Settlement
Fund, upon written request by the Plaintiffs' Co-Lead Counsel, the Settling
Defendant will, to the extent reasonably available, provide those computerized
records which reflect trades by class members and which are within its
possession, custody or control to the Plaintiffs for the purposes of settlement
administration.
Following final approval, disbursements for the costs and expenses of
administration and distribution of the Settlement Fund, or expenses of
litigation, may be made from the Settlement Fund from time to time with approval
of the Court. In no event shall the Settling Defendant have any liability or
responsibility with respect to the distribution and administration of the
Settlement Fund, including, but not limited to, the costs and expenses of such
distribution and administration.
13. Non-Monetary Relief.
The Settling Defendant, as a further term of this Settlement Agreement,
conditionally agrees to the following non-monetary relief. The parties shall
jointly move for entry of the Stipulation and Order, appended hereto as Exhibit
D, at the same time that they move for final approval of this Settlement
Agreement. However, the Stipulation and Order appended hereto as Exhibit D shall
not become final and shall not become effective unless and until, and only to
the same extent that, 23 or more Future Settling Defendants (other than Kidder
Peabody which is no longer in business) agree to the entry of a Stipulation and
Order, of the same or longer duration, containing the same Negative Covenants
contained in Exhibit D, which Stipulations and Orders have become final and
effective. In addition, effective upon final approval of this Settlement and of
Future Settlements by at least 23 Future Settling Defendants (other than Kidder
Peabody which is no longer in business) containing a like provision, Settling
Defendant agrees that if the United States Department of Justice requests that
some or all of the resources Settling Defendant is required, by the terms of any
finally approved resolution of United States of America v. Alex. Brown, et al.,
96 Civ. 5313(RWS), in the United States District Court for the Southern District
of New York (the "DOJ Action"), to dedicate to the monitoring and recording of
telephone conversations be diverted instead to the recording and monitoring of
other media of trader communications (such as, for example, Instinet or
SelectNet), Settling Defendant shall comply with that request. In no event,
however, shall Settling Defendant be required by operation of this section to
agree to any such request that would increase the aggregate time or expense
dedicated to monitoring trader communications. Nothing in this section shall be
construed to require Settling Defendant to enter into any settlement at all of
the DOJ Action or to agree to any monitoring of trader communications as part of
such a settlement.
No provision of the Stipulation and Order appended hereto as Exhibit D
or of this Section 13 shall be enforceable against the Settling Defendant if a
State of Federal government agency or authority commences an action or
proceeding in which it formally asserts that such provision, alone or in
combination with other provisions, is a Statutory Disqualifier, in which case
such provision or provisions shall be deemed null and void ab initio. Moreover,
nothing in this Settlement Agreement is intended by the Parties to waive any
rights the Settling Defendant may have in connection with the DOJ Action or in
connection with any settlement of the DOJ Action; nor is it intended to waive
any objections Plaintiffs' Co-Lead Counsel may have to any current or future
proposed settlement of the DOJ Action. In particular, and without limitations,
in the event, as contemplated by this section, Settling Defendant agrees at the
request of the DOJ to the recording or monitoring of forms of trader
communications other than telephone calls, any such recordings or other
evidentiary by-product of such monitoring shall not be discoverable by persons
other than the DOJ or admissible in judicial or administrative proceedings
unless, and only to the extent that, tape recordings made pursuant to the terms
of any finally approved settlement by Settling Defendant of the DOJ Action are
discoverable or admissible. Nothing in this section shall be asserted by the
parties to be additional grounds for either approval or disapproval by the Court
of the currently proposed settlement of the DOJ Action, nor shall this section
operate as assent by the Class to be bound by the judgment in the DOJ Action to
any greater extent than the Class would otherwise be bound.
It is agreed and understood that if the Non-Monetary Relief set forth
herein and in Exhibit D hereto does not become effective by its terms or becomes
effective but is later rendered void by its terms, then this Settlement
Agreement shall still be enforceable and effective in all other respects and the
parties agree that the monetary consideration is itself fair and adequate
consideration for the settlement embodied in this Settlement Agreement.
14. Release.
As set forth in the final judgment to be entered in accordance with
this Settlement Agreement, upon this Settlement Agreement becoming final, the
Released Parties shall be released and forever discharged from all manner of
claims, demands, actions, suits, and causes of action relating to all Nasdaq
Securities (including securities that are not Class Securities), whether class,
individual, or otherwise in nature, damages, whenever incurred, liabilities of
any nature whatsoever, including costs, expenses, penalties and attorneys' fees,
known or unknown, suspected or unsuspected, in law or equity, that any class
plaintiff or members of the Class who have not timely excluded themselves from
the Class Action (whether or not they make a claim
<PAGE>
upon or participate in the Settlement Fund), ever had, now has or
hereafter can, shall or may have, arising from or relating in any way to (a) any
conduct complained of in the Refiled Consolidated Complaint or the constituent
actions consolidated therein, (b) any conduct involving any express or implied
or tacit joint or coordinated activity between Settling Defendant (including any
employee of Settling Defendant) and any other Nasdaq Market maker (including any
employee thereof) with respect to quotes, quote increments, movements of quotes,
prices, dealer spreads or inside spreads of any Nasdaq Security, (c) any conduct
relating in any way to the fixing, stabilizing, maintaining or widening of
bid-ask spreads (either dealer spreads or inside spreads or both) for any Nasdaq
Security, (d) any conduct relating in any way to the fixing of or movement (or
increments of movement) of bid or ask quotations for any Nasdaq Security
(including without limitation movements of quotes at the request of or pursuant
to agreement with another Market maker), (e) any conduct relating in any way to
the minimum or maximum number of shares that Nasdaq Market makers, or any of
them, were willing to trade at their quoted bid or, quoted ask, (f) any conduct
relating in any way to the subject matter of any of the negative covenants set
forth in the proposed Stipulation and Order annexed hereto as Exhibit C
(regardless of whether said Stipulation and Order is ever entered or ever
becomes effective or is rendered void ab initio), (g) any conduct relating in
any way to any boycott, harassment, refusal to deal or other behavior toward any
person or entity relating in any way to the conduct described in (a) through
(f); including, without limitation, any such claims which have been asserted or
could have been asserted in this litigation against the Released Parties or any
one of them, or which arise under or relate to any federal or state antitrust,
unfair competition, unfair practices, price discrimination, unitary pricing or
trade practice law, securities law, or other law or regulation, or common law,
including without limitation, the Sherman Antitrust Act, 15 U.S.C. ss.1 et seq.
(hereinafter and as further defined in Section 16, the "Released Claims");
provided, however, that this release does not include a release of any claims
(i) for alleged churning of securities, (ii) for alleged fraud relating to
undisclosed payment for order flow, (iii) for alleged fraud relating to material
misstatements or omissions bearing on the underlying value of specific
securities (and unrelated to market-making activities, such as, but not limited
to, movement of quotes, quote increments, dealer spreads, inside spreads and
agreements or arrangements between market makers relating to such market-making
activities), or (iv) enumerated in any Complaint which was filed and served upon
Settling Defendant prior to the date of this Settlement Agreement (April 9,
1997) except for this Class Action and except for any similar State or Federal
action which was voluntarily dismissed prior to the date of this Settlement
Agreement. Nothing herein shall be construed as indicating in any way that any
such claims enumerated in (i) through (iv) have any validity or could be or have
been validly asserted against the Settling Defendant or any Other Defendant.
The scope of this release to the Settling Defendant shall be expanded
commensurately to the extent that a broader or more protective release is given
to any Other Defendant in any Future Settlement. Nothing in this Settlement
Agreement is intended to release any claims against any Other Defendants.
15. Waiver of Rights.
Upon the Effective Date, as defined below, each Settlement Class Member
does hereby and by operation of the Final Judgment shall, expressly waive and
relinquish, to the fullest extent permitted by law, the provisions, rights, and
benefits of Section 1542 of the California Civil Code, which provides:
A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have
materially affected his settlement with the debtor.
and any and all provisions, rights and benefits of any similar state or federal
law, rule or regulation or the common law.
16. Joint and Several Liability.
This Settlement Agreement shall not settle, limit or discharge any
liability or financial responsibility of any Other Defendants, or of alleged
co-conspirators, except to the minimum extent required by law. It is the mutual
understanding of class plaintiffs and the Settling Defendant that this
Settlement Agreement therefore will not reduce the alleged joint and several
treble damage liability of the other 34 defendants by any more than the amount
of the settlement itself. The Settling Defendant hereby represents that it has
not, and covenants that it will not, enter into any agreement that would entitle
any Other Defendant (or any other market maker) to reduce its own alleged joint
and several liability by any greater amount, including but not limited to any
Settlement Agreement requiring a reduction of liability or financial
responsibility related to the Settling Defendant's market share. The Settling
Defendant hereby releases any and all possible claims for contribution or
indemnity arising out of any Released Claim against any Future Settling
Defendant whose Future Settlement contains a reciprocal provision similarly
releasing this Settling Defendant.
<PAGE>
17. Discovery Limitation.
Neither Plaintiffs' Co-Lead Counsel, nor the Class, nor counsel for any
named Plaintiff or for any Class Member who has not timely requested exclusion
from the Class shall be entitled to any further discovery of any kind from this
Settling Defendant or any Released Party hereunder, except as specifically set
forth in this Settlement Agreement.
18. Confidentiality Protection.
All discovery materials provided by the Settling Defendant or any
Released Party hereunder either before or after the date of this Settlement
Agreement including Documents, Answers to Interrogatories, Deposition Testimony
and Audio-Tape Recordings shall be governed by all Confidentiality/Protective
Orders in force as of the date of this Settlement Agreement and by such
additional Confidentiality/Protective Orders as may be in effect on the date the
discovery takes place.
19. Document Production.
The Parties agree that beginning on the date of this Settlement
Agreement there shall be a six (6) month moratorium of document discovery by
plaintiffs directed to the Settling Defendant or any Released Party hereunder,
except that the Settling Defendant will provide to Plaintiffs the limited
category of documents necessary to effectuate class certification notice, to the
same extent agreed to by 19 or more Other Defendants, or, in the absence of an
agreement, ordered by the Court, and except that Settling Defendant shall
promptly after the date of this Settlement Agreement produce any transcripts
(and exhibits) in its possession, custody or control of testimony given by
Settling Defendant's current or former employees to the Department of Justice
("DOJ"), as well as Settling Defendant's Answers to Interrogatories previously
posed by the DOJ. Furthermore:
a. After the expiration of the six (6) month moratorium,
the Settling Defendant shall produce to Plaintiffs
those categories of documents (but not including tape
recordings) which the Court has directed the Other
Defendants to produce or that at least nineteen (19)
of the Other Defendants have consented to produce,
except that in no event shall the Settling Defendant
be required to produce any document not currently
requested in the Plaintiffs' outstanding document
requests.
b. After the expiration of the six (6) month moratorium,
the Settling Defendants shall produce all testimony
transcripts within its possession, custody or control
and exhibits thereto within its possession, custody
or control as of the date of this Settlement
Agreement from those depositions of Settling
Defendant's current or former employees which were
conducted by the Securities and Exchange Commission
("SEC") in connection with the investigation
captioned In the Matter of Certain Market Making
--------------------------------------
Activities on Nasdaq (the "SEC Investigation").
--------------------
If the Settling Defendant gains possession, custody
or control of additional transcripts of testimony
(or exhibits thereto) conducted in connection with
the SEC Investigation after the date of this
Settlement Agreement, said transcripts (and exhibits
thereto) shall be produced sixty (60) days after
receipt of the transcripts (and exhibits thereto) by
the Settling Defendant's counsel. The Settling
Defendant further agrees that after the six (6)
month moratorium, it shall produce all documents
(other than audiotape) provided to the SEC in
connection with the SEC Investigation. Nothing
herein shall be construed as indicating that the
Settling Defendant has any SEC exhibits in its
possession, custody or control.
c. Nothing contained herein shall be construed as
affecting any right of reimbursement Settling
Defendant may have for the reasonable costs of any
such document production, nor as conceding that any
such right exists.
20. Answers to Interrogatories.
The Parties agree that beginning on the date of this Settlement
Agreement there shall be a six (6) month moratorium on any requirement that the
Settling Defendant provide answers to the plaintiffs' interrogatories. The
Parties agree that after the expiration of the six (6) month moratorium, the
Settling Defendant shall produce to plaintiffs answers to the following three
(3) types of questions only:
(a) Identification of the Settling Defendant's Personnel
during the Class Period and their positions.
(b) Identification of those employees and, to the extent
known, former employees who have provided testimony
to the Department of Justice.
(c) Identification of those employees and, to the extent
known, former employees who have provided testimony
to the SEC in connection with the SEC Investigation.
21. Deposition Discovery.
The Parties agree that beginning on the date of this Settlement
Agreement there shall be a nine (9) month moratorium on deposition discovery
directed to the Settling Defendant or any Released Party hereunder.
a. The Parties agree that after the expiration of the
nine (9) month moratorium, plaintiffs shall use their
good faith, best efforts to defer deposition
discovery directed at the Settling Defendant until
after completion of deposition discovery directed at
the Other Defendants.
b. The Parties agree that after the expiration of the
nine (9) month moratorium the Settling Defendant's
officers and employees shall remain subject to
deposition by notice; provided, however, that nothing
herein shall be construed as a limitation on the
Settling Defendant's right to seek (or Plaintiffs
right to oppose) any appropriate protective order
limiting or preventing such deposition in accordance
with the Federal Rules of Civil Procedure or its
ability to advance all arguments available
thereunder.
<PAGE>
22. Audiotape Production.
Except as provided in subsection (a) and (b) below, the Parties agree
that beginning on the date of this Settlement Agreement there shall be a nine
(9) month moratorium on any requirement that the Settling Defendant provide
audiotape recordings of telephone conversations.
a. The Settling Defendant agrees that thirty (30) days
after preliminary approval of this Settlement it
shall make available for Plaintiffs' review copies of
all audiotape, which was not previously provided to
the Plaintiffs, that was provided, prior to the date
of this Settlement Agreement, to the Department of
Justice in connection with its Nasdaq investigation
or to the SEC in connection with the SEC
Investigation, the total of which Settling Defendant
estimates to be approximately 30 Trader Days (240
hours).
b. The Parties agree that the Settling Defendant shall
make available to Plaintiffs for review any
additional audiotape provided to the SEC in
connection with the SEC Investigation after the date
of this Settlement Agreement; provided, however, that
the Settling Defendant is not required to make any
audiotape referred to in this subsection available to
Plaintiffs until sixty (60) days after the date that
it is made available to the SEC.
c. The Parties agree that after the expiration of the
nine (9) month moratorium, the Settling Defendant
shall make available for Plaintiffs' review no more
than twenty-five (25) additional Trader Days (a total
of approximately 200 hours) of audiotape to be
selected by the Plaintiffs by way of an appropriate
letter demand. For purposes of this provision, a
"Trader Day" shall mean one complete eight-hour day
of one trader's phone line. Such trader days may be
selected by Plaintiffs' Co-Lead Counsel by
identification of the trader's name or by
identification of the name of a security. In the
event that the identification is made by the name of
a security, the burden will be on the Settling
Defendant to identify the trader for the given
security to the extent reasonably ascertainable.
d. The procedure by which the Settling Defendant will
copy and make audiotape available to Plaintiffs shall
be governed by the procedure that has been in effect
to date in this Class Action and which is
incorporated in the Stipulation executed
simultaneously herewith between the Settling
Defendant and the Plaintiffs' Co-Lead Counsel (a copy
of which is attached as Exhibit E).
23. Return of Discovery Materials.
The plaintiffs and the Settling Defendant acknowledge and agree that
within sixty (60) days after entry of a final judgment terminating this
litigation in its entirety, all materials (including but not limited to
confidential, non-confidential and highly confidential documents, answers to
interrogatories, testimony transcripts, privilege logs, audiotape recordings)
produced by or discovered of the Settling Defendant or its current or former
employees shall be returned to the Settling Defendant upon its request at its
expense or destroyed. However, Plaintiffs' Co-Lead Counsel may retain, subject
to the Stipulated Confidentiality Order, the file copies of any pleadings,
motions, briefs or affidavits that have been filed with the Court.
24. Reservation of Rights and Privileges.
Nothing in this Settlement Agreement is intended to waive Settling
Defendant's right to assert that any material is protected from discovery by
reason of any individual or joint defense privilege or work product protection
or intended to waive plaintiffs' right to contest any claim of privilege or
work-product protection.
25. Effect of Disapproval.
If the Court refuses to approve this Settlement Agreement or any part
hereof, or if such approval is modified or set aside on appeal, or if the Court
for any reason does not enter the Final Judgment provided for in Section 6, or
if the Court enters the Final Judgment and appellate review is sought, and on
such review, such Final Judgment is not affirmed, then this Settlement Agreement
shall be terminated, and shall become null and void, except for those provisions
that are expressly and specifically identified herein as being severable and
susceptible to later, separate approval. In that event, any release or covenant
not to sue shall be of no force or effect.
26. This Settlement is Not an Admission.
In the event that the settlement does not become final in accordance
with the terms hereof, then this Settlement Agreement, and the release set forth
herein, shall be of no force or effect. The parties hereto agree that this
Settlement Agreement, including its exhibits, whether or not it shall become
final, and any and all negotiations, documents and discussions associated with
it, shall be without prejudice to the rights of any party, shall not be deemed
or construed to be an admission or evidence of any violation of any statute or
law or of any liability or wrongdoing by the Settling Defendant, or of the truth
of any of the claims or allegations, nor of the truth of any alleged defense, or
of any absence of wrongdoing or of limitation of damage or injury, and evidence
thereof shall not be discoverable or used directly or indirectly, in any way,
whether in the Class Action or in any other action or proceeding. The Settling
Defendant and plaintiffs expressly reserve all of their rights if the settlement
does not become final in accordance with the terms of this Settlement Agreement.
27. Return of Settlement Fund.
If the Settlement does not become final, then within 30 days after the
last date on which it could become final (including expiration of all appeals
from any decision denying approval) the Settlement Fund, including the principal
amount paid and accrued interest, shall be returned to the Settling Defendant,
less all funds expended pursuant to Section 5 of this Settlement Agreement with
respect to Class notice. If the Settlement does not become final, the funds
actually expended pursuant to Section 5 with respect to Class notice (the "Class
Notice Funds") shall not be refunded, under any circumstances, except that: (a)
if the Class subsequently obtains by settlement or final judgment an aggregate,
gross recovery against the Other Defendants totaling at least $100 million,
Plaintiffs' Co-Lead Counsel shall apply in good faith to the Court to have the
Class Notice Funds refunded to the Settling Defendant as part of plaintiffs'
costs of litigation; and (b) regardless of the size of the Class' aggregate,
gross recovery, if the Class subsequently obtains a final judgment against or
settlement with the Settling Defendant in this litigation, any Class Notice
Funds not refunded to Settling Defendant pursuant to (a) shall be credited, with
simple interest at the rate described in Section 8, against the judgment after
trebling or against the settlement. To the extent required, plaintiffs' Co-Lead
Counsel agree in good faith to move the Court for such appropriate orders as may
be necessary to effectuate the credit against any judgment. The provisions of
this Section relating to the refunding of the Class Notice Funds to the Settling
Defendant shall, in the event this Settlement Agreement does not become final,
be severable and subject to separate approval.
28. Binding Effect.
This Settlement Agreement shall be binding upon, and inure to the
benefit of, the successors and assigns of the Settling Defendant, the Released
Parties, class plaintiffs and class members who do not exclude themselves from
the Class.
29. Integrated Agreement.
This Settlement Agreement contains an entire, complete, and integrated
statement of each and every term and provision agreed to by and among the
parties and is not subject to any condition not provided for herein. This
Settlement Agreement shall not be modified in any respect except by a writing
executed by all the parties hereto.
30. No Conflict Intended.
Any inconsistency between this Settlement Agreement and the exhibits
attached hereto shall be resolved in favor of this Settlement Agreement. Any
inconsistency between the headings used in this Settlement Agreement and the
text of the Sections of this Settlement Agreement shall be resolved in favor of
the text.
31. Neither Party is the Drafter.
None of the parties hereto shall be considered to be the drafter of
this Settlement Agreement or any provision hereof for the purpose of any
statute, case law or rule of interpretation or construction that might cause any
provision to be construed against the drafter hereof.
32. Choice of Law.
All terms of this Settlement Agreement and the exhibits hereto shall be
governed by and interpreted according to the substantive laws of the State of
New York without regard to its choice of law or conflict of laws principles.
33. Submission to and Retention of Jurisdiction.
The Settling Defendant and the Class to the fullest extent permitted by
law hereby irrevocably submit to the exclusive jurisdiction of the United States
District Court for the Southern District of New York, for any suit, action,
proceeding or dispute arising out of or relating to this Settlement Agreement,
or to the applicability of this Settlement Agreement and exhibits hereto.
34. Opt-Out Provision.
The Settling Defendant, in its sole and absolute discretion, shall have
the option to terminate this Settlement Agreement and thus prevent it from
becoming final, in accordance with the procedures set forth in a separate
"Supplemental Agreement," if Non-Individual Class Members, whose market shares
(as determined in accordance with the Supplemental Agreement) of the volume of
Class Securities traded from May 1, 1989 through May 31, 1994 (inclusive of all
dates in between) exceed in the aggregate the threshold specified in the
Supplemental Agreement, file with the Court timely requests for exclusion from
the Class in accordance with the provisions of the Class Notice procedures
approved by the Court.
The Supplemental Agreement will not be filed with the Court unless and
until either (a) a dispute among the parties concerning its interpretation or
application arises, and in that event it shall be filed and maintained with the
Court under seal, or (b) the Court otherwise orders the Supplemental Agreement
disclosed on motion by any person with standing to so move.
35. Execution in Counterparts.
This Settlement Agreement may be executed in counterparts. Facsimile
signatures shall be considered as valid signatures as of the date hereof,
although the original signature pages shall thereafter be appended to this
Settlement Agreement. By signing this Settlement Agreement, Plaintiffs' Co-Lead
Counsel represent that they are authorized to enter into this Settlement
Agreement by and on behalf of counsel for all named plaintiffs in the Class
Action.
36. Definitions.
A. "Any" means one or more.
B. "Ask" or "offer" means the price quoted on Nasdaq at which a
market maker offers to sell a specific quantity of a
particular Nasdaq Security.
C. "Bid" means the price quoted on Nasdaq at which a market maker
offers to buy a specific quantity of a particular Nasdaq
Security.
D. The "Class Action" means In Re: Nasdaq Market-Makers Antitrust
Litigation, 94 Civ. 3996 (RWS), M.D.L. No. 1023, including
each and every individual action that has been consolidated as
part of this multidistrict class action.
E. "Class Securities" means the list of Nasdaq securities
appended as Exhibit A to the Refiled Consolidated Complaint,
or as expanded pursuant to Section 2 of this Settlement
Agreement.
F. "Dealer spread" means the difference between a market maker's
bid and ask on Nasdaq for a particular Nasdaq Security at
any given time.
G. "Defendants" means the 35 companies that are now defendants
in the above-captioned multidistrict litigation (or its
constituent cases).
H. "Future Settlement(s)" means settlement(s) entered into
between Plaintiffs' Co-Lead Counsel and any Other Defendant
in the Class Action.
I. "Future Settling Defendant(s)" means any Other Defendant(s)
who enters into a Future Settlement.
J. "Inside spread" means the difference between the highest bid
and the lowest ask on Nasdaq of all market makers for a
particular Nasdaq Security at any given time.
K. "Market maker" means an NASD member firm that qualifies as a
market maker under Section 3(a)(38) of the Securities Exchange
Act of 1934, as amended.
L. "Nasdaq" means the computerized stock quotation system
operated by the Nasdaq Stock Market, Inc. that displays the
quotes of market makers in Nasdaq Securities.
M. "Nasdaq Security" means any Nasdaq National Market System
stock or any Nasdaq Small Cap Security stock quoted on Nasdaq,
or, should these terms be changed or amended, any successor
group of stocks quoted on Nasdaq.
N. "Non-Individual Class Members" shall mean all Class Members
who are not natural persons.
O. "Or" means or.
P. "Other Defendants" means the 34 defendants other than the
Settling Defendant.
Q. "Price" means the price at which a Nasdaq Security is bought
or sold.
R. "Quote increment" means the difference between a market
maker's bid or ask on Nasdaq and that market maker's
immediately preceding or immediately subsequent bid or ask
on Nasdaq for a particular Nasdaq Security.
S. "Quote" means a bid or an ask on Nasdaq.
T. "Released Claims" shall mean those claims identified in
Section 14 of this Settlement Agreement.
U. "Released Parties" shall mean Settling Defendant Sherwood
Securities Corp. and its predecessors or successors and, in
their respective capacity related to Sherwood, but not in any capacity
related to any Other Defendant, any of its present or former
members, principals, officers, directors, employees, agents, attorneys,
shareholders, advisors, parents, subsidiaries or affiliates (including but not
limited to National Discount Brokers, Equitrade, Triak Services Corp. and MXNet,
Inc. and The Sherwood Group) and associates (as defined in SEC Rule 12b-2
promulgated pursuant to the Securities Exchange Act of 1934) and each of their
assigns, representatives, heirs, executors and administrators (and present or
former members, principals, officers, directors, employees, agents, attorneys,
shareholders or advisors of all such parents, subsidiaries, affiliates or
associates in any capacity related to Sherwood but not in any capacity related
to any Other Defendant).
V. "Settlement Fund" means the principal amount of the settlement
paid, or to be paid, by the Settling Defendant as set forth in ss.8 hereof,
plus any accrued interest as provided for herein.
W. "Settling Defendant" means Defendant Sherwood Securities Corp.
X. "Statutory Disqualifier" means any Court Order, or portion thereof,
that would constitute a disqualifying event or grounds for suspension or
revocation of registration, or membership disqualification, under any provisions
of federal or state securities laws or regulations or any rule of any national
securities association or of any securities exchange.
Dated: April 9, 1997
By
Arthur M. Kaplan, Esq.
FINE, KAPLAN AND BLACK
23rd Floor, 1845 Walnut Street
Philadelphia, PA 19103
(215) 567-6565
By
Christopher Lovell, Esq.
LOVELL & SKIRNICK, LLP
63 Wall Street
New York, New York 10005
(212) 480-1600
By
David J. Bershad, Esq.
Leonard B. Simon, Esq.
MILBERG WEISS BERSHAD HYNES
& LERACH
600 West Broadway
1800 One America Plaza
San Diego, CA 92101-5050
(619) 231-1058
-and-
One Pennsylvania Plaza
New York, New York
(212) 594-5300
By
Robert A. Skirnick, Esq.
LOVELL & SKIRNICK, LLP
63 Wall Street
New York, New York 10005
(212) 480-1600
Plaintiffs' Co-Lead Counsel with
authority to sign pursuant to Pre-Trial
Order No. 1 on behalf of
plaintiffs
By
Brian J. McMahon, Esq.
Guy V. Amoresano, Esq.
CRUMMY, DEL DEO, DOLAN,
GRIFFINGER & VECCHIONE
One Riverfront Plaza
Newark, New Jersey 07102-5497
(201) 596-4500
Counsel for Sherwood Securities Corp.
UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
...........................................................
94 Civ. 3996 (RWS)
IN RE:
M.D.L. No. 1023
NASDAQ MARKET-MAKERS
ANTITRUST LITIGATION
This Document Relates To:
All Actions
...........................................................
ORDER GRANTING PRELIMINARY APPROVAL TO SETTLEMENT
WITH SHERWOOD SECURITIES CORP.
Upon review and consideration of the Class Action Settlement
Agreement (the "Settlement Agreement") dated April 9, 1997 between defendant
Sherwood Securities Corp. (the "Settling Defendant") and Plaintiffs' Co-Lead
Counsel acting on behalf of plaintiffs and the Class (collectively, the "Class"
or "class plaintiffs") in this consolidated multidistrict class action ("the
Action"), and the exhibits annexed thereto;
Upon Consideration of all prior proceedings in the Action; and
Upon consideration of the agreement of plaintiffs and the
Settling Defendant to the terms and conditions of the Settlement Agreement which
would have the effect of settling and dismissing the Action as against the
Settling Defendant upon the terms set forth in the Settlement Agreement;
NOW, upon the joint application of plaintiffs and the Settling
Defendant, it is hereby ORDERED as follows:
1. This Court has jurisdiction over the subject matter of this Action
and over all parties to this Action, including all members of the Class, as
defined in the Settlement Agreement.
2. The Court hereby preliminarily approves the terms of the Settlement
Agreement and the settlement set forth therein and finds that said settlement is
sufficiently within the range of reasonableness so that notice of the proposed
settlement should be given.
3. As soon as practicable after the entry of this Order, Plaintiffs'
Co-Lead Counsel shall propose a program for and a proposed form of Class Notice
of this Action, which notice shall be merged with Notice of Settling Defendant's
Settlement Agreement. The program of class notice, and form of notice, as well
as the procedure for requesting exclusion from the class, among other things,
and the timing and nature of a final settlement hearing will thereafter be
determined approved by later Order of this Court. This Order expressly preserves
the Non-Settling Defendants' rights to respond to the plaintiffs' proposed
program of class notice and the plaintiffs' right to reply as set forth in
Pretrial Order No. 4.
4. If the Settlement Agreement is not approved or consummated for any
reason whatsoever, the Settlement and all proceedings had in connection
therewith shall be without prejudice to the status quo ante rights of the
plaintiffs and the Settling Defendant, except as set forth in the Settlement
Agreement.
SO ORDERED this ___ day of _________, 1997.
--------------------------------
Hon. Robert W. Sweet
United States District Judge
UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
...........................................................
94 Civ. 3996 (RWS)
IN RE:
M.D.L. No. 1023
NASDAQ MARKET-MAKERS
ANTITRUST LITIGATION
This Document Relates To:
All Actions
...........................................................
FINAL JUDGMENT AND ORDER OF DISMISSAL
This matter having come before the Court on a joint motion for approval
of a Class Action Settlement Agreement dated April 9, 1997 (the "Settlement
Agreement") between defendant Sherwood Securities Corp. (the "Settling
Defendant") and Plaintiffs' Co-Lead Counsel on behalf of plaintiffs in the
above-captioned consolidated multidistrict class action (the "Class Action"),
and the Court, having considered all papers filed and proceedings held in
connection with said motion, having held a Hearing on ______, notice of the
Hearing having duly been given in accordance with this Court's Order dated
______, and finding no just reason for delay in entry of this Final Judgment and
good cause appearing therefor, it is this day of _______, 1997,
ORDERED, ADJUDGED AND DECREED THAT:
1. This Court has jurisdiction over the subject matter of this Class
Action and over all parties to this Action, including all members of the Class.
The Class is defined for settlement purposes and, therefore, for purposes of
this Final Judgment and Order of Dismissal ("Settlement Class" or "Class") as
follows:
All persons, firms, corporations, and other entities
(excluding Defendants and other Nasdaq market-makers, and
their respective affiliates) who purchased or sold Class
Securities on the Nasdaq National Market, trading directly (or
through agents) with the Defendants or their co-conspirators,
or with their respective affiliates, during the period May 1,
1989 to May 27, 1994 ("Class Period"); and
A subclass consisting of those members of the class defined in
the immediately preceding clause, who at the time Class Notice
(as defined in the Refiled Consolidated Complaint) are current
brokerage customers of defendants (or their affiliates), or
whose brokerage accounts are cleared by defendants (or their
affiliates), and to whom defendants (or their affiliates) send
periodic mailings.
For purposes of this settlement and Final Judgment and Order of
Dismissal, all brokers are deemed agents and, therefore, the Class includes, but
is not limited to, all persons, firms, corporations and other entities, as
described above, who traded through brokers. For purposes of this settlement and
Final Judgment and Order of Dismissal, institutional investors (including but
not limited to banks, savings and loan associations, insurance companies,
registered investment companies, investment advisors and all private and public
mutual, retirement, pension, profit sharing or other types of funds) are "firms,
corporations and other entities" included in the Class to the extent that they
purchased or sold Class Securities in the manner and during the period described
in the Class definition. The term "affiliates" as used in the Class definition
includes parents, subsidiaries and other commonly owned or commonly controlled
affiliates.
2. This Court hereby approves the settlement set forth in the
Settlement Agreement and finds that said settlement is, in all respects, fair,
reasonable and adequate to the Class in accordance with Rule 23 of the Federal
Rules of Civil Procedure.
3. This Court hereby finds and concludes that the notice given to the
Class was in compliance with this Court's Order dated _____, and that said
notice, along with the Class Notice dated _________, was the best notice
practicable under the circumstances and fully satisfies the requirements of Rule
23 of the Federal Rules of Civil Procedure and the requirements of due process,
including, but not limited to, the form of notice and methods of identifying and
giving notice to the Class.
4. This Court hereby dismisses, on the merits and with prejudice,
without costs to any party, this Class Action in favor of the Settling Defendant
and against the members of the Class who did not timely request exclusion from
the Class. A list of those members of the Class who have filed timely requests
for exclusion from the Class is annexed hereto as Exhibit A and made a part
hereof. Those persons appearing on the list annexed hereto as Exhibit A, who
have requested exclusion from the Class, shall not participate in the proceeds
of the Settlement hereby approved nor receive any benefits hereunder. Any member
of the Class whose name does not appear on the list annexed hereto as Exhibit A
failed to file a timely request for exclusion from the Class and is hereby
barred from asserting otherwise.
5. Each and every member of the Class (other than those members of the
Class who have filed a valid request for exclusion from the Class) is hereby
permanently barred and enjoined from instituting, maintaining, prosecuting or
enforcing, either directly or indirectly, any Released Claim (as defined in
Paragraph 6 below of this Final Judgment and Order of Dismissal) against any of
the following: Settling Defendant Sherwood Securities Corp. and its predecessors
or successors and, in their respective capacity related to Sherwood, but not in
any capacity related to any Other Defendant, any of its present or former
members, principals, officers, directors, employees, agents, attorneys,
shareholders, advisors, parents, subsidiaries or affiliates (including but not
limited to National Discount Brokers, Equitrade, Triak Services Corp., MXNet,
Inc. and The Sherwood Group) and associates (as defined in SEC Rule 12b-2
promulgated pursuant to the Securities Exchange Act of 1934) and each of their
assigns, representatives, heirs, executors and administrators (and present or
former members, principals, officers, directors, employees, agents, attorneys,
shareholders or advisors of all such parents, subsidiaries, affiliates or
associates in any capacity related to Sherwood but not in any capacity related
to any Other Defendant) (collectively referred to as "Released Parties"
hereinafter).
6. Each Released Party referred to in Paragraph 5 above, is hereby
released and forever discharged from all manner of claims, demands, actions,
suits, and causes of action relating to all Nasdaq Securities (including
securities that are not Class Securities), whether class, individual, or
otherwise in nature, damages, whenever incurred, liabilities of any nature
whatsoever, including costs, expenses, penalties and attorneys' fees, known or
unknown, suspected or unsuspected, in law or equity, that any class plaintiff or
members of the Class who have not timely excluded themselves from the Class
Action (whether or not they make a claim upon or participate in the Settlement
Fund) ever had, now has or hereafter can, shall or may have, arising from or
relating in any way to (a) any conduct complained of in the Refiled Consolidated
Complaint in this matter or the constituent actions consolidated therein, (b)
any conduct involving any express or implied or tacit joint or coordinated
activity between Settling Defendant (including any employee of Settling
Defendant) and any other Nasdaq Market maker (including any employee thereof)
with respect to quotes, quote increments, movements of quotes, prices, dealer
spreads or inside spreads of any Nasdaq Security, (c) any conduct relating in
any way to the fixing, stabilizing, maintaining or widening of bid-ask spreads
(either dealer spreads or inside spreads or both) for any Nasdaq Security, (d)
any conduct relating in any way to the fixing of or movement (or increments of
movement) of bid or ask quotations for any Nasdaq Security (including without
limitation movements of quotes at the request of or pursuant to agreement with
another Market maker), (e) any conduct relating in any way to the minimum or
maximum number of shares that Nasdaq Market makers, or any of them, were willing
to trade at their quoted bid or, quoted ask, (f) any conduct relating in any way
to the subject matter of any of the negative covenants set forth in the proposed
Stipulation and Order annexed to the Settlement Agreement as Exhibit C
(regardless of whether said Stipulation and Order is ever entered or ever
becomes effective or is rendered void ab initio), (g) any conduct relating in
any way to any boycott, harassment, refusal to deal or other behavior toward any
person or entity relating in any way to the conduct described in (a) through
(f); including, without limitation, any such claims which have been asserted or
could have been asserted in this litigation against the Released Parties or any
one of them, or which arise under or relate to any federal or state antitrust,
unfair competition, unfair practices, price discrimination, unitary pricing or
trade practice law, securities law, or other law or regulation, or common law,
including without limitation, the Sherman Antitrust Act, 15 U.S.C. ss.1 et seq.
(hereinafter and as further defined in Section 16 of the Settlement Agreement,
the "Released Claims"); provided, however, that this release does not include a
release of any claims (i) for alleged churning of securities, (ii) for alleged
fraud relating to undisclosed payment for order flow, (iii) for alleged fraud
relating to material misstatements or omissions bearing on the underlying value
of specific securities (and unrelated to market-making activities, such as, but
not limited to, movement of quotes, quote increments, dealer spreads, inside
spreads and agreements or arrangements between market makers relating to such
market-making activities), or (iv) enumerated in any Complaint which was filed
and served upon Settling Defendant prior to the date of this Settlement
Agreement (April 9, 1997) except for this Class Action and except for any
similar State or Federal action which was voluntarily dismissed prior to the
date of this Settlement Agreement.
7. Without affecting the finality of this judgment, the Court hereby
reserves and retains continuing and exclusive jurisdiction over all matters
relating to the administration and consummation of the terms of the Settlement
Agreement and the settlement embodied therein.
8. Plaintiff's Co-Lead Counsel shall file with the Clerk of the Court a
list of those members of the Class who have timely excluded themselves from the
Class and a copy of all requests for exclusion from the Class.
9. All terms used, but not otherwise defined herein, shall have
the meanings ascribed to them in the Settlement Agreement.
10. This Court determines pursuant to Fed. R. Civ. P. 54(b) that
there is no just reason for delay and hereby certifies this Final Judgment and
Order of Dismissal as final and appealable.
Dated:
Hon. Robert W. Sweet
United States District Judge
METHODOLOGY FOR CALCULATION OF SHERWOOD MARKET SHARE
The calculation of Settling Defendant's market share contemplated by
the Settlement Agreement will be made predominantly using computerized data
available from the NASD (the "NASD database") for the time period 3/1/93 through
5/31/94 (the "Test Period"). Machine readable data for earlier time periods is
not available from the NASD. Using the NASD database, Settling Defendant's
Consultant will calculate the aggregate total volume of trades of Class
Securities in Class Months by the 35 named defendants during the Test Period
("Defendants' Total Test Volume"). From Defendants' Total Test Volume, Settling
Defendant's Consultant will subtract 14.4%, representing the average percentage
of total volume previously estimated by defendants as constituting trades on
Instinet or Posit, and from that result will further subtract 21.4%,
representing the average percentage of total volume previously estimated by
defendants as constituting market maker to market maker volume. The resulting
sum shall be used as Defendants' Class Test Volume.
Using the same NASD data, Settling Defendant's Consultant will then
calculate Settling Defendant's total volume of trades of Class Securities in
Class Months ("Sherwood's Total Test Volume"). From Sherwood's Total Test
Volume, Settling Defendant's Consultant will then make appropriate percentage
subtractions for Instinet, Posit and market maker to market maker volume. These
deductions will be made by using data available from Sherwood and/or its
clearing agents to calculate Sherwood's average percentage Instinet/Posit volume
and market maker to market maker volume, without double counting during the Test
Period. For these purposes, a market maker will mean any firm with a
Market-Maker Identification Code ("MMID") in the NASD database. To the extent
that data received from Sherwood's clearing agent supplies the coded identity of
the executing broker, the executing broker code will be converted into an MMID
using the National Securities Clearing Corporation directories as of July 1,
1994 and July 1, 1996. The resulting sum shall be used as Sherwood's Class Test
Volume.
By Dividing Sherwood's Class Test Volume by Defendants' Class Test
Volume, Defendants' Consultant will arrive at Sherwood's Class Market Share for
the Test Period. Defendants' Consultant will next seek to develop a sampling
methodology to test the likelihood that Sherwood's market share would be
affected if reliable, machine readable data were available for all defendants
for the entire Class Period. This sampling will take the form of some
statistically significant comparison between Sherwood volume in a sampling of
Class Securities during earlier portions of the Class Period and total volume
figures available from The Center for Research on Securities Prices ("CRSP") in
the same Class Securities. If sampling discloses, for example, that Sherwood
volume in the selected Class Securities in comparison to CRSP volume in the same
Class Securities during earlier portions of the Class Period was lower (or
higher) than that disclosed by the same comparison performed during the Test
Period, an appropriate downward (or upward) adjustment of Sherwood's Class
Market Share will be made. The resulting market share figure will be reported to
Plaintiffs' Co-Lead counsel in connection with Section 8 of the Settlement
Agreement.
The figures and methodology used herein are mutually adopted for
purposes of this Settlement only and shall not be introduced in evidence or
deemed an admission by Plaintiffs or the Settling Defendant except to enforce
the terms of this settlement.
<PAGE>
UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
...........................................................
94 Civ. 3996 (RWS)
IN RE:
M.D.L. No. 1023
NASDAQ MARKET-MAKERS
ANTITRUST LITIGATION
This Document Relates To:
All Actions
...........................................................
STIPULATION AND ORDER
For the reasons set forth in the Settlement Agreement between
Plaintiffs and Defendant Sherwood Securities Corp. ("Settling Defendant"), dated
April 9, 1997, which was preliminarily approved by this Court on ____________,
and finally approved on ________, Plaintiffs and the Settling Defendant hereby
agree as follows:
I. DEFINITIONS
A. "Any" means one or more.
B. "Ask" or "offer" means the price quoted on Nasdaq at which a
market maker offers to sell a specific quantity of a particular Nasdaq security.
C. "Bid" means the price quoted on Nasdaq at which a market maker
offers to buy a specific
quantity of a particular Nasdaq security.
D. "Dealer spread" means the difference between a market maker's
bid and ask on Nasdaq for a particular Nasdaq security at any given time.
E. "Effective date" means the date on which Stipulations and
Orders containing like restrictions
are entered by and final and effective against at least 24 other Defendants in
this Action.
F. "Inside spread" means the difference between the highest bid
and the lowest ask on Nasdaq of all market makers for a particular Nasdaq
security at any given time.
G. "Market maker" means an NASD member firm that qualifies as a
market maker under Section
3(a)(38) of the Securities Exchange Act of 1934, as amended.
H. "NASD" means the National Association of Securities Dealers,
Inc.
I. "Nasdaq" means the computerized stock quotation system
operated by the Nasdaq Stock Market, Inc. that displays the quotes of market
makers in Nasdaq securities.
J. "Nasdaq security" means any Nasdaq National Market System
stock or any Nasdaq Small Cap Security stock quoted on Nasdaq, or, should these
terms be changed or amended, any successor group of stocks
quoted on Nasdaq.
K. "Or" means and/or.
L. "OTC desk" means any organizational element of a defendant engaged
in market making, or its successor, that accounted for ten percent (10%) or more
of such defendant's total market-making volume, measured in shares, in Nasdaq
securities in the immediately preceding fiscal year.
M. "Person" means any individual, corporation, partnership,
company, sole proprietorship, firm, or other legal entity. "Other person"
means a person who is not an officer, director, partner, employee, or agent
of a defendant.
N. "Price" means the price at which a Nasdaq security is bought
or sold.
O. "Quote increment" means the difference between a market
maker's bid or ask on Nasdaq and that market maker's immediately preceding or
immediately subsequent bid or ask on Nasdaq for a particular Nasdaq security.
P. "Quote" means a bid or an ask on Nasdaq.
Q. "Quoting convention" means any practice of quoting Nasdaq securities
whereby stocks with a three-quarter (3/4) point or greater dealer spread are
quoted on Nasdaq in even eighths and are updated in quarter-point (even eighth)
quote increments.
R. "SEC" means the United States Securities and Exchange
Commission.
S. All terms not otherwise defined above shall have the same
meaning given to them in the Settlement Agreement.
II. PROHIBITED CONDUCT
Commencing on the Effective Date of this Stipulation and Order, unless
permitted to engage in activities by Section III of this Stipulation and Order,
the Settling Defendant shall not, directly or through any trade association, in
connection with the activities of its OTC desk in making markets in Nasdaq
securities:
A. Agree with any other market maker to fix, raise, lower or
maintain quotes or prices for any
Nasdaq security;
B. Agree with any other market maker to fix, increase, decrease
or maintain any dealer spread,
inside spread, or the size of any quote increment (or any
relationship between or among dealer
spread, or the size of any quote increment), for any Nasdaq
security;
C. Agree with any other market maker to adhere to a quoting
convention;
D. Agree with any other market maker to adhere to any
understanding or agreement (other than an agreement on one or
a series of related trades) requiring a market maker to trade
at its quotes on Nasdaq in quantities of shares greater than
either (1) the minimum size required by Nasdaq or NASD rules
or (2) the size displayed or otherwise communicated by that
market maker, whichever is greater;
E. Engage in any harassment or intimidation of any other market
maker, whether in the form of
written, electronic, telephonic, or oral communications, for
decreasing its dealer spread or
the inside spread in any Nasdaq security;
F. Engage in any harassment or intimidation of any other market
maker, whether in the form of written, electronic, telephonic,
or oral communications, for refusing to trade at its quoted
prices in quantities of shares greater than either (1) the
minimum size required by Nasdaq or NASD rules or (2) the size
displayed or otherwise communicated by that market maker;
G. Engage in any harassment or intimidation of any other market
maker, whether in the form of written, electronic, telephonic,
or oral communications, for displaying a quantity of shares on
Nasdaq in excess of the minimum size required by Nasdaq or
NASD rules; and
H. Refuse, or threaten to refuse to trade, (or agree with or
encourage any other market maker to refuse to trade) with any
market maker at defendant's published Nasdaq quotes in amounts
up to the published quotation size because such market maker
decreased its dealer spread, decreased the inside spread in
any Nasdaq security, or refused to trade at its quoted prices
in a quantity of shares greater than either (1) the minimum
size required by Nasdaq or NASD rules or (2) the size
displayed or otherwise communicated by that market maker.
III. PERMITTED CONDUCT
Notwithstanding the provisions of Section II.A.-H., the Settling
Defendant shall be entitled to:
A. Set unilaterally its own bid and ask in any Nasdaq security,
the prices at which it is willing
to buy or sell any Nasdaq security, and the quantity of shares
of any Nasdaq security that it
is willing to buy or sell;
B. Set unilaterally its own dealer spread, quote increment, or
quantity of shares for its
quotations (or set any relationship between or among its
dealer spread, inside spread, or the
size of any quote increment) in any Nasdaq security;
C. Communicate its own bid or ask, or the price at or the
quantity of shares in which it is willing to buy or sell any
Nasdaq security to any person, for the purpose of exploring
the possibility of a purchase or sale of that security, and to
negotiate for or agree to such
purchase or sale;
D. Communicate its own bid or ask, or the price at or the
quantity of shares in which it is willing to buy or sell any
Nasdaq security, to any person for the purpose of retaining
such person as an agent or subagent for defendant or for a
customer of defendant (or for the purpose of seeking to be
retained as an agent or subagent), and to negotiate for or
agree to such purchase or sale;
E. Engage in any conduct or activity authorized or required by
the federal securities laws, including but not limited to the
rules, regulations, or interpretations of the SEC, the NASD,
or any other self-regulatory organization, as defined in
Section 3(a)(26) of the Securities
Exchange Act of 1934, as amended;
F. Engage in any underwriting (or any syndicate for the
underwriting) or securities to the extent
permitted by the federal securities laws;
G. Act as Qualified Block Positioners as defined in SEC Rule
3b-8(c), promulgated under the Securities Exchange Act of
1934, as amended, to the extent permitted by the federal
securities law;
H. Except as provided in Sections II.E.-H. of this Stipulation
and Order, take any unilateral action or make any unilateral
decision regarding the market makers with which it will trade
and the terms on which it will trade; and
I. Engage in conduct protected under the Noerr-Pennington
doctrine.
No finding of any violation of this Stipulation and Order may be made
based solely on parallel conduct. No provision of this Stipulation and Order
shall be enforceable against the Settling Defendant if a State of Federal
government agency or authority commences an action or proceeding in which it
formally asserts that such provision, alone or in combination with other
provisions is a Statutory Disqualifier, in which case such provision or
provisions shall be deemed null and void ab initio.
This Stipulation and Order shall expire ten (10) years from its date of
entry by the Court.
Dated: April 9, 1997
By
Arthur M. Kaplan, Esq.
FINE, KAPLAN AND BLACK
23rd Floor, 1845 Walnut Street
Philadelphia, PA 19103
(215) 567-6565
<PAGE>
By
Christopher Lovell, Esq.
LOVELL & SKIRNICK, LLP
63 Wall Street
New York, New York 10005
(212) 480-1600
By
David J. Bershad, Esq.
Leonard B. Simon, Esq.
MILBERG WEISS
BERSHAD HYNES &
LERACH 600 West
Broadway 1800 One
America Plaza San
Diego, CA 92101-5050
(619) 231-1058
-and-
One Pennsylvania Plaza
New York, New York
(212) 594-5300
By
Robert A. Skirnick, Esq.
LOVELL & SKIRNICK, LLP
63 Wall Street
New York, New York 10005
(212) 480-1600
Plaintiffs' Co-Lead Counsel with
authority to sign Pursuant to
Pre-Trial Order No. 1 on behalf
of plaintiffs
By
Brian J. McMahon, Esq.
Guy V. Amoresano, Esq.
CRUMMY, DEL DEO,
DOLAN, GRIFFINGER
& VECCHIONE One
Riverfront Plaza
Newark, New Jersey 07102-5497
(201) 596-4500
Counsel for Sherwood
Securities Corp.
<PAGE>
The Court having given final approval to the Settlement Agreement
between the Class and the Settling Defendant and having found that this Court
has jurisdiction over the parties to this Stipulation and Order, it is hereby
ORDERED:
THAT the parties comply with the terms of this Stipulation and Order;
THAT the Refiled Consolidated Complaint is dismissed with prejudice as
to the Settling Defendant and without costs;
THAT the Court retains exclusive jurisdiction to enable any of the
parties to this Stipulation and Order to apply to the Court at any time for such
further orders and directions as may be necessary or appropriate for the
construction or implementation of this Stipulation and Order, for the
enforcement or modification of any of its provisions, or for punishment by
contempt.
SO ORDERED this ___ day of _________, 1997.
--------------------------------
Hon. Robert W. Sweet
United States District Judge
<PAGE>
UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
...........................................................
94 Civ. 3996 (RWS)
IN RE:
M.D.L. No. 1023
NASDAQ MARKET-MAKERS
ANTITRUST LITIGATION
This Document Relates To:
All Actions
...........................................................
STIPULATION GOVERNING SETTLING
DEFENDANTS' PRODUCTION OF AUDIOTAPES
WHEREAS Sherwood Securities Corp. (the "Settling Defendant") and the
Plaintiffs' Co-Lead Counsel in In Re: Nasdaq Market-Makers Antitrust Litigation,
a multidistrict class Action (the "Class Action"), have entered into a
Settlement Agreement (the "Settlement Agreement") dated April 9, 1997;
WHEREAS the Settlement Agreement provides that the Settling Defendant
shall provide to the Plaintiffs' Co-Lead Counsel various audiotape recordings as
defined in the Settlement Agreement;
WHEREAS the Settlement Agreement provides that the procedure by which
the Settling Defendant will copy and make tape available to the Plaintiffs'
Co-Lead Counsel shall be in accordance with the procedure that has been in
effect to date and which is incorporated in a Stipulation executed by the
Settling Defendant's Counsel and the Plaintiffs' Co-Lead Counsel simultaneously
with the execution of the Settlement Agreement.
IT IS HEREBY AGREED THAT:
1. All requests for the production of audiotapes for review
shall be made in writing by the Plaintiffs' Co-Lead Counsel.
2. The Settling Defendant will make available (pursuant to the
procedures set forth below), the audiotape identified in the Settlement
Agreement and no other audiotape.
3. The Settling Defendant will make tape available for review on
mutually agreed upon dates in the offices of the Settling Defendant's Counsel
between 9:00 a.m. and 6:30 p.m. Monday through Friday except on holidays when
defense counsel's office is closed. The Settling Defendant will make available
three sets of equipment, and plaintiffs' counsel may bring an additional three
sets, to permit plaintiffs' counsel to listen to the tape. Plaintiffs' counsel
will be permitted to review tapes and take notes concerning the tapes' content,
but shall not be permitted to copy any portion of the tape recordings.
4. Plaintiffs' counsel will designate calls to be produced to the
Document Depository. The designation may be made within thirty (30) days of
the date of review.
5. The Settling Defendant will produce or object to the
production of designated calls thirty (30) days after receipt of the
designations.
(a) By permitting the plaintiffs to review the tape,
defendants have not waived any right to deny the production of certain
conversations on the grounds that they are protected by any privilege or the
work-product doctrine; nor have plaintiffs waived their right to contest any
such denial of production.
(b) By permitting the plaintiffs to review the tape,
defendants have not waived any right to deny the production on the ground that
certain conversations are highly personal or on any other grounds permitted by
the Federal Rules of Civil Procedure; nor have plaintiffs waived their right to
contest any such denial of production.
6. All tape produced to the depository shall be subject to the terms of
the Stipulated Order Regarding Confidential Documents dated October 12, 1995.
The production of tape to the depository shall not constitute a wavier of any
party's rights.
Dated: April 9, 1997
By
Arthur M. Kaplan, Esq.
FINE, KAPLAN AND BLACK
23rd Floor, 1845 Walnut Street
Philadelphia, PA 19103
(215) 567-6565
By
Christopher Lovell, Esq.
LOVELL & SKIRNICK, LLP
63 Wall Street
New York, New York 10005
(212) 480-1600
By
David J. Bershad, Esq.
Leonard B. Simon, Esq.
MILBERG WEISS
BERSHAD HYNES &
LERACH 600 West
Broadway 1800 One
America Plaza
San Diego, CA 92101-5050
(619) 231-1058
-and-
One Pennsylvania Plaza
New York, New York
(212) 594-5300
<PAGE>
By
Robert A. Skirnick
LOVELL & SKIRNICK, LLP
63 Wall Street
New York, New York 10005
(212) 480-1600
Plaintiffs' Co-Lead Counsel with authority to sign
Pursuant to Pre-Trial Order No. 1 on behalf of
plaintiffs
By
Brian J. McMahon, Esq.
Guy V. Amoresano, Esq.
CRUMMY, DEL DEO, DOLAN,
GRIFFINGER & VECCHIONE, P.C.
One Riverfront Plaza
Newark, New Jersey 07102-5497
(201) 596-4500
Counsel for Sherwood Securities Corp.
STOCK PURCHASE AGREEMENT
dated as of
April 11, 1997
between
DRESDNER BANK AG
and
THE SHERWOOD GROUP, INC.
<PAGE>
-iii-
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
<S> <C>
ARTICLE 1 PURCHASE AND SALE
1.1 Specialist Business..................................................................1
1.2 Preliminary Balance Sheet............................................................1
1.3 Base Purchase Price..................................................................2
1.4 Stock Certificates...................................................................2
1.5 Closing Date Balance Sheet...........................................................2
1.6 Payment of Adjustment Amount.........................................................3
1.7 Post-Closing Payments................................................................4
ARTICLE 2 CLOSING
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER
3.1 Organization.........................................................................4
3.2 Authorization........................................................................4
3.3 No Consents..........................................................................5
3.4 Non-Contravention....................................................................5
3.5 Title to Stock.......................................................................5
3.6 Due Incorporation of the Company;
Capitalization.................................................................6
3.7 Specialist Securities................................................................6
3.8 Litigation...........................................................................6
3.9 Compliance With Law..................................................................7
3.10 Financial Report.....................................................................7
3.11 Audited Financial Statements.........................................................7
3.12 No Undisclosed Liabilities...........................................................8
3.13 Taxes................................................................................8
3.14 Employee Matters....................................................................10
3.15 Operations of the Company...........................................................11
3.16 Brokers.............................................................................12
3.17 Real Property.......................................................................12
3.18 Absence of Certain Changes or Events................................................12
3.19 Agreements..........................................................................14
3.20 Minute and Stock Transfer Book......................................................14
3.21 Filings.............................................................................14
3.22 Intellectual Property...............................................................15
3.23 Insurance...........................................................................15
3.24 Affiliate Transactions..............................................................15
3.25 Officers and Directors..............................................................16
3.26 Disclosure Letter...................................................................16
3.27 No Other Representations or Warranties..............................................16
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Organization........................................................................16
4.2 Authorization.......................................................................16
4.3 No Consents.........................................................................17
4.4 Non-Contravention...................................................................17
4.5 Litigation..........................................................................17
4.6 Disclosure..........................................................................18
ARTICLE 5 COVENANTS AND AGREEMENTS OF SELLER
5.1 Affirmative Covenants...............................................................18
5.2 Negative Covenants..................................................................19
5.3 Exclusive Agreement.................................................................20
ARTICLE 6 COVENANTS AND AGREEMENTS OF BUYER
6.1 Affirmative Covenants...............................................................20
6.2 Negative Covenants..................................................................21
6.3 Transfer Taxes and Other Fees.......................................................21
ARTICLE 7 JOINT COVENANTS AND AGREEMENTS
7.1 Access to Records After Closing.....................................................22
7.2 Required Consents...................................................................22
7.3 Transferred Employees...............................................................22
7.4 NYSE Memberships....................................................................25
7.5 Pre-Closing Transfers and Payments..................................................25
7.6 Press Releases......................................................................26
7.7 Proprietary Information.............................................................26
7.8 Reasonable Commercial Efforts; Further
Assurances....................................................................26
7.9 Tax Matters.........................................................................27
7.10 Notifications.......................................................................30
ARTICLE 8 CONDITIONS TO CLOSING
8.1 Mutual Conditions...................................................................30
8.2 Buyer's Conditions..................................................................31
8.3 Seller's Conditions.................................................................33
ARTICLE 9 TERMINATION
9.1 Termination.........................................................................34
9.2 Effect of Termination...............................................................35
9.3 Right to Proceed....................................................................35
ARTICLE 10 MISCELLANEOUS
10.1 Notices.............................................................................35
10.2 Survival............................................................................36
10.3 Indemnification.....................................................................36
10.4 Expenses............................................................................38
10.5 Governing Law.......................................................................38
10.6 Assignment; Successors and Assigns..................................................39
10.7 Counterparts........................................................................39
10.8 Titles and Headings.................................................................39
10.9 Entire Agreement....................................................................39
10.10 Amendment and Modification..........................................................39
10.11 Arbitration of Disputes; Submission to
Jurisdiction..................................................................39
10.12 Waiver..............................................................................40
10.13 Severability........................................................................40
</TABLE>
List of Annexes
Annex A Specialist Securities as of April 11, 1997
Annex B Employees Subject to Transfer
Annex C Forms of Agreement and General Release
Annex D Form of Opinion of Seller and Company
Counsel and of Buyer and Successor Counsel
<PAGE>
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is dated as of April 11, 1997, among DRESDNER
BANK AG, a corporation incorporated under German law ("Seller"), and The
Sherwood Group, Inc., a Delaware corporation ("Buyer").
W I T N E S S E T H:
WHEREAS, Seller is the owner of all of the issued and
outstanding shares of common stock, par value $100.00 per share (the "Stock") of
Dresdner-NY Incorporated (the "Company"); and
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to
purchase from Seller, the Stock upon the terms and conditions hereinafter set
forth; and
WHEREAS, Buyer is the majority limited partner of Equitrade
Partners, a limited partnership formed under the laws of the State of New York
(the "Successor");
NOW, THEREFORE, in consideration of the mutual agreements,
covenants, representations and warranties contained in this Agreement, Buyer and
Seller agree as follows:
ARTICLE 1
PURCHASE AND SALE
1.1 Specialist Business. On the terms and subject to the
conditions and exceptions contained herein, Seller and Buyer agree to diligently
pursue and use their respective reasonable commercial efforts to obtain the
approval of the New York Stock Exchange ("NYSE") for Buyer to purchase the Stock
and for Successor to conduct as of the Closing (as hereinafter defined), the
specialist business with respect to all of the NYSE equity securities (the
"Securities") for which the Company is acting as the specialist unit immediately
prior to the Closing (the "Specialist Business").
<PAGE>
-14-
Preliminary Balance Sheet. Not later than two business days
prior to the Closing Date, Seller shall prepare and deliver to Buyer an
unaudited pro forma balance sheet of the Company as of a date falling not
earlier than fifteen business days prior to the Closing Date, which balance
sheet shall give pro forma effect to the transactions contemplated by this
Agreement (the "Preliminary Balance Sheet").
1.3 Base Purchase Price. Subject to the terms and conditions
contained herein, at the Closing Seller shall sell the Stock to Buyer and Buyer
shall purchase the Stock from Seller. Buyer agrees to pay to Seller in
immediately available funds by wire transfer by 10:00 a.m. New York time on the
Closing Date an amount equal to (i) $5,215,000 plus (ii) the total stockholder's
equity of the Company as reflected on the Preliminary Balance Sheet (the "Base
Purchase Price").
Stock Certificates. At the Closing, Seller shall deliver to
Buyer certificates representing the Stock, duly endorsed in blank for transfer
or accompanied by duly executed blank stock powers together with all necessary
stock transfer stamps affixed thereto and such other instruments as shall
reasonably be required by Buyer to transfer to Buyer all right, title and
interest in the Stock, free and clear of any claims, liens, encumbrances,
mortgages, charges, security interests, options, rights, restrictions or other
interests or any other interests or imperfections of title (collectively,
"Encumbrances"), except for such Encumbrances as may be created by, or arise due
to the nature, status or affairs of, Buyer.
Closing Date Balance Sheet. Not later than 15 business days
following the Closing Date, Coopers & Lybrand L.L.P. ("Coopers & Lybrand") shall
prepare and deliver to Buyer and KPMG Peat Marwick L.L.P. ("KPMG") an
unqualified opinion on the balance sheet for the Company as of the Closing Date
(the "Closing Date Balance Sheet") and an audited income statement for the
Company for the period from January 1, 1997 through and including the Closing
Date (the "Income Statement") (footnotes included), each prepared in accordance
with United States generally accepted accounting principles ("GAAP") and
consistent with the Audited Financial Statements, except that the Closing Date
Balance Sheet shall be adjusted to reduce stockholder's equity to the extent of
any tax receivables relating to taxable periods ending on or prior to the
Closing Date and to increase stockholder's equity by the amount of any tax
payables, relating to tax periods or portions of tax periods up through the
Closing Date (in adjusting for tax payables relating to taxable periods
beginning before and ending after the Closing Date, the principles of Section
7.9(f) hereof shall be applied). The working papers associated with Coopers &
Lybrand's audit of the Closing Date Balance Sheet and Income Statement will be
made available to Buyer and KPMG upon issuance of the Closing Date Balance Sheet
and Income Statement. Within 10 days after receipt of such Closing Date Balance
Sheet and Income Statement, Buyer shall deliver to Coopers & Lybrand, with a
copy to Seller, a notice that either (a)states that the Closing Date Balance
Sheet is satisfactory to Buyer or (b) explains with reasonable specificity any
adjustments to the Closing Date Balance Sheet that Buyer requests as a result of
comments received from KPMG. If Buyer provides the notice described in (b)
above, Seller and Buyer will use their best efforts to reach a mutual agreement
on any appropriate adjustments to be made to the Closing Date Balance Sheet
within 10 days of the receipt of such notice. If Seller and Buyer are unable to
resolve any disputes within 10 days of receipt of notice from Buyer, then such
disputes shall be referred to a nationally recognized independent certified
public accounting firm mutually agreed upon by Seller and Buyer. The accounting
firm to which such disputes are referred shall, within thirty (30) days after
such disputes shall have been referred to it deliver to Seller and Buyer a
written report indicating its views on the item or items in dispute and its
resolution thereof. The determination of the accounts, including the total
stockholder's equity of the Company as of the Closing Date, as reflected on the
Closing Date Balance Sheet, pursuant to the terms of the Section 1.5 shall be
final and binding on the Buyer and the Seller in the absence of manifest error.
Seller shall pay all fees and expenses of Coopers & Lybrand and Buyer shall pay
all fees and expenses of KPMG in connection with the preparation of the Closing
Date Balance Sheet. In the event that a dispute regarding the Closing Balance
Sheet and Income Statement is referred to an independent accounting firm as
provided above, the cost thereof shall be divided equally between the Seller and
Buyer.
Payment of Adjustment Amount. On a date falling no later than
2 business days after the final determination of the Closing Date Balance Sheet
pursuant to Section 1.5, (i) Buyer shall pay to Seller an amount equal to the
difference between the total stockholder's equity of the Company reflected on
the Closing Date Balance Sheet and the total stockholder's equity of the Company
reflected on the Preliminary Balance Sheet, in the event that such difference is
a positive amount or (ii) Seller shall pay to Buyer an amount equal to the
difference between the total stockholder's equity of the Company reflected on
the Closing Date Balance Sheet and the total stockholder's equity of the Company
reflected on the Preliminary Balance Sheet, in the event that such difference is
a negative amount. The amount owed by Buyer or Seller, as the case may be,
pursuant to clauses (i) or (ii) above shall hereinafter be referred to as the
"Adjustment Amount". Seller shall pay to Buyer, or Buyer shall pay to Seller, as
the case may be, the Adjustment Amount in immediately available funds by wire
transfer to such account as Buyer shall have designated to Seller, or Seller
shall have designated to Buyer, as the case may be, not less than 24 hours prior
to the payment thereof. The Base Purchase Price, as adjusted by the Adjustment
Amount, shall be referred to herein as the "Purchase Price".
Post-Closing Payments. To the extent not reflected in the
Closing Date Balance Sheet, Seller shall pay or reimburse Buyer on demand if
Buyer shall be required to pay any amounts due pursuant to clauses Second and
Third of Section 11 of Article II of the New York Stock Exchange, Inc.
Constitution (the "Constitution") as a result of activities conducted prior to
the Closing Date with respect to a "membership" (as such term is defined in the
Constitution) being transferred to Successor as contemplated in this Agreement
(singularly a "Membership" or collectively the "Memberships").
ARTICLE 2
CLOSING
The closing of the transactions contemplated by this Agreement
(the "Closing") shall occur at the offices of Sullivan & Cromwell, 125 Broad
Street, New York, New York 10004, at 5:00 p.m. on the later of (i) April 30,
1997, and (ii) the first business day after the satisfaction of the conditions
contained in Section 8.1 hereof, or at such other time and place as is mutually
agreed in writing by Buyer and Seller. The time and date of the Closing is
herein called the "Closing Date".
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer that:
Organization. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the Federal Republic of
Germany.
3.2 Authorization. Seller has the full corporate power and
authority to enter into and perform this Agreement and to perform its
obligations hereunder. The execution and delivery of this Agreement and of all
documents and instruments required hereby and the consummation of the
transactions contemplated hereby by Seller or the Company have been duly
authorized by all necessary corporate action of Seller or the Company and no
other corporate proceedings on the part of Seller are necessary to authorize the
execution, delivery and performance of this Agreement on the part of Seller or
by the Seller or the Company to consummate the transactions contemplated hereby.
This Agreement and the other documents and instruments to be delivered by Seller
or the Company have been, or will be, duly and validly executed and delivered by
Seller or the Company and constitute, or upon the execution and delivery thereof
will constitute, the valid and binding obligations of Seller or the Company,
enforceable against it in accordance with their respective terms.
No Consents. Other than as contemplated in Sections 7.2, 7.3,
7.4 and 7.5 hereof, no notice to, filing with, or authorization, consent or
approval of any governmental or regulatory authority or other person or entity
is required of Seller or the Company in connection with the execution, delivery
and performance by Seller of this Agreement or the other documents and
instruments to be delivered by Seller or the Company pursuant to this Agreement
or the consummation by Seller or the Company of the transactions contemplated
herein or therein.
Non-Contravention. The execution, delivery and performance of
this Agreement by Seller and the consummation of the transactions contemplated
hereby by Seller or the Company do not and will not contravene, result in a
violation, loss of rights or default under, constitute an event creating rights
of acceleration, termination, repayment or cancellation under, entitle a party
to receive any payment or benefit pursuant to, or result in the creation of any
Encumbrance upon any of the Stock or property or assets of the Company under (i)
the articles or certificate of incorporation or bylaws or other charter or
organizational documents of either of Seller or the Company or (ii) any
applicable law, regulation or administrative order, contract, judgment, decree,
or ruling to which Seller or the Company is a party or by which either of them
or their respective assets or properties is bound or affected (subject to
receipt of the relevant approvals and other matters addressed in Sections 7.2,
7.3, 7.4 and 7.5 hereof).
Title to Stock. Seller is the owner of the Stock, beneficially
and of record, free and clear of any Encumbrances and upon delivery of the
certificate or certificates for the Stock at the Closing, Buyer will acquire
good and valid title to the Stock, free and clear of any Encumbrances, except
for such Encumbrances as may be created by, or arise due to the nature, status
or affairs of, Buyer.
3.6 Due Incorporation of the Company; Capitalization. The
Company is a corporation duly organized, validly existing and in good standing
as a corporation under the laws of the State of Delaware, with full corporate
power and authority to own and operate its business and properties and to carry
on its business as presently conducted by it. The Company's authorized capital
stock consists solely of 5,000 shares of common stock, par value $100.00 per
share, all of which are issued and outstanding. Such issued and outstanding
shares are validly issued, fully paid and nonassessable. Except for rights
created pursuant to this Agreement, and as set forth in Schedule 3.6 hereto,
there are no outstanding options, warrants or other rights to acquire, or any
outstanding securities or obligations convertible into or exchangeable for, any
shares of capital stock of the Company. Other than the transactions contemplated
by this Agreement, there are no outstanding contracts or obligations to
restructure or recapitalize the Company. The Company is duly qualified to do
business and, with respect to jurisdictions that recognize the concept of "good
standing", is in good standing as a foreign corporation in all jurisdictions
where such qualification is required. The Company has no subsidiaries and does
not control, directly or indirectly, any other person. The Company is not a
party to any joint venture or partnership arrangement and does not own or
control any interest in any other person except in connection with its ownership
from time to time of the Securities.
3.7 Specialist Securities. On the date hereof, the Company
acts as the NYSE specialist unit for each of the Securities listed in Annex A
hereto. Except as disclosed in Schedule 3.7, the Company has no reason to
believe and has not been advised that it may be required to cease acting as the
NYSE specialist unit for any of such Securities, nor has it agreed to act as the
NYSE specialist unit for any security (other than the Securities) nor will it so
agree without the prior written approval of Buyer.
3.8 Litigation. Except as disclosed in Schedule 3.8 hereto,
there are no lawsuits, actions, proceedings, inquiries, claims, orders or
investigations by or before any court or any federal, state, local or
governmental or other regulatory or self-regulatory agency, authority, body,
board, bureau, commission, department or instrumentality ("Governmental
Authority") pending or, to Seller's or the Company's knowledge, threatened
against the Company or Seller which could reasonably be expected to have a
material adverse effect on the business, financial condition, results of
operations or properties of the Company nor are there any facts or circumstances
known to Seller that are likely to result in a claim for damages or equitable
relief which, if decided adversely, are likely to, individually or in the
aggregate, have a material adverse effect on the business, financial condition,
results of operations or properties of the Company or impair in any material
respect the ability of Seller or the Company to perform its obligations
hereunder. Except as disclosed in Schedule 3.8 hereto, neither the Company nor
the Seller is subject to or in default with respect to any judgment, order,
writ, regulation, injunction or decree of any Governmental Authority which could
have a material adverse effect on the business, financial condition, results of
operations or properties of the Company or materially impair the ability of
Seller to perform its obligations hereunder.
3.9 Compliance With Law. Except as disclosed in Schedule 3.9
hereto, Seller, with respect to its operation of the Company, and the Company,
are in compliance in all material respects with all laws, regulations and
administrative orders, and the rules of all Governmental Authorities applicable
to the Company or to Seller with respect to its operation of the Company. The
Company has obtained all material licenses, permits, approvals, authorizations,
waivers, grants, exemptions and orders required to be obtained by it from any
Governmental Authority. The Company has the minimum net capital necessary to
conduct, and is in compliance with all net capital requirements in connection
with the operation of, its business as it is presently conducted.
3.10 Financial Report. The Financial Report for Specialists (a
"Financial Report") filed by the Company with the NYSE for the fiscal quarter
ended December 31, 1996 (a copy of which has been provided to Buyer) and each
Financial Report filed by the Company with the NYSE during the period from the
date hereof to the Closing Date, complied or when so filed will comply, as the
case may be, in all material respects with the relevant NYSE instructions for
the completion of Financial Reports.
3.11 Audited Financial Statements. Seller has previously
furnished to Buyer true and complete copies of the audited balance sheet for the
Company at December 31, 1996 and the related audited income statements for the
one-year period then ended (the "Audited Financial Statements"). The Audited
Financial Statements have been prepared in conformity with GAAP applied on a
consistent basis (except for changes, if any, disclosed therein). The Audited
Financial Statements present fairly in all material respects the results of
operations of the Company for the respective periods covered and the financial
condition of the Company as of their respective dates.
3.12 No Undisclosed Liabilities. As of the Closing Date, the
Company will not be subject to any obligation or liability of any nature,
whether absolute, accrued, contingent or otherwise and whether due or to become
due, other than to the extent accrued or reserved against in the Closing Date
Balance Sheet.
3.13 Taxes. Except as set forth in Schedule 3.13 hereto:
(a) (i) all Tax Returns with respect to Taxes that are
required to be filed (giving regard to extensions set forth in Schedule 3.13) by
or with respect to the Company on or before the Closing Date have been or will
be duly filed on or before the Closing Date, and all such Tax Returns are or
will be true, correct and complete in all material respects, (ii) all Taxes due
from or in respect of the Company for the periods covered by the Tax Returns
referred to in clause (i) and for the taxable periods or portions thereof ending
on or before the Closing Date have been or will be paid in full on or before the
Closing Date or, subject to the provisions of Section 1.5 hereof, will be
properly accrued for on the Closing Date Balance Sheet and provision made for
payment thereof or the Company has made or will make all payments of estimated
Taxes required to be made on or before the Closing Date, (iii) all deficiencies
asserted or assessments made on or before the Closing Date as a result of
examinations by federal, state, local or foreign taxing authorities have been or
will be paid in full on or before the Closing Date and (iv) no issues that have
been raised by the United State Internal Revenue Service or any other taxing
authority in a writing received by the Company, or Seller or any subsidiary of
Seller on behalf of the Company, in connection with the examination of any of
the Tax Returns referred to in clause (i) are currently pending. Seller does not
expect any taxing authority to assess any additional Taxes for any taxable
period for which Tax Returns have been filed. No claim has ever been made by any
taxing authority in a jurisdiction where the Company or any other entity for
whose liability for Tax the Company may be liable does not file Tax Returns that
it is or may be subject to taxation by that jurisdiction. There are no
encumbrances on any of the assets of the Company that arose in connection with
any failure or alleged failure to pay any Taxes by any of Seller, any subsidiary
of Seller, or the Company.
(b) With respect to all periods through the most recently
completed fiscal quarter of the Company for which Tax Returns have not yet been
filed, or for which Taxes are not yet due or owing, the Company has made due and
sufficient current accruals for such Taxes in accordance with GAAP, and, subject
to the provisions of Section 1.5 hereof, such current accruals will be duly and
fully provided for in the Closing Date Balance Sheet.
(c) As of the Closing Date, the Company will not be a party
to, will not be bound by, and will have no obligation under, any tax sharing
agreement or contract.
(d) The Company is not and has not been at any time a member
of any affiliated, consolidated, combined or unitary group for income Tax
purposes.
(e) The Company has no liability for the Taxes of any person
under section 1.1502-6 of the U.S. Treasury regulations (or any similar
provision of state, local or foreign law) as a transferee or successor, by
contract or otherwise.
(f) The Company is subject to income tax only with respect to
the United States, the State of New York and the City of New York.
(g) The Company has not been a United States real property
holding corporation within the meaning of section 897(c)(2) of the Internal
Revenue Code of 1986, as amended, (the "Code") during the applicable period
specified in section 897(c)(1)(A)(ii) of the Code.
(h) The Company owns no interest in real property in any
jurisdiction in which a Tax is imposed on the transfer of a controlling interest
in an entity that owns any interest in real property.
(i) Seller has made available to Buyer complete and accurate
copies of all stand-alone Tax Returns of the Company that were part of the
consolidated and combined returns as filed and, if applicable, as amended, with
respect to all open Tax periods that have been filed or will be required to be
filed (after giving effect to all valid extensions of time for filing) on or
before the Closing Date. Seller will provide Buyer with complete and accurate
copies of the stand-alone Tax Returns of the Company that were part of the
consolidated and combined returns as filed and, if applicable, as amended, for
the period ending August 31, 1996 as promptly as practicable after the filing
thereof.
(j) No audits of the Tax Returns with respect to United Stated
federal income Taxes have been completed and there is no judicial or
administrative claim, audit, action, suit, proceeding or investigation now
pending or, to the knowledge of the Company, threatened against or with respect
to the Company in respect of any Tax of the Company for any taxable period
ending on or prior to the Closing Date. To the knowledge of Seller and the
Company, there is no reasonable basis for any deficiency, claim or adjustment of
additional Taxes for any taxable period ending on or prior to the Closing Date
and there are no Liens for Taxes upon the assets of the Company except Liens for
current Taxes (i) not yet due or (ii) being contested in good faith and by
appropriate proceedings and for which adequate reserves have been established on
the Audited Financial Statements or the Closing Date Balance Sheet.
(k) For purposes of this Agreement, "Taxes" shall mean all
federal, state, local, or foreign income, franchise, sales, use, gross receipts,
license, payroll, employment, withholding, disability, social security,
property, excise or other taxes, fees, charges or similar assessments imposed by
any governmental authority, and any interest or penalties thereon with respect
to the Company. For purposes of this Agreement, "Tax Returns" shall mean all
reports and returns required to be filed with respect to the Taxes of the
Company including any schedule or attachment thereto and including any amendment
thereof relating to the Company.
3.14 Employee Matters.
(a) The Company is not and has never been a party to or
otherwise obligated under any collective bargaining agreement. At Closing,
except as contemplated by Section 7.3 hereof and as set forth on Schedule 3.14
hereto, the Company (i) will not be a party to, obligated under or have any
liabilities with respect to any employment, change in control, consulting or
agency contract with any person and (ii) will not maintain, contribute to, or
have any liability or obligation for which the Company, Buyer or Successor may
have any liability or obligation after the Closing Date with respect to any
employee program, policy or "employee benefit" plan as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
including, without limitation, any deferred compensation, pension, medical,
severance, accident, life, disability, stock or incentive plan, policy or
program maintained by Seller or any entity that is considered a single-employer
with the Company under Section 4001 of ERISA or Section 414 of the Code (an
"ERISA Affiliate"). At Closing, the Company will not have any liability or
obligation for which the Company, Buyer or Successor may have any liability or
obligation after the Closing Date under the Mortgage Assistance Plan, Tuition
Reimbursement Plan, Travel Subsidy Plan or any cafeteria or flexible benefits
plans maintained by Seller, the Company or any ERISA Affiliate of the Company.
The liability or obligation described above includes without limitation those
attributable to acts or omissions of Seller or any of its ERISA Affiliates
(determined as of the Closing) that occur after the Closing.
(b) The Seller Savings Plan (as defined in Section 7.3) is in
compliance with the applicable provisions of ERISA and the Code and Seller, the
Company and each ERISA Affiliate of the Company (determined immediately prior to
the Closing Date) have performed all of their obligations under the Seller
Savings Plan, other than any event of noncompliance or nonperformance that would
not have a material adverse effect on the business, financial condition, results
of operations or properties of the Company or on the Seller Savings Plan. All
contributions required to be made under the terms of the Seller Savings Plan
have been timely made. To the best of the Seller's knowledge, there are no
claims (other than routine claims for benefits) pending or threatened against
the Seller Savings Plan or its assets, and no facts exist that could give rise
to any claims that would have a material adverse effect on either the business,
financial condition, results of operations or properties of the Company or on
the Seller Savings Plan. The Seller Savings Plan has been duly authorized by all
necessary corporate action by Seller or its applicable affiliate. No "prohibited
transaction" (within the meaning of Code Section 4975 or ERISA Sections 406 and
408) has occurred with respect to the Seller Savings Plan as a result of any act
of Seller, the Company or any of their affiliates or their directors, officers
and employees, provided, however, the foregoing does not apply to investment
directions made by Seller Savings Plan participants in a plan that complies with
all the requirements of ERISA Section 404(c). The Seller Savings Plan is
qualified in form and operation under Section 401(a) of the Code and the trust
thereunder is exempt from tax under Section 501(a) of the Code. No event has
occurred that will subject the Seller Savings Plan to a tax under Section 511 of
the Code. The Company and the Seller Savings Plan are permitted to take all
actions pertaining to the Seller Savings Plan described in Section 7.3(b).
3.15 Operations of the Company. Except as otherwise
contemplated by this Agreement, since December 31, 1996, the Company has
conducted its operations and each action it has taken has been, in the ordinary
course consistent with past practice and there has not been, occurred or arisen
any change in the business, operations, or condition of the Company that,
individually or in the aggregate, has had or is reasonably likely to have a
material adverse effect on the business, financial condition, results of
operations or properties of the Company, other than changes resulting from a
change in general economic or market conditions.
3.16 Brokers. Except as disclosed in Schedule 3.16, neither
Seller nor the Company has retained any broker, finder, investment banker or
financial advisor in connection with this Agreement or any transaction
contemplated hereby that would be entitled to a broker's, finder's, investment
banker's, financial advisor's or similar fee in connection therewith.
Real Property. The Company does not own (of record or
beneficial), nor does it have any interest in, any real property.
Absence of Certain Changes or Events. Except as otherwise contemplated
by this Agreement, the Company has not, since December 31, 1996:
(a) issued, sold or granted or contracted to issue, sell or
grant any of its stock, notes, bonds, other securities or any option to purchase
any of the same;
(b) amended its certificate of incorporation or by laws;
(c) made any expenditure or commitment in excess of $50,000
for the acquisition of any property other than in the ordinary course of
business of the Company;
(d) incurred, assumed, guaranteed (including by way of any
agreement to "keep well" or of any similar arrangement) any liability or
obligation, prepaid any indebtedness or amended the terms relating to any
indebtedness (including, without limitation, capital leases, payments in respect
of the deferred purchase price of property, letters of credit, loan agreements
and other agreements relating to the borrowing of money or extension of credit),
issued or sold any debt securities or made material expenditures, in each case,
in excess of $50,000 other than in the ordinary course of business of the
Company;
(e) redeemed, repurchased, or otherwise acquired any of its
capital stock or securities, convertible into or exchangeable for its capital
stock or entered into any agreement with respect to any of the foregoing;
(f) sold, transferred, assigned, conveyed, mortgaged, pledged
or otherwise subjected to any Encumbrance any of its properties or assets,
tangible or intangible, except in the ordinary course of business of the Company
consistent with past practices;
(g) entered into any agreement or commitment involving
aggregate payments by the Company in excess of $20,000 that, pursuant to its
terms, is not cancelable by the Company without penalty on 60 days' notice or
less;
(h) except as disclosed in Schedule 3.18, increased the rate
of compensation payable or to become payable to the officers of employees of the
Company, or increased the amounts paid or payable to such officers or employees
under any bonus, insurance, pension or other benefit plan, or made any
arrangements therefore with or for any of said officers or employees except for
increases consistent with the Company's ordinary course of business or increases
resulting from the application of existing formulas under existing plans,
agreements or policies relating to employee compensation;
(i) entered into, adopted or materially amended any collective
bargaining, bonus, profit sharing, compensation, stock option, pension,
retirement, deferred compensation or other plan, agreement, trust, fund or
arrangement for the benefit of its employees, except as otherwise required or
permitted herein;
(j) suffered any strike or other labor dispute that has had or
could reasonably be expected to have a material adverse effect on the business,
financial condition, results of operations or properties of the Company;
(k) changed in any material respect any accounting principle,
procedure or practice followed by the Company or changed the method of applying
such principle, procedure or practice, except for changes required by the NYSE,
GAAP or applicable law;
(l) made any material changes in its general policies or
practices relating to selling practices, discounts or other material terms of
sale or accounting therefor; or
(m) suffered any damage, destruction or other casualty loss
(whether or not covered by insurance) affecting its properties or assets which,
individually or in the aggregate, could reasonably be expected to have a
material adverse effect on the business, financial condition, results of
operations or properties of the Company.
3.19 Agreements. Correct and complete copies of all contracts,
agreements and other instruments to which the Company is a party or by which any
of its property or assets are bound, which are material to the business or
operations of the Company ("Business Agreements"), have heretofore been made
available to Buyer. The foregoing Business Agreements include, but are not
limited to, all notes, debentures, employment agreements, commission agreements,
option plans, options, real property agreements, mortgages, equipment lease
agreements, pension plans, 401(k) plans, clearing agreements and employee
welfare benefit plans as defined under ERISA. The Company is not in default and
no event has occurred which, with notice or lapse of time or both, could cause
or become a default by the Company, under any Business Agreement.
3.20 Minute and Stock Transfer Book. The minute books of the
Company are correct (including signatures), complete and current, in all
material respects, and accurately reflect, in all material respects, the
corporate actions of the Board of Directors and each committee of the Board of
Directors and the shareholders of the Company. The stock transfer books of the
Company are correct (including signatures), complete and current and reflect all
transactions in the Company's common stock.
<PAGE>
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3.21 Filings. Since December 31, 1995, the Company has filed
all material registrations, reports, statements, notices and other filings
required to be filed with any Governmental Authority by the Company including
all required amendments or supplements to any of the above. Such filings made by
the Company complied to the extent applicable in all material respects with the
requirements of applicable law and the applicable Governmental Authority. Seller
has made available to Buyer complete and correct copies of (i) all such filings
made since December 31, 1995, (ii) all audit reports received by the Company
from any Governmental Authority and all written responses thereto made by the
Company since December 31, 1995, (iii) copies of all inspection reports provided
to the Company by any Governmental Authority since December 31, 1995 and (iv)
all correspondence relating to any inquiry or investigation provided to the
Company by any Governmental Authority since December 31, 1995.
3.22 Intellectual Property. Except for the name "Dresdner",
the Dresdner logo, and variations thereof which are and shall remain the
property of Seller whether such name or logo is copyrighted, registered or
otherwise protected, the Company owns or has valid, binding, enforceable and
adequate rights to use all material computer software, patents, trademarks,
trade names, service marks, service names, copyrights, other proprietary
intellectual property rights, applications therefor, registrations thereof and
licenses or other rights in respect thereof ("Intellectual Property") necessary
for use in connection with the business of the Company as it is currently
conducted, without any conflict with the rights of others. Neither the Seller
nor the Company has received any notice from any other person pertaining to or
challenging the right of the Company to use any Intellectual Property or any
trade secrets, proprietary information, inventions, know-how, processes and
procedures owned or used by or licensed to the Company, except with respect to
rights the loss of which, individually or in the aggregate, have not had and
would not be reasonably likely to have a material adverse effect on the
business, financial condition, results of operations or properties of the
Company.
3.23 Insurance. Schedule 3.23 sets forth a correct and
complete list of all material insurance policies and fidelity bonds maintained
on the date hereof by or for the benefit of the Company. Seller has made
available to Buyer complete and correct copies of all such policies and bonds,
together with all riders and amendments thereto as of the date hereof. As of the
date hereof, such policies and bonds are in full force and effect, and all
premiums due thereon have been paid. The Company has complied in all material
respects with the terms and provisions of such policies and bonds. There is no
claim in excess of $50,000 by the Company pending as of the date hereof under
any of such policies or bonds as to which coverage has been questioned, denied
or disputed by the underwriters of such policies or bonds.
3.24 Affiliate Transactions. Schedule 3.24 sets forth a
correct and complete list of all agreements, arrangements or other commitments
in effect as of date hereof between the Company, on the one hand, and the Seller
or any officer, director or shareholder of Seller or the Company on the other
hand, other than compensation or benefit agreements, arrangements and
commitments set forth on Schedule 3.14.
3.25 Officers and Directors. Schedule 3.25 lists the officers
and directors of the Company. No other officers or directors of the Company will
be elected or appointed after the date hereof.
Disclosure Letter. The disclosure letter delivered by Seller
to Buyer and dated the date hereof (the "Disclosure Letter") is true, accurate
and complete, except for such errors or omissions as would not have a material
adverse effect on the business, financial condition, results of operations or
properties of the Company.
No Other Representations or Warranties. Except for the
representations and warranties contained in this Article 3 or in the Schedules
attached hereto or in the Disclosure Letter, neither Seller, the Company nor any
other person makes any express or implied representation or warranty on behalf
of Seller or the Company, and Seller hereby disclaims any such representation or
warranty whether by Seller, the Company or any of the respective affiliates,
officers, directors, employees, agents or representatives or any other person.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
Organization. Buyer is a corporation duly formed and validly
existing under the laws of the State of Delaware. Successor is a limited
partnership formed under the laws of New York.
Authorization. Buyer has the full power and authority to enter
into and perform this Agreement and to perform its obligations hereunder. The
execution and delivery of this Agreement and all documents and instruments
acquired hereby and the consummation of the transactions contemplated hereby by
Buyer or Successor have been duly authorized by all necessary action of Buyer or
Successor and no other corporate proceedings on the part of Buyer are necessary
to authorize the execution, delivery and performance of this Agreement on the
part of Buyer or by Buyer or Successor to consummate the transactions
contemplated hereby. This Agreement and the other documents and instruments to
be delivered by Buyer hereunder have been, or will be duly and validly executed
and delivered by Buyer and constitute, or upon the execution and delivery
thereof will constitute, the valid and binding obligations of Buyer, enforceable
against it in accordance with their respective terms.
No Consents. Other than as contemplated in Sections 7.2 and
7.4 and Schedule 4.3 hereof, no notice to, filing with, or authorization,
consent or approval of any Governmental Authority or other person or entity is
required of Buyer in connection with the execution, delivery and performance by
Buyer of this Agreement or the other documents and instruments to be delivered
by Buyer or Successor pursuant to this Agreement or the consummation by Buyer or
Successor of the transactions contemplated herein or therein or the conduct by
Successor of the Specialist Business following the Closing.
Non-Contravention. The execution, delivery and performance of
this Agreement by Buyer and the consummation of the transactions contemplated
hereby by Buyer or Successor do not and will not contravene, result in a
violation, loss of rights or default under, constitute an event creating rights
of acceleration, termination, repayment or cancellation under, entitle a party
to receive any payment or benefit pursuant to, or result in the creation of any
Encumbrance upon any of the stock or assets of Buyer under (i) the articles or
certificate of incorporation or bylaws or other charter or organizational
documents of Buyer or Successor or (ii) violate any applicable law, regulation
or administrative order, contract, judgment, decree, order or ruling to which
Buyer is a party or by which either of them or their respective assets or
properties is bound or affected (subject to receipt of the relevant approvals
and other matters addressed in Sections 7.2 and 7.4 and Schedule 4.3 hereof).
4.5 Litigation. There are no lawsuits, actions, proceedings,
inquiries, claims, orders or investigations by or before any Governmental
Authority pending or, to Buyer's knowledge, threatened against Buyer or
Successor and there are no facts or circumstances known to Buyer that are likely
to result in a claim for damages or equitable relief which, if decided
adversely, are likely to, individually or in the aggregate, impair in any
material respect the ability of Buyer to perform its obligations under this
Agreement or the ability of Successor to conduct the Specialist Business
following the Closing. Neither Buyer nor Successor is subject to or in default
with respect to any judgement, order, writ, regulation, injunction or decree of
any Governmental Authority which could impair materially the ability of the
Buyer to perform its obligations under this Agreement or the ability of
Successor to conduct the Specialist Business following the Closing.
4.6 Disclosure. There are no facts or circumstances concerning
Buyer or Successor known to Buyer that Buyer has not disclosed to Seller and
that could reasonably be expected to impair materially the ability of Buyer to
perform its obligations under this Agreement or the ability of Successor to
conduct the Specialist Business following the Closing.
ARTICLE 5
COVENANTS AND AGREEMENTS OF SELLER
5.1 Affirmative Covenants. Prior to the Closing, except as
otherwise specifically contemplated by this Agreement, Seller shall, or shall
cause the Company to:
(a) conduct its business only in the ordinary course of
business consistent with past practices (subject, however, to compliance with
any applicable requirements imposed by the NYSE, Securities and Exchange
Commission or other applicable law);
(b) maintain the books, accounts and records of the Company
consistent with past practices;
(c) maintain all of the Company's existing material licenses
and regulatory approvals and the minimum net capital necessary to conduct the
Specialist Business as currently conducted by the Company and comply in all
material respects with all regulatory requirements applicable to the business of
the Company, except for any failure to comply that would not have a material
adverse effect on Successor's ability to conduct the Specialist Business
following the Closing;
(d) provide to Buyer, promptly after the filing thereof, a
copy of the Financial Report filed by the Company with the NYSE for the fiscal
quarter ended March 31, 1997;
(e) use reasonable commercial efforts to maintain intact its
business organization and the good will of persons having business relationships
with the Company; and
(f) upon reasonable notice, afford Buyer and its officers,
employees, counsel, accountants and other authorized representatives during
normal business hours, reasonable access to such of the Company's properties,
books, contracts, and records, and a reasonable opportunity to discuss the
Company's business affairs, condition (financial and otherwise), assets and
liabilities with such third persons, including, without limitation, its
directors, officers, employees, accountants, and counsel, as is reasonably
necessary or appropriate in connection with the consummation of the transactions
contemplated by this Agreement (including as necessary or appropriate in
connection with the Buyer's investigation and review of the Company's NYSE files
and any investigation undertaken by Buyer to verify that the representations and
warranties of Seller remain true and correct as of the Closing Date); and to
make copies of such information to the extent reasonably necessary. Buyer agrees
that it will not use any information obtained pursuant to this Section 5.1(f)
for purposes of trading in securities.
In addition, if in connection with any filing required by
federal securities law Buyer or an affiliate of Buyer is required to present
separate or combined financial statements for the business operations of the
Company which Buyer is purchasing, Seller will furnish or cause the Company to
furnish to Buyer such financial information as Buyer may reasonably request to
enable Buyer to prepare at Buyer's sole cost and expense financial statements of
the operations of the Company which Buyer is acquiring for the Company's fiscal
year end next preceding the Closing and will reasonably cooperate with Buyer, at
Buyer's sole cost and expense, to obtain an audit of such financial statements.
5.2 Negative Covenants. Prior to the Closing, without the
prior written consent of Buyer, except as otherwise specifically contemplated by
this Agreement, Seller shall not permit the Company to:
(a) enter into any contract, agreement or commitment which, if
entered into prior to the date of this Agreement, would render untrue any of the
representations and warranties contained in Article 3;
(b) take any action which could reasonably be anticipated to
have a material adverse effect on the business, financial condition, results of
operations or properties of the Company;
(c) enter into any contract, agreement or commitment, other
than in the ordinary course of business consistent with the Company's past
practices, or amend, modify or terminate (except upon expiration in accordance
with the terms thereof or as required by the NYSE) any material contract or
agreement to which the Company is a party;
(d) terminate the employment of any of John W. Nick, David A.
Green, Richard K. Green or James Fraschilla except for good cause or upon a
voluntary departure; or
(e) effect any dissolution, winding up, liquidation or
termination of the Company.
5.3 Exclusive Agreement. Seller agrees that prior to the
Closing it will not, directly or indirectly, solicit, initiate, enter into or
conduct any discussions with any other individual, corporation, partnership or
other entity (each, a "Person") in connection with any proposal for such Person
to become the NYSE specialist unit for the Securities, nor will it otherwise
conduct any discussions with the intent of entering into or consummating
transactions similar to those contemplated by this Agreement.
ARTICLE 6
COVENANTS AND AGREEMENTS OF BUYER
6.1 Affirmative Covenants. (a) During the period from the date
hereof to the Closing Date, Buyer shall and shall cause Successor to maintain
all existing licenses and regulatory approvals and the minimum net capital
necessary to permit Buyer to acquire the Stock and to permit Successor to
conduct the Specialist Business following the Closing as contemplated by this
Agreement.
(b) Not later than 10 days after the Closing Date, Buyer will
cause the Company to file with the appropriate Governmental Authorities in the
state of Delaware (and not later than 30 days after the name change becomes
effective therein will cause the Company to file with the appropriate
Governmental Authority in each other jurisdiction in which the Company is
qualified or licensed to transact business) all documents necessary to reflect a
change of its name to a name that does not include "Dresdner" or any variation
thereof. Not later than 10 days after the Closing, Buyer, the Company, the
Successor and their affiliates shall cease all use of the name "Dresdner", the
Dresdner logo or any variation thereof, including but not limited to any
letterhead, catalogues, brochures, advertising, promotional or other materials.
Buyer will cause the Company and Successor to promptly provide to Seller copies
of any documents on which such name or logo appear.
6.2 Negative Covenants. During the period from and including
the date hereof to the Closing, without the prior written consent of Seller,
Buyer shall not and shall not permit Successor to:
(a) create, incur, assume or suffer to exist any Encumbrance
on any of their respective assets that could materially impair Buyer's ability
to perform its obligations under this Agreement or the ability of Successor to
conduct the Specialist Business following the Closing; or
(b) enter into any merger, consolidation or other form of
combination with any Person, dispose of its assets substantially as an entirety
or engage in any transaction which is reasonably likely to materially impair
Buyer's ability to perform its obligations under this Agreement or the ability
of Successor to conduct the Specialist Business following the Closing.
6.3 Transfer Taxes and Other Fees. Buyer will pay any
transfer, sales, purchase, use or similar Tax under the laws of the United
States or the State of New York, and any city or political subdivision thereof
arising out of the transactions contemplated by this Agreement, any filing or
recording fees payable in connection with the instruments of transfer provided
for herein and any fees or expenses required in connection with obtaining the
approvals contemplated by Sections 7.2 and 7.4 hereof. Buyer shall prepare and
file the required Tax Returns and other required documents with respect to Taxes
and fees required to be paid pursuant to the preceding sentence and shall
promptly provide Seller with copies of such Tax Returns and other documents with
evidence of the payment of such Taxes and fees. Seller will pay any transfer,
sales, purchase, use or similar Tax under the laws of any nation or state other
than the United States or the State of New York (or any political subdivision
thereof) arising out of the transactions contemplated by this Agreement. Seller
will pay any income, gross receipts or profits Taxes attributable to any of
Seller's income, gain, gross receipts, accretion of wealth or receipt of
consideration arising out of the transactions contemplated by this Agreement.
Notwithstanding any provision of this Section 6.3, to the extent that any Taxes
are generated or triggered by any transaction described in clause (i) of Section
7.5, Seller shall pay any such Taxes.
ARTICLE 7
JOINT COVENANTS AND AGREEMENTS
7.1 Access to Records After Closing. After the Closing Date,
Seller, on the one hand, and Buyer, on the other, agree that it will give, or
cause to be given, to the other party and its representatives, on reasonable
prior notice by the requesting party, during normal business hours and at the
requesting party's expense, such reasonable access to the properties, contracts,
books, records, files and documents (but excluding attorney work product or
other privileged communications) of Seller, the Company, Buyer or Successor, as
the case may be, as is reasonably necessary to allow the requesting party to
obtain information which is in the other party's possession and relates to any
right, obligation or liability of the requesting party. Each of Seller and Buyer
agrees that it will not use any information obtained pursuant to this Section
7.1 for purposes of trading in securities.
7.2 Required Consents. All the parties hereto acknowledge that
consummation of the transactions contemplated by this Agreement will require (i)
approval from the NYSE and (ii) review by the Federal Trade Commission ("FTC")
and the Department of Justice ("DOJ") pursuant to the Hart-Scott Rodino
Antitrust Improvement Act of 1976 (the "HSR Act") with respect to antitrust
matters and expiration or early termination of the applicable waiting period
under the HSR Act. Accordingly, each of Seller and Buyer will use its respective
reasonable commercial efforts to obtain all consents from Governmental
Authorities including, without limitation, the NYSE, to obtain expiration or
early termination of the applicable waiting period under the HSR Act and to
obtain all consents or approvals from any third parties (collectively, "Required
Consents") necessary to the consummation of the transactions contemplated by
this Agreement. Buyer further will use its reasonable commercial efforts to
obtain from Governmental Authorities any licenses or permits, necessary for
Buyer to acquire the Stock and for Successor to conduct the Specialist Business
after the Closing Date (collectively, "Required Licenses").
7.3 Transferred Employees. (a) Buyer agrees that it shall, no
later than 30 days prior to the Closing Date, cause Successor to offer
employment as of the Closing Date to those officers and employees of the Company
listed in Annex B. Such offers of employment shall be on the terms set forth in
Annex B; it being understood that in connection with such offer of employment
each Member (as defined in Section 7.4 below) shall be required to enter into an
Agreement and General Release substantially in the form of Annex C hereto, with
such modifications as appropriate for each Member's circumstances (each, an
"Agreement and General Release"), and that, at Buyer's discretion, such offer of
employment to any of the other employees listed on Annex B may be conditioned
upon the receipt from such employee of (i) an agreement waiving all of such
employee's rights under and terminating such employee's letter of employment
with the Company and (ii) a release of all claims against Seller, the Company
and their affiliates arising out of or relating to such employee's employment
with the Company (collectively, a "General Release"). It is expressly agreed by
Buyer and Seller that the parties' respective obligations hereunder are not
conditioned upon the willingness of any person listed in Annex B to accept or
continue employment with the Successor thereto and that the refusal of any
person to accept such employment shall not be grounds for termination of this
Agreement. Buyer further agrees that (i) Seller shall have no liability to Buyer
whatsoever for any refusal of any person listed in Annex B to accept or continue
employment with the Successor and (ii) Buyer shall be liable for and indemnify
Seller, up to the amounts listed for each such employee set forth on Schedule
7.3(a), for any compensation or severance costs or other liabilities or
obligations that are paid by Seller to any person listed in Annex B as a result
of the termination of such person's employment by Seller on or prior to the
Closing Date or by the Successor on or following the Closing Date or such
person's refusal to accept employment with the Successor. Employees listed on
Annex B who accept offers of employment with Successor, shall be referred to
herein as the "Transferred Employees". Seller agrees and acknowledges that it
will cause the Company to terminate prior to or as of the Closing Date, the
employment of all employees of the Company (x) who are not listed in Annex B and
(y) who are listed in Annex B who do not become Transferred Employees. Seller
shall be liable for and indemnify Buyer and the Company for any compensation or
severance costs or other liabilities or obligations that become payable by
Seller or the Company to any employee of the Company not listed in Annex B as a
result of the termination of such person's employment with the Company.
(b) Effective as of the Closing Date, all Transferred
Employees and their dependents shall (i) cease to be covered by Seller's
employee welfare benefit plans except to the extent provided by the terms of
such welfare plans and (ii) be treated as terminated participants under the
Retirement Plan for Employees of Dresdner Securities USA, Inc. Buyer shall cause
the Transferred Employees and their dependents to be covered by Successor's
employee welfare benefit plans as of the Closing Date, which plans shall include
a "group health plan" within the meaning of Section 5000(b) of the Code, and
Buyer shall, or shall cause Successor to, use its best efforts to cause such
plans to waive any pre-existing condition limitations with respect to the
Transferred Employees. To the extent permitted by law, including the
qualification requirements of the Code, Transferred Employees shall be given
credit for all service with Seller and the Company under all employee benefit
plans, programs and policies of Successor in which they become participants for
purposes of satisfying any waiting period, eligibility or vesting requirements
but not for purposes of calculating benefit accruals; provided, however, that
Successor shall not be obligated to give Transferred Employees credit for
service with Seller and the Company under any employee benefit plan, program or
policy of Successor that is adopted after the Closing Date and under which no
employee of Successor is given credit for service prior to the date of the
adoption of such plan, program or policy. Effective as of the Closing Date,
Successor shall cover the Transferred Employees who, as of the Closing Date,
were participants in the Dresdner North America 401(k) Plan (the "Seller Savings
Plan") under the defined contribution plan sponsored by Successor (the
"Successor Savings Plan"). Seller shall cause to be transferred from the Seller
Savings Plan to the Successor Savings Plan the liability for the account
balances of the Transferred Employees, together with assets the fair market
value of which on the transfer date is equal to such liability, determined as of
the regular valuation date under the Seller Savings Plan that is coincident with
or immediately preceding the transfer date. Buyer shall cause the Successor
Savings Plan to accept such transfer. Such transfer shall be subject to the
requirements of Section 414(l) of the Code and Section 208 of ERISA. Pending the
completion of the transfer of assets described in this paragraph, Seller and
Successor shall make arrangements for any required payments to the Transferred
Employees from the Seller Savings Plan, and the amount of assets to be
transferred shall be reduced by the amount of any such payments made after the
Closing Date and prior to the date of transfer. The transfer of assets shall
take place as soon as practicable, but no later than ninety (90) days, following
the Closing Date; provided, however, that in no event shall such transfer take
place until the last to occur of the following: (i) Buyer has furnished to
Seller a favorable determination letter from the Internal Revenue Service with
respect to the qualification of the Successor Savings Plan under Section 401(a)
of the Code and (ii) Seller has furnished to Buyer a favorable determination
letter from the Internal Revenue Service with respect to the qualification of
the Seller Savings Plan or a favorable determination letter relating to the
prototype plan adopted by Seller.
Seller shall provide to Successor, as soon as practicable
following the Closing Date, a list of the Transferred Employees who were
participants in or otherwise entitled to benefits under the Seller Savings Plan
as of the Closing Date, which list shall indicate each Transferred Employee's
period of service for eligibility and vesting purposes under the Seller Savings
Plan and each Transferred Employee's account balance thereunder, and Successor
and Seller shall provide one another with such additional information as may
reasonably be requested by either of them in order for Successor to establish
and administer the transferred account balances of the Transferred Employees and
for Seller to effect the transfer of such account balances.
Effective as of the Closing Date, Seller shall cause the
account balances of each of the Transferred Employees under the Seller Savings
Plan to be fully vested.
7.4 NYSE Memberships. The parties hereto acknowledge that, on
the date hereof, the following four persons are NYSE members: David A. Green,
Richard K. Green, John W. Nick, and James D. Fraschilla (collectively, the
"Members"). The parties further acknowledge that, as of the date hereof, each
Member is a party to an A-B-C and Use and Proceeds Agreement, except in the case
of James D. Fraschilla, who leases a Membership from a lessor who is a party to
such an agreement, (collectively, the "Member Agreements") with the Company
pursuant to which each of the Members' (or his lessor in the case of James D.
Fraschilla) have contributed their Memberships, or rights thereto, to the
Company. Each of Seller and Buyer agrees to enter into, or in the case of Buyer
to cause Successor to enter into, any necessary contracts or agreements and to
use its reasonable commercial efforts to obtain any consent or approval of the
NYSE required in connection with the transfer of the four Memberships to
Successor (or its nominee). Buyer further agrees to pay any transfer or related
fees, required in connection with the aforesaid transfer of the four Memberships
subject to the Member Agreements, subject to Section 1.7 hereof.
Pre-Closing Transfers and Payments. On or prior to the Closing
Date, Seller will cause the Company to (i) assign and transfer to Seller or an
affiliate of Seller all of the furniture and fixtures owned or leased by the
Company and each of the NYSE memberships used by the Company other than the four
Memberships subject to the Member Agreements, in each case for such
consideration (including nominal consideration) as Seller shall, in its sole
discretion, deem appropriate and (ii) use its reasonable commercial efforts to
pay or prepay all accounts payable and accrued expenses payable by the Company
to Seller, any affiliate of Seller or any third party. Buyer further agrees and
acknowledges that prior to the Closing Date Seller may, in its sole discretion,
cause the Company to accelerate the collection or liquidation of its receivables
from broker-dealers, floor brokerage receivables, owned Securities and clearing
deposits and may cause the Company to dividend to Seller or apply to the payment
of the Company's liabilities all or any portion of the cash proceeds thereof or
other cash held by the Company.
7.6 Press Releases. All press releases or other public
communications of Seller or any of its employees of any sort relating to this
Agreement or the transactions contemplated herein, and the method and timing of
release for publication thereof, will be subject to the prior approval of Buyer,
unless counsel for Seller advises Seller it is required by law to make the
disclosure. All press releases or other public communications of Buyer or
Successor or of any of their respective employees, of any sort relating to this
Agreement or the transactions contemplated herein, and the method and timing of
release for publication thereof, will be subject to the prior approval of
Seller, unless counsel for Buyer advises Buyer it is required by law to make the
disclosure.
Proprietary Information. In connection with this Agreement and
the transactions contemplated hereby, the parties have exchanged and will
exchange with one another information and financial data they consider to be
confidential. In that regard, Buyer agrees to keep confidential any information
concerning the business and properties of Seller and the Company disclosed to
them (including information disclosed pursuant to Section 7.1) except (i) to the
extent otherwise required by law, subpoena or judicial process, and (ii) to the
extent such information is or becomes publicly available through no fault of
Buyer. Buyer shall not be required to keep confidential information regarding
the Company after the Closing Date. Seller agrees to keep confidential any
proprietary or confidential information of Buyer and the Company disclosed to or
known by it (including information disclosed pursuant to Section 7.1) except (i)
to the extent otherwise required by law, subpoena or judicial process or as may
be required by bank regulatory authorities, and (ii) to the extent such
information is or becomes publicly available through no fault of Seller. The
respective obligations of Seller and Buyer under this Section 7.7 will survive
by three years the Closing or any earlier termination of this Agreement.
7.8 Reasonable Commercial Efforts; Further Assurances. Subject
to the terms and conditions herein provided, and in addition to its obligations
under Section 7.2 hereof, each of the parties hereto agrees to use its
reasonable commercial efforts to take, or cause to be taken, all actions, and to
do, or cause to be done, all things reasonably necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement.
7.9 Tax Matters.
(a) Seller is and shall be responsible for all Taxes payable
and entitled to all refunds for all taxable periods of the Company or any return
group of which the Company is or was a member ending on or prior to the Closing
Date. All refunds or credits attributable to a carryback of losses or otherwise
for a taxable period of the Company or any return group of which the Company is
or was a member ending on or prior to the Closing Date shall belong to Seller
and shall be remitted by the Company or caused by Buyer to be remitted to
Seller. Subject to Section 7.9(f) hereof, Buyer shall be responsible for all
Taxes payable and entitled to all refunds for all taxable periods ending after
the Closing Date. Buyer agrees to provide, and to cause the Company to provide,
Seller with such cooperation as Seller may reasonably request in order to permit
a carryback of net operating losses, capital losses or other items of deduction
or loss arising in any taxable period of the Company from any taxable period
ending on or prior to the Closing Date to any prior taxable period (a
"Carryback"). Such cooperation shall, without limitation, include (i) providing
access to such books, records and personnel of the Buyer or Company as Seller
may determine necessary to effectuate a Carryback, (ii) the making of any
federal, state or local tax election required in order to permit a Carryback and
(iii) the filing of any return required in order to permit a Carryback. Buyer
shall not make, and shall not permit the Company to make, any elections or
filings that would have the effect of decreasing the size of a net operating
loss or Carryback generated in a period ending on or prior to the Closing Date.
(b) Seller shall provide Buyer with a draft of the Company's
federal, state and local income tax returns for the taxable period ending
December 31, 1996 and any other taxable periods thereafter ending on or prior to
the Closing Date, to the extent not already filed, and Buyer shall cause the
Company to file such returns in the form provided within 30 days of receiving
them. Buyer may not file such returns other than in the form provided or amend
such returns without the prior written consent of Seller, which consent may not
be unreasonably withheld. Buyer agrees to make, and to cause the Company to
make, an election in accordance with Section 172 of the Internal Revenue Code of
1986, as amended, to forego the carryback of any net operating loss of the
Company generated in any tax period ending after the Closing Date to a tax
period ending prior or on the Closing Date. Buyer shall notify Seller promptly
of any examinations, audits, litigation or other proceedings respecting the
Company with respect to any taxable period ending on or prior to the Closing
Date and Seller shall have the right to control the conduct of any such
examination, audit, litigation or other proceeding. Buyer shall provide, or
shall cause the Company to provide, Seller with such assistance and cooperation,
including the execution of powers of attorney, as Seller may reasonably request
in order to enable Seller to exercise such control.
(c) On or prior to the Closing Date, Seller will provide to
Buyer a certification, in a form and manner satisfying the requirements of U.S.
Treasury regulation section 1.1445-2(c)(3)(i), that the Company has not been a
United States real property holding corporation within the meaning of section
897(c)(2) of the Code during the applicable period specified in section
897(c)(1)(A)(ii) of the Code.
(d) Except to the extent described in section 7.9(b) with
respect to taxable periods ending on or prior to the Closing Date, Buyer shall
timely prepare and file with the appropriate authorities all Tax Returns
required to be filed after the Closing Date with respect to the Company for all
taxable periods ending after the Closing Date and will pay all Taxes due with
respect to such Tax Returns.
(e) Buyer shall have the sole right to represent the Company
in any Tax audit or administrative or court proceeding for all taxable periods
ending after the Closing Date, and to employ counsel of choice at its own
expense.
(f) Seller shall pay to the Buyer within 20 business days
after the date on which Taxes are paid with respect to taxable periods which end
after the Closing Date and begin before the Closing Date an amount equal to the
portion of such Taxes that relates to the portion of the period ending on the
Closing Date to the extent such Taxes are not fully provided for in the Closing
Date Balance Sheet and are not covered by estimated Tax payments made on or
prior to the Closing Date. For purposes of this section 7.9, whenever it is
necessary to determine the liability for Taxes for a portion of a taxable year
or period that begins before and ends after the Closing Date, the determination
of the Taxes for the portion of the year or period ending on, and the portion of
the year or period beginning after, the Closing Date shall be determined by
assuming that the taxable year or period ended at the close of the Closing Date,
except that exemptions, allowances or deductions that are calculated on an
annual basis, such as the deduction for depreciation, shall be prorated on a
time basis. In the event of any refund (including interest) attributable to a
taxable period beginning before and ending after the Closing Date, Buyer, within
20 business days of the receipt or crediting of such refund and any applicable
interest received on such refund, shall, or shall cause the Company to, pay
Seller the portion of such refund, and any applicable interest received,
attributable to the portion of the period ending on the Closing Date, as
determined in accordance with the principles of this Section 7.9(f).
(g) Notwithstanding section 7.9(b), the Seller shall not be
entitled to settle, either administratively or after the commencement of
litigation, any claim for Taxes which would adversely affect the liability for
Taxes of the Buyer or the Company for any period after the Closing Date to any
extent (including, but not limited to, the imposition of income tax
deficiencies, the reduction of asset basis or cost adjustments, the lengthening
of any amortization or depreciation periods, the denial of amortization or
depreciation deductions) without the prior consent of Buyer, which consent shall
not be unreasonably withheld.
(h) Assistance and Cooperation. After the Closing Date,
Sellers and Buyer shall:
(i) assist the other party in preparing any Tax
Returns or reports which such other party is responsible for
preparing and filing in accordance with this Section 7.9;
(ii) use their best efforts to properly retain and
maintain (until such time as Buyer and Seller agree that such
retention and maintenance is no longer necessary) and shall
make available to the other party (at such party's expense)
and to any taxing authority as reasonably requested all
information, records, and documents relating to Taxes with
respect to the Company and necessary in connection with the
preparation of Tax Returns and the resolution of disputes and
audits relating to Taxes with respect to all taxable periods;
(iii) cooperate fully in preparing for any audits of,
or disputes with taxing authorities regarding, any Tax Returns
of the Company for taxable periods or portions thereof ending
on or before the Closing Date;
(iv) provide timely notice to the other in writing of
any pending or threatened tax audits with respect to the
Company for taxable periods for which the other may have a
liability under this Section 7; and
(v) furnish the other with copies of all
correspondence received from any taxing authority in
connection with any tax audit or information request with
respect to any such taxable period.
7.10 Notifications. Buyer agrees to promptly notify Seller
and Seller agrees to promptly notify Buyer of:
(a) any fact, condition, event or occurrence known to Seller
that will or reasonably may be expected to result in the failure of any of the
conditions contained in Sections 8.1, 8.2 or 8.3 to be satisfied;
(b) any notice or other communication from any person alleging
that the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(c) any filing or registration with or any notice or
other communication from, any Governmental Authority in connection with the
transactions contemplated by this Agreement; and
(d) any actions, suits, claims, investigations or proceedings
commenced or, to the knowledge of Seller or Buyer, as the case may be,
threatened against, relating to or involving or otherwise affecting Seller or
the Company or Buyer or Successor, as the case may be, which, if pending on the
date of this Agreement, would have been required to have been disclosed pursuant
to Section 3 or Section 4, as the case may be, or which relate to the
transactions contemplated by this Agreement.
ARTICLE 8
CONDITIONS TO CLOSING
8.1 Mutual Conditions. The respective obligations of each
party to consummate the transactions contemplated by this Agreement shall be
subject to the fulfillment at or prior to Closing of the following conditions:
(a) All Required Consents and Required Licenses shall have
been obtained;
(b) No Governmental Authority of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, judgment, decree, injunction or other order which prohibits
consummation of the transactions contemplated by this Agreement. No litigation
or threatened litigation challenging this Agreement or the transactions
contemplated thereby shall exist; and
(c) At least eight days prior to the Closing, Seller, the
Company and Successor shall enter into an Agreement and General Release with
each of the Members. None of the Members shall have effectively rescinded his
Agreement and General Release and each such Agreement and General Release shall
be in full force and effect. Each Member shall have performed in all material
respects all of his obligations under the Agreement and General Release.
8.2 Buyer's Conditions. The obligation of Buyer to
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment prior to or at Closing of each of the following conditions:
(a) All representations and warranties made by Seller in this
Agreement shall be true, correct and complete in all material respects on the
date hereof and as of the Closing Date as though such representations and
warranties were made as of the Closing Date, and Seller shall have duly
performed or complied in all material respects with all of the covenants,
obligations and conditions to be performed or complied with by it under the
terms of this Agreement at or prior to Closing.
(b) There shall have been no material adverse change in the
business, financial condition, results of operations or properties of the
Company subsequent to the date hereof. The loss by the Company of its
registration as the specialist for any Security shall not be deemed a material
adverse change unless such Security, considered singly or in the aggregate with
any other Securities as to which the Company shall have lost registration
subsequent to the date of this Agreement, shall have accounted for more than 10%
of the Company's total billed agency share trading volume in Securities during
the twelve months ended at the month end immediately prior to the date such
registration was lost.
(c) Seller shall have delivered to Buyer the following
documents:
(i) such instruments of sale, transfer, assignment,
conveyance and delivery, in form and substance reasonably satisfactory
to counsel for Buyer, as are required to transfer to Buyer good and
marketable title to the Stock, free and clear of all Encumbrances,
together with the certificates representing the Stock;
(ii) a certificate of an officer of Seller, dated the
Closing Date, to the effect that (l) he is familiar with this Agreement
and (2) to the best of his knowledge after reasonable investigation,
the conditions specified in Section 8.2(a) have been satisfied;
(iii) a certificate of the Secretary or Assistant
Secretary of Seller, dated the Closing Date, as to the incumbency of
any officer of Seller executing this Agreement or any document related
thereto;
(iv) certified copies of (1) the certificate of
incorporation and by-laws or other charter documents of Seller and of
the Company and all amendments thereto and (2) documents evidencing
Seller's authority with respect to the execution, delivery and
consummation of this Agreement and the transactions contemplated
hereby;
(v) certificates of good standing for the
Company from the Secretary of State of Delaware dated not more than
seven days prior to the Closing;
(vi) such other documents or instruments as Buyer
reasonably requests to effect the transactions contemplated hereby;
(vii) an opinion of counsel for Seller and the
Company substantially in the form of Annex D hereto; and
(viii) all books and records of the Company,
including the original minute book, stock transfer records and
cancelled stock certificates.
(d) ABC Agreements shall have been executed and delivered between the
Successor and each of John W. Nick, Jr., David A. Green, Richard K. Green and
James P. Fraschilla with respect to the four Memberships subject as of the date
of this Agreement to ABC agreements between the Company and each of John W.
Nick, Jr., David A. Green, Richard K. Green and Martin J. Bentsen (the
"Existing ABC Agreements"). The Existing ABC Agreements shall have been
terminated without the exercise of Option A. The lease of a NYSE membership
between Martin J. Bentsen and James P. Fraschilla shall have been terminated.
(e) Each director and officer of the Company shall have resigned
effective on the Closing Date.
8.3 Seller's Conditions. The obligation of Seller to
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment at or prior to the Closing of each of the following conditions:
(a) All representations and warranties made by Buyer in this
Agreement shall be true, correct and complete in all material respects on the
date hereof and as of the Closing Date as though such representations and
warranties were made as of the Closing Date, and Buyer shall have duly performed
or complied in all material respects with all of the covenants, obligations and
conditions to be performed or complied with by it under the terms of this
Agreement at or prior to Closing.
(b) Buyer shall have delivered to Seller the following
documents:
(i) a certificate of an officer of Buyer, dated the
Closing Date, to the effect that (1) he is familiar with this
Agreement, and (2) to the best of his knowledge after reasonable
investigation, the conditions specified in Section 8.3(a) have been
satisfied;
(ii) a certificate of the Secretary or Assistant
Secretary of Buyer, dated the Closing Date, as to the incumbency of any
officer of Buyer executing this Agreement or any document related
thereto;
(iii) certified copies of (1) the certificate of
incorporation and by-laws or other charter documents of Buyer and all
amendments thereto and (2) the resolutions of Buyer's Board of
Directors authorizing the execution, delivery and consummation of this
Agreement and the transactions contemplated hereby;
(iv) a certificate of good standing for Buyer
from the Secretary of State of Delaware dated not more than seven days
prior to the Closing;
(v) such other documents or instruments as
Seller reasonably requests to effect the transactions contemplated
hereby; and
(vi) an opinion of counsel for Buyer
substantially in the form of Annex D attached hereto.
(c) The Company and such other applicable persons shall have
delivered to Seller such documents and instruments of assignment as Seller may
reasonably require to evidence the transfer of the NYSE seats to Seller (or its
nominee) as contemplated by Section 7.5 hereof.
(d) Buyer shall have paid to Seller the Base Purchase Price,
as set forth in Section 1.3.
ARTICLE 9
TERMINATION
9.1 Termination. This Agreement may be terminated at any
time prior to Closing as
-----------
follows:
(a) by mutual consent of Seller and Buyer;
(b) by Seller if Buyer shall breach, or by Buyer if Seller
shall breach, in any material respect any of its representations, warranties or
obligations contained in this Agreement; provided that such breach is not cured
in all material respects within a 10-day period commencing on the date written
notice of such breach is received by the breaching party;
(c) by Seller, on the one hand, or by Buyer, on the other, if
all Required Consents and Required Licenses have not been obtained by June 15,
1997;
(d) by Seller, if any condition to Closing set forth in
Section 8.3 shall have become impossible of fulfillment, or by Buyer, if any
condition to Closing set forth in Section 8.2 shall have become impossible of
fulfillment; or
(e) by Seller, on the one hand, or by Buyer, on the other, if
the Closing shall not have occurred on or before June 15, 1997 (or such later
date as may be agreed upon in writing by Buyer and Seller).
9.2 Effect of Termination. If this Agreement is terminated
pursuant to Section 9.1, all rights and obligations of Seller and Buyer
hereunder shall terminate and no party shall have any liability to the other
party, except for obligations of the parties in Article 10, and except that
nothing herein will relieve any party from liability for any breach of any
representation or warranty herein contained prior to such termination.
9.3 Right to Proceed. Anything in this Agreement to the
contrary notwithstanding, if any of the conditions specified in Section 8.2 have
not been satisfied at or prior to the Closing, Buyer shall have the right to
proceed with the transaction contemplated hereby without waiving any of its
rights hereunder, and if any of the conditions specified in Section 8.3 have not
been satisfied at or prior to the Closing, Seller shall have the right to
proceed with the transactions contemplated hereby without waiving any of its
rights hereunder.
ARTICLE 10
MISCELLANEOUS
10.1 Notices. All notices or other communications required or
permitted hereunder shall be in writing and shall be delivered personally,
telecopied or sent by certified, registered or express air mail, postage
prepaid, and shall be deemed given when so delivered personally or telecopied,
or if mailed, five days after the date of mailing, as follows (or to such other
address as any party hereto shall have duly notified the other parties):
If to Buyer: The Sherwood Group, Inc.
Ten Exchange Place Center
Jersey City, New Jersey 07302
Tel: 201-946-4414
Fax: 201-946-4510
Attn: William Karsh
If to Seller: Dresdner Bank AG
c/o Dresdner Kleinwort Benson North
America LLC
75 Wall Street
New York, NY 10005-2889
Tel: (212) 429-2624
Fax: (212) 429-2123
Attn: Markus Bischofberger
A copy of any notice delivered to Buyer shall be sent to
Crummy, Del Deo, Dolan, Griffinger & Vecchione, P.C., One Riverfront Plaza,
Newark, N.J., 07102. Attention: Frank Lawatsch, Jr., Telecopier No.
(201) 639-6249, and a copy of any notice delivered to Seller shall be sent to
Sullivan & Cromwell, 125 Broad Street, New York, New York 10004, Attention:
David Huggin, Telecopier No. (212) 558-3588 (or to such other addressee as any
party hereto shall have duly notified the other parties).
10.2 Survival. The representations and warranties provided for
in Article III of this Agreement shall survive for two years following the
Closing for the benefit of the parties hereto and their successors and assigns;
provided, however, that the representations and warranties in Sections 3.13 and
3.14 hereof shall survive indefinitely.
10.3 Indemnification. (a) Seller hereby agrees to indemnify and hold
harmless Buyer and its affiliates from and against any and all losses,
liabilities, claims, expenses (including reasonable attorney's fees and
expenses) and damages ("Losses") to the extent such Losses arise from or out of
or are related to (i) any breach of any of the representations, warranties of,
or (ii) any breach of any of the covenants or agreements of, the Company or
Seller contained in this Agreement or any schedule hereto which survive the
Closing.
(b) Buyer agrees to indemnify and hold harmless Seller from
and against all Losses to the extent that such Losses and to the extent such
Losses arise from or out of or are related to (i) any breach of the
representations and warranties of Buyer contained in this Agreement or (ii) any
breach of any of the covenants and agreements of Buyer contained in this
Agreement which survive the Closing.
(c) In order for a party (the "Indemnified Party") to be
entitled to any indemnification provided for under this Agreement in respect of,
arising out of or involving a claim or demand made by, or an action, proceeding
or investigation instituted by, any person not a party to this Agreement (a
"Third Party Claim"), such Indemnified Party must notify the other party (the
"Indemnifying Party") in writing, and in reasonable detail, of the Third Party
Claim within ten days after such Indemnified Party learns 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 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.
(d) If a Third Party Claim is made against an Indemnified
Party, the Indemnifying Party will be entitled to participate in the defense
thereof (unless (i) the Indemnifying Party is also a party to such Third Party
Claim and the Indemnified Party determines in good faith that joint
representation would be inappropriate or (ii) the Indemnifying Party fails to
provide reasonable assurance to the Indemnified Party of its financial capacity
to defend such Third Party Claim and provide indemnification with respect to
such Third Party Claim) 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, (i) it shall be conclusively established for
purposes of this Agreement that the claims made in such Third Party Claim are
within the scope of and subject to indemnification; and (ii) the Indemnifying
Party will not as long as it legitimately conducts such defense be liable to the
Indemnified Party in connection with the defense thereof. If the Indemnifying
Party assumes such defense, the Indemnified Party shall have the right to
participate in the defense thereof and to employ counsel, at its own expense,
separate from the counsel employed by the Indemnifying Party. The Indemnifying
Party shall be liable for the fees and expenses of counsel employed by the
Indemnifying Party for any period during which the Indemnifying Party has not
legitimately 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, all of the parties hereto shall cooperate in the defense or
prosecution thereof. 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 Indemnifying Party shall have no liability with respect to any compromise or
settlement of such claims effected without its written consent (such consent not
to be unreasonably withheld); the Indemnifying Party shall not admit any
liability with respect to, or settle, compromise or discharge, such Third Party
Claim without the Indemnified Party's prior written consent (which consent shall
not be unreasonably withheld) unless (A) there is not finding or admission of
any violation of law or any violation of the rights of any person and no effect
on any other claims that may be made against the Indemnified Party, or (B) the
sole relief provided is monetary damages that are paid in full by the
Indemnifying Party.
(e) The amount of any Losses for which indemnification is
provided under this Agreement shall be net of any amounts recovered or
recoverable by the Indemnified Party under insurance policies with respect to
such Losses.
(f) The parties agree that any indemnification payments made
pursuant to this Agreement shall be treated for tax purposes as an adjustment to
the Purchase Price.
10.4 Expenses. Regardless of whether the transactions provided
for in this Agreement are consummated, except as otherwise provided herein, each
party hereto shall pay its own expenses incident to this Agreement and the
transactions contemplated herein.
Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York without
reference to conflict of law principles thereof.
10.6 Assignment; Successors and Assigns. Except as otherwise
provided herein, this Agreement may not be assigned by operation of law or
otherwise. This Agreement shall be binding upon and inure to the benefit of the
parties hereto, their successors and assigns.
10.7 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original agreement, but all of
which together shall constitute one and the same instrument.
Titles and Headings. The headings and table of contents in
this Agreement are for reference purposes only, and shall not in any way affect
the meaning or interpretation of this Agreement.
10.9 Entire Agreement. This Agreement (including the Annexes
hereto) and the agreements referred to herein shall together constitute the
entire agreement among the parties with respect to the matters covered hereby
and shall supersede all previous written, oral or implied understandings among
them with respect to such matters.
10.10 Amendment and Modification. This Agreement may only be
amended or modified in writing signed by the party against which enforcement of
such amendment or modification is sought.
Arbitration of Disputes; Submission to Jurisdiction. Any
disputes between the parties arising under this Agreement shall be settled by
arbitration in accordance with the rules of the NYSE, provided that each of
Buyer and Seller shall have the right, exercisable in good faith, to veto any
proposed member of a NYSE arbitration panel. If agreement on a NYSE arbitration
panel cannot be reached, any disputes arising under this Agreement shall be
arbitrated in accordance with the Code of Arbitration Procedure of the NASD. In
the event that neither the NYSE nor the NASD has jurisdiction over any dispute
(an "Ineligible Dispute") arising hereunder each of the parties hereby agrees
(i) to submit to the exclusive jurisdiction of the United States Federal
District Court of the Southern District of New York solely with respect to any
Ineligible Dispute, (ii) waives, and agrees not to assert by way of motion, as a
defense, or otherwise, in any action based on an Ineligible Dispute, any claim
that it is not subject personally to the jurisdiction of the above-named courts,
that its property is exempt or immune from attachment or execution, that the
action based on an Ineligible Dispute is brought in an inconvenient forum, that
the venue of the action based on an Ineligible Dispute is improper, or that the
subject matter of the Ineligible Dispute may not be enforced in or by such court
and (iii) agrees that service of process upon such party in any such Action
shall be effective if notice is given in accordance with Section 10.1 hereof.
10.12 Waiver. Any of the terms or conditions of this Agreement
may be waived at any time by the party or parties entitled to the benefit
thereof, but only by a written notice signed by the party or parties waiving
such terms or conditions.
10.13 Severability. The invalidity of any portion hereof
shall not affect the validity, force or effect of the remaining portions
hereof. If it is ever held that any restriction hereunder is too broad to
permit enforcement of such restriction to its fullest extent, each party
agrees that an arbitrator may construe, and a court of competent jurisdiction
may enforce, such restriction to the maximum extent permitted by law.
<PAGE>
[This page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
DRESDNER BANK AG
By:
Name: George Fugelsang
Title: Chief Executive Officer
North America
As Attorney-in-Fact
By:
Name: Markus Bischofberger
Title: Senior Vice President,
Dresdner Kleinwort
Benson North America
LLC
As Attorney-in-Fact
THE SHERWOOD GROUP, INC.
By:
Name:
Title:
<PAGE>
Annex A
SPECIALIST SECURITIES AS OF APRIL 11,1997
Ticker Issuer
CDS Alliance Entertainment Corporation
ATR Aptargroup, Inc.
ASL Ashanti Goldfields Company Limited
BKUPRA Bank United of Texas Noncumulative Preferred
A
BKUPRB Bank United of Texas Noncumulative Preferred
B
BTZ Berlitz International, Inc.
BTV BET Holdings
CNIPP Canadian National Railway Company
CIC Carson Products, Inc.
ECP Central Newspapers
CXE Colonial High Income Municipal Trust
COP Consolidated Products, Inc.
CON Continental Home Holdings Corp.
DM Dames and Moore
DY Dycom Industries, Inc.
ELM Empresa La Moderna S.A. de C.V.
EWB E.W. Blanch Holdings, Inc.
FGP Ferellgas Partners, L.P.
FLH Fila Holdings, SPA
FBP First Federal Savings Bank of Puerto Rico
FMS Fresenius Medical Care AG
FMSPR Fresenius Medical Care AG Preferred
GML Global Directmail Corp.
<PAGE>
IO Input/Output, Inc.
JFI Jardine Fleming India Fund, Inc.
LCI LCI International, Inc.
MWT McWhorter Technologies, Inc.
MIBRA Midland Bank PLC Preferred A
MIBRB Midland Bank PLC Preferred B
MIBRC Midland Bank PLC Preferred C
MIBRD Midland Bank PLC Preferred D
RLR Rellia Star Financial
RLRPRA Rellia Star Financial Preferred A
NCO Nuveen California Municipal Market Opportunity Fund
PPR Pilgrim Prime Rate Trust
PI Premdor, Inc.
RIT Rightchoice Managed Care, Inc.
SQF Seligman Quality Municipal Fund, Inc.
SEL Seligman Select Municipal Fund, Inc.
SSW Sterling Software, Inc.
TCB T.C.F. Financial Corp.
TK Teekay Shipping Corporation
TL Telex Chile, S.A.
TCT The Town and Country Trust
TMM Transportacion Maritima ADS L
TMMA Transportacion Maritima ADS Ordinary
VLY Valley National Bancorp.
VAL The Valspar Corporation
VCD Value City Department Stores, Inc.
VPI Vintage Petroleum, Inc.
WSO Watsco, Inc.
<PAGE>
Annex B
EMPLOYEES SUBJECT TO TRANSFER
John W. Nick, Jr. see Annex C
David A. Green see Annex C
Richard K. Green see Annex C
James Fraschilla see Annex C
Robert Poulos $60,000 per annum
Nicholas Abdinoor $20,000 per annum
Robert T. Hally $50,000 per annum
Gregory Kane $50,000 per annum
James Lancaro $50,000 per annum
Turlough Pollard $20,000 per annum
Eric Boscak $42,000 per annum
In addition, each of the above employees shall be entitled to participate in the
employee welfare plans of Successor as summarized on the following 3 pages.
<PAGE>
Annex C
Agreement and General Releases
[on Crummy system]
<PAGE>
Annex D
Form of Opinion of Seller and Company Counsel
and of Buyer and Successor Counsel
1. [Buyer] has been duly incorporated and is an existing corporation
in good standing under the laws of the State of Delaware.
2. [Successor] [The Company] has been duly [organized] [incorporated]
and is an existing [partnership] [corporation] in good standing under the laws
of the State of [New York] [Delaware].
3. The Stock Purchase Agreement [has been duly authorized, executed and
delivered by Buyer and] constitutes the valid and legally binding obligation of
each of [Buyer] [Seller] enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
The opinions shall limited to the Federal laws of the United States,
the laws of the State of New York and the General Corporation Law of the State
of Delaware, and will express no opinion as to the effect of the laws of any
other jurisdiction. In addition, counsel to the Seller may assume the due
authorization execution and delivery by Seller, of the Stock Purchase Agreement
in connection with the opinion in 3 above. In addition, Buyer shall receive a
separate opinion of German counsel to the Seller to the following effect:
1. Seller is a banking corporation duly organized and validly existing
under the laws of the Federal Republic of Germany and Seller has all requisite
powers and authority (corporate and otherwise) to execute, deliver and perform
the Stock Purchase Agreement.
2. The Stock Purchase Agreement has been duly executed and delivered by
Seller and no further authorization by any corporate action of Seller is
required in connection with the authorization, execution and delivery of the
Stock Purchase Agreement.
3. Assuming that the Stock Purchase Agreement is a legal, valid and
binding obligation under New York law, the Stock Purchase Agreement will be the
legal, valid and binding obligation of Seller enforceable in accordance with its
terms against Seller subject to (i) bankruptcy, insolvency, fraudulent transfer,
reorganization, liquidation, moratorium or similar laws relating to, or
affecting generally the enforcement of creditor's rights that may be applicable
in the event that Seller is the subject of such proceeding, (ii) the equitable
power of a court or the power of a governmental or regulating authority to
restrain performance by Seller of the Stock Purchase Agreement and (iii) the
rules of civil procedure of the Federal Republic of Germany. [German law opinion
currently under review in Germany]
<PAGE>
Schedule 3.6
Right of first refusal of John W. Nick, Jr. to purchase the Company contained
in paragraph 8 of the employment letter dated January 1, 1995 and signed by the
Company.
<PAGE>
Schedule 3.7
Letter, dated November 2, 1996, from the Market Performance Committee of the New
York Stock Exchange Rule regarding 103A performance improvement action and
imposition of allocation freeze on November 20, 1996.
<PAGE>
Schedule 3.8
Letter, dated November 2, 1996, from the Market Performance Committee of the New
York Stock Exchange Rule regarding 103A performance improvement action and
imposition of allocation freeze on November 20, 1996.
<PAGE>
Schedule 3.9
Letter, dated November 2, 1996, from the Market Performance Committee of the New
York Stock Exchange Rule regarding 103A performance improvement action and
imposition of allocation freeze on November 20, 1996.
<PAGE>
Schedule 3.13
Extensions
1. Federal, New York state and New York city tax returns for the tax period
ended August 31, 1996.
2. Federal, New York state and New York city tax returns for the short tax
period ended December 31, 1996.
Consolidated Groups
The Company was a member of a federal consolidated group from inception through
the tax period ending August 31, 1996 and was a member of a combined group for
New York state and New York city purposes from January 1, 1991 through the tax
period ending August 31, 1996. The name of the taxpayer in both cases was
Dresdner Securities (USA) Inc.
<PAGE>
Schedule 3.14
Dresdner Employment Agreements
Employment Agreement Letter to Mr. James Fraschilla, dated March 1, 1996/April
16, 1996.
Employment Agreement Letter to Mr. David A. Green, dated January 1, 1995.
Employment Agreement Letter to Mr. Richard K. Green, dated March 1, 1996/April
18, 1996.
Employment Agreement Letter to Mr. John W. Nick, Jr., dated January 1, 1995.
Letter of Employment to Mr. Nicholas Abdinoor, dated December 1, 1995.
Letter of Employment to Mr. Eric Bosak, dated November 4, 1996
Letter of Employment to Mr. Gregory Kane, dated December 1, 1995.
Letter of Employment to Mr. Turlough Pollard, dated March 15, 1996.
Letter of Employment to Mr. Robert Poulos, dated March 20, 1996.
Dresdner NY Additional Obligations
The Company will pay up to $50,000 to a employee of the Company who will be
terminated prior to the Closing as a severance payment. The Company has also
agreed to pay to Mr. J. Nick and Mr. D. Green, a total of $1,000,000 in
supplemental compensation on the Closing Date for services rendered through the
Closing Date.
ABC Agreements
The Company has outstanding A-B-C and Use and Proceeds Agreements with Messrs.
J. Nick, D. Green, M. Bentsen and R. Green.
<PAGE>
Schedule 3.16
The Company will pay to Dresdner Kleinwort Benson North America LLC a fee of
$400,000 for its services in connection with the sale of certain assets, namely
the three NYSE seats used by the Company other than the four NYSE seats subject
to the Member Agreements, and the failed sale to Equitrade Partners of all of
the assets of the Company constituting the Specialist Business and the four
Memberships subject to the Member Agreements.
<PAGE>
Schedule 3.18
The Company will pay up to $50,000 to a employee of the Company who will be
terminated prior to the Closing as a severance payment.
Supplemental Compensation Agreement with Mr. John W. Nick, dated as of
April 11, 1997.
Supplemental Compensation Agreement with Mr. David A. Green, dated as of April
11, 1997.
<PAGE>
Schedule 3.23
Until the Closing Date, the Company will be insured through
policies held by Dresdner Kleinwort Benson North America LLC and covering a
number of Dresdner Bank AG affiliates as follows:
Commercial Package (Colonia Insurance Co)
Commercial Property Coverage
Commercial General Liability
Business Auto Coverage (Colonia Insurance Co) Workers Compensation
Coverage (Twin City Fire Ins Co) Commercial Umbrella Coverage (Colonia
Insurance Co) Excess Liability Coverage (Hartford Casualty Ins Co)
Excess Liability Coverage (American Natl Fire Ins)
<PAGE>
Schedule 3.24
The Company will pay to Dresdner Kleinwort Benson North America LLC a fee of
$400,000 for its services in connection with the sale of certain assets, namely
the three NYSE seats used by the Company other than the four NYSE seats subject
to the Member Agreements, and the failed sale to Equitrade Partners of all of
the assets of the Company constituting the Specialist Business and four
Memberships subject to the Member Agreements.
<PAGE>
Schedule 3.25
Officers and Directors
John W. Nick, Jr. Director and President
Lewis Cohen Director, Chief Financial
Officer and Treasurer
<PAGE>
Schedule 4.3
Buyer consents to come from Buyer.
<PAGE>
Schedule 7.3(a)
Severance
Richard K. Green $22,500
James Fraschilla $ 6,250
<TABLE>
THE SHERWOOD GROUP, INC. AND SUBSIDIARIES EXHIBIT 11
COMPUTATION OF NET INCOME PER COMMON SHARE
<CAPTION>
Three Months Ended
-------------------------------------------------------
February 28, 1997 February 29, 1996
--------------------------- --------------------------
<S> <C> <C>
Common stock and common stock equivalents:
Average common stock outstanding 12,832,835 12,728,616
Average common stock equivalents
issuable under stock options 50,883 498,637
--------------------------- --------------------------
Total average common stock and common stock
equivalents used for earnings per share computation 12,883,718 13,227,253
=========================== ==========================
Income:
Net income $ (242,352) $ 5,140,626
=========================== ==========================
Net (loss) income per common and common equivalent share (a)<F1>:
Net (loss) income $ (0.02) $ 0.39
=========================== ==========================
<FN>
<F1>(a) For presentation purposes, primary and fully diluted are identical.
</FN>
Nine Months Ended
-------------------------------------------------------
February 28, 1997 February 29, 1996
--------------------------- --------------------------
Common stock and common stock equivalents:
Average common stock outstanding 12,941,668 12,577,903
Average common stock equivalents
issuable under stock options 46,478 660,680
--------------------------- --------------------------
Total average common stock and common stock
equivalents used for earnings per share computation 12,988,146 13,238,583
=========================== ==========================
Income:
Net income $ 6,055,974 $ 12,781,877
=========================== ==========================
Income per common and common equivalent share (a)<F1>(b)<F2>:
Net income $ 0.47$ 0.97
=========================== ==========================
<FN>
<F1>(a) For presentation purposes, primary and fully diluted are identical.
<F2>(b) The sum of the individual quarters' earnings per common share does not
equal the total amount for the nine months ended February 28, 1997 or
February 29, 1996 due to the effect of averaging the number of shares of
common stock and common stock equivalents throughout the year.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for the nione months ended February 28, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> May-31-1997
<PERIOD-START> Jun-01-1996
<PERIOD-END> Feb-28-1997
<CASH> 1042843
<RECEIVABLES> 62773821
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 47308703
<PP&E> 19176505
<TOTAL-ASSETS> 152128587
<SHORT-TERM> 0
<PAYABLES> 34375442
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 17847934
<LONG-TERM> 3000000
0
0
<COMMON> 143432
<OTHER-SE> 90237850
<TOTAL-LIABILITY-AND-EQUITY> 152128587
<TRADING-REVENUE> 92368915
<INTEREST-DIVIDENDS> 5899232
<COMMISSIONS> 25024168
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 1848266
<INTEREST-EXPENSE> 273872
<COMPENSATION> 43677551
<INCOME-PRETAX> 11883496
<INCOME-PRE-EXTRAORDINARY> 6055974
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6055974
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.47
</TABLE>
