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Exhibit 2.1
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AGREEMENT AND PLAN OF MERGER
dated as of September 10, 2000
by and between
The Goldman Sachs Group, Inc.
and
SLK LLC
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TABLE OF CONTENTS
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RECITALS.................................................................................................. 1
ARTICLE I
Certain Definitions; Interpretation
1.01 Certain Definitions..................................................................................2
1.02 General Rules of Interpretation......................................................................9
ARTICLE II
The Merger
2.01 The Merger...........................................................................................9
2.02 Closing.............................................................................................10
2.03 Tax Treatment of the Merger.........................................................................10
2.04 Organization of NewCo...............................................................................10
ARTICLE III
Consideration; Exchange; Employee Incentives
3.01 Merger Consideration................................................................................10
3.02 Exchange Procedures.................................................................................11
3.03 Withdrawn Member and Managing Director Subordinated Debt Election...................................12
3.04 Election Procedures.................................................................................13
3.05 Restricted Stock Units Awards.......................................................................13
3.06 Incremental Liquidity Gain..........................................................................14
3.07 Adjustments to Prevent Dilution.....................................................................14
ARTICLE IV
Actions Pending the Effective Time
4.01 Forbearances of the Company.........................................................................15
4.02 Forbearances of Acquiror............................................................................18
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ARTICLE V
Representations and Warranties
5.01 Disclosure Schedules................................................................................18
5.02 Standard............................................................................................18
5.03 Representations and Warranties with Respect to the Company..........................................19
5.04 Representations and Warranties with Respect to the Partnership......................................34
5.05 Representations and Warranties of Acquiror..........................................................34
5.06 Representations Regarding NewCo.....................................................................37
ARTICLE VI
Covenants
6.01 Reasonable Best Efforts.............................................................................37
6.02 Access; Information.................................................................................38
6.03 No Rights Triggered.................................................................................38
6.04 Regulatory Applications.............................................................................38
6.05 Regulatory Compliance...............................................................................39
6.06 Performance Ranking.................................................................................39
6.07 Notification of Certain Matters.....................................................................39
6.08 Public Announcements................................................................................40
6.09 Fee Agreements......................................................................................40
6.10 Private Placement...................................................................................40
6.11 Employee Benefits...................................................................................41
6.12 Indemnification of Members and Employees............................................................41
ARTICLE VII
TAX MATTERS
7.01 Tax Representations.................................................................................41
7.02 Covenants...........................................................................................43
7.03 Termination of Tax Sharing Agreements...............................................................45
7.04 Seller Tax Indemnification..........................................................................45
7.05 Exclusivity.........................................................................................47
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7.06 Survival of Obligations.............................................................................47
7.07 Agreed Tax Treatment................................................................................47
ARTICLE VIII
Conditions to Consummation of the Merger
8.01 Conditions to Each Party's Obligation to Effect the Merger..........................................47
8.02 Conditions to Obligations of the Company............................................................48
8.03 Conditions to Obligations of Acquiror and NewCo.....................................................48
ARTICLE IX
Indemnification
9.01 Indemnification.....................................................................................50
9.02 Notice and Defense of Claims........................................................................52
9.03 Survival of Representations and Warranties..........................................................53
ARTICLE X
Termination
10.01 Termination.........................................................................................53
10.02 Effect of Termination and Abandonment...............................................................54
ARTICLE XI
Miscellaneous
11.01 Entire Understanding; No Third-Party Beneficiaries..................................................55
11.02 Waiver; Amendment...................................................................................55
11.03 Expenses............................................................................................55
11.04 Notices.............................................................................................55
11.05 Additional Provisions...............................................................................56
11.06 Counterparts........................................................................................56
11.07 Governing Law; Enforcement; Waiver of Jury Trial....................................................57
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Annex 1 Members
Annex 2 Partners
Annex 3 Form of Member Agreement
Annex 4 Form of Custody Agreement
Annex 5 Intentionally Omitted
Annex 6 Retention RSUs
Annex 7 SLK RSUs
Annex 8 Acquiror Subordinated Note
Note: Certain of these annexes have been omitted from this Exhibit 2.1 pursuant
to Item 601(b)(2) of Regulation S-K. The Registrant hereby agrees to furnish
supplementally a copy of any omitted annex to the SEC upon request.
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AGREEMENT AND PLAN OF MERGER, dated as of September 10, 2000,
by and between The Goldman Sachs Group, Inc. ("Acquiror") and SLK LLC (the
"Company").
RECITALS
A. The Company. The Company is a New York limited
liability company having its principal place of business in New York, New York.
Annex 1 lists the names and profit and loss allocations of all the members of
the Company (each, a "Member", and collectively, the "Members").
B. The Partnership. Spear, Leeds & Kellogg, L.P. (the
"Partnership") is a New York limited partnership having its principal place of
business in New York, New York. The Company is the sole general partner of the
Partnership. Annex 2 lists the names and profit and loss allocations of all
partners of the Partnership (each, a "Partner" and collectively, the
"Partners").
C . Acquiror. Acquiror is a Delaware corporation, having
its principal place of business in New York, New York.
D. The Merger. Subject to the terms and conditions
contained in this Agreement, the Company and Acquiror intend to effect the
merger (the "Merger") of a direct or indirect wholly owned subsidiary of
Acquiror that will be organized as a New York limited liability company
("NewCo") with and into the Company, with the Company being the limited
liability company surviving such merger.
E. Supplemental Agreements. Each of the Members
identified as such in Annex 1 will, prior to Closing, enter into an instrument
substantially in the appropriate form of Annex 3, in which each Member will have
adopted and consented to this Agreement and the transactions contemplated hereby
(each, a "Member Agreement") and to the Supplemental Members Agreement which is
attached as an Annex to the Member Agreement (the "Supplemental Members
Agreement"). (The Member Agreements and the Supplemental Members Agreement
referred to in this Recital E, together with the Custody Agreements and the
counterparts to the Acquiror Shareholders Agreement to be executed by the
Members pursuant to Section 2(e) of the Member Agreement, are referred to
collectively as the "Supplemental Agreements".)
F. SLK Investing Co. The Members directly or indirectly
holding all of the partnership interests in SLK Investing Co. will agree
simultaneously herewith to cause SLK Investing Co. to transfer all of the Class
A limited partnership interest it owns in the Partnership to Acquiror or its
designee at the Effective Time.
NOW, THEREFORE, in consideration of the premises, and of the
mutual covenants, representations, warranties and agreements contained herein
and in the Supplemental Agreements, the parties agree as follows:
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ARTICLE I
CERTAIN DEFINITIONS; INTERPRETATION
1.01 Certain Definitions. The following terms are used in
this Agreement and the Supplemental Agreements with the meanings set forth
below:
"Acquiror" has the meaning assigned in the preamble to this
Agreement.
"Acquiror Common Stock" means the Common Stock, par value
$0.01 per share, of Acquiror.
"Acquiror Financial Statements" shall have the meaning
assigned in Section 5.05(d).
"Acquiror Party" means each of Acquiror, its respective
directors, officers, employees, agents and controlling persons, and
each of the heirs, executors, successors and assigns of any of the
foregoing and, without duplication, the Surviving LLC (effective at the
Effective Time).
"Acquiror Shareholders Agreement" means the Shareholders'
Agreement, dated May 7, 1999, among Acquiror and the other parties
named therein.
"Acquiror Subordinated Notes" has the meaning assigned in
Section 3.03.
"Affiliate" means, with respect to any specified person, any
other person directly or indirectly controlling or controlled by or
under direct or indirect common control with such specified person. For
the purposes of this definition, (a) "control" when used with respect
to any specified person means the power to direct the management and
policies of such person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and (b) the
terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agreement" means this agreement, as amended or modified from
time to time in accordance with Section 11.02.
"business day" means any day other than a Saturday, a Sunday
or a day on which banks in New York City are authorized or obligated by
law or executive order to close.
"Cash Consideration" has the meaning assigned in Section
3.01(a).
"Cash Pool Amount" means $2.1 billion reduced by the sum of
(A) any amount of the Withdrawn Member Amount that is exchanged for
cash or Acquiror Subordinated Notes pursuant to Section 3.03 and (B)
any amount paid by Acquiror pursuant to Section 8.03(g) to acquire all
of the outstanding Class A limited partnership interests of the
Partnership and
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(C) any charitable contribution, but in no event in excess of
$100,000,000, the Members may cause the Company or the Partnership to
make after the date hereof.
"CBOE" means the Chicago Board Options Exchange, Incorporated.
"CFTC" means the United States Commodity Futures Trading
Commission.
"Chosen Courts" has the meaning set forth in Section 11.07(a).
"Clearing Agreement" has the meaning assigned in Section
5.03(h).
"Closing" and "Closing Date" have the meanings assigned in
Section 2.02.
"Closing Stock Price" has the meaning assigned in Section
3.06.
"Code" means the Internal Revenue Code of 1986, as amended,
and the rules and regulation thereunder.
"Company" has the meaning assigned in the preamble to this
Agreement.
"Company Membership Interests" means the membership interests
in the Company.
"Compensation Plans" has the meaning assigned in Section
5.03(o).
"Confidentiality Agreement" means the letter agreement, dated
March 6, 2000, between the Partnership and the Acquiror.
"Consideration Percentage" means, with respect to any Member,
a percentage on a schedule previously agreed to by the Company and
Acquiror. The Company may deliver to Acquiror a revised schedule
changing the Consideration Percentage of any Member or Members if
necessary to reflect any changes in capital at least five (5) days
prior to the Closing.
"Constitutive Documents" means, with respect to any person,
such person's articles or certificate of incorporation and by-laws,
limited liability company agreement or operating agreement, partnership
agreement or other constitutive documents.
"Contract" means, with respect to any person, any agreement,
indenture, undertaking, debt instrument, contract, lease,
understanding, arrangement, or commitment to which such person or any
of its Subsidiaries is a party or by which any of them may be bound or
to which any of their properties may be subject.
"Custodian" has the meaning assigned in the form of Custody
Agreement.
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"Custody Agreements" means, collectively, a Custody Agreement
to be entered into by each of the Members and each other person who
will receive Acquiror Common Stock in the Merger or by election
pursuant to Section 3.03, in substantially the form of Annex 4.
"Disclosure Schedule" has the meaning assigned in Section
5.01.
"Effective Time" has the meaning assigned in Section 2.01(e).
"Election Deadline" has the meaning assigned in Section 3.04.
"Employees" has the meaning set forth in Section 5.03(o).
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" has, with respect to any person, the meaning
assigned in Section 5.03(o).
"ERISA Plans" has the meaning assigned in Section 5.03(k).
"Excess Shares" shall mean , initially, that number of shares
of Acquiror Common Stock equal to the quotient derived by dividing (I)the
product of (A) the amount by which the Closing Stock Price exceeds $128.025,
times (B) the Stock Pool Amount, times (C) 0.27 by (II) the Closing Stock Price,
provided, that, if the sale price of shares of Acquiror Common Stock sold
pursuant to Section 3.05 is different from the Closing Stock Price, such number
shall be adjusted so as to enable the Members to receive net proceeds (without
regard to income taxes payable in respect of such sales) not less than the
product described in clause (I) above (it being understood that if, at the time
of any sales of shares of Acquiror Common Stock during the same tax year as the
Closing, the sale price(s) of the shares is less than the Closing Stock Price,
then the number of Excess Shares shall be adjusted appropriately to reflect the
reduction in the capital gains tax payable as a result of the Merger after
taking into account any capital loss on any sale of shares of Acquiror Common
Stock (whether usable or not) at a price below the Closing Stock Price, in each
case assuming a 27% effective tax rate.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"Financial Statements" has the meaning assigned in Section
5.03(g).
"Focus Report" has the meaning assigned in Section 5.03(g).
"Foreign Plans" has the meaning assigned in Section 5.03(o).
"Governmental Authority" means any court, administrative
agency or commission or other federal, state, local or foreign
governmental authority or instrumentality.
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"Indemnified Party" has the meaning assigned in Section
9.02(a).
"Indemnifying Party" has the meaning assigned in Section
9.02(a).
"Intellectual Property" has the meaning assigned in Section
5.03(h).
"Investment Advisers Act" means the Investment Advisers Act of
1940, as amended, and the rules and regulations thereunder.
"Investment Company Act" means the Investment Company Act of
1940, as amended, and the rules and regulations thereunder.
"IRS" means the United States Internal Revenue Service.
"Lien" means a charge, mortgage, pledge, security interest,
restriction (other than a restriction on transfer arising under
Securities Laws), claim, lien, or encumbrance of any nature whatsoever,
except for liens incurred in the ordinary course of business in respect
of Taxes for which adequate reserves have been established.
"Limited Partnership Interest" means an ownership interest in
the Partnership held by the limited partners of the Partnership.
"Litigation" has the meaning assigned in Section 5.03(j).
"Losses" has the meaning assigned in Section 9.01(a).
"Managing Director Subordinated Note" means the subordinated
and secured demand notes substantially all of which are held by
current/retired Managing Directors (as such term is used in the
Offering Memorandum), or related entities, and are included within the
caption "Junior Subordinated Debt" set forth in the Capitalization
section of the Offering Memorandum, having a principal amount not in
excess of $210 million as of the date hereof.
"Material Adverse Effect" means, with respect to Acquiror, the
Company or the Surviving LLC, respectively, an effect or change that,
individually or in the aggregate with other such effects or changes, is
both material and adverse with respect to the respective financial
condition, results of operations, assets, business or management of
Acquiror and its Subsidiaries, the Company and its Subsidiaries, or the
Surviving LLC and its Subsidiaries, as applicable, and in each case
taken as a whole.
"Material Contract" has the meaning assigned in Section
5.03(h).
"Member" and "Members" have the meaning assigned in the
Recitals.
"Member Agreement" has the meaning assigned in the Recitals.
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"Merger" has the meaning assigned in the Recitals.
"Merger Certificate" has the meaning assigned in Section
2.01(e).
"Merger Consideration" has the meaning assigned in Section
3.01(a).
"NewCo" has the meaning assigned in the Recitals.
"NYSE" means the New York Stock Exchange, Inc.
"Offering Memorandum" has the meaning assigned in Section
5.03(y).
"Operating Agreement" means the Amended and Restated Operating
Agreement of SLK LLC, dated as of August 1, 2000, as amended from time
to time.
"Order" has the meaning assigned in Section 8.01(b).
"Owner" means a Member or Partner, as applicable, and "Owners"
means the Members and Partners collectively.
"Partner" and "Partners" have the meaning assigned in the
Recitals.
"Partnership" has the meaning assigned in the Recitals.
"Partnership Agreement" means the Spear, Leeds & Kellogg
Amended and Restated Articles of Partnership, dated as of January 1, 2000.
"Partnership Interest" means an ownership interest in the
Partnership.
"Pension Plan" has, with respect to any person, the meaning
assigned in Section 5.03(o).
"person" means any individual, bank, corporation, limited
liability company, partnership, joint venture, association, joint-stock
company, business trust, governmental entity, or unincorporated
organization.
"Plans" has the meaning assigned in Section 5.03(o).
"Pre-Closing Period" has the meaning assigned in Section
7.02(b).
"Pre-Closing Taxes" has the meaning assigned in Section
7.02(b).
"Previously Disclosed" has the meaning assigned in Section
5.01.
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"Regulatory Orders" has the meaning assigned in Section
5.03(j).
"Reports" has the meaning assigned in Section 5.03(f).
"Retention RSUs" has the meaning assigned in Section 3.05.
"Rights" means, with respect to any person, any Contracts,
securities or obligations convertible into or exercisable or
exchangeable for, or giving any person any right to subscribe for or
acquire, or any options, calls or commitments relating to, or any
equity interest in or equity appreciation right or other instrument the
value of which is determined in whole or in part by reference to the
market price or value of, shares of capital stock or other equity
interest in such person.
"SEC" means the United States Securities and Exchange
Commission.
"SEC Documents" has the meaning assigned in Section 5.05(d).
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations thereunder.
"Securities Laws" means, collectively, the Securities Act, the
Exchange Act, the Investment Advisers Act, the Investment Company Act,
the Commodity Exchange Act, as amended, and any other federal, state,
local or foreign securities, derivatives or commodity laws.
"Self-Regulatory Organization" means the National Association
of Securities Dealers, Inc., the American Stock Exchange, the National
Futures Association, the CBOE, the Chicago Board of Trade, the NYSE,
any Self-Regulatory Organization Previously Disclosed with respect to
Section 5.03(f) and any other similar federal, state or foreign
self-regulatory body or organization having jurisdiction over the
Company or Acquiror (as the case may be), any of their respective
Subsidiaries or Affiliates or any of their respective business
operations.
"Share Premium" is the sum of (i) the difference between the
principal amount of the Managing Director Subordinated Notes exchanged
for Acquiror Common Stock and the aggregate value of any Acquiror
Common Stock received in exchange therefor and (ii) the difference
between the Withdrawn Member Amount exchanged for Acquiror Common Stock
and the aggregate value of any Acquiror Common Stock received in
exchange therefor, in each case, using $128.025 as the value of each
share of Acquiror Common Stock.
"SLK Representative" means any person designated by the
Company in writing by notice to Acquiror prior to the Effective Time.
"SLK RSUs" has the meaning assigned in Section 3.05.
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"Stock Consideration" has the meaning assigned in Section
3.01(a).
"Stock Pool Amount" means 34,368,287 shares of Acquiror Common
Stock reduced by the number of shares of Acquiror Common Stock elected
to be issued in respect of any Managing Director Subordinated Notes or
the Withdrawn Member Amount; provided, however, that the first 390,549
shares of Acquiror Common Stock that represent any Share Premium paid
on Managing Director Subordinated Notes or in respect of the Withdrawn
Member Amount shall not reduce the Stock Pool Amount.
"Subsidiary" has the meaning assigned in Rule 1-02 of
Regulation S-X of the SEC.
"Supplemental Members Agreement" has the meaning assigned in
the Recitals.
"Supplemental Agreements" has the meaning assigned in the
Recitals.
"Surviving LLC" has the meaning assigned in Section 2.01(a).
"Tax Returns" means any return (including, without limitation,
information returns, annual reports or other returns in respect of any
Compensation Plan), declaration, report, claim for refund, information
return or statement relating to any Tax, together with all schedules or
attachments thereto, and including any amendments of any of the
foregoing.
"Tax" or "Taxes" means all taxes, charges, fees, levies or
other assessments, however denominated and whether imposed by a taxing
authority within or without the United States, including, without
limitation, all net income, gross income, gross receipts, sales, use,
ad valorem, goods and services, capital, transfer, franchise, profits,
license, withholding, payroll, employment, employer health, excise,
estimated, severance, stamp, occupation, property or other taxes,
custom duties, fees, assessments or charges of any kind whatsoever,
together with any interest and any penalties, additions to tax or
additional amounts imposed by any taxing authority.
"Third Party Claim" has the meaning assigned in Section
9.02(a).
"Third-Party Intellectual Property Rights" has the meaning
assigned in Section 5.03(s).
"Withdrawn Member" shall have the meaning ascribed to such
term in the Operating Agreement.
"Withdrawn Member Amount" means the sum of the Shares (as such
term is defined in the Operating Agreement) of all Withdrawn Members
determined in accordance with the Operating Agreement and all
predecessor agreements, which shall not exceed $165,000,000.
"Withdrawn Member Interest" has the meaning assigned in
Section 3.03.
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1.02 General Rules of Interpretation. When a reference
is made in this Agreement to "Recitals", "Sections", "Annexes" or "Schedules",
such reference shall be to a Recital of, or Annex or Schedule to, this
Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and are not part of
this Agreement. Whenever the words "include", "includes" or "including" are
used in this Agreement, they shall be deemed followed by the words "without
limitation". References herein to "transactions contemplated by this Agreement"
shall be deemed to include a reference to each transaction contemplated by or
provided for in this Agreement and any documents or agreements, including the
Supplemental Agreements, entered into in connection herewith. No rule of
construction against the draftsperson shall be applied in connection with the
interpretation or enforcement of this Agreement. Whenever this Agreement shall
require a party to take an action, such requirement shall be deemed to include
an undertaking by such party to cause its Subsidiaries, and to use its
reasonable best efforts to cause its other Affiliates, to take all necessary
and appropriate action in connection therewith.
ARTICLE II
THE MERGER
2.01 The Merger. At the Effective Time, the Merger shall
occur and in furtherance thereof:
(a) Structure and Effects of the Merger. NewCo shall
merge with and into the Company, and the separate legal existence of
NewCo shall thereupon cease. The Company shall be the surviving limited
liability company in the Merger (sometimes hereinafter referred to as
the "Surviving LLC") and shall continue to be governed by the laws of
the State of New York, and the separate legal existence of the Company
with all its rights, privileges, immunities, powers and franchises
shall continue unaffected by the Merger. The Merger shall have the
effects specified in Section 1004 of the New York Limited Liability
Company Law.
(b) Certificate of Limited Liability Company. The
Certificate of Limited Liability Company of the Surviving LLC shall be
the Certificate of Limited Liability Company of the Company as in
effect immediately prior to the Effective Time, until duly amended in
accordance with the terms thereof and applicable law.
(c) Operating Agreement. The operating agreement of the
Surviving LLC shall be the operating agreement of the Company as in
effect immediately prior to the Effective Time, until duly amended in
accordance with the terms thereof and applicable law.
(d) Manager. The initial manager of the Surviving LLC
shall be the manager of NewCo immediately prior to the Effective Time.
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(e) Effective Time. The Merger shall become effective
upon the filing, by the offices of the Secretary of State of the State
of New York, of a certificate of merger (the "Merger Certificate") in
accordance with applicable law and the issuance of a certificate of
merger by the Secretary of State of New York, or at such later date and
time as may be set forth in such Merger Certificate (the "Effective
Time"). The parties shall use their reasonable best efforts to cause
the Merger to become effective as soon as is reasonably practicable,
but in any event on a date that is not later than three business days
after the last of the conditions set forth in Article VIII shall have
been satisfied or waived in accordance with the terms of this Agreement
(other than those conditions that by their nature are to be satisfied
at the Closing, but subject to the satisfaction or waiver of those
conditions).
2.02 Closing. The closing of the Merger (the "Closing")
shall take place at 9:00 a.m. at the offices of Sullivan & Cromwell, 125 Broad
Street, New York, New York, or at such other place as the parties shall agree,
on the date on which the Effective Time shall occur (the "Closing Date").
2.03 Tax Treatment of the Merger. The parties intend that
for U.S. federal income tax purposes the Merger be treated as a taxable purchase
by Acquiror of the Company Membership Interests owned by the Members including
Withdrawn Member Interests (and subordinated debt owned by former Managing
Directors of the Company) in exchange for cash and Acquiror Common Stock. For
these purposes, and all other U.S. federal income tax purposes, the parties
agree that the Acquiror Common Stock subject to the Transfer Restrictions (as
defined in the Member Agreements) and received by the Members in the Merger
shall be valued for all U.S. federal income tax purposes at 100% of the mean of
the high and low of the trading price of the Acquiror Common Stock on the
Closing Date.
2.04 Organization of NewCo. Before the Effective Time,
Acquiror will (a) organize NewCo as a New York limited liability company solely
for the purpose of this transaction that will have no material assets and
liabilities and will be treated, for federal income tax purposes, as a
disregarded entity or partnership and (b) cause NewCo to become a party to this
Agreement, to be evidenced by the execution by it of a supplement to this
Agreement and delivery thereof to Acquiror and the Company.
ARTICLE III
CONSIDERATION; EXCHANGE; EMPLOYEE INCENTIVES
3.01 Merger Consideration. At the Effective Time,
automatically and without any action on the part of any party, Member or other
person:
(a) Outstanding Company Membership Interests. Subject to
the terms and conditions set forth in this Agreement, all Company
Membership Interests that are outstanding and owned by a Member
immediately prior to the Effective Time shall become
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and be converted into the right to receive (i) an amount in cash equal
to the Consideration Percentage of such Member multiplied by the Cash
Pool Amount (the "Cash Consideration"), and (ii) a number of shares of
Acquiror Common Stock equal to the Consideration Percentage of such
Member multiplied by the Stock Pool Amount (the "Stock Consideration"
and, collectively with the Cash Consideration, the "Merger
Consideration"), subject to adjustment as provided in paragraph (c) of
this Section 3.01.
(b) Outstanding NewCo Membership Interests. The
membership interests of NewCo outstanding immediately prior to the
Effective Time shall be converted into an identical number of
Membership Interests in the Surviving LLC.
(c) Fractional Shares. Notwithstanding any other
provision in this Agreement, no fractional shares of Acquiror Common
Stock and no certificates or scrip therefor, or other evidence of
ownership thereof, will be issued in the Merger or otherwise hereunder;
instead, Acquiror shall pay to each holder of Company Membership
Interests who otherwise would be entitled to a fractional share of
Acquiror Common Stock an amount in cash (without interest) determined
by multiplying such fraction by $128.025.
(d) Rights as Members. At the Effective Time, holders of
Company Membership Interests shall have no rights as members of the
Company or otherwise with respect to their ownership therein other than
the right to receive their allocated share of the Merger Consideration
provided for in this Article III.
(e) Merger Consideration Payment. The Stock Consideration
shall be paid to the Members as provided for herein and held in custody
pursuant to the Custody Agreements. It is a condition to any Member
receiving the Member's allocated share of the Merger Consideration that
the Member execute and deliver a Member Agreement and a Custody
Agreement.
3.02 Exchange Procedures.
(a) Delivery of Merger Consideration. Acquiror will:
(1) prior to the Effective Time, cause to be delivered to
each Member any necessary or appropriate transmittal materials for use
in paying the Merger Consideration to such Member on the Closing Date.
(2) promptly thereafter cause to be delivered to the
Custodian on behalf of each Member certificates representing the Stock
Consideration into which such Member's Company Membership Interests
have been converted and shall on the Closing Date deliver by wire
transfer to each Member the cash that such Member is entitled to
receive pursuant to the provisions of this Article III in respect of
the Cash Consideration, fractional shares and dividends or
distributions; provided that certificates representing Acquiror Common
Stock will not be issued to or on behalf of, and such wire transfer
will not be made to, any Member
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until the Member has properly completed and returned any transmittal
materials delivered by Acquiror pursuant to Section 3.02(a)(1) and has
executed and delivered to Acquiror a Custody Agreement.
(b) Registration of Acquiror Stock. All Acquiror Common
Stock to be delivered on behalf of a Member will be registered in the name of
the Custodian or its nominee and all checks to be issued to a Member will be
made out in the name of such Member.
(c) No Interest. No interest will be paid on any
consideration provided for in this Article III, including the Merger
Consideration, cash in lieu of fractional shares or dividends or distributions
on any of the preceding.
(d) No Rights Until Surrender. No dividends or other
distributions on Acquiror Common Stock will be paid in respect of any Acquiror
Common Stock deliverable on behalf of a Member as a result of the Merger until
the Custodian is properly entitled to receive certificates representing such
Acquiror Common Stock in accordance with this Section 3.02, and no Member will
be eligible to vote such Acquiror Common Stock until the Custodian becomes so
entitled. After the Custodian becomes entitled to receive certificates in
accordance with this Section 3.02, the Member will also be entitled to receive
dividends or distributions with a record date after the Effective Time that have
become payable on the Acquiror Common Stock represented thereby, without
interest.
3.03 Withdrawn Member and Managing Director Subordinated
Debt Election. Each Withdrawn Member with a Share (as such term is defined in
the Operating Agreement) (a "Withdrawn Member Interest") and/or any person that
holds a Managing Director Subordinated Note may make an election to exchange
such Withdrawn Member Interest and/or Managing Director Subordinated Note for:
(a) a subordinated note, substantially in the form set
forth in Annex 8 (an "Acquiror Subordinated Note"),
of like principal amount plus cash in an amount equal
to all accrued and unpaid interest as of the date of
the exchange;
(b) (A) that number of shares of Acquiror Common Stock
equal to the quotient of (i) the product of 1.5
multiplied by the sum of the dollar amount of such
Withdrawn Member Interest and/or of the principal
amount of the Managing Director Subordinated Note, as
applicable, being exchanged for Acquiror Common Stock
divided by (ii) $128.025 and (B) cash in an amount
equal to all accrued and unpaid interest as of the
date of the exchange; or
(c) cash in an amount equal to the dollar amount of such
Withdrawn Member Interest and/or the principal amount
of the Managing Director Subordinated Note, plus cash
in an amount equal to all accrued and unpaid interest
thereon as of the date of the exchange.
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In the event that a person entitled to make the foregoing
election fails to do so prior to the Election Deadline, such person shall only
be entitled to receive in exchange for such Withdrawn Member Interest and/or
Managing Director Subordinated Note, cash in an amount equal to the dollar
amount of such Withdrawn Member Interest and/or the principal amount, of the
Managing Director Subordinated Note, plus cash in an amount equal to all accrued
and unpaid interest thereon as of the date of the exchange.
3.04 Election Procedures. Each person entitled to make the
election referred to in Section 3.03 above shall (i) make the election by
written notice delivered to Acquiror not earlier than the twentieth business day
after the date hereof and no later than the twenty-fifth business day after the
date hereof, subject to the Company's ability to extend for an additional 10
business days (the "Election Deadline") and (ii) at the time of such election,
execute and deliver to Acquiror a retired member agreement (to the extent such
person does not sign a Member Agreement) which shall contain terms substantially
identical to the terms contained in the Member Agreement, except that such
retired member agreement shall not contain the terms set forth in Sections 1
(except with respect to termination), 2(a), 2(e), 3(i), 5 through 13 and 22 of
the Member Agreement. Any election may be revoked until the Election Deadline by
written notice to the Acquiror received prior to such Election Deadline, at
which time such election shall be irrevocable. In the event that either a
Withdrawn Member or a holder of a Managing Director Subordinated Note fails to
make the election referred to in Section 3.03 by the Election Deadline with
respect to a Withdrawn Member Interest or a Managing Director Subordinated Note,
then the Company shall (i) in the case of a Withdrawn Member Interest, redeem
such amount in accordance with the terms of the Operating Agreement, and (ii) in
the case of a Managing Director Subordinated Note, have such note redeemed by
the Company, in each case, effective as of the Effective Time. In connection
therewith, the Company agrees to take, or cause to be taken, all necessary steps
to redeem pursuant to the terms thereof, as of the Effective Time, all
outstanding Withdrawn Member Interests or Managing Director Subordinated Notes
not subject to an effective election (it being understood that Section 3.03 and
3.04 will not result in a duplication of amounts owed to Withdrawn Members or
holders of Managing Director Subordinated Notes). Shares of Acquiror Common
Stock and Acquiror Subordinated Notes issued pursuant to this Article III shall
be issued at or promptly after the Effective Time consistent with the payment of
the Merger Consideration pursuant to Section 3.02.
3.05 Restricted Stock Units Awards. Effective as of the
Effective Time, Acquiror shall grant to certain employees (which may include
Members who may or may not be employees) of the Company or its Subsidiaries who
remain employed by the Company or its Subsidiaries through the Effective Time in
substantially the same capacity as on the date of this Agreement and become
employees of Acquiror or one of its Subsidiaries an aggregate of 5,467,682
Acquiror restricted stock units, as such may be equitably adjusted pursuant to
the terms of Section 3.07, having the terms set forth in Annex 6 (the "Retention
RSUs"). In addition, effective as of the Effective Time, Acquiror shall grant to
employees of the Company or any of its Subsidiaries who remain employed by the
Company or such Subsidiary through the Effective Time and become employees of
Acquiror or one of its Subsidiaries an aggregate of 1,562,195 Acquiror
restricted stock units, as such may be equitably adjusted pursuant to the terms
of Section 3.07, having the terms set forth in Annex 7 (the
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<PAGE> 19
"SLK RSUs"). Acquiror and the Company shall mutually agree prior to the
Effective Time on which employees shall be granted SLK RSUs and the number of
SLK RSUs to be granted to each such employee. The Company shall consult with
Acquiror regarding which employees should be granted Retention RSUs and the
number of Retention RSUs that should be granted to each such employee, and after
such consultation the Company shall determine, with Acquiror's written consent
(which shall not be unreasonably withheld), which employees shall receive the
Retention RSUs and how many Retention RSUs are allocated to each such employee.
Moreover, Acquiror shall have no obligation to issue Retention RSUs or SLK RSUs
to any employee who has not executed and delivered to Acquiror an agreement in
form and substance approved by Acquiror imposing on such employee
confidentiality, noncompetition and nonsolicitation obligations comparable to
those contained in Annex 3. The issuance and delivery of Retention RSUs and SLK
RSUs shall be conditioned upon the recipient's executing and delivering to
Acquiror a custody agreement in the form customarily used by Acquiror for
recipients of restricted stock units. All Retention RSUs and SLK RSUs shall be
granted pursuant to the Acquiror 1999 Stock Incentive Plan. All material
communications by the Company in respect of the grant of Retention RSUs and SLK
RSUs shall be approved in advance by Acquiror.
3.06 Incremental Liquidity Gain. In the event that the
closing per share price of Acquiror Common Stock on the trading day immediately
preceding the Closing Date (the "Closing Stock Price") exceeds $128.025,
Acquiror shall as promptly as reasonably practicable following the Closing Date,
file a registration statement on an appropriate form under the Securities Act of
1933 to register the resale of the Excess Shares. Acquiror will use reasonable
best efforts to cause such registration statement to become effective as soon as
reasonably practicable. The Excess Shares shall be sold through Goldman, Sachs &
Co. in such manner as Goldman, Sachs & Co. shall determine in its sole
discretion. The Members whose Excess Shares are included in the registration
statement shall pay all of their and Acquiror's out-of-pocket expenses incurred
in connection with the preparation and filing of the registration statement and
the resale of the Excess Shares. Acquiror may delay any such filing,
effectiveness or offering if Acquiror in good faith believes that such filing,
effectiveness or offering would interfere with a proposed corporate transaction
(including an acquisition or disposition) or offering of securities by Acquiror
or any stockholder or require Acquiror to disclose material, nonpublic
information and will use reasonable best efforts to effect such filing,
effectiveness or offering once such transaction or offering is completed or
abandoned or such information is disclosed.
3.07 Adjustments to Prevent Dilution. In the event that
Acquiror changes the number of shares of Acquiror Common Stock, or securities
convertible or exchangeable into or exercisable for shares of Acquiror Common
Stock, issued and outstanding prior to the Effective Time as a result of a
reclassification, stock split (including a reverse split), stock dividend or
extraordinary distribution or other similar transaction, the Stock
Consideration, the number of Retention RSUs, the number of SLK RSUs, and
references to $128.025 where used as a calculation element or reference price
shall be equitably adjusted so as to give effect to the intended purpose of this
Agreement.
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<PAGE> 20
ARTICLE IV
ACTIONS PENDING THE EFFECTIVE TIME
4.01 Forbearances of the Company. Until the Effective
Time, except as Previously Disclosed or as expressly contemplated by this
Agreement or any Supplemental Agreement, without the prior written consent of
Acquiror, the Company will, and the Company will cause its Subsidiaries to,
conduct the business of the Company and its Subsidiaries in the ordinary and
usual course and, to the extent consistent therewith, shall use reasonable best
efforts to preserve intact their business organizations and assets and maintain
their rights, franchises and existing relations with clients, customers,
suppliers, employees and business associates. In addition, without Acquiror's
written consent (which shall not be unreasonably withheld) the Company will not,
and will cause its Subsidiaries and its Subsidiaries' employees, members,
partners, agents and other representatives not to:
(a) Ordinary Course. Engage in any new activities or
lines of business or take any action reasonably likely to have an
adverse effect upon the ability of the Company to perform any of its
obligations under this Agreement.
(b) Equity Interests. Issue, sell or otherwise permit to
become outstanding, or authorize the creation of, any additional equity
interests of the Company or any of its Subsidiaries or any Rights in
respect thereof or permit any transfers or dispositions of any equity
interests in the Company, or any of its Subsidiaries from and after the
date of this Agreement; provided, that (i) the Partnership shall be
permitted to issue additional Class C limited partnership interests and
(ii) First Options of Chicago Inc. shall be permitted to issue
additional shares of Class A Preferred Stock, in each case, in the
ordinary and usual course of business consistent with past practice.
(c) Distributions, Etc. Make, declare, pay or set aside
for payment any dividend on or in respect of, or declare or make any
distribution on, any shares of capital stock or equity interests of the
Company or any of its Subsidiaries, other than distributions from
Subsidiaries to the Company or a wholly owned Subsidiary of the
Company, or directly or indirectly adjust, split, combine, redeem,
reclassify, purchase or otherwise acquire, any shares of its capital
stock or equity interests; provided, that the Company shall be
permitted to make distributions to its Members (i) in an amount not to
exceed $116,503,000 (including $50 million reserved for such purposes)
in respect of Taxes accrued as of June 30, 2000, (ii) in an amount not
to exceed $35,134,000 in respect of distributions available as of
January 1, 2000, (iii) in an amount not to exceed $26,689,000 in
respect of distributions available as of June 30, 2000, (iv) in amounts
necessary to permit Members to pay the aggregate net U.S. federal,
state and local income taxes imposed on them with respect to the net
earnings of the Company during the period commencing on July 1, 2000
and ending immediately prior to the Effective Time (after taking into
account Tax credits and other available Tax assets and any prior
distributions to fund such Taxes and not including any Taxes payable as
the result of sales or other dispositions requiring the recognition of
unrealized gains reflected on the June
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<PAGE> 21
30, 2000 Financial Statements (including the "short-against the box"
positions)), (v) in an amount with respect to each Member and taking
into account any amounts previously paid to such Member (other than the
distributions described in clauses (i) through (iv) and (vi) through
(ix) of this subsection (c)) since June 30, 2000, not to exceed 4% of a
Member's average capital account balance (as such amount is calculated
on a monthly basis in the ordinary and usual course of the Company's
business, but excluding any net income earned after June 30, 2000) for
the period from July 1, 2000 and ending immediately prior to the
Effective Time, (vi) of customary bi-weekly draws, in amounts per
Member consistent with past practice and in the ordinary and usual
course of business, (vii) for purposes of making charitable
contributions not in excess of $100,000,000, as contemplated by clause
(C) of the definition of Cash Pool Amount, (viii) of two percent (2%)
charitable giving draws of not more than $68,000 in the aggregate for
all Members and (ix) as previously disclosed on Schedule 5.03(g);
provided, however, that the Tax rates and taxable income used for
purposes of these computations are not inconsistent with any Tax
Returns filed by the Partnership or the Company, the Financial
Statements and any other available financial information, and provided,
further, that the manner in which the effective Tax rate is computed is
subject to Acquiror's reasonable approval and is based upon the highest
applicable U.S. federal, state and local rates applicable to
individuals.
(d) Compensation; Employment Agreements; Etc. Enter into,
amend, modify or renew any employment, consulting, severance or similar
contracts with any director, officer, employee or Member, or grant any
salary, wage or other compensation increase or increase any employee
payment or benefit (including incentive or bonus payments), except (1)
for normal individual increases in compensation to persons other than
Directors or Managing Directors in the ordinary course of business
consistent with past practice, (2) for other changes that are required
by applicable law, (3) to satisfy contractual obligations existing as
of the date hereof that have been previously made available to
Acquiror, and (4) for employment arrangements for, or grants of awards
(other than any ownership interest in the Company or any of its
Subsidiaries, or Rights with respect thereto) to, newly hired employees
of the Company (other than officers or directors) or any of its
Subsidiaries in the ordinary course of business consistent with past
practice.
(e) Benefit Plans. Enter into, establish, adopt or amend
or communicate in writing or orally any intention to take such action,
or grant any waiver with respect to, any pension, retirement, equity
option, equity purchase, savings, profit sharing, deferred
compensation, consulting, bonus, group insurance or other employee
benefit, incentive or welfare contract, plan or arrangement, or any
trust agreement (or similar arrangement) related thereto, in respect of
any current of former director, officer, employee or Owner, except (1)
for non-material items in the ordinary and usual course of business or
by the transactions to be effected by this Agreement or (2) as may be
required (i) by applicable law or (ii) to satisfy contractual
obligations existing on the date hereof that have been Previously
Disclosed and accrued on the Financial Statements, or take any action
to accelerate the funding, vesting or exercisability of options,
restricted membership interest awards or other compensation or benefits
payable thereunder.
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<PAGE> 22
(f) Dispositions. Initiate, solicit or otherwise
encourage, directly or indirectly, any (i) enquiries or the making of
any proposal or offer with respect to a merger, consolidation or
similar transaction involving the Company or any of its Subsidiaries,
or any purchase of membership interests or securities of the Company or
any of its Subsidiaries, or otherwise participate in or facilitate any
effort or attempt to make or effectuate such an offer or proposal
including, without limitation, by engaging in any discussions or
negotiations or providing any confidential information or data to, any
person making such other offer or proposal; and (ii) except for sales,
transfers, mortgages, encumbrances or other dispositions of securities
or other investments or assets in the ordinary course of business
consistent with past practice, sell, transfer, mortgage, encumber or
otherwise dispose of or discontinue (1) any material amount of assets
or properties or (2) any material business or operations.
(g) Acquisitions. Except for the purchase of securities
or other investments or assets in the ordinary course of business
consistent with past practice, acquire any assets, business, or
properties of any other entity.
(h) Governing Documents. Amend the Constitutive Documents
of the Company or any of its Subsidiaries.
(i) Accounting Methods. Implement or adopt any change in
its accounting principles, practices or methods, other than as may be
required by generally accepted accounting principles or applicable law
or regulation.
(j) Contracts. Without limiting the applicability of
Section 4.01(d) or (e), enter into or terminate any material contract
(other than a material contract which expires by its terms) or amend,
modify or waive in any respect any of its existing material contracts
or its rights thereunder other than in the ordinary course of business
consistent with past practice.
(k) Claims. Settle any claim, action or proceeding,
except for any claim, action or proceeding involving solely money
damages in an amount, individually and in the aggregate for all such
settlements, not more than $1,000,000 and which is not reasonably
likely to establish an adverse precedent or basis for subsequent
claims, actions, proceedings or settlements.
(l) Adverse Actions. Knowingly take any action that is
reasonably likely to result in (1) any of its representations or
warranties set forth in this Agreement being or becoming untrue at any
time at or prior to the Effective Time (after giving effect to Section
5.02) or (2) any of the conditions set forth in Article VIII not being
satisfied, except, in either case, as may be required by applicable law
or regulation.
(m) Indebtedness. Incur any indebtedness for borrowed
money (other than any indebtedness with a final maturity less than 12
months from the date of its issuance incurred in the ordinary course of
business consistent with past practice) or issue any debt obligations
that would be considered Managing Director Subordinated Notes.
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<PAGE> 23
(n) Commitments. Agree, commit to or enter into any
agreement to take any of the actions referred to in Section 4.01(a)
through (m).
4.02 Forbearances of Acquiror. Until the Effective Time,
except as expressly contemplated by this Agreement, without the prior written
consent of the Company, Acquiror will not, and will cause each of its
Subsidiaries not to, knowingly take any action reasonably likely to result in
(1) any of its representations and warranties set forth in this Agreement being
or becoming untrue at any time at or prior to the Effective Time (after giving
effect to Section 5.02) or (2) any of the conditions set forth in Article VIII
not being satisfied except, in either case, as may be required by applicable law
or regulation. In addition, Acquiror shall not declare, make or pay any
extraordinary dividend or other extraordinary distribution on Acquiror Common
Stock, whether in cash or otherwise (which shall not include any quarterly cash
dividends in the ordinary and usual course of business) unless an equitable
adjustment is made to the Stock Consideration and the calculation element or
reference price of $128.025.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01 Disclosure Schedules. On or prior to the date hereof,
the Company has delivered to Acquiror, and Acquiror has delivered to the
Company, a schedule (respectively, its "Disclosure Schedule") setting forth,
among other things, items the disclosure of which is necessary or appropriate
either (a) in response to an express informational requirement contained in or
requested by a provision hereof or (b) as an exception to one or more
representations or warranties contained in Section 5.03, 5.04, 5.05 and 7.01.
Information set forth in a party's Disclosure Schedule, whether in response to
an express informational requirement or as an exception to one or more
representations, warranties or covenants, as applicable, in each case that is
contained (or incorporated by reference) in a correspondingly enumerated portion
of such Disclosure Schedule or as disclosed in the Offering Memorandum, is
described herein as "Previously Disclosed".
5.02 Standard. No representation or warranty contained in
Section 5.03, 5.04, 5.05 and 7.01 shall be deemed untrue or incorrect, and no
party hereto shall be deemed to have breached a representation or warranty, as a
consequence of the existence of any fact, event, or circumstance that should
have been disclosed as an exception to one or more representations or
warranties, unless such fact, event or circumstance, whether individually or
taken together with all other facts, events or circumstances that should have
been so disclosed (whether or not as exceptions) with respect to such
representation or warranty contained in Section 5.03, 5.04, 5.05 or 7.01, has
had or is reasonably likely to have a Material Adverse Effect with respect to
the Company (in the case of Section 5.03 and Section 7.01), the Partnership (in
the case of Section 5.04 and Section 7.01), Acquiror (in the case of Section
5.05); provided, that this Section 5.02 will not apply to, and will not limit
breaches of, the first sentence of Section 5.03(a), Section 5.03(b), the last
two sentences of the first paragraph of Section 5.03(c), Section 5.03(d), the
last two sentences of Section 5.03(g)(1), Section 5.03(g)(3)(B), the first
sentence of Section 5.04(a), Section 5.04(b), the
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first sentence of Section 5.05(a), Section 5.05(b), the last sentence of
5.05(d)(1), 5.05(d)(2)(B), 5.05(d)(3) and the last sentence of Section 5.05(e);
and provided, further, that this Section 5.02 will not apply in determining
whether indemnification is available under Article VII or Article IX hereof.
5.03 Representations and Warranties with Respect to the
Company. Except as Previously Disclosed in a paragraph of its Disclosure
Schedule corresponding to the relevant paragraph below, the Company hereby
represents and warrants to, and agrees with, Acquiror as follows:
(a) Organization, Standing and Authority. The Company has
been duly organized and is validly existing as a limited liability
company in good standing under the laws of the State of New York. The
Company is duly qualified to do business and is in good standing in the
States of the United States and foreign jurisdictions where its
ownership or leasing of property or the conduct of its business
requires it to be so qualified. The Company and each of its
Subsidiaries has the requisite power and authority and has in effect
all federal, state, local, and foreign governmental authorizations
necessary for it to own or lease its properties and assets and to carry
on its business as it is now conducted. The Company has delivered to
Acquiror a true and complete copy of its articles of organization and
operating agreement, which are the only Constitutive Documents of the
Company.
(b) Membership Interests. Annex 1 is an accurate and
complete list of the Members of the Company and is an accurate and
complete list of their respective ownership interests in all material
respects. As of the date of this Agreement, the Company has no Company
Membership Interests reserved for issuance and no obligation to admit
any other person as a Member. All the outstanding Company Membership
Interests are duly authorized and validly issued and were not issued in
violation of any subscriptive or preemptive rights. There are no other
Company Membership Interests authorized, issued or outstanding and
there are no preemptive rights or any outstanding Rights of the Company
or any of its Subsidiaries of any character relating to the issued or
unissued securities of the Company (including those relating to the
issuance, sale, purchase, redemption, conversion, exchange, redemption,
voting or transfer thereof). Since June 30, 2000 and until the date
hereof, no dividend or other distribution has been paid on or in
respect of the Company Membership Interests other than (i) as would
have been permitted under Section 4.01(c)(iv), (v) and (vi) had this
Agreement been in effect at such time or (ii) as Previously Disclosed
on Schedule 5.03(b).
Immediately after Effective Time, Acquiror shall own all of
the Membership Interests of the Company.
(c) Subsidiaries. The Company has Previously Disclosed a
list of all its Subsidiaries, including the states or foreign
jurisdictions in which such Subsidiaries are organized and, if any of
such Subsidiaries is not wholly owned by the Company or one or more of
its Subsidiaries, the percentage owned by the Company or each such
Subsidiary and the names, addresses and type and percentage ownership
by any other person. No equity interests in any
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<PAGE> 25
of the Company's Subsidiaries are or may become required to be issued
(other than to the Company or a wholly owned Subsidiary of the Company)
by reason of any Rights with respect thereto. There are no Contracts or
outstanding claims assessed against the Company by which any of the
Company's Subsidiaries is or may be bound to sell or otherwise issue
any equity interests, and there are no Contracts relating to the rights
of the Company to vote or to dispose of such equity interests. All of
the equity interests in each of the Company's Subsidiaries have been
duly authorized and validly issued and, to the extent applicable, are
fully paid and nonassessable and are subject to no subscriptive or
preemptive rights or Rights and are owned by the Company or one of its
Subsidiaries free and clear of any Liens other than those Liens created
by the existence of the Constitutive Documents. Each of the Company's
Subsidiaries is in good standing under the laws of the jurisdiction in
which it is organized, and is duly qualified to do business and in good
standing in each jurisdiction where its ownership or leasing of
property or the conduct of its business requires it to be so qualified.
The Company is the sole general partner of the Partnership and
(including the Float (as such term is defined in the Partnership
Agreement)), has the right to 98.942% of the Partnership's profits,
free and clear of all Liens other than those Liens created by the
existence of the Constitutive Documents, and is responsible for 100% of
the Partnership's losses, and no other person has any interest, legal,
beneficial or otherwise in such Partnership Interest. At the Closing
Date, the Company shall have the right to 100% of the Partnership's
profits. Upon the consummation of the Merger, the Surviving LLC will
continue to own, beneficially and of record, such Partnership Interest,
free and clear of all Liens other than those Liens created by the
existence of the Constitutive Documents.
The Company has Previously Disclosed a true and complete list
of all equity securities (other than those issued by a Subsidiary) it
or a Subsidiary of the Company holds or controls as of the date of this
Agreement involving, in the aggregate, ownership or control of 5% or
more of any class of the issuer's voting securities or 25% or more of
the issuer's equity. The Company has Previously Disclosed a list of all
corporations (and any other entities or joint undertakings treated as a
partnership for any Tax purpose), limited liability companies, joint
ventures or similar entities, in which it owns or controls a 5% or more
interest, directly or indirectly, and the nature and amount of each
such interest.
(d) LLC Action. The Company has the requisite power and
authority, and has taken all limited liability company action
necessary, (1) to authorize the execution and delivery of and
performance of its obligations under this Agreement and (2) to approve
and adopt the Merger and in accordance herewith, to consummate the
Merger and the transactions contemplated by this Agreement. Without
limiting the foregoing, any action of the Members of the Company
required to approve or adopt this Agreement and the transactions
contemplated by this Agreement has been duly taken in accordance with
the requirements of the New York State Limited Liability Company Law
and the Operating Agreement. No further action of the Members or
Managers of the Company is required in order to consummate the Merger
and, except for the execution and delivery of documents referred to
herein that are contemplated to be entered into at or prior to Closing,
the transactions contemplated by this Agreement. As of the Closing, no
Member will have any
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dissenter's or similar rights with respect to the Merger. This
Agreement has been duly executed and delivered on behalf of the Company
and constitutes the valid and legally binding agreement of the Company,
enforceable in accordance with its terms except as the enforceability
hereof may be limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws relating to the
enforcement of creditors' rights generally and by general principles of
equity.
(e) No Defaults. Subject to the receipt of Previously
Disclosed required regulatory approvals, and the filing of the Merger
Certificate, the execution, delivery and performance of this Agreement
and the consummation by the Company of the transactions contemplated by
this Agreement, do not and will not (1) conflict with or constitute a
breach or violation of, or a default under, or cause or allow the
acceleration or creation of any right, obligation or Lien (with or
without the giving of notice, passage of time or both) pursuant to any
law, rule or regulation or any judgment, decree, order, or any
governmental or non-governmental permit, license, franchise or
privilege or any Contract of it or any of its Affiliates or to which it
or any of its Affiliates or its or their properties is subject or
bound, (2) constitute a breach or violation of, or a default under, the
Constitutive Documents of the Company or any of its Subsidiaries, or
(3) require any consent or approval under any such law, rule,
regulation, judgment, decree, order, governmental or non-governmental
permit, license, franchise or privilege or the consent or approval of
any other party to any such Contract.
(f) Reports. The Company and its Subsidiaries have timely
filed all reports, registrations, statements and other filings (other
than those relating to Taxes or Tax Returns), together with any
amendments required to be made with respect thereto, that were required
to be filed by the Company or any of its Subsidiaries since December
31, 1998 with (1) the SEC or the CFTC, (2) any other applicable
Governmental Authorities (other than taxing authorities) or (3) any
Self-Regulatory Organization (all such reports and statements,
including the financial statements, exhibits and schedules thereto,
being collectively referred to herein as the "Reports"), including
without limitation, all reports, registrations, statements and filings
required under the Securities Laws. Each of the Reports, when filed,
complied (or, if filed after the date hereof, will comply) as to form
with all applicable statutes, rules, regulations and orders (whether or
not enforced or promulgated by the Governmental Authority with which
they were filed) and did not (or will not) contain any untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(g) Financial Statements.
(1) The Company has delivered to Acquiror copies of each of
the audited consolidated statements of financial condition of the Partnership
(including all related notes and schedules thereto) as of September 30, 1998 and
1999, and the audited consolidated statements of income, changes in partner's
capital and cash flows of the Partnership (including any related notes
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and schedules thereto) for the fiscal years ended September 30, 1997, 1998 and
1999, and the unaudited consolidated financial statements of the Partnership as
of, and for the fiscal quarters ended, June 30, 1999 and 2000 and the unaudited
unconsolidated financial statements of each of the Subsidiaries of the
Partnership that are registered as broker-dealers under Section 15 of the
Exchange Act contained in the Financial and Operational Combined Uniform Single
Reports (each, a "Focus Report") for the fiscal quarters ended June 30, 1999 and
2000 (collectively, the "Financial Statements"). Each of the statements of
financial condition included in the Financial Statements fairly presents in all
material respects the consolidated financial position of the Partnership (or, in
the case of the Focus Reports, of the relevant Subsidiary on an unconsolidated
basis) as of its date, and each of the statements of income and changes in
owners' capital and cash flows or equivalent statements included in the
Financial Statements fairly presents in all material respects the consolidated
results of operations, changes in owners' capital and changes in cash flows, as
the case may be, of the Partnership (or, in the case of the Focus Reports, of
the relevant Subsidiary on an unconsolidated basis) for the periods set forth
therein (subject, in the case of unaudited statements, to normal year-end
adjustments and footnote disclosure), in each case in accordance with generally
accepted accounting principles consistently applied during the periods involved
(except as may be noted therein and except that unaudited statements may not
include notes). As of the Closing Date, the only asset of the Company will be
its general partnership interest in the Partnership, and the Company will not,
except as Previously Disclosed, engage (and will not, except as Previously
Disclosed, have engaged since the date hereof) in any business other than owning
such general partnership interest, and the Company shall have no liabilities
whether accrued, contingent, absolute, determined, determinable or otherwise,
other than those directly arising from the Company's ownership of such general
partnership interest and the Company shall not have transferred any liabilities
to the Partnership or any other Subsidiary.
(2) There are no liabilities as of the date hereof of the
Partnership or any of its Subsidiaries of any kind whatsoever that are required
to be disclosed on the balance sheet, whether accrued, contingent, absolute,
determined, determinable or otherwise, and there is no existing condition,
situation or set of circumstances known to the Company or any of its
Subsidiaries which could reasonably be expected to result in such a liability,
other than:
(A) liabilities reflected or reserved
against in the Financial Statements; and
(B) liabilities arising, in the ordinary
course of business consistent with past practice,
after the date of the most recent statement of
financial condition included in the Financial
Statements that are not and could not reasonably be
expected to be materially adverse to the Company or
its Subsidiaries.
(3) Since September 30, 1999, (A) the Company and its
Subsidiaries have conducted their respective businesses in the ordinary course
consistent with past practice and (B) there has not occurred any change,
occurrence or event, and no change, occurrence or event has
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<PAGE> 28
become reasonably likely, which has had, or is reasonably likely to have, a
Material Adverse Effect with respect to the Company.
(4) The pricing of securities and loans held in the Company's
and its Subsidiaries' trading accounts or securities portfolios and reflected in
the financial statements contained in the Focus Report for the quarter ended
June 30, 2000 is consistent with past practices.
(h) Contracts.
(1) The Company has Previously Disclosed, and
delivered true and complete copies of, each of the following
Contracts to which it or any of its Subsidiaries is a party,
by which it or any of its Subsidiaries is bound, or to which
its or any of its Subsidiaries' properties are subject (other
than trading commitments with customers or counterparties to
purchase or sell securities in the ordinary course of business
and consistent with past practice):
(A) the real property leases relating to its
(i) 220,000 square feet lease for 120 Broadway, New
York, New York and (ii) 90,000 square feet lease for
its Jersey City, New Jersey location;
(B) any joint venture, shareholder or other
similar agreement or arrangement or any options,
rights or obligations to acquire from any person any
capital stock, voting securities or equity interests
or Rights or securities convertible into or
exchangeable for capital stock, voting securities or
equity interests of such person;
(C) any Contract entered into within the
last three (3) years relating to the acquisition or
disposition of any material business or operations
(whether by merger, sale of stock, sale of assets or
otherwise);
(D) any Contract providing for existing or
future borrowing of money or payment of the deferred
purchase price of property in excess of $10,000,000
(in either case, whether incurred, assumed,
guaranteed or secured by any asset) (other than
borrowings with a maturity of less than one (1)
year);
(E) any application, license, franchise or
other Contract relating to any trademark and
trademark rights, tradename and tradename rights,
service mark and service mark rights, service name
and service name rights, copyright and copyright
rights or patent and patent rights (collectively, the
"Intellectual Property");
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<PAGE> 29
(F) any Contract providing for exclusive
dealing or that limits the freedom of the Company or
any of its Affiliates to compete in any line of
business or with any person or in any area;
(G) any Contract, other than this Agreement
and the Supplemental Agreements, between the Company
or any of its Subsidiaries and (i) an Owner or any
"associates" or members of the "immediate family" (as
such terms are respectively defined in Rule 12b-2 and
Rule 16a-1 of the Exchange Act) of an Owner, (ii) any
other Affiliate of the Company or of an Owner, (iii)
any person 5% or more of whose outstanding voting
securities are directly or indirectly owned,
controlled or held with power to vote by the Company
or any Affiliate of the Company or of an Owner or
(iv) any officer of the Company or any Affiliate of
the Company or of an Owner or any "associates" or
members of the "immediate family" (as such terms are
respectively defined in Rule 12b-2 and Rule 16a-1 of
the Exchange Act) of any such Owner; or
(H) other than the Supplemental Agreements,
any Member agreement, voting agreement, voting trust
agreement or similar Contract involving the interests
of the Company or any of its Subsidiaries.
The Company has made available its forms of
agreements relating to the clearing of futures or securities
transactions, the custody of assets or the extension of credit
(a "Clearing Agreement"). Each Clearing Agreement entered into
by the Company or any of its Subsidiaries is not modified in
any material respect from such form of Clearing Agreement that
has been made available.
Each contract required to be disclosed or made available in
respect of this Section 5.03(h) is referred to as a "Material
Contract".
(2) Each Material Contract is a valid and binding
agreement of the Company (and/or its Subsidiaries party
thereto (and/or its Affiliates in the case of clause (F)
above)) and, with respect to any such of the Company and its
Subsidiaries (and/or its Affiliates in the case of clause (F)
above), is in full force and effect, and none of the Company,
any of its Subsidiaries (and/or its Affiliates in the case of
clause (F) above) or, as of the date hereof, to the knowledge
of the Company or any of its Subsidiaries (and/or its
Affiliates in the case of clause (F) above), any other party
thereto is in default under any such Contract and there has
not occurred any event that, with the lapse of time or the
giving of notice or both, would constitute such a default (to
the knowledge of the Company or any of its Subsidiaries with
respect to any event relating to a party other than the
Company or its Subsidiaries).
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<PAGE> 30
(i) Properties; Securities.
(1) Except as reflected or reserved against in the
Financial Statements, each of the Company and its Subsidiaries
has good and marketable title to, or in the case of leased
property, has valid leasehold interests in all property and
assets purported to be owned or leased by it (whether real or
personal, tangible or intangible, and including investment
securities and other investments) reflected in the Financial
Statements or acquired after the date thereof, except for
property and assets sold or transferred since such date in the
ordinary course of business consistent with past practices.
None of such property or assets (except property or assets
sold or transferred since such date in the ordinary course of
business consistent with past practices) is subject to any
Liens (including Tax-related Liens), except:
(A) Liens incurred in the ordinary
course of business consistent with past practice;
(B) Liens securing liabilities which,
in each case, are disclosed or reserved against in
the Financial Statements;
(C) Liens for Taxes not yet due or
payable or being contested in good faith (and, in
either case, for which adequate accruals or reserves
have been established in the Financial Statements);
(D) Mechanics or materialmen liens and
similar liens arising by operation of law; or
(E) Liens which do not materially
detract from the value or materially interfere with
any current use of such property or assets.
(2) To the knowledge of the Company and its
Subsidiaries, all buildings and all fixtures, equipment, and
other property and assets used but not owned by the Company or
any of its Subsidiaries are held under valid leases or
subleases enforceable in accordance with their respective
terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other
laws affecting creditors' rights generally and by general
equity principles.
(3) Each of the Company and its Subsidiaries has a
"security entitlement" (as defined in the Uniform Commercial
Code) in all securities or investments held or purported to be
held by it (except securities sold under repurchase agreements
or held in any fiduciary or agency capacity), free and clear
of any Lien, except to the extent such securities are pledged
in the ordinary course of business consistent with past
practices to secure obligations of each of the Company or any
of its Subsidiaries. Such securities are valued on the books
of the Company and its Subsidiaries in accordance with
generally accepted accounting principles.
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<PAGE> 31
(4) All Managing Director Subordinated Notes, by
their terms, are redeemable by the Company at a price equal to
the principal amount thereof, plus accrued interest, if any,
through the date of such redemption without penalty.
(j) Litigation; Regulatory Action. Except as Previously
Disclosed, no litigation, proceeding or investigation ("Litigation")
before or by any court, arbitrator, mediator or Governmental Authority
is pending against the Company or any of its Subsidiaries, and, to the
knowledge of the Company or any of its Subsidiaries, no such Litigation
has been threatened, and there is no existing condition, situation or
set of circumstances known to the Company or any of its Subsidiaries
which could reasonably be expected to result in such litigation;
neither the Company nor any of its Subsidiaries, or any of their
properties is a party to or is subject to any order, decree, agreement,
memorandum of understanding or similar arrangement with, or a
commitment letter or similar submission to, any Self-Regulatory
Organization or any Governmental Authority (including the SEC, the CFTC
and the Federal Trade Commission) charged with the supervision or
regulation of broker-dealers, securities underwriting or trading, stock
exchanges, commodities exchanges, alternative trading systems or the
supervision or regulation of the Company or any of its Subsidiaries
(collectively, "Regulatory Orders"). There is no Litigation involving
the Company, and to the Company's knowledge there are no claims,
disputes or Litigation involving any Member or former Member, related,
in each case, to the ownership of the membership interests of the
Company.
(k) Compliance with Laws. Each of the Company and its
Subsidiaries, and their respective Owners, managers, directors,
officers and employees:
(1) in the conduct of its businesses has been and is
in compliance with all applicable federal, state, local and
foreign statutes, laws, regulations, ordinances, rules,
judgments, orders or decrees applicable thereto or to the
employees conducting such businesses, and with the applicable
rules of all Self-Regulatory Organizations including without
limitation, (w) all applicable regulatory net capital
requirements, including SEC Rule 15c3-1 and, as applicable,
the "early warning" and "expansion-contraction" capital
requirements in NYSE Rules 325 and 326, the liquid net assets
requirements of NYSE Rule 104.20 and the capital requirements
of any futures exchanges; (x) all rules and regulations
relating to the maintenance and preservation of books and
records; and (y) the provisions of the Foreign Corrupt
Practices Act of 1977, as amended, and the rules and
regulations promulgated thereunder;
(2) has and has had all permits, licenses,
authorizations, orders and approvals of, and has made all
filings, applications and registrations with, all Governmental
Authorities and Self-Regulatory Organizations that are
required in order to permit them to own and operate their
businesses as presently conducted; all such permits, licenses,
authorizations, orders, franchises and approvals are in full
force and effect and, to the Company's and its Subsidiaries'
knowledge, no suspension or cancellation of any of them is
threatened or reasonably likely; and all such filings,
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<PAGE> 32
applications and registrations are current and do not need to
be amended in any material respect;
(3) since January 1, 1997, except as disclosed on the
Partnership's or its Affiliates' most recent Form BD filed
with the SEC, the Partnership has received no written
notification or communication (or, to the Company's and its
Subsidiaries' knowledge, any other communication) from any
Governmental Authority or Self-Regulatory Organization (A)
asserting that any of them is not in compliance with any of
the statutes, rules, regulations, or ordinances which such
Governmental Authority or Self-Regulatory Organization
enforces, or has otherwise engaged in any unlawful business
practice except such assertions that were resolved to the
satisfaction of such Governmental Authority or Self-Regulatory
Organization and did not result in a material change to the
operations or practices of the Company or such Subsidiary, (B)
threatening to revoke any license, franchise, permit, seat on
any stock or commodities exchange, or governmental
authorization, (C) requiring any of them (including any of the
Company's or its Subsidiaries' Owners, managers, directors,
officers or controlling persons) to enter into a cease and
desist order, agreement, or memorandum of understanding (or
requiring the board of directors (or similar body) thereof to
adopt any resolution or policy) or (D) restricting or
disqualifying the activities of the Company or any of its
Subsidiaries (except for restrictions generally imposed by
rule, regulation or administrative policy on brokers or
dealers generally); and the Company has delivered true and
complete copies of each such written notification or
communication to Acquiror;
(4) is not the subject of any pending or aware of any
threatened investigation, review, disciplinary proceedings or
unresolved issues raised by any Governmental Authority or
Self-Regulatory Organization against or with respect to the
Company, any of its Subsidiaries or any Owner, manager,
officer, director or employee thereof;
(5) in the conduct of its business with respect to
employee benefit plans subject to Title I of ERISA or Section
4975 of the Code ("ERISA Plans"), has not (A) engaged in any
conduct which would subject it or them to liability under
Sections 405, 406, 409, 502(i) or 502(l) of ERISA or Section
4975 of the Code or (B) engaged in any conduct that could
constitute a crime or violation listed in Section 411 of ERISA
which could preclude such person from providing services to
any ERISA Plan;
(6) is not, nor is any Affiliate of any of them,
subject to a "statutory disqualification" as defined in
Section 3(a)(39) of the Exchange Act; is not subject to a
disqualification that would be a basis for censure,
limitations on the activities, functions or operations of, or
suspension or revocation of, the registration of any
broker-dealer Subsidiary as broker-dealer under Section 15, or
municipal securities dealer, government securities broker or
government securities dealer under Section 15, Section 15B or
Section 15C of the Exchange Act; is not, nor are any of their
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<PAGE> 33
"principals" (as defined in Section 8a(2) of the Commodity
Exchange Act), subject to any of the provisions of Section 8a
that would permit the CFTC, subject to the terms of such
section, to refuse to register or to suspend or revoke the
registration of any of them or their respective principals;
and, to the Company's knowledge, there is no current
investigation, whether formal or informal, or whether
preliminary or otherwise, that is reasonably likely to result
in, any such censure, limitations, suspension or revocation;
and
(7) has not acted as an underwriter of any
securities.
(l) Registrations.
(1) The Company has previously made available each
registration of the Company and any of its Affiliates as a
broker-dealer, a registered representative or a sales person
(or in a similar capacity) with the SEC, the securities or
commodities commission or similar authority of any state or
foreign jurisdiction or any Self-Regulatory Organization; each
such registration is in good standing (to the extent such
concept is applicable) and in full force and effect; and no
other such registrations are required in order to permit them
to own and operate their businesses as presently conducted.
(2) Other than as previously made available, none of
the Company or its Affiliates, nor any of their respective
Owners, directors, managers, officers and employees, is
required to be registered as an investment adviser, investment
company, commodity trading advisor, commodity pool operator,
futures commission merchant, insurance agent, or transfer
agent under any United States federal, state, local or foreign
statutes, laws, rules or regulations (including any of the
Securities Laws).
(m) Specialist Securities. On the date hereof, the
Partnership and certain of its Subsidiaries act as the Self-Regulatory
Organization specialist unit for each security Previously Disclosed.
Except as Previously Disclosed, the Company has no reason to believe
and has not been advised that it may be required to cease acting as the
Self-Regulatory Organization specialist unit for any of such
securities, nor has it agreed to act as the Self-Regulatory
Organization specialist unit for any other security, nor will it so
agree without the prior written approval of Acquiror. The Company will
use its best efforts to retain its status as the Self-Regulatory
specialist unit for each security Previously Disclosed.
(n) No Brokers. None of the Company or its Subsidiaries,
or any of their respective Affiliates, has employed any broker or
finder, or incurred any brokers or finders commissions or fees, in
connection with the transactions contemplated hereby.
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<PAGE> 34
(o) Compensation Plans; ERISA Matters.
(1) The Company has Previously Disclosed a list of
all significant employment, consulting, benefit and
compensation plans, contracts, policies or arrangements and
descriptions of any unwritten plans, policies or arrangements
covering current or former Members or employees or consultants
of the Company or any of its Subsidiaries (the "Employees")
and current or former Partners of the Partnership or as to
which the Company or any of its Subsidiaries could have,
directly or indirectly, any liability, including, but not
limited to, "employee benefit plans" within the meaning of
Section 3(3) of ERISA, and deferred compensation, stock
option, stock purchase, stock appreciation rights, stock
based, incentive and bonus plans and any applicable "change in
control" or similar provisions in any plan, contract or
arrangement (the "Compensation Plans"). True and complete
copies of all Compensation Plans, including, but not limited
to, any trust instruments and insurance contracts forming a
part of any Compensation Plans, and all amendments thereto
have been provided or made available to Acquiror. No
Compensation Plan provides for any benefit based in whole or
in part on the value of any Membership Interest or equity
interest owned by the Company or any of its Subsidiaries. For
purposes of this paragraph (1), a Compensation Plan is deemed
significant if (i) it covers fifty (50) or more individuals or
(ii) it requires annual contributions or payments by the
Company or any of its Subsidiaries or provides annual benefits
aggregating an amount equal to or in excess of $1,000,000.
(2) All employee benefit plans covering Employees
(the "Plans"), to the extent subject to ERISA, are in
substantial compliance with ERISA. Each Plan which is an
"employee pension benefit plan" within the meaning of Section
3(2) of ERISA ("Pension Plan") and which is intended to be
qualified under Section 401(a) of the Code, has received a
favorable determination letter from the Internal Revenue
Service with respect to "TRA" (as defined in Section 1 of Rev.
Proc. 93-39), and the Company is not aware of any
circumstances likely to result in revocation of any such
favorable determination letter. There is no material pending
or, to the knowledge of the Company threatened, litigation
relating to the Plans, and there is no existing condition,
situation or set of circumstances known to the Company or any
of its Subsidiaries which could reasonably be expected to
result in such litigation. Neither the Company nor any of its
Subsidiaries has engaged in a transaction with respect to any
Plan that, assuming the taxable period of such transaction
expired as of the date hereof, could subject the Company or
any Subsidiary to a tax or penalty imposed by either Section
4975 of the Code or Section 502(i) of ERISA in an amount which
would be material.
(3) No liability under Subtitle C or D of Title IV of
ERISA has been or is expected to be incurred by the Company or
any of its Subsidiaries with respect to any ongoing, frozen or
terminated "single-employer plan", within the meaning of
Section 4001(a)(15) of ERISA, currently or formerly maintained
by any of them, or the
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<PAGE> 35
single-employer plan of any entity which is considered one
employer with the Company under Section 4001 of ERISA or
Section 414 of the Code (an "ERISA Affiliate"). Neither the
Company, any of its Subsidiaries nor an ERISA Affiliate has
contributed to a Pension Plan that is a "multiemployer plan",
within the meaning of Section 3(37) of ERISA, at any time on
or after September 26, 1980 or could have liability in respect
of any such plan. No notice of a "reportable event", within
the meaning of Section 4043 of ERISA for which the 30-day
reporting requirement has not been waived, has been required
to be filed for any Pension Plan or by any ERISA Affiliate
within the 12-month period ending on the date hereof or will
be required to be filed in connection with the transactions
contemplated by this Agreement.
(4) All contributions required to be made under the
terms of any Compensation Plan have been timely made or have
been reflected on the Financial Statements. Neither any
Pension Plan nor any single-employer plan of an ERISA
Affiliate has an "accumulated funding deficiency" (whether or
not waived) within the meaning of Section 412 of the Code or
Section 302 of ERISA and no ERISA Affiliate has an outstanding
funding waiver. Neither the Company nor any of its
Subsidiaries has provided, or is required to provide, security
to any Pension Plan or to any single-employer plan of an ERISA
Affiliate pursuant to Section 401(a)(29) of the Code.
(5) Under each Pension Plan which is a
single-employer plan, as of the last day of the most recent
plan year ended prior to the date hereof, the actuarially
determined present value of all "benefit liabilities", within
the meaning of Section 4001(a)(16) of ERISA (as determined on
the basis of the actuarial assumptions contained in the Plan's
most recent actuarial valuation), did not exceed the then
current value of the assets of such Plan, and there has been
no adverse change in the financial condition of such Plan
since the last day of the most recent plan year.
(6) Neither the Company nor any of its Subsidiaries
has any obligations for retiree health, life or other benefits
under any Compensation Plan.
(7) The consummation of the transactions contemplated
by this Agreement, either alone or in conjunction with any
other event, will not (x) entitle any Employees to severance
pay, (y) accelerate the time of payment or vesting or trigger
any payment or funding (through a grantor trust or otherwise)
of compensation or benefits under, increase the amount payable
or trigger any other material obligation pursuant to, any of
the Compensation Plans or (z) result in any payments under,
any of the Compensation Plans which would constitute a
"parachute payment" to any "disqualified individual" as those
terms are defined in Section 280G of the Code; provided, that
the representations of this paragraph (7) shall not apply with
respect to any awards, payments, compensation and benefits to
be paid or made pursuant to this Agreement or other agreements
related to the transactions to be effected hereby.
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<PAGE> 36
(8) All Compensation Plans covering current or former
non-U.S. employees or otherwise maintained outside the U.S.
for U.S. employees are in substantial compliance with
applicable local law ("Foreign Plans"). The Company and its
Subsidiaries have no unfunded liabilities with respect to any
Foreign Plan that are not properly reflected on the Financial
Statements;
(9) There has been no amendment to, written
interpretation, communication or announcement by the Company
or any of its affiliates relating to, or change in employee
participation or coverage under, any Compensation Plan, which
would significantly increase the expense of maintaining such
Compensation Plan above the level of the expense incurred in
respect thereof for the most recent fiscal year; and
(p) Labor Relations. Each of the Company and its
Subsidiaries is in compliance with all currently applicable laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, including, without limitation, the
Immigration Reform and Control Act, the Worker Adjustment and
Retraining Notification Act, any such laws respecting employment
discrimination, disability rights or benefits, equal opportunity, plant
closure issues, affirmative action, workers' compensation, employee
benefits, severance payments, labor relations, employee leave issues,
wage and hour standards, occupational safety and health requirements
and unemployment insurance and related matters. None of the Company or
its Subsidiaries is engaged in any unfair labor practice (within the
meaning of the National Labor Relations Act). As of the date hereof,
there is no unfair labor practice complaint pending or, to the
knowledge of the Company, threatened against any of the Company or its
Subsidiaries before the National Labor Relations Board. Neither the
Company nor any of its Subsidiaries is a party to, or is bound by, any
collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization, nor is the
Company or any of its Subsidiaries the subject of a proceeding as of
the date hereof asserting that the Company or any such Subsidiary has
committed an unfair labor practice (within the meaning of the National
Labor Relations Act) or seeking to compel it or such Subsidiary to
bargain with any labor organization as to wages and conditions of
employment, nor is there any strike or other labor dispute involving
the Company or any of its Subsidiaries, pending or, to the best of the
Company's knowledge, threatened, nor is it aware of any activity
involving the Company's or any of its Subsidiaries' employees seeking
to certify a collective bargaining unit or engaging in any other
organization activity.
(q) Insurance. The Company and its Subsidiaries are
insured with reputable insurers against such risks and in such amounts
as is in accordance with industry practices. Copies of all insurance
policies and related documents have been made available to Acquiror.
(r) Accounting Controls. Each Subsidiary of the Company
that is registered as a broker-dealer has adopted recordkeeping systems
that comply with the requirements of Section 17 of the Exchange Act and
the rules and regulations promulgated thereunder and
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<PAGE> 37
the rules of all Self-Regulatory Organizations having jurisdiction, and
maintains its records in accordance therewith. Each of the Company and
its Subsidiaries has devised and maintained systems of internal
accounting controls sufficient to provide reasonable assurances that
(1) all transactions are executed in accordance with management's
general or specific authorization; (2) all transactions are recorded as
necessary to permit the preparation of financial statements in
conformity with generally accepted accounting principles consistently
applied with respect to broker-dealers, if applicable, or any other
criteria applicable to such statements; (3) access to the property and
assets of the Company and its Subsidiaries is permitted only in
accordance with management's general or specific authorization; and (4)
the recorded amounts for items is compared with the actual levels at
reasonable intervals and appropriate action is taken with respect to
any differences.
(s) Proprietary Rights. The Company and its Subsidiaries
exclusively own or have the perpetual and exclusive right to use
Intellectual Property material to the conduct of their business, and
all of these have been Previously Disclosed; and such ownership or
right to use such Intellectual Property is free and clear of any Liens,
and no other person has the right to use such Intellectual Property.
Except as Previously Disclosed: (A) neither the Company nor any of its
Subsidiaries is, or will be as a result of the execution and delivery
of this Agreement or the performance of its obligations under this
Agreement, in violation of any licenses, sublicenses and other
agreements as to which the Company or any such Subsidiary is a party
and pursuant to which the Company or any such Subsidiary is authorized
to use any third-party patents, trademarks, service marks, copyrights,
trade secrets, computer software or other proprietary rights
(collectively, "Third-Party Intellectual Property Rights") nor shall
such agreements be subject to termination or material modification by
reason thereof; (B) no claims with respect to (I) the Intellectual
Property or (II) Third-Party Intellectual Property Rights are currently
pending or, to the knowledge of the Company or any of its Subsidiaries,
threatened by any person; (C) neither the Company nor any of its
Subsidiaries knows of any valid grounds for any bona fide claims (I) to
the effect that the Company or its Subsidiaries is infringing, or has
infringed, any Third-Party Intellectual Property Rights; (II) against
the use of the Intellectual Property or Third-Party Intellectual
Property Rights by the Company or any of its Subsidiaries as currently
conducted; (III) challenging the ownership, validity or enforceability
of any Intellectual Property; or (IV) challenging the license or
legally enforceable right to the use of the Third-Party Intellectual
Rights by the Company or any of its Subsidiaries; and (D) to the
knowledge of the Company or any of its Subsidiaries, there is no
unauthorized use, infringement or misappropriation of any of the
Intellectual Property by any third party, including any employee or
former employee of the Company or any of its Subsidiaries.
(t) Affiliate Transactions. There is no indebtedness
between the Company or any of its Subsidiaries, on the one hand, and
any Owner, officer, manager, director or Affiliate (other than the
Company or any of its Subsidiaries) of the Company or the Partnership,
on the other, other than usual and customary advances made in the
ordinary course of business; no such Owner, officer, manager, director
or Affiliate provides or causes to be provided any assets, services
(other than services as an officer, director or employee) or
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facilities to the Company or any of its Subsidiaries; neither the
Company nor any of its Subsidiaries provides or causes to be provided
any assets, services or facilities to any such Owner, officer, manager,
director or Affiliate (other than as reasonably necessary for them to
perform their duties as officers, directors or employees); neither the
Company nor any of its Subsidiaries beneficially owns, directly or
indirectly, any investment in or issued by any such officer, manager,
director or Affiliate; and no such Owner, officer, manager, director or
Affiliate has any direct or indirect ownership interest in any person
with which the Company or any of its Subsidiaries competes or has a
business relationship other than an ownership interest that represents
less than five percent of the outstanding equity interests in a
publicly traded company.
(u) Clearing Activities. Each of the Company and its
Subsidiaries have taken reasonable steps to manage risk in its clearing
business including performing due diligence with respect to the
character and integrity of customers in the opening of its customer
accounts. Since January 1, 1997, no person or Self-Regulatory
Organization has made a written claim that the Company or any of its
Subsidiaries is responsible or liable for the trading activities of its
clearing customers which the Company reasonably believes is likely to
give rise to a liability.
(v) Disclosure. The copies of all documents furnished to
Acquiror in connection with this Agreement were accurate and complete
copies of the originals thereof, including all amendments and
supplements thereto.
(w) Anti-takeover Statutes. No "fair price,"
"moratorium," "control share acquisition" or other similar
anti-takeover statute or regulation enacted under state or federal laws
in the United States applicable to the Company or any of its
Subsidiaries is applicable to the Merger or the transactions
contemplated thereby.
(x) Derivatives. All swap, forward, future, option, or
any other similar agreement or arrangement executed or arranged by the
Company or any of its Subsidiaries, whether entered into for the
Company's account, or for the account of one or more of the Company's
Subsidiaries or their customers were, to the Company's knowledge,
entered into (i) in accordance with all applicable laws, rules,
regulations and regulatory policies and (ii) with counterparties
believed at the time to be financially responsible; and each of them
constitutes the valid and legally binding obligation of the Company or
any of its Subsidiaries, enforceable in accordance with its terms,
except as the enforceability thereof may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other
similar laws relating to the enforcement of creditors' rights generally
and by general principles of equity, and are in full force and effect.
Neither the Company nor any of its Subsidiaries nor, to the Company's
knowledge, any other party thereto, is in breach of any of its
obligations under any such agreement or arrangement.
(y) Offering Memorandum. The Company has delivered to
Acquiror a copy of the Partnership's confidential offering memorandum,
dated August 16, 2000, for the
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Partnership's 8.25% Senior Notes due 2005 (the "Offering Memorandum").
As of the date thereof, the Offering Memorandum did not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made
therein, in light of the circumstances in which they were made, not
misleading.
5.04 Representations and Warranties with Respect to the
Partnership. Subject to Section 5.02, except as Previously Disclosed in a
paragraph of its Disclosure Schedule corresponding to the relevant paragraph
below, the Company hereby represents and warrants to, and agrees with, Acquiror
as follows:
(a) Organization, Standing and Authority. The Partnership
has been duly organized and is validly existing as a limited
partnership in good standing under the laws of the State of New York.
The Partnership is duly qualified to do business and is in good
standing in the States of the United States and foreign jurisdictions
where its ownership or leasing of property or the conduct of its
business requires it to be so qualified. Each of the Partnership and
its Subsidiaries has in effect all federal, state, local, and foreign
governmental authorizations necessary for it to own or lease its
properties and assets and to carry on its business as it is now
conducted. The Partnership has delivered to the Acquiror a true and
complete copy of its Certificate of Limited Partnership and its Amended
and Restated Articles of Partnership, which are the only Constitutive
Documents of the Partnership.
(b) Partnership Interests. Subject to such changes in the
Class C limited partners of the Partnership permitted by Section
4.01(b) of which the Company shall promptly give notice to Acquiror,
Annex 2 lists all of the Partners of the Partnership and the amount of
their Partnership Interests, and the Partnership has no Partnership
Interests reserved for issuance and no obligation to admit any other
person as a general or limited partner. All of the outstanding
Partnership Interests have been duly authorized, validly issued, fully
paid and, except for the general partnership interest, non-assessable,
and were not issued in violation of any subscriptive or preemptive
rights. There are no other Partnership Interests outstanding (or claims
made against the Partnership or the Company in respect thereof) and
there are no preemptive rights or any outstanding rights of any
character relating to issued or unissued Partnership Interests
(including those relating to the issuance, sale, purchase, redemption,
conversion, exchange, redemption, voting or transfer thereof). Since
September 30, 1999, no dividend or other distribution has been declared
or paid on or in respect of the Partnership Interests or any other
interest in the Partnership.
5.05 Representations and Warranties of Acquiror. Subject
to Section 5.02, except as Previously Disclosed by Acquiror in a paragraph of
its Disclosure Schedule corresponding to the relevant paragraph below, Acquiror
hereby represents and warrants to the Company as follows:
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(a) Organization, Standing and Authority. Acquiror has
been duly incorporated and is validly existing as a corporation in good
standing under the laws of the State of Delaware. Each of Acquiror and
NewCo is or will be duly qualified to do business and is or will be in
good standing in the States of the United States and foreign
jurisdictions where its ownership or leasing of property or the conduct
of its business requires it to be so qualified. Each of Acquiror and
its Subsidiaries has in effect all federal, state, local and foreign
governmental authorizations necessary for it to own or lease its
properties and assets and to carry on its business as it is now
conducted.
(b) Authority. Each of Acquiror and NewCo has the
requisite corporate or other power and authority, and has taken all
action necessary, in order (1) to authorize the execution and delivery
of, and performance of its obligations under, this Agreement and (2) to
approve and adopt the Merger and, in accordance therewith, to
consummate the Merger and the other transactions contemplated by this
Agreement. Without limiting the foregoing, any action of the
stockholders of Acquiror and the members of NewCo required to approve
or adopt this Agreement and the transactions contemplated by this
Agreement has been duly taken in accordance with the requirements of
the Delaware General Corporation Law or the New York Limited Liability
Company Law, as the case may be. No further action of the stockholders
or board of directors of Acquiror or the members of NewCo is required
in order to consummate the Mergers and the other transactions
contemplated by this Agreement. This Agreement constitutes the valid
and binding agreement of each of Acquiror and NewCo enforceable in
accordance with its terms except, in each case, as the enforceability
hereof may be limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws relating to the
enforcement of creditor's rights generally and by general principles of
equity.
(c) No Defaults. Except as Previously Disclosed, the
execution, delivery and performance of this Agreement, and the
consummation of the transactions contemplated by this Agreement by
Acquiror and NewCo does not and will not (1) conflict with or
constitute a breach or violation of, or a default under, or cause or
allow the acceleration or creation of any right, obligation or Lien
(with or without the giving of notice, passage of time or both)
pursuant to, any law, rule or regulation or any judgment, decree, order
or governmental or non-governmental permit, license, franchise or
privilege or any Contract of Acquiror or of any of its Subsidiaries or
to which Acquiror or any of its Subsidiaries or its or their properties
is subject or bound, (2) constitute a breach or violation of, or a
default under, the Constitutive Documents of Acquiror or any of its
Subsidiaries, or (3) require any consent or approval under any such
law, rule, regulation, judgment, decree, order or governmental or
non-governmental permit, license, franchise or privilege or the consent
or approval of any other party to any such Contract.
(d) SEC Documents and Financial Statements. (1) Acquiror
has made available to the Company copies of its Annual Report on Form
10-K for the fiscal year ended November 26, 1999, and its Quarterly
Reports on Form 10-Q for the fiscal quarters ended February 25, 2000
and May 26, 2000, each in the form (including exhibits and any
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amendments thereto) filed with the SEC (collectively, including any
such reports filed subsequent to the date hereof, the "SEC Documents").
As of their respective dates, each of the SEC Documents (including the
financial statements, exhibits and schedules thereto), filed, used or
circulated prior to the date hereof complied, and any such SEC
Documents filed, used or circulated subsequent to the date hereof will
comply, as to form with the Exchange Act and did not, and will not,
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made therein, in the
light of the circumstances under which they were made, not misleading.
Each of Acquiror's consolidated statements of financial condition
included in the SEC Documents, including the related notes and
schedules thereto, fairly presents, or with respect to such statements
included in SEC Documents filed after the date hereof will fairly
present, in all material respects, the consolidated financial position
of Acquiror and its Subsidiaries as of the date of such statement of
financial condition and each of the consolidated statements of income,
cash flows and owners' equity included in the SEC Documents, including
any related notes and schedules thereto, fairly presents, or with
respect to such statements included in SEC Documents filed after the
date hereof will fairly present, in all material respects, the
consolidated results of operations, cash flows and stockholders' equity
of Acquiror and its Subsidiaries for the periods set forth therein
(subject, in the case of unaudited statements, to normal year-end audit
adjustments and footnote disclosure), in each case in accordance with
generally accepted accounting principles consistently applied during
the periods involved (except as may be noted therein and except that
unaudited statements may not include notes) (the "Acquiror Financial
Statements").
(2) There are no liabilities as of the date hereof of
Acquiror or any of its Subsidiaries of any kind whatsoever that are required to
be disclosed on its balance sheet, whether accrued, contingent, absolute,
determined, determinable or otherwise, and there is no existing condition,
situation or set of circumstances known to Acquiror or any of its Subsidiaries
which could reasonably be expected to result in such a liability, other than:
(A) liabilities reflected or reserved
against in the Acquiror Financial Statements; and
(B) liabilities arising in the ordinary
course of business consistent with past practice,
after the date of the most recent balance sheet
included in the Acquiror Financial Statements that
are not and could not reasonably be expected to have
a Material Adverse Effect with respect to Acquiror.
(3) Since November 26, 1999, there has not occurred any
change, occurrence or event, and no change, occurrence or event has become
reasonably likely, which has had, or is reasonably likely to have, a Material
Adverse Effect with respect to Acquiror.
(e) Capital Stock. The Acquiror has (1) 4,000,000,000
authorized shares of Acquiror Common Stock, of which 440,901,874 were
outstanding as of May 26, 2000, (2) 200,000,000 authorized shares of
nonvoting common stock, of which 7,440,362 were
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outstanding as of May 26, 2000 and (2) 150,000,000 authorized shares of
Preferred Stock, of which none are outstanding. All of the outstanding
shares of Acquiror Common Stock have been duly authorized and validly
issued and are fully paid and nonassessable and were not issued in
violation of any subscriptive or preemptive rights. When issued in the
Merger in accordance with the terms of this Agreement, the shares of
Acquiror Common Stock constituting Merger Consideration will be duly
authorized, validly issued, fully paid and nonassessable, shall not
have been issued in violation of any subscriptive or preemptive rights
and shall have been approved for listing on the NYSE, upon official
notice of issuance.
(f) Compliance with Laws. Except as set forth in the SEC
Documents filed prior to the date hereof, the businesses of each of
Acquiror and its Subsidiaries have not been, and are not being,
conducted in violation of any applicable laws, except as is not
reasonably likely to have a Material Adverse Effect on Acquiror. Except
as set forth in the SEC Documents filed prior to the date hereof, no
investigation or review by any Governmental Authority with respect to
Acquiror or any of its Subsidiaries is pending or, to the knowledge of
Acquiror, threatened, except as is not reasonably likely to have a
Material Adverse Effect on Acquiror. To the knowledge of Acquiror, no
material change is required in Acquiror's or any of its Subsidiaries'
processes, properties or procedures in connection with any such laws,
and Acquiror has not received any notice or communication or any
material noncompliance with any such laws that has not been cured as of
the date hereof, except as is not reasonably likely to have a Material
Adverse Effect on Acquiror.
5.06 Representations Regarding NewCo. No representation
or warranty contained in Section 5.05 with respect or relating to NewCo will be
deemed made until the date on which it executes and delivers to the Company the
Supplement to this Agreement contemplated by Section 2.04.
ARTICLE VI
COVENANTS
6.01 Reasonable Best Efforts. (a) Subject to the terms and
conditions of this Agreement, each of the Company and Acquiror agrees to use its
reasonable best efforts in good faith to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
desirable, or advisable under applicable laws, so as to permit consummation of
the transactions contemplated hereby as promptly as practicable and otherwise to
enable consummation of the transactions contemplated hereby and shall cooperate
fully with the other parties hereto to that end, including cooperating in
seeking to obtain any contractual consents required from third parties;
provided, however, that nothing in this Section 6.01 shall require, or be
construed to require, Acquiror to proffer to, or agree to, sell or hold separate
and agree to sell, before or after the Effective Time, any assets, businesses,
or interest in any assets or businesses of Acquiror, the Company or any of their
respective Affiliates (or to consent to any sale, or agreement to sell, by the
Company of any
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of its assets or businesses) or to agree to any material changes or restriction
in the operations of any such assets or businesses.
(b) The Company agrees that it shall use its best efforts
to obtain, within 20 business days of the date hereof, executed and
delivered Member Agreements from Members owning not less than 90% of
the total outstanding Company Membership Interests.
6.02 Access; Information.
(a) The Company agrees that upon reasonable prior notice
and subject to applicable laws relating to the exchange of information, and in a
manner so as to not interfere with the normal business operations of the Company
and its Subsidiaries, it shall afford Acquiror and its officers, employees,
counsel, accountants and other authorized representatives, such access during
normal business hours throughout the period from the date hereof to the Closing
to the books, records (including Tax Returns and work papers, whether prepared
by employees, consultants, or independent auditors), properties, personnel and
such other information of the Company, and its Subsidiaries as Acquiror (or any
such representative) may reasonably request and, during such period, the Company
shall furnish to Acquiror (or such other representative) (1) a copy of each
material report, schedule and other document filed by the Company or any of its
Subsidiaries pursuant to the requirements of Securities Laws, promptly after the
filing thereof, (2) monthly Focus Reports not later than the 25th day after the
end of each month, commencing with the first Focus Report filed after the date
of the Agreement, and (3) all other information concerning the business,
properties and personnel of the Company and its Subsidiaries as Acquiror (or any
such other representative) may reasonably request, reasonably promptly after
such request.
(b) No investigation by Acquiror of the business and
affairs of the Company or its Affiliates shall affect or be deemed to modify or
waive any representation, warranty, covenant or agreement in this Agreement, or
any conditions to any party's obligation to consummate the transactions
contemplated by this Agreement.
6.03 No Rights Triggered. The Company shall take all
reasonable steps necessary to ensure that the entry into this Agreement and the
consummation of the transactions contemplated by this Agreement and any other
action or combination of actions, or any other transactions contemplated by this
Agreement, do not and will not result in the grant of any Rights to any person
(a) under the Constitutive Documents of the Company or any of its Affiliates or
(b) under any agreement to which the Company or any of its Affiliates is a party
or by which they are bound or to which any of their respective properties are
subject.
6.04 Regulatory Applications.
(a) Subject to the proviso contained in Section 6.01,
each of Acquiror and the Company shall use its respective reasonable best
efforts to prepare all documentation, to effect all filings and to obtain all
permits, consents, approvals and authorizations of all third parties,
Self-Regulatory Organizations and Governmental Authorities necessary to
consummate the
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transactions contemplated by this Agreement. Each party will consult with the
other party, subject to applicable law, and rules or regulations of any
Governmental Authority, with respect to the obtaining of all material permits,
consents, approvals and authorizations of all third parties, Self-Regulatory
Organizations and Governmental Authorities necessary or reasonably advisable to
consummate the transactions contemplated by this Agreement and each will keep
the other parties apprised of the status of material matters relating to
completion of the transactions contemplated hereby.
(b) Unless precluded by applicable law, rule or
regulation of any Governmental Authority, each of Acquiror and the Company
agrees, upon request, to furnish the other party with all information concerning
itself, its Subsidiaries, Owners, directors, officers, employees and such other
matters as may be necessary or reasonably advisable in connection with any
filing, notice or application made by or on behalf of such other party to any
third party, Self-Regulatory Organization or Governmental Authority.
6.05 Regulatory Compliance.
(a) The Company will use its reasonable best efforts to
maintain all of the Company's existing material permits, licenses,
authorizations, orders and regulatory approvals and the minimum net capital
necessary to conduct its businesses as currently conducted by the Company and
comply in all material respects with all regulatory requirements applicable to
the business of the Company.
(b) The Company shall provide to Acquiror, promptly after
the filing thereof, a copy of each report filed by the Company with any
Self-Regulatory Organization.
6.06 Performance Ranking. The Company will use its best
efforts to operate the specialist business in such a manner that the Company
will maintain, at all times prior to the Closing Date, an overall tier
classification of not lower than Tier 3 in the quarterly Specialist Performance
Evaluation Questionnaire results prepared by the NYSE.
6.07 Notification of Certain Matters.
(a) Each of Acquiror and the Company shall give prompt
notice to the other of any fact, event or circumstance known to it or any of its
Subsidiaries that is reasonably likely, individually or taken together with all
other facts, events and circumstances known to it, to result in a breach of any
of its representations and warranties, after giving effect to Section 5.02, or
covenants or agreements contained herein.
(b) Prior to the Closing, the Company shall promptly
notify Acquiror, and Acquiror shall promptly notify the Company, of:
(1) any notice or other communication from any
person making any offer or proposal referred to in Section
4.01(f) or alleging that the consent of such person is or may
be required as a condition to the Closing;
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(2) any notice or other written communications
from any client (A) terminating or threatening to terminate
any Contract relating to the rendering of services to such
client by the Company or any of its Subsidiaries or (B)
relating to any dispute with such client by the Company or any
of its Subsidiaries, in each case which, individually or in
the aggregate, are or are reasonably likely to be material; or
(3) any notice or other communication from any
Governmental Authority or Self-Regulatory Organization in
connection with the transactions contemplated by this
Agreement.
(c) Promptly after the date of this Agreement, the
Company shall provide to each Member that has not, as of the date of this
Agreement, executed and delivered a Member Agreement a written notice that
satisfies the requirements of Section 407(c) of the New York Limited Liability
Company Law informing such Members that the Members that have executed and
delivered a Member Agreement (i) hold in the aggregate voting interests having a
majority in interest of the Members and (ii) have adopted and consented to the
Merger.
6.08 Public Announcements. The parties agree that they
will not, without the prior approval of the other parties, issue any press
release or written statement for general circulation relating to the
transactions contemplated by this Agreement, except as otherwise required by
applicable law or regulation or the rules of any applicable Self-Regulatory
Organization and, if so required, such party will endeavor to give the other
party a reasonable opportunity to review and comment on the statement prior to
its release.
6.09 Fee Agreements. The Company shall provide to
Acquiror, promptly after executing the same, a copy of any written fee agreement
or any material contract, agreement or other instrument relating specifically to
the operation of the specialist business into which the Company enters after the
date hereof.
6.10 Private Placement. The parties understand and agree
that the sale of shares of Acquiror Common Stock to the Members in the Merger
and to Withdrawn Members or holders of Managing Director Subordinated Notes
pursuant to Article III is intended to be a "private placement" exempt from
registration under the Securities Act by virtue of Regulation D thereof. Each
party represents and warrants to the others that, as of the Closing Date,
assuming the truth of the representations and warranties made herein and in the
Supplemental Agreements by each of the parties thereto, such party has taken no
action without the prior written consent of the other parties that would cause
(i) the sale of Acquiror Common Stock in the Merger or (ii) the sale of Acquiror
Subordinated Notes pursuant to Section 3.03 to become subject to the
registration requirements of the Securities Act.
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6.11 Employee Benefits. Acquiror agrees that during the
period commencing at the Effective Time and ending on the first anniversary
thereof, the employees of the Company and its Subsidiaries will continue to be
provided with benefits under employee benefit plans (other than stock options or
other plans involving the issuance of securities of the Company or Acquiror)
which in the aggregate are substantially comparable to those currently provided
by the Company to such employees or that are comparable to those provided to
similarly situated employees of Acquiror or its Subsidiaries; provided, however,
that employees covered by collective bargaining agreements need not be provided
with such benefits. Acquiror will cause each employee benefit plan of Acquiror
or any of its Subsidiaries in which employees of the Company or any of its
Subsidiaries are eligible to participate to take into account for purposes of
eligibility and vesting thereunder the service of such employees with the
Company or any of its Subsidiaries as if such service were with Acquiror or any
of its Subsidiaries, to the same extent that such past service was credited
under a comparable plan of the Company or any of its Subsidiaries or is provided
generally to employees of Acquiror (and similar treatment shall apply to past
employee compensation). Within twenty days of the date hereof, the Company shall
furnish a list to Acquiror of all Compensation Plans that are not significant
Compensation Plans that were not Previously Disclosed pursuant to Section
5.03(o)(1).
6.12 Indemnification of Members and Employees. For the
six-year period immediately following the Effective Time, Acquiror agrees that
it will indemnify and hold harmless each Member (in its capacity as an officer
or a Managing Director acting in an executive capacity of the Company, SLK
Management Inc. or the Partnership) against any Losses incurred in connection
with any third party claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of matters
existing or occurring at or prior to the Effective Time, whether asserted or
claimed prior to, at or after the Effective Time, to the fullest extent that the
Company would have been permitted under the New York Limited Liability Company
Law to indemnify such person but only if such Member acted in good faith, for a
purpose which such Member reasonably believed to be in the best interests of the
Company, SLK Management Inc. or the Partnership, as applicable, and, in criminal
actions or proceedings, had no reasonable cause to believe that his conduct was
unlawful; provided, further, that Acquiror shall have the right to assume and
control the defense of such claim and any litigation resulting therefrom) it
being understood that such Member shall have the right to participate in such
defense and that Acquiror shall not consent to entry of any judgment or entry
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to the Member of a release from all
liability in respect to such claim or litigation.
ARTICLE VII
TAX MATTERS
7.01 Tax Representations. Except as Previously Disclosed
in a paragraph of its Disclosure Schedule corresponding to the relevant
paragraph below, the Company, the Partnership and each of their Subsidiaries
hereby represent and warrant to Acquiror as follows:
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(a) All Tax Returns required to be filed or furnished to
any person (including its owners) on or before the Closing Date (taking into
account applicable extensions) by or with respect to the Company, the
Partnership and each of their Subsidiaries or any of their income, properties or
operations have been, or will be, duly and timely filed or furnished, the
information reflected on those Tax Returns was, or when filed or furnished will
be, accurate and complete, and the Company, the Partnership and each of their
Subsidiaries have, or will have, timely paid all Taxes other than Taxes
resulting from transactions or actions occurring on the Closing Date, but after
the Closing, or after the Closing Date for which they are responsible that are
due on or before the Closing Date or have provided for such Taxes in a reserve
which is adequate for the payment of such Taxes and is identified in the
Financial Statements, and through the Closing Date will have maintained adequate
provisions on their books for all Taxes other than Taxes resulting from
transactions or actions occurring on the Closing Date, but after the Closing, or
after the Closing Date payable by them that have accrued but are not yet due;
(b) There are no outstanding assessments, claims or
deficiencies for any Taxes of the Company, the Partnership or any of their
Subsidiaries that have been proposed, asserted or assessed in writing;
(c) No Tax audit or examination is currently being
conducted or proposed in writing by any taxing authority with respect to the
Company, the Partnership or any of their Subsidiaries;
(d) There are no outstanding waivers or agreements
extending the applicable statute of limitations for any period with respect to
any Taxes of the Company, the Partnership or any of their Subsidiaries;
(e) None of the Company, the Partnership or any of their
Subsidiaries will be required, as a result of (A) a change in accounting method
for a Tax period beginning on or before the Closing, to include any adjustment
under Section 481(c) of the Code (or any similar provision of state, local or
foreign law) in taxable income for any Tax period beginning on or after the
Closing Date, or (B) any "closing agreement" as described in Section 7121 of the
Code (or any similar provision of state, local or foreign law), to include any
item of income in or exclude any item of deduction from any Tax period beginning
on or after the Closing Date;
(f) There is no outstanding written claim by a taxing
authority that the Company, the Partnership or any of their Subsidiaries may be
subject to taxation or required to file a Tax Return in a jurisdiction where it
does not file Tax Returns and none of the Company, the Partnership or any of
their Subsidiaries is aware of any jurisdiction that could properly make such a
claim;
(g) There are no Tax allocation or sharing agreements to
which the Company, the Partnership or any of their Subsidiaries is a party;
(h) None of the Company's Subsidiaries is or has been a
member of an affiliated group (within the meaning of Section 1504 of the Code or
similar provisions of state, local or foreign
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law) with respect to which it is liable for Taxes of another person under
Treasury Regulations Section 1.1502-6 or any similar provision under state,
local or foreign law;
(i) Each of the Company's Subsidiaries that is required
to be is registered for the purposes of sales tax, transfer taxes, value added
taxes or any similar Tax has been so registered at all times that it has been
required to be so registered, and it has complied in all material respects with
all statutory requirements, orders, provisions, directions or conditions
relating to such Taxes;
(j) There are no Material Liens or encumbrances for Taxes
on any of the assets of the Company, the Partnership or any of their
Subsidiaries;
(k) Each of the Company, the Partnership and each of
their Subsidiaries has paid all Taxes owed or which it is required to withhold
from amounts owing to employees, creditors or other third parties and has
complied with all requirements (including record retention) applicable to
information reporting or other reporting requirements;
(l) None of the Company, the Partnership or any of their
Subsidiaries or any predecessor to the Company, the Partnership or their
Subsidiaries has made any consent under Section 341 of the Code;
(m) No Tax is required to be withheld pursuant to Section
1445 of the Code as a result of the Merger or the acquisition of any Partnership
Interest by Acquiror;
(n) For U.S. federal income tax purposes, each of the
Company, the Partnership and each of their Subsidiaries is, and through the
Closing Date will be, treated as a partnership or disregarded entity, and none
of the Company, the Partnership, any of their Subsidiaries or, to the best
knowledge of the Company, any Owner or other owner of any interest in the
Company or any of its Subsidiaries has, or through the Closing Date will have,
made any election, taken any action or filed any Tax Return on a basis that is
inconsistent with the foregoing; and
(o) All Tax Returns (including attachments thereto) of
the Company, the Partnership and each of their Subsidiaries and all closing
agreements, private letter rulings, technical advice memoranda or similar
agreements or rulings (if any) entered into with or issued by any taxing
authority, by or with respect to the Company, the Partnership or any of their
Subsidiaries that were delivered by the Company pursuant to Acquiror's due
diligence request are true copies of such documents.
7.02 Covenants.
(a) Elections. Until the Effective Time, except as
Previously Disclosed or as expressly contemplated by this Agreement or any
Supplemental Agreement, the Company will not, and the Company will cause any of
its Subsidiaries and the Partnership not to, make any Tax elections, amend any
Tax elections currently in effect, change or consent to any change in any method
of accounting for any Tax purpose or file any Tax Return (including any amended
return) on
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a basis that is not consistent with past practice, in each case without the
prior written consent of the Acquiror, which consent shall not be unreasonably
withheld, provided, however, that such consent shall not be considered
unreasonably withheld if the election, amendment or change, as the case may be,
would adversely affect the Acquiror.
(b) Tax Returns. Any Tax Returns with respect to the
operations of the Company, the Partnership and their Subsidiaries for all
periods ending on or before the Closing Date (the "Pre-Closing Period"),
including for those jurisdictions and tax authorities that permit or require a
short period Tax Return, shall be or caused to be prepared and filed on a timely
basis after the Closing by the Acquiror. Whenever it is necessary to determine
the liability for Taxes of the Company, the Partnership or any of their
Subsidiaries for a portion of a taxable year or period that begins before and
ends after the Closing Date, the determination of the Taxes of the Company, the
Partnership or any of their Subsidiaries for the portion of the taxable year or
period ending on, and the portion of the year or period beginning after, the
Closing Date shall be determined and shall equal: (i) in the case of any real or
personal property Tax or any other Tax imposed on a periodic basis, an amount
equal to the Tax for the entire taxable period beginning before and ending after
the Closing Date, multiplied by a fraction the numerator of which is the number
of days in such portion of the period ending on the Closing Date and the
denominator of which is the number of days in such entire taxable period; and
(ii) in the case of any other Tax, the amount that would be payable by the
Company, the Partnership or any of their Subsidiaries if its taxable year that
began prior to the Closing Date ended on the Closing Date. Any Taxes due in
respect of Tax Returns filed pursuant to the first sentence of this paragraph
and any Taxes allocable to Pre-Closing Periods under the immediately preceding
sentence (including any interest or penalties assessed with respect to such
Taxes) shall be considered "Pre-Closing Taxes". At least 10 business days prior
to the filing of any such Tax Return that includes Pre-Closing Taxes, Acquiror
shall make available to the SLK Representative copies of such proposed Tax
Return, and the filing of such Tax Return shall be subject to the approval of
the SLK Representative, which approval shall not be unreasonably withheld;
provided, that, in the event the SLK Representative does not provide such
approval or disapproval to Acquiror within 5 business days after receipt of such
proposed Tax Return copies, the SLK Representative shall be deemed to have
provided an irrevocable approval with respect to such Tax Return.
(c) Cooperation. The currently designated Tax Matters
Partner (as defined in Section 6231(a)(7) of the Code) of the Company, the
Partnership and each of their Subsidiaries that is treated as a partnership for
U.S. federal income tax purposes, shall continue as Tax Matters Partner. If such
Tax Matters Partner shall desire to resign such position (or is to be liquidated
or otherwise becomes ineligible) or the Acquiror shall request the Tax Matters
Partner's resignation, the current Tax Matters Partner shall, subject to the
Acquiror's consent which shall not be unreasonably withheld, designate his or
her replacement (and in the case of a liquidation of the Tax Matters Partner,
such designation shall occur prior to liquidation) (and complete and execute any
forms as may be required to evidence or effect such designation) . The Acquiror
and the Surviving LLC shall cooperate with the Tax Matters Partner in any Tax
audit, examination or other proceeding involving the Company, the Partnership or
any of their Subsidiaries that is treated as a partnership for U.S. federal
income tax purposes for any taxable period that relates to periods prior to the
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Closing. The Tax Matters Partner shall not enter into any compromise or agree to
settle any claim pursuant to any Tax audit, examination or other proceeding
which would adversely affect the Acquiror for any taxable year without the
written consent of the Acquiror, which consent may not be unreasonably withheld.
(d) Section 754 Election. To the extent permitted by law
and contract, the Company, the Partnership and each of their respective
Subsidiaries that is treated as a partnership for U.S. federal income tax
purposes, shall make an election, or continue in effect any election previously
made, under Section 754 of the Code and any comparable provision of any other
tax law for the taxable year in which the Closing occurs, provided, that the
Company and the Partnership shall be required to exercise any right (or, to the
extent the Company or the Partnership can do so, the Company and the Partnership
shall cause any of their Subsidiaries to exercise any right) they have to amend
any contract to permit such election to be made.
(e) Transfer Taxes. Fifty percent (50%) of all transfer,
documentary, sales, use, stamp, registration, value added and other such Taxes
and fees (including any penalties and interest) incurred in connection with the
transactions contemplated by the Merger (including any real property transfer
tax and any similar Tax) shall be paid by each of Acquiror on the one hand, and
the Members, on the other. Each party will, at its own expense, file all
necessary Tax Returns and other documentation with respect to all such Taxes and
fees, and to the extent required by applicable law, each party will join, and
cause its Subsidiaries and Affiliates to join, in the execution of any such Tax
Returns and other documentation.
(f) Allocation of Purchase Price. Acquiror shall
determine the allocation of any adjustments to the basis of the assets of the
Company, the Partnership and each of their respective Subsidiaries resulting
from the Merger; provided, that any such allocation to assets covered under
Section 751 of the Code, if any, shall be subject to approval of the Company,
or, if after the Effective Time, the SLK Representative, which consent shall not
be unreasonably withheld.
7.03 Termination of Tax Sharing Agreements. Any Tax
allocation or sharing agreement or arrangement, whether or not written, that may
have been entered into by any of the Company's Subsidiaries or any member of its
affiliated groups (as defined in Section 1504(a) of the Code) shall be
terminated as of the Closing Date unless a continuation of such agreement is
required by law or contract, or consented to by the Acquiror. After the Closing
Date, none of the Surviving LLC or any of its Subsidiaries shall have any
further rights or liabilities thereunder.
7.04 Seller Tax Indemnification.
(a) Each Acquiror Party shall, pursuant to this Section
7.04(a) and the Supplemental Agreements, be entitled to indemnification from the
Members, severally and not jointly (in proportion to their respective
Consideration Percentages), against, and shall be held harmless (subject to the
limitations set forth herein) by the Members, severally and not jointly (in
proportion to their respective Consideration Percentages), from:
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(i) Pre-Closing Taxes in excess of Taxes for which
reserves have been established prior to the date hereof or
will be established prior to the Closing Date, consistent with
past practice;
(ii) Pre-Closing Taxes imposed on any Acquiror Party as
members of an "affiliated group" (within the meaning of
Section 1504(a) of the Code or any comparable provision of
foreign, state or local law) that arises under Treasury
Regulations Section 1.1502-6(a) or any comparable provision of
foreign, state or local law; and
(iii) a breach of the representations set forth in Section
7.01;
provided, however, that the Members shall not be liable for and shall not
indemnify any Acquiror Party for any Taxes resulting from transactions or
actions taken on the Closing Date (but after the Closing) or after the Closing
Date; provided, further, that notwithstanding the foregoing, no Acquiror Party
shall be entitled to payment of indemnification pursuant to this Section 7.04
(a) with respect to any individual Loss unless the aggregate of all such Losses
(after reduction for any tax benefits realized as a result of the payment or
accrual of such Losses) shall exceed $5 million (and then only for the amount of
such excess).
(b) The amount of any indemnification payment payable in
accordance with this Section 7.04 and Article IX shall be reduced by the amount
of any reduction in Taxes actually realized (or to be realized in such year) as
a result of the event giving rise to the indemnification payment. The
Indemnified Party shall pay the Indemnifying Party the amount of any reduction
in Taxes actually realized in a future year as a result of the event giving rise
to such indemnification payment within ten (10) business days of receiving such
payment with respect to such reduction to the extent such payment with respect
to such reduction is received after the Indemnified Party receives such
indemnification payment, provided, that, the amount paid shall not exceed the
payments previously made by such Members under this Section 7.04 or Article IX,
as the case may be. Each Member shall be severally and not jointly liable for
such indemnification obligations in proportion to their respective Consideration
Percentages. Unless settled in a reasonable period of time in cash by a Member
or by delivery of Acquiror Common Stock (valued at market price at the time of
delivery), all amounts payable for indemnification of Acquiror by any Member
pursuant to this Section 7.04 may, in Acquiror's sole discretion, be offset
against shares of Acquiror Common Stock owned by such Member or against other
amounts payable by Acquiror or any Affiliates of Acquiror to such Member. It is
understood that an Member's Acquiror Common Stock may be used to satisfy amounts
payable for indemnification even if such shares are not then transferable under
the transfer restrictions in the Member's Member Agreement.
(c) Contests.
(i) The Acquiror shall notify the SLK Representative if
the Internal Revenue Service (or other taxing authority) shall
propose an adjustment, which, if upheld, would result in the
Members making a payment under Section 7.04(a). If the SLK
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Representative shall request, the Acquiror shall (x) consult
with the SLK Representative regarding the contest of such
proposed adjustment, (y) use good faith efforts to permit the
SLK Representative to attend scheduled meetings with the
Internal Revenue Service (or other taxing authority) regarding
such contest and (z) if feasible, provide the SLK
Representative with copies of written materials prior to
submission. Notwithstanding the foregoing, the Acquiror shall
have absolute and complete control of any contest provided,
that the Acquiror shall not settle any contest without the
consent of the SLK Representative, which consent shall not be
unreasonably withheld.
(ii) The SLK Representative shall control any contest
involving proposed adjustments to Tax returns filed by the
Company, the Partnership or any of their respective
Subsidiaries for which the liability for additional Taxes, if
the adjustments were to be upheld, would be borne directly by
the Members. The SLK Representative shall consult in good
faith with the Acquiror during the course of such contest,
provided, that without the consent of the Acquiror, which
consent shall not be unreasonably withheld, the SLK
Representative shall not consent to any adjustment that would
adversely affect Acquiror after the Closing.
(iii) To the extent consistent with the foregoing, the
Company and the SLK Representative shall cooperate with each
other in pursuing any contest under this section.
7.05 Exclusivity. The indemnification and other provisions
of this Article VII shall be the sole provisions governing tax indemnification
matters.
7.06 Survival of Obligations. The obligations of the
parties set forth in this Article VII shall remain in effect until 60 days after
the expiration of the applicable statute of limitations.
7.07 Agreed Tax Treatment. Any Payment made to an Acquiror
Party pursuant to Section 7.04 and any Payment pursuant to Article IX shall
constitute an adjustment of the Merger Consideration for tax purposes, and shall
be treated as such by the Acquiror Parties, the Company and any Member on their
respective Tax Returns to the extent permitted by law. The parties intend that
the Merger Consideration shall, for U.S. federal income tax purposes, be treated
as a payment for the Members' Company Membership Interest.
ARTICLE VIII
CONDITIONS TO CONSUMMATION OF THE MERGER
8.01 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each of Acquiror, NewCo and the Company to
consummate the Merger is subject to the
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fulfillment or written waiver by the other parties prior to the Closing of each
of the following conditions:
(a) Governmental and Regulatory Consents. The waiting
period applicable to the consummation of the Merger under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall
have expired or been terminated. All approvals and authorizations of,
filings and registrations with, and notifications to, all Governmental
Authorities and Self-Regulatory Organizations required for the
consummation of the Merger and the other transactions contemplated by
this Agreement and for the prevention of any termination of any
material right, privilege, license or franchise of either (1) Acquiror
or its Subsidiaries or (2) the Company or its Subsidiaries (and, in
each case, granted by any Governmental Authority or Self-Regulatory
Organization) shall have been obtained or made and shall be in full
force and effect and all waiting periods required by law or by rule or
regulation of any Governmental Authority shall have expired.
Notwithstanding the foregoing, none of the preceding in the previous
two sentences shall be deemed obtained or made if it shall be subject
to any condition or restriction the effect of which is that such
condition or restriction could reasonably be expected to have a
Material Adverse Effect on the Company or Acquiror.
(b) No Injunction. No Governmental Authority of competent
jurisdiction shall have, after the date of this Agreement, enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
judgment, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and prohibits or
materially restricts or materially adversely affects the consummation
of the transactions contemplated by this Agreement (an "Order").
8.02 Conditions to Obligations of the Company. The
obligations of the Company to consummate the Merger are also subject to the
fulfillment or written waiver by the Company prior to the Closing of each of
the following conditions:
(a) Representations and Warranties. The representations
and warranties of Acquiror set forth in this Agreement shall be true
and correct (after giving effect to Section 5.02) as of the date of
this Agreement and as of the Closing Date as though made on and as of
the Closing Date, except that representations and warranties that by
their terms speak only as of the date of this Agreement or some other
date need be true and correct only as of such date; and the Company
shall have received a certificate, dated the Closing Date, signed on
behalf of Acquiror by a senior executive officer to such effect.
(b) Performance of Obligations of Acquiror. Acquiror and
NewCo shall have performed and complied with in all material respects
all agreements, covenants and obligations required to be performed by
them under this Agreement at or prior to the Closing Date, and the
Company shall have received a certificate, dated the Closing Date,
signed on behalf of Acquiror by a senior executive officer to such
effect.
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8.03 Conditions to Obligations of Acquiror and NewCo.
The obligations of each of Acquiror and NewCo to consummate the Merger are also
subject to the fulfillment or written waiver by Acquiror prior to the Closing of
each of the following conditions:
(a) Representations and Warranties. The representations
and warranties of the Company set forth in this Agreement (after giving
effect to Section 5.02 in the case of the representations and
warranties of the Company) and of the Members in the Member Agreements
(other than violations of the representations and warranties of the
Members that will not adversely affect Acquiror's ownership of, or
rights with respect to, any Partnership Interest or Membership
Interest) shall be true and correct as of the date of this Agreement
and as of the Closing Date as though made on and as of the Closing
Date, except that representations and warranties that by their terms
speak only as of the date of this Agreement or some other date need be
true and correct only as of such date; and Acquiror shall have received
a certificate, dated the Closing Date, signed on behalf of the Company
by a senior executive officer of the Company to such effect.
(b) Performance of Obligations of the Company. The
Company shall have performed and complied in all material respects with
all agreements, covenants and obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and Acquiror
shall have received a certificate, dated the Closing Date, signed on
behalf of the Company by a senior executive officer of the Company to
such effect.
(c) Third Party Consents. All consents or approvals of
all persons, other than Governmental Authorities and those Previously
Disclosed in Items 1 through 4 in Section 5.03(e) of the Disclosure
Schedule, (i) required for or in connection with the execution,
delivery and performance of this Agreement and the consummation of the
Merger and the other transactions contemplated by this Agreement shall
have been obtained and shall be in full force and effect, unless the
failure to obtain any such consent or approval is not reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on
Acquiror or the Surviving LLC and (ii) required so that Acquiror or any
of its Affiliates are not restricted from engaging in any material
business or activity in, or relating to, the financial services
industry.
(d) Member Agreement. A Member Agreement and Supplemental
Member Agreement for each person who is a Member as of the date hereof
or is a Member as of the Closing Date shall have been executed and
delivered.
(e) Acquiror Shareholders Agreement. Each Member of the
Company shall have executed and delivered to the Acquiror a counterpart
of the Acquiror Shareholders Agreement.
(f) Agreements with Exchanges. Acquiror shall have
established procedures that shall have been approved by the NYSE
pursuant to NYSE Rule 98, and procedures that shall have been approved
by the American Stock Exchange pursuant to its Rule 193 (as well as
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procedures approved by the Philadelphia Stock Exchange, the Chicago
Board Options Exchange and the Pacific Stock Exchange pursuant to
analogous rules), each in a form, and with terms and conditions,
reasonably satisfactory to Acquiror.
(g) SLK Investing Co. Concurrently with the Closing,
Acquiror shall have acquired, either directly or indirectly, all
interests with respect to, and be the sole record and beneficial owner
of, the outstanding Class A limited partnership interests of the
Partnership for an amount not to exceed $25,000,000.
(h) Pledge Agreement. Each Member of the Company shall
have executed and delivered to the Acquiror a counterpart of the Pledge
Agreement (as defined in the Member Agreement).
(i) Company Condition. As of the Effective Time, the
Company shall have no assets, liabilities (whether accrued, contingent,
absolute, determined, determinable or otherwise) or other obligations
other than its Partnership Interest and shall not have transferred to
the Partnership or any other Subsidiary any liability (other than
actions Previously Disclosed on Section 5.03(g) of the Disclosure
Schedule).
(j) Manager. At the Effective Time, SLK Management Inc.
shall have resigned as manager of the Company in accordance with
Section 415 of the New York Limited Liability Company Law.
ARTICLE IX
INDEMNIFICATION
9.01 Indemnification.
(a) After the Effective Time, each Acquiror Party shall,
pursuant to this Section 9.01(a) and the Supplemental Agreements, be entitled to
indemnification from the Members against, and shall be held harmless (subject to
the limitations set forth herein) by the Members from, any and all damage, loss,
liability and expense (including without limitation reasonable expenses of
investigation and attorneys' fees and expenses in connection with any action,
suit or proceeding) ("Losses") incurred or suffered by such person arising out
of, related to, or in connection with (i) any breaches of the Company's
representations and warranties (other than breaches of those representations and
warranties set forth in Article VII for which indemnification is provided in
Section 7.04 and other than for which indemnification is provided in Section
9.01(b)) set forth in this Agreement (determined without regard to Section
5.02), (ii) the failure by the Company to perform in any material respect any of
its covenants or agreements contained in this Agreement, (iii) any claim of any
current or former Partner or Partners (other than a current or former holder of
a Class C limited partnership interest) or other person alleging rights
equivalent to those of a Partner against Acquiror (excluding any unrelated
business or other transaction), the Company (or the Surviving LLC as successor
to the Company) or any of its Affiliates for any event, occurrence, act or
omission
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occurring at or prior to the Effective Time, (iv) any claim of any current or
former Member or Members (or other person alleging rights equivalent to those of
a Member) against Acquiror (excluding any unrelated business or other
transaction), the Company (or the Surviving LLC as successor to the Company) or
any of its Affiliates for any event, occurrence, act or omission occurring at or
prior to the Effective Time (other than any claim of a current Member
contemplated by clause (v)) and (v) any claim of a current Member or Members in
respect of any issue with the Company or another Member arising out of Article
III hereof; provided, however, that notwithstanding the foregoing each Member
shall be severally and not jointly liable for such indemnification obligations
in proportion to their respective Consideration Percentages; and provided,
further, that notice of any claim under this Section 9.01(a) in respect of or
relating to a breach of the representations and warranties or the Company shall
have been received by the Members on or prior to the date until which the
relevant representation or warranty shall survive pursuant to Section 9.03; and
provided, further, that notwithstanding the foregoing, no Acquiror Party shall
be entitled to payment of indemnification pursuant to this Section 9.01(a)(i),
(iii) or (iv) with respect to any individual item of Loss, (A) unless, with
respect to this Section 9.01(a)(i), such item exceeds $1,000,000 (after
reduction for any tax benefits realized by any Acquiror Party as a result of
such Loss) and, with respect to this Section 9.01(a)(iii) and (iv), such item
exceeds $100,000 (after reduction for any tax benefits realized by any Acquiror
Party as a result of such Loss) and (B) unless, with respect to this Section
9.01(a)(i), the aggregate of all such Losses of all Acquiror Parties shall
exceed $10 million (after reduction for any tax benefits realized by any
Acquiror Party as a result of such Loss and then only for the amount of such
excess) (it being understood that this proviso shall not apply to any Loss
arising out of, related to or in connection with, any breach of the last
sentence of Section 5.03(g)(1)); and provided, further, that no Acquiror Party
shall be entitled to payment of indemnification pursuant to the provisions of
this Section 9.01(a)(i), (iii) or (iv) to the extent that the amount of all
Losses against which the Acquiror Parties shall have been previously indemnified
under such provisions of this Section 9.01(a)(i), (iii) or (iv) exceeds $300
million in the aggregate (it being understood that this proviso shall not apply
to any Loss arising out of, related to or in connection with, any breach of the
last sentence of Section 5.03(g)(1)). Unless settled in a reasonable period of
time in cash by a Member or by delivery of Acquiror Common Stock (valued at
market price at the time of delivery), all amounts payable for indemnification
of Acquiror by any Member pursuant to this Section 9.01(a) may, in Acquiror's
sole discretion, be offset against shares of Acquiror Common Stock owned by such
Member or against other amounts payable by Acquiror or any Affiliates of
Acquiror to such Member and held pursuant to the terms of the Custody Agreement.
It is understood that a Member's Acquiror Common Stock may be used to satisfy
amounts payable for indemnification even if such shares are not then
transferable under the transfer restrictions in the Member's Member Agreement.
(b) After the Effective Time, each Acquiror Party shall,
pursuant to this Section 9.01(b) and the Supplemental Agreements, be entitled to
indemnification from the Members against, and shall be held harmless by the
Members from, any and all Losses incurred or suffered by such person arising out
of, related to or in connection with the pending or threatened Litigation
involving the Company or any of its Affiliates as of the date hereof and
Previously Disclosed; provided, however, that (i) the first proviso contained in
Section 9.01(a) and the last two sentences contained in Section 9.01(a) shall
apply mutatis mutandis to the indemnification provided in this Section 9.01(b),
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(ii) no Acquiror Party shall be entitled to payment of indemnification pursuant
to this Section 9.01(b) unless the aggregate of all such Losses of all Acquiror
Parties (after reduction for any benefits realized by any Acquiror Party as a
result of such Loss) shall exceed $4 million (and then only for the amount of
such excess) and (iii) no Acquiror Party shall be entitled to payment of
indemnification pursuant to the provisions of this Section 9.01(b) to the extent
that the amount of all Losses against which the Acquiror Parties shall have been
previously indemnified under this Section 9.01(b) exceed $29 million in the
aggregate.
(c) After the Effective Time, the Members shall, pursuant
to this Section 9.01(c), be entitled to indemnification from Acquiror against,
and shall be held harmless (subject to the limitations set forth herein) by
Acquiror from, any and all Losses incurred or suffered by them arising out of,
related to, or in connection with, any breaches of, (i) Acquiror's
representations and warranties set forth in this Agreement (determined without
regard to Section 5.02); or (ii) the failure by Acquiror to perform in any
material respect any of its covenants or agreements contained in this Agreement;
provided, that notice of any claim under this Section 9.01(c)(i) shall have been
received by Acquiror on or prior to the date until which the relevant
representation or warranty shall survive pursuant to Section 9.03; and provided,
further, that notwithstanding the foregoing, no Member shall be entitled to
payment of indemnification pursuant to this Section 9.01(c)(i) with respect to
any individual item of Loss, (A) unless, with respect to this Section
9.01(c)(i), such item exceeds $1,000,000 (after reduction for any tax benefits
realized by any Member as a result of such Loss) and (B) unless the aggregate of
all such Losses of all such parties with respect to this Section 9.01(c)(i)
shall exceed $10 million (after reduction for any tax benefits realized by any
Member as a result of such Loss and then only for the amount of such excess);
and provided, further, that notwithstanding the foregoing, no Member will be
entitled to payment of indemnification pursuant to this Section 9.01(c)(i) to
the extent that the amount of all Losses for which Acquiror has previously
provided indemnification under Section 9.01(c)(i) exceeds $300 million in the
aggregate.
(d) For the purposes of this Section 9.01, in computing
such individual or aggregate amounts of claims, the amount of each claim shall
be deemed to be an amount net of any insurance proceeds and any indemnity,
contribution or other similar payment recoverable by the indemnified party from
any third party with respect thereto.
9.02 Notice and Defense of Claims.
(a) Each party entitled to indemnification under this
Article IX (the "Indemnified Party") shall give notice to the party or parties
required to provide indemnification (the "Indemnifying Party") promptly, but not
later than 45 days, after such Indemnified Party receives written notice of any
claim, event or matter as to which indemnity may be sought; provided, that the
failure of the Indemnified Party to give notice as provided in this Section 9.02
shall not relieve any Indemnifying Party of its obligations under Section 9.01
or Section 7.04, except to the extent that such failure actually and materially
prejudices the rights of any such Indemnifying Party and then only to the extent
of such prejudice. In the event of any claim, action, suit, proceeding or demand
asserted by any person who is not a party (or a successor to a party) to this
Agreement (a "Third-Party Claim") which is or gives rise to an indemnification
claim, the Indemnifying Party
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may elect to assume and control the defense of any such claim and any litigation
resulting therefrom, provided, that counsel for the Indemnifying Party, who
shall conduct the defense of such claim or any litigation resulting therefrom,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld or delayed), and the Indemnified Party may participate
in such defense at the Indemnified Party's expense, which shall include counsel
of its choice, provided, further, that the Indemnified Party shall have the
right to employ, at the Indemnifying Party's expense, one counsel of its choice
in each applicable jurisdiction (if more than one jurisdiction is involved) to
represent the Indemnified Party if, in the Indemnified Party's reasonable
judgment, there exists an actual or potential conflict of interest between the
Indemnified Party and the Indemnifying Party or if the Indemnifying Party elects
not to defend, compromise or settle a Third-Party Claim, provided, further, that
if the Indemnifying Party elects to assume and control the defense but fails to
retain counsel to prosecute the action within thirty days of such election, then
the Indemnified Party shall have the right to defend such Third-Party Claim on
behalf of and for the account and risk of the Indemnifying Party. The
Indemnifying Party, in the defense of any such claim or litigation, shall not,
except with the prior written consent of the Indemnified Party, consent to entry
of any judgment or entry into any settlement (i) which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to the
Indemnified Party of a release from all liability in respect to such claim or
litigation or (ii) which could reasonably be expected to restrict materially the
conduct of business of Acquiror or any of its Subsidiaries. In the event the
Indemnifying Party is prepared to settle an action and the Indemnified Party
reasonably believes that such settlement could have such an impact on it then
the Indemnified Party may choose to continue to defend such action in which case
the Indemnified Party shall be responsible for the incremental costs of
continuing such matter (including, the additional legal costs and additional
costs or losses with respect to such matter) in excess of the amount offered to
be settled by the Indemnifying Party (and the legal costs incurred to date)
which costs shall be borne by the Indemnifying Party. The Indemnified Party
shall not settle or compromise any such claim without the prior written consent
of the Indemnifying Party, which consent shall not be unreasonably withheld. The
Indemnified Party shall make its employees available and furnish such
information regarding itself or the claim in question as the Indemnifying Party
may reasonably request in writing and as shall be reasonably required in
connection with the defense of such claim and litigation resulting therefrom.
9.03 Survival of Representations and Warranties. The
representations and warranties shall survive the Closing, until February 28,
2002 and, thereafter, to the extent a claim is made prior to such date with
respect to any breach of any such representation or warranty until such claim is
finally determined or settled, provided, that the representations and warranties
contained in Sections 5.03(o) and Article VII shall survive the Closing until
the expiration of all applicable statutes of limitation. Notwithstanding any
other provision of this Agreement, the last sentence of the representation and
warranty set forth in Section 5.03(g)(i) and the indemnity obligation contained
in Section 9.01(b) shall survive forever.
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ARTICLE X
TERMINATION
10.01 Termination. This Agreement may be terminated, and
the Merger may be abandoned:
(a) Consent. At any time prior to the Effective Time, by
the mutual consent of each of Acquiror and the Company.
(b) Breach. At any time prior to the Effective Time, by
Acquiror on the one hand, or the Company, on the other hand, in the
event of either: (1) a breach by the other of any representation or
warranty contained herein, which breach cannot be or has not been cured
within 30 days after the giving of written notice to the breaching
party of such breach; or (2) a breach by the other of any of the
covenants or agreements contained herein, which breach cannot be or has
not been cured within 10 days after the giving of written notice to the
breaching party of such breach and which breach in the case of either
of (1) and (2) above, would cause any condition set forth in Article
VIII not to be satisfied.
(c) Delay. At any time prior to the Effective Time, by
Acquiror, on the one hand, or the Company on the other hand, in the
event that the Effective Time shall have failed to occur on or before
May 31, 2001 except to the extent that such failure arises out of or
results from any breach of this Agreement by or knowing action or
inaction of the party seeking to terminate pursuant to this Section
10.01(c).
(d) No Approval. By Acquiror, on the one hand, or the
Company, on the other hand, if the approval of any Governmental
Authority required for consummation of the Merger and the other
transactions contemplated by this Agreement shall have been denied by
final nonappealable action of such Governmental Authority, or such
Governmental Authority shall have requested the permanent withdrawal of
any application therefor, or any such approval shall be made subject to
any condition or restriction described in the proviso to Section
8.01(b).
(e) Order. At any time prior to the Effective Time, by
Acquiror, on the one hand, or the Company on the other hand, if any
Order permanently restraining, enjoining or otherwise prohibiting
consummation of the Merger shall become final and non-appealable or any
Law is in effect or is adopted or issued, which has the effect of
prohibiting the Merger.
10.02 Effect of Termination and Abandonment. In the event
of termination of this Agreement and the abandonment of the Merger pursuant to
this Article X, no party to this Agreement shall have any liability or further
obligation to any other party hereunder except (a) as set forth in Section 11.03
and (b) that termination will not relieve a breaching party from liability for
any willful breach of this Agreement.
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ARTICLE XI
MISCELLANEOUS
11.01 Entire Understanding; No Third-Party Beneficiaries.
This Agreement and the Supplemental Agreements represent the entire
understanding of the parties hereto with reference to the transactions
contemplated hereby and this Agreement and the Supplemental Agreements supersede
any and all other oral or written agreements heretofore made other than the
Confidentiality Agreement. Except for Section 3.05 (with respect to the Members
or employees of the Company as it relates to Acquiror's obligation to award the
Retention RSUs and SLK RSUs only), for Section 3.03 (with respect to Withdrawn
Members and holders of the Managing Director Subordinated Notes), for Section
6.12 (with respect to Members), for Article VII (with respect to Members and the
SLK Representative), and for Article IX, in each case only, on and after the
Effective Time, nothing in this Agreement, expressed or implied, is intended to
confer upon any person, other than the parties hereto or their respective
successors and permitted assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
11.02 Waiver; Amendment. Prior to the Effective Time, any
provision of this Agreement may be (a) waived by the party benefitted by the
provision or (b) amended or modified at any time, by an agreement in writing
between the parties hereto approved or authorized by their respective Boards of
Directors or similar governing body and executed in the same manner as this
Agreement.
11.03 Expenses. Each party hereto will bear all expenses
incurred by it in connection with this Agreement and the transactions
contemplated hereby.
11.04 Notices. All notices, requests and other
communications hereunder to a party shall be in writing and shall be deemed
given (a) on the date of delivery, if personally delivered or telecopied (with
confirmation), (b) on the first business day following the date of dispatch, if
delivered by a recognized next-day courier service, or (c) on the third business
day following the date of mailing, if mailed by registered or certified mail
(return receipt requested), in each case to such party at its address or
telecopy number set forth below or such other address or numbers as such party
may specify by notice to the parties hereto.
If to the Company to:
SLK LLC
120 Broadway
New York, New York 10271
Facsimile: (212) 433-7294
Attention: Carl H. Hewitt
General Counsel and Managing Director
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With a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Facsimile: (212) 757-3990
Attention: Robert B. Schumer, Esq.
If to Acquiror or NewCo to:
The Goldman Sachs Group, Inc.
One New York Plaza
New York, New York 10004
Facsimile: (212) 902-3000
Attention: Gregory Palm
General Counsel and Managing Director
With a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Facsimile: (212) 558-3588
Attention: James C. Morphy, Esq.
11.05 Additional Provisions. (a) The parties recognize that
certain Members whose aggregate percentage allocation of the profits and losses
of the Company do not exceed 5% may wish to remain members of the Company
following the Effective Time. The parties agree to negotiate in good faith such
changes to this Agreement, including to Sections 2.01(b), 2.01(c) and 3.01(a),
with a view to permitting such Members to remain as members and, if the parties
reach Agreement thereon, in each party's absolute discretion, they will set
forth in writing such terms as may be agreed including (i) that such members'
interests in the Company after the Effective Time shall have no allocation of
profit and loss or any voting rights, by law or otherwise, (ii) that such
members' interests shall be entitled to distributions limited to a fixed
interest rate applicable to their capital account for so long as such persons
remain members and (iii) that none of Acquiror or any of its Affiliates
(including the managing member of the Company) shall have any duty (including
fiduciary duty) or obligation to such members not required by law.
(b) Any Member who withdraws from the Company after the
date hereof and prior to the Closing shall not be deemed a "Withdrawn Member"
for purposes of this Agreement and shall continue to be deemed a Member for
purposes of this Agreement.
11.06 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to constitute an original.
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11.07 Governing Law; Enforcement; Waiver of Jury Trial. (a)
This Agreement shall be governed by, and interpreted in accordance with, the
laws of the State of New York applicable to contracts made and to be performed
entirely within such State. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement in any court of the State of
New York or the Federal courts of the United States of America located in the
State of New York, in each case in the borough of Manhattan (the "Chosen
Courts"). The parties hereby irrevocably submit to the exclusive jurisdiction of
the Chosen Courts in respect of the interpretation and enforcement of the
provisions of this Agreement and of the documents referred to in this Agreement,
and in respect of the transactions contemplated hereby, and hereby waive, and
agree not to assert, as a defense in any action, suit or proceeding for the
interpretation or enforcement hereof or of any such document, that it is not
subject thereto or that such action, suit or proceeding may not be brought or is
not maintainable in the Chosen Courts or that the venue thereof may not be
appropriate or that this Agreement or any such document may not be enforced in
or by such courts, and the parties hereto irrevocably agree that all claims with
respect to such action or proceeding shall be heard and determined in the Chosen
Courts. The parties hereby consent to and grant the Chosen Courts exclusive
jurisdiction over the person of such parties and over the subject matter of such
dispute and agree that mailing of process or other papers in connection with any
such action or proceeding in the manner provided in Section 11.04 or in such
other manner as may be permitted by law shall be valid and sufficient service
thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY
MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 11.07.
* * *
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in counterparts by their duly authorized officers, all
as of the day and year first above written.
THE GOLDMAN SACHS GROUP, INC.
By: /s/ HENRY M. PAULSON, JR.
-------------------------
Name: Henry M. Paulson, Jr.
Title: Chairman and Chief Executive Officer
SLK LLC
By SLK Management Inc., its Managing Member
By: /s/ GARY GOLDRING
--------------------
Name: Gary Goldring
Title: Co-Chief Executive Officer
<PAGE> 64
Annex 3
Form of Member Agreement
MEMBER AGREEMENT, dated as of September 10, 2000 (this
"Agreement"), between The Goldman Sachs Group, Inc., a Delaware corporation
("Acquiror"), the signatory hereto, who is the owner of that membership interest
("Membership Interest") of SLK LLC, a New York limited liability company (the
"Company") set forth next to such signatory's name in Exhibit A (the "Member")
and, for purposes of Section 1(b) hereof only, SLK LLC.
RECITALS
A. Subject to the terms and conditions contained in the Agreement
and Plan of Merger, dated as of September 10, 2000, by and between Acquiror and
the Company (the "Merger Agreement"), the Company and Acquiror intend to effect
the merger (the "Merger") of NewCo with and into the Company. Capitalized terms
used but not defined herein shall have the meaning set forth in the Merger
Agreement.
B. Upon the consummation of the Merger, the Merger Agreement
provides for the conversion of the Member's Membership Interests into such
amount of cash and shares of common stock, par value $0.01 per share ("Acquiror
Common Stock"), of Acquiror (the "Shares"), as provided in the Merger Agreement.
Member will derive substantial value from Acquiror's execution, delivery and
performance of the Merger Agreement.
C. As an inducement to, and a condition of, Acquiror's
willingness to enter into the Merger Agreement, and having reviewed the Merger
Agreement and the terms of the proposed Merger, Member is executing this
Agreement for the benefit of Acquiror, the Firm (as hereinafter defined), and
each Acquiror Party.
NOW, THEREFORE, in consideration of the premises and the
covenants and agreements contained in the Merger Agreement, and intending to be
legally bound hereby, Member agrees as follows:
1. Adoption of Merger Agreement; Irrevocable Proxy; Termination.
(a) Member hereby (i) adopts and approves the resolutions attached hereto as
Exhibit B and adopts and consents to the Merger Agreement and the transactions
contemplated thereby including, without limitation, the Merger, in accordance
with the provisions of Section 407 of the New York Limited Liability Company
Law, (ii) upon request by Acquiror, agrees to vote to adopt and approve such
matters described in clause (i) of this Section 1(a), (iii) agrees to vote
against, and to withhold consent from, any action or proposal that would compete
with or would serve to materially interfere with, delay, discourage, adversely
affect or inhibit
<PAGE> 65
the timely consummation of the transactions contemplated by the Merger
Agreement, including, without limitation, the Merger, (iv) consents to the
replacement of SLK Management Inc. by Acquiror or an Affiliate designated
thereby, as the managing member of the Company, such replacement to be effective
as of the Effective Time, and (v) elects to cause the payment and distribution
by the Company of the Shares (as such term is defined in the Operating
Agreement) of the Withdrawn Members (as such term is defined in the Operating
Agreement) to such Withdrawn Members prior to the close of any applicable
Additional Holding Periods (as such term is defined in the Operating Agreement)
in the manner set forth in Section 3.04 of the Merger Agreement. To the extent
necessary and as permitted by applicable law, Member hereby also irrevocably (i)
waives any notice, or requirement thereof, with respect to any meeting of
Members or other proceeding for the purpose of adopting and approving the Merger
Agreement, the Merger or any related matters and (ii) acknowledges that Member
will not have any dissenters' or similar rights in connection with the Merger
and the consummation of the other transactions contemplated by the Merger
Agreement. If the Merger Agreement is properly terminated for any reason in
accordance with its terms and the Merger is not consummated, this Agreement
shall terminate concurrently with such termination of the Merger Agreement.
(b) The Company hereby acknowledges receipt and delivery at its
principal place of business of an executed copy of this Agreement sufficient to
comply with Section 407(b) of the New York Limited Liability Company Law.
2. Cooperation and Support; HSR; No Transfer of Membership
Interest.
(a) Member will timely execute and deliver all Supplemental Agreements, if any,
to which it is to be a party as provided in the Merger Agreement.
(b) Each Member who will be considered an "acquiring person"
under the rules and regulations promulgated under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act") in connection with the
consummation of the transactions contemplated by the Merger Agreement agrees to
use its reasonable best efforts to file a Notification and Report Form under the
HSR Act with respect to the transactions contemplated by the Merger Agreement as
soon as practicable after the date hereof.
(c) From and after the date hereof and until the earlier of the
Effective Time or the termination of this Agreement in accordance with its
terms, Member shall not Transfer (as hereinafter defined), directly or
indirectly, all or any portion of its Membership Interest without Acquiror's
prior written consent; provided, however, that in the event of such Member's
death during the term of this Agreement, Member's Membership Interest may be
transferred in accordance with the Operating Agreement.
(d) Member hereby agrees that from and after the date hereof
until the earlier of the Effective Time or the termination of this Agreement in
accordance with its terms, Member will not, in any manner, directly or
indirectly (including through advisors, agents or other intermediaries), take
any action to seek, encourage, support or discuss any offer from
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<PAGE> 66
any corporation, partnership, person or other entity or group (other than
Acquiror) to acquire any direct or indirect Company Membership Interests,
Partnership Interests or equity securities of any Subsidiary of the Company
(other than the issuance by the Partnership of Class C Limited Partnership
Interests and the issuance by First Options of Chicago Inc. of shares of Class A
Preferred Stock in connection with joint back office arrangements in the
ordinary course of business and consistent with past practices), to merge the
Company or any Subsidiary or Affiliate of the Company with any such person, or
to otherwise acquire any significant portion of the assets of the Company or any
Subsidiary of the Company.
(e) Member hereby agrees to execute and deliver to Acquiror at
the Closing, a counterpart of the Acquiror Shareholders Agreement, which
agreement shall be in full force and effect.
(f) At any time after the date hereof, Member shall promptly
execute, acknowledge and deliver any other assurances or documents reasonably
requested by Acquiror and necessary for Member to satisfy its obligations
hereunder.
(g) If, at the Closing, Member shall have an interest, direct or
indirect, in SLK Investing Co. ("SLK"), Member shall, acting together with all
other Members holding such an interest in SLK, cause SLK to convey to Acquiror
or its designee any and all of SLK's current right, title and interest, whether
direct or indirect, in the Class A Limited Partnership Interest of the
Partnership for an amount that shall be determined by the Company, provided,
that in no event shall Acquiror pay more than $25 million in the aggregate for
100% of all of the Class A Partnership Interest of the Partnership. After the
date hereof, Member shall not Transfer its interest in SLK and, except as
otherwise provided by the preceding sentence, Member shall, acting together with
all other Members holding such an interest in SLK, take all actions necessary to
cause SLK not to transfer, sell or otherwise reduce its right, title or interest
in the Class A Limited Partnership Interest of the Partnership.
3. Representations, Warranties and Agreements. Member represents
and warrants to, and agrees with, Acquiror as follows:
(a) Member has all requisite power and authority to execute and
deliver this Agreement and to perform all of the obligations imposed upon Member
hereunder. Member is the lawful record and beneficial owner of Member's
Membership Interest set forth next to Member's name in Exhibit A hereto, free
and clear of all Liens other than Liens created by the Constitutive Documents;
no other person (other than any wholly-owned affiliate controlled by Member) has
an interest, legal, beneficial or otherwise, in Member's Membership Interest and
no consent of any other person is required for the execution and delivery by
Member of, and performance by Member of its obligations under, this Agreement
and the Merger Agreement. Without limiting the foregoing, no person has any
rights with respect to Member's Membership Interest or the cash or Shares to be
issued to Member pursuant to the Merger Agreement under any community property
or similar legal provision
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<PAGE> 67
or concept. The representations and warranties contained in the second and third
sentences of this Section 3(a) shall not apply to any Membership Interest to the
extent that such representations and warranties would be deemed breached by
virtue of any existing pledge of such Membership Interest or by an existing
contractual restriction or because spousal consent is required as of the date
hereof (so long as such representations and warranties shall be true and
correct, and any required spousal consent under any community property law shall
have been obtained, at the Closing); provided, however, that this sentence shall
not affect any representation and warranty relating to the right, power or
authority of Member to vote or give a proxy or consent with respect to Member's
Membership Interest. There are no actions, suits or proceedings pending or, to
Member's knowledge, threatened against or affecting Member or the assets of
Member in any court or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
which is reasonably likely to materially impair, restrict or delay the ability
of Member to perform Member's obligations under this Agreement and the Merger
Agreement or would make this paragraph untrue in any material respect. This
Agreement constitutes the valid and legally binding agreement of Member,
enforceable in accordance with its terms except as the enforceability hereof may
be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar laws relating to the enforcement of creditors'
rights generally and by general principles of equity.
(b) The execution, delivery and performance of this Agreement do
not and will not (1) constitute a breach or violation of, or a default under, or
cause or allow the acceleration or creation of a Lien (with or without the
giving of notice, passage of time or both) pursuant to any law, rule or
regulation or any judgment, decree, order, governmental or non-governmental
permit or license, or any Contract to which Member is a party or to which Member
or any of Member's assets are subject or bound or (2) require any consent or
approval of any other person under any such law, rule, regulation, judgment,
decree, order, governmental or non-governmental permit, license or Contract, in
each case, which would materially impair, restrict or delay the ability of
Member to perform Member's obligations under this Agreement.
(c) Member will acquire the Shares for Member's own account and
not with a view to, or for resale in connection with, the distribution thereof
and Member has no present intention of selling, Transferring, granting any
participation in, or otherwise distributing the Shares except in conformity with
the Securities Act and other applicable federal and state securities laws (the
"Securities Laws").
(d) Member has read and fully understands this Agreement and the
Merger Agreement and the terms of the proposed Merger. The SEC Documents related
to Acquiror have been made available to Member, and Member understands and has
evaluated the risks of an investment in the Shares. Member has been given the
opportunity to ask questions of, and receive answers from, Acquiror and its
representatives concerning the matters pertaining to Member's investment in the
Shares and has been given the opportunity to review such
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<PAGE> 68
additional information as was necessary to evaluate the merits and risks of an
investment in the Shares. Member can bear the economic risk of an investment in
the Shares.
(e) Member is an "accredited investor" as defined in Regulation
D, which has been adopted by the Securities and Exchange Commission (the "SEC")
under the Securities Act.
(f) Member understands that all the Shares will be characterized
as "restricted securities" under the Securities Laws inasmuch as they are being
acquired from Acquiror in a transaction not involving a public offering and
that, consequently, the Shares may not be resold without first being registered
under the Securities Laws except in certain limited circumstances. Specifically,
Member is familiar with SEC Rules 144 and 145 and understands, and agrees to
comply with, the resale limitations imposed thereby, by the legends described in
paragraph (g) below and by the Securities Laws generally or cause any other
person who has an interest in such Shares to so comply.
(g) Member understands and agrees that the certificates issued to
Member representing the Shares will bear the following legends and such other
legends as Acquiror may reasonably deem necessary or desirable:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
MEMBER'S AGREEMENT WITH THE GOLDMAN SACHS GROUP, INC. (THE
"MEMBER'S AGREEMENT"), AND A SHAREHOLDERS' AGREEMENT AMONG THE
GOLDMAN SACHS GROUP, INC. AND THE PERSONS NAMED THEREIN, COPIES
OF WHICH ARE ON FILE AT THE PRINCIPAL EXECUTIVE OFFICE OF THE
GOLDMAN SACHS GROUP, INC., AND WHICH, AMONG OTHER MATTERS, PLACE
RESTRICTIONS ON THE VOTING AND DISPOSITION OF SUCH SECURITIES.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE INDIRECTLY
OR DIRECTLY SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF,
INCLUDING ANY DISPOSITION OF THE ECONOMIC OR OTHER RISKS OF
OWNERSHIP THROUGH HEDGING TRANSACTIONS OR DERIVATIVES INVOLVING
SUCH SECURITIES, ONLY IN ACCORDANCE WITH THE PROVISIONS OF THE
MEMBER'S AGREEMENT."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR OTHER SECURITIES LAWS AND MAY NOT BE
OFFERED, SOLD, EXCHANGED, TRANSFERRED, ASSIGNED, PLEDGED,
PARTICIPATED, HYPOTHECATED OR OTHERWISE DISPOSED OF (EACH A
"TRANSFER") EXCEPT PURSUANT TO AN EXEMPTION
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<PAGE> 69
FROM REGISTRATION UNDER THE SECURITIES ACT AND, IF APPLICABLE,
SUCH OTHER SECURITIES LAWS AND FOLLOWING RECEIPT BY THE GOLDMAN
SACHS GROUP, INC. OF A LEGAL OPINION IN FORM AND SUBSTANCE
SATISFACTORY TO IT THAT SUCH TRANSFER IS PERMITTED."
The foregoing legends will be removed from a Share certificate at the request of
Member or another holder thereof in connection with the proposed transfer
thereof only upon satisfaction of Acquiror that such legend is no longer
required or appropriate, including, in the case of the Securities Laws legend,
receipt by Acquiror of an opinion of counsel, in form and substance satisfactory
to Acquiror, to the effect that registration under the Securities Act is
unnecessary in respect of such proposed transfer, in reliance upon SEC Rule 144
or 145 under the Securities Act, and that such legend is not required by law to
appear on such certificate.
Member agrees and consents to the entry of stop transfer orders
against the transfer of Shares subject to transfer restrictions.
(h) Member meets any suitability standards imposed by the state
of Member's residence or imposed by any other applicable laws.
(i) From and after the date hereof and until the earlier of the
Effective Time or the termination of this Agreement in accordance with its
terms, Member agrees to comply as soon as reasonably practicable with the
restrictions on hedging contained in Exhibit D hereto; it being understood that
Member shall in no event on or after the date hereof commence any activities
that involve the disposition of the economic or other risks of ownership through
hedging transactions or derivatives involving Acquiror securities or Member's
Membership Interest.
(j) Member has not, and through the Closing Date will not have,
made any election, taken any action or filed any Tax Return or any other
document filed or provided to any taxing authority that is inconsistent with the
Tax Returns filed and furnished by the Company and the Company's Subsidiaries or
the treatment of the Company as a partnership and of each of the Company's
Subsidiaries as a partnership or disregarded entity (except as set forth in
Section 7.01(n) of the Disclosure Schedule to the Merger Agreement) for U.S.
federal, state and local Tax purposes and Member agrees that the foregoing
representations shall be subject to the same indemnification provisions as
contemplated by Section 13 herein.
(k) Member will not make any election, take any action or take
any position on any Tax Return or any other document filed or provided to any
Taxing Authority that is inconsistent with any Tax Return filed with any taxing
authority, or furnished to such Member, by or on behalf of the Company, the
Company's Subsidiaries or the Surviving LLC.
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<PAGE> 70
(l) Member agrees to provide, and to use its reasonable best
efforts to cause its respective relatives and affiliates to provide, any
document or take any other action reasonably requested by Acquiror in connection
with any Tax matters relating to the Company, the Company's Subsidiaries and the
Surviving LLC so long as such action does not adversely affect the Member (or
any of its respective relatives or affiliates).
(m) Member has received, separately considered and executed the
Supplemental Members Agreement attached as Exhibit E.
4. Restrictions on Transfer. (a) Member agrees that the Shares
may be Transferred only as follows:
(i) 33 1/3% of the Shares may be Transferred at any time after
May 8, 2002;
(ii) An additional 33 1/3% of the Shares may be Transferred at
any time after May 8, 2003; and
(iii) All of the Shares may be Transferred at any time after May
8, 2004.
Notwithstanding the foregoing, if Acquiror generally waives the restrictions on
transfer imposed upon the former Schedule II limited partners (the "LPs") of The
Goldman Sachs Group, L.P. ("Group") in connection with Group's 1999 Plan of
Incorporation in order to permit the LPs generally to engage in a registered
secondary offering or estate planning transactions, Acquiror will waive the
transfer restrictions in this Section 4 with respect to the Shares on (i) the
same percentage basis as the waiver granted to LPs in connection with such
registered secondary offering and to permit Member to sell such shares in the
registered secondary offering and (ii) the same basis as the waiver granted to
LPs in connection with such estate planning transactions. (For example, if each
LP is permitted to sell 5% of his Acquiror Common Stock in a registered
secondary offering, Member shall be permitted to sell 5% of Member's Shares; and
if each LP is permitted to engage in estate planning transactions, Member shall
be permitted to do so to a similar extent.)
For purposes of this Agreement, the term "Transfer" means any
direct or indirect sale, transfer, pledge or other disposition of securities of
Acquiror or Member's Membership Interests, as the case may be, including any
disposition of the economic or other risks of ownership through hedging
transactions or derivatives involving Acquiror securities or Member's Membership
Interests; provided, however, that in the event of such Member's death during
the term of this Agreement, Member's Shares may be transferred in the same
manner and to the same extent as the LPs may transfer their shares of Acquiror
Common Stock pursuant to the Acquiror Shareholders Agreement.
(c) Member agrees that, at any time Member is employed by the
Firm, it will:
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(i) comply with respect to all Shares with Transfer
restrictions related to future primary or secondary
offerings of Shares if requested to do so by Acquiror to
the extent that such restrictions are generally applicable
to similarly titled employees of Acquiror;
(ii) comply with restrictions that may be imposed by Acquiror
from time to time to enable Acquiror or another party to
account for a business combination using the
pooling-of-interests method of accounting to the extent
that such restrictions are generally applicable to
similarly titled employees of Acquiror;
(iii) be subject to the same internal compliance and trading
policies as are in effect from time to time for similarly
titled employees of Acquiror; and
(iv) comply with the hedging restrictions of Acquiror relating
to securities of Acquiror and financial services companies
as are in effect from time to time for managing directors
of Acquiror.
References in this Section 4 to "Shares" shall be deemed to also
refer to securities received in exchange for Shares on the same basis as
provided in Section 6.4 of the Acquiror Shareholders Agreement.
5. Confidential Information. (a) In the course of involvement in
the Firm's activities or otherwise, Member has obtained or may obtain
confidential information concerning the Firm's businesses, strategies,
operations, financial affairs, organizational and personnel matters (including
information regarding any aspect of Member's tenure as a member in, or officer
or employee of, the Firm or of the termination of such membership, officership
or employment), policies, procedures and other non-public matters, or concerning
those of third parties. Such information ("Confidential Information") may have
been or be provided in written or electronic form or orally. In consideration
of, and as a condition to, continued access to Confidential Information, and
without prejudice to or limitation on any other confidentiality obligations
imposed by agreement or by law, Member hereby undertakes to use and protect
Confidential Information in accordance with any reasonable restrictions placed
on its use or disclosure. Without limiting the foregoing, except as authorized
by the Firm or as required by law, Member may not disclose, directly or
indirectly, any Confidential Information, or any information derived therefrom,
in whatever form, to any person unless such person is a director, officer,
partner, employee, attorney or agent of the Firm and, in Member's reasonable
good faith judgment, has a need to know the Confidential Information or
information derived therefrom in furtherance of the business of the Firm. The
foregoing obligations will survive, and remain binding and enforceable
notwithstanding any termination of Member's employment with the Firm and any
settlement of the financial rights and obligations arising from Member's
employment with the Firm. Without limiting the foregoing, the existence of, and
any information concerning, any dispute
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between Member and the Firm shall constitute Confidential Information except
that Member may disclose information concerning such dispute to the arbitrator
or court that is considering such dispute, or to Member's legal counsel
(provided that such counsel agrees not to disclose any such information other
than as necessary to the prosecution or defense of the dispute).
(b) For purposes of this Agreement, "Firm" means (i) prior to the
consummation of the Merger, the Company and its Subsidiaries and Affiliates, and
(ii) from and after the consummation of the Merger, Acquiror and its
Subsidiaries and Affiliates (including the Company and its Subsidiaries).
6. Noncompetition. (a) In view of Member's importance to the
Firm, Member hereby agrees that the Firm would likely suffer significant harm
from Member's competing with the Firm for some period of time following the
consummation of the Merger, and at any time prior to the date of termination
specified in the notice of termination pursuant to Section 10 hereof (the
"Employment Period") and for some time thereafter, and Member understands that
Acquiror would not have agreed to acquire the Company and its business unless
Member entered into this Agreement. Moreover, Member recognizes and agrees that
the business activities of the Firm are worldwide and that the restrictions on
competition included herein are commensurate in geographic scope with those
activities. Accordingly, Member hereby agrees that commencing at the time of
consummation of the Merger, Member will not, without the written consent of
Acquiror, until the later of (x) three years following the Effective Time and
(y) two years following the date of termination of the Employment Period (such
later date is referred to as the "Expiration Date"):
(1) form, or acquire a 5% or greater equity ownership, voting or
profit participation interest in, any Competitive Enterprise (as defined
below); or
(2) associate (including, but not limited to, association as an
officer, employee, partner, director, consultant, agent or advisor) with
any Competitive Enterprise and in connection with such association
engage in, or directly or indirectly manage or supervise personnel
engaged in, any activity
(i) which is similar or substantially related to any
activity in which Member was engaged, in whole or in part, at the
Firm,
(ii) for which Member had direct or indirect managerial or
supervisory responsibility at the Firm, or
(iii) which calls for the application of the same or similar
specialized knowledge or skills as those utilized by Member in
Member's activities with the Firm,
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at any time during the one-year period immediately prior to the
Expiration Date (or, in the case of an action taken during the
Employment Period, during the one-year period immediately prior to such
action), and, in any such case, irrespective of the purpose of the
activity or whether the activity is or was in furtherance of advisory,
agency, proprietary or fiduciary business of either the Firm or the
Competitive Enterprise.
(By way of example only, this provision precludes an information systems
professional from joining a management or other consulting firm and
providing information technology consulting services or advice to any
Competitive Enterprise.)
(b) For purposes of this Agreement, a "Competitive Enterprise" is
a business enterprise that (1) engages in any activity, or (2) owns or controls
a significant interest in any entity that engages in any activity, that, in
either case, competes anywhere with any activity in which the Firm is engaged.
The activities covered by the previous sentence include, without limitation,
financial services such as investment banking, public or private finance,
lending, financial advisory services, private investing (for anyone other than
Member and members of Member's family), merchant banking, asset or hedge fund
management, insurance or reinsurance underwriting or brokerage, property
management, or securities, futures, commodities, energy, derivatives or currency
brokerage, sales, market making, lending, custody, clearance, settlement or
trading. It is the intent that the provisions of this Section 6 shall include,
for the entire period through the Expiration Date, the activities described in
subparagraphs 1 through 4 of Article 14.E of the Operating Agreement as in
effect as of the date hereof.
If Member is employed by the Firm immediately following the
Effective Time and the Firm terminates Member's employment with the Firm without
Cause, the Firm may only enforce the provisions of this Section 6 for so long as
the Firm continues to pay Member the same base salary (i.e., excluding any
incentive, bonus or similar compensation) Member was receiving immediately prior
to such termination. In determining whether the Firm has paid Member's base
salary for any period, the Firm shall receive credit for any payments under any
severance, salary continuation or similar plan or arrangement.
For the purposes of this Section 6 and Section 10 only, "Cause"
means (i) Member's conviction, whether following trial or by plea of guilty or
nolo contendere (or similar plea), in a criminal proceeding (A) on a misdemeanor
charge involving fraud, false statements or misleading omissions, wrongful
taking, embezzlement, bribery, forgery, counterfeiting or extortion, or (B) on a
felony charge or (C) on an equivalent charge to those in clauses (A) and (B) in
jurisdictions which do not use those designations; (ii) Member's engaging in any
conduct which constitutes an employment disqualification under applicable law
(including statutory disqualification as defined under the Exchange Act); (iii)
Member's willful or grossly negligent failure to perform Member's duties to the
Firm; (iv) Member's violation of any securities or commodities laws, any rules
or regulations issued pursuant to such laws, or the rules and regulations of any
securities or commodities exchange or
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association of which Acquiror or any of its subsidiaries or affiliates is a
member; (v) Member's violation of any Firm policy concerning hedging or
confidential or proprietary information, or Member's material violation of any
other Firm policy as in effect from time to time; (vi) Member's engaging in any
act or making any statement which impairs, impugns, denigrates, disparages or
negatively reflects upon the name, reputation or business interests of the Firm;
or (vii) Member's engaging in any willful or grossly negligent conduct
detrimental to the Firm. The determination as to whether "Cause" has occurred
shall be made by the Board of Directors of Acquiror in its good faith judgment.
7. Nonsolicitation of Clients. (a) Member hereby agrees that
during the Employment Period and thereafter until the Expiration Date, Member
will not, in any manner, directly or indirectly, (1) Solicit a Client to
transact business with a Competitive Enterprise or to reduce or refrain from
doing any business with the Firm, or (2) interfere with or damage (or attempt to
interfere with or damage) any relationship between the Firm and a Client.
(b) For purposes of this Agreement, the term "Solicit" means any
direct or indirect communication of any kind whatsoever, regardless of by whom
initiated, inviting, advising, encouraging or requesting any person or entity,
in any manner, to take or refrain from taking any action. It is the intent that
the provisions of this Section 7 shall include, for the entire period through
the Expiration Date, the activities described in subparagraph 5 of Article 14.E
of the Operating Agreement as in effect as of the date hereof.
(c) For purposes of this Agreement, the term "Client" means any
client or prospective client of the Firm to whom Member provided services, or
for whom Member transacted business, or whose identity became known to Member in
connection with Member's relationship with or employment by the Firm.
8. Nonsolicitation of Employees; Expiration. Member hereby agrees
that during the Employment Period and thereafter until the Expiration Date,
Member will not, in any manner, directly or indirectly, Solicit any person who
is a Member or former Member of the Company or a key employee of the Firm to
resign from the Firm or to apply for or accept employment with any Competitive
Enterprise.
9. Damages. (a) Member acknowledges that Acquiror would not have
entered into this Agreement or the Merger Agreement in the absence of the
Member's agreement to the provisions of this Section 9 and the Covenants and
Member further acknowledges that such compliance with such Covenants is an
important factor to the continued success of the Firm's operations and its
future prospects. Member and Acquiror agree that upon the occurrence of any of
the following events, the damages to the Firm would be material, but that the
amount of such damages would be uncertain and not readily ascertainable.
Accordingly, Member and Acquiror agree that, if, prior to the fifth anniversary
of the date of this Agreement, Member breaches any of the Covenants set forth in
Section 6, 7 or 8, as determined by the Board of Directors of Acquiror (the
"Board") in its
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good faith judgment, Acquiror will be entitled to receive immediately following
such determination and written demand therefor, and Member will make, within ten
business days after written demand has been received, a payment in cash or
Acquiror Common Stock (valued at the average closing per share price of Acquiror
Common Stock for the five trading days immediately preceding the date of payment
under this Section 9(a)) in such combination of cash and/or Acquiror Common
Stock as the Member shall determine as and for liquidated damages (the
"Liquidated Damages") in the amount set forth next to such Member's name in
Exhibit C (under the heading "Liquidated Damages") attached hereto, which amount
shall be the aggregate amount of liquidated damages due for all such breaches
prior to the fifth anniversary of this Agreement.
The payment of any amount as liquidated damages will not be
construed as a release or waiver by Acquiror of the right to prevent the
continuation of any such violation of such Covenants in equity or otherwise. In
addition, Member and Acquiror agree that it would be too speculative to attempt
to determine any amount of liquidated damages that would be applicable following
the fifth anniversary of the date of this Agreement, and that any damages
payable as a result of any breach following such date shall be determined
without regard to this Section 9.
(b) Member and Acquiror agree that the Liquidated Damages are
reasonable in proportion to the probable damages likely to be sustained by the
Firm if Member breaches at any time prior to the fifth anniversary of this
Agreement any of the Covenants set forth in Sections 6, 7 and 8 hereof, that the
amount of actual damages to be sustained by the Firm in the event of such breach
is incapable of precise estimation and that such cash payments are not intended
to constitute a penalty or punitive damages for any purposes.
(c) Member acknowledges and agrees that Member's payment
obligations under this Section 9 will be full recourse obligations and will be
secured pursuant to a Pledge Agreement, in substantially the form set forth as
Exhibit F hereto (the "Pledge Agreement"). Member agrees to execute and deliver
to Acquiror a Pledge Agreement prior to the Closing.
(d) Member acknowledges and agrees that any cash payment of
Liquidated Damages pursuant to this Section 9 shall be in addition to, and not
in lieu of, any forfeitures of awards (required pursuant to the terms of any
such awards) that may be granted to Member in the future under one or more of
the Firm's compensation and benefit plans.
10. Employment with the Firm. (a) Member acknowledges that
Acquiror would not have entered into this Agreement or the Merger Agreement in
the absence of Member's agreement to the provisions of this Section 10, and
Member further acknowledges that such Member's continued employment with the
Firm through the second anniversary of the Effective Time is essential to assure
the proper integration of the business operations of the Company into the Firm
and is an important factor to the continued success of the Firm's operations and
its future prospects. Accordingly, Member hereby agrees to remain employed with
the Firm for the period commencing on the Effective Time through the second
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anniversary of the Effective Time (the "Initial Employment Period"). After the
Initial Employment Period (unless otherwise agreed by Member and the Firm in
writing), there will be no set term of employment. The Firm may terminate
Member's employment at any time during or after the Initial Employment Period
for any reason, or for no reason, and Member may terminate employment for any
reason or no reason after the Initial Employment Period. Such termination shall
be effected only by giving not less than ninety (90) days' prior written notice
of termination; provided, however, that (i) the Firm may elect to place Member
on paid leave for all or any part of such 90-day period; (ii) no advance notice
need be given by the Firm to Member in connection with a termination of Member's
employment for Cause or on account of Disability; and (iii) provided that the 90
days prior written notice is given, Member may terminate his employment during
the Initial Employment Period on account of Good Reason, Disability or with
Acquiror's written consent. For purposes of this Section 10, "Good Reason"
means, without the consent of Member, a materially adverse alteration in
Member's position or in the nature or status of Member's responsibilities from
those in effect immediately after the Effective Time, or (ii) the Firm's
requiring Member's principal place of employment to be located more than
seventy-five (75) miles from the location at which Member is principally
employed immediately after the Effective Time (except for required travel on the
Firm's business to an extent substantially consistent with Member's customary
business travel obligations in the ordinary course of business prior to the
Effective Time). For purposes of this Section 10, "Disability" means Member's
absence from employment for at least 180 days in any 12-month period as a result
of Member's incapacity due to mental or physical illness or incapacity, as
reasonably determined by the Firm.
(b) At the outset of the Employment Period, Member's duties and
responsibilities will not be, without Member's written consent, materially
diminished from Member's duties and responsibilities immediately prior to the
Effective Time (it being understood that any diminishment in duties or
responsibilities as a result of the Company and its Affiliates being
Subsidiaries of Acquiror shall be disregarded). During the Employment Period:
(i) Member will have such duties and responsibilities as the Firm may from time
to time determine; (ii) Member will devote his entire working time, labor, skill
and energies to the business and affairs of the Firm, provided, however, that
Member shall not be prohibited from making passive personal investments or
conducting private affairs if those activities do not interfere with the
services required under this Agreement; and (iii) Member will be paid such base
salary and other compensation as shall be separately communicated to him.
(c) It is understood and agreed that the provisions of this
Section 10 shall not apply to: Pumpkin Trust; Michael Appleby; Patrick C. Boyle;
Michael H. Davis; Robert W. Luckow; Lowell J. Millar; William G. Peskoff; Norman
R. Schlanger; Alfred Thomas; and Frank Weinberg III (collectively, the "Retiring
Members").
11. Transfer of Client Relationships. (a) During the Coverage
Period, Member hereby agrees to take all actions and do all such things as may
be reasonably requested by the Firm from time to time to maintain for the Firm
the business, goodwill, and
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business relationships with any of the Firm's Clients with whom Member worked
during the term of Member's employment with the Firm.
(b) For purposes of this Agreement, the term "Coverage Period"
means, the 90-day period beginning on the date on which notice of Member's
termination of employment is delivered to or by the Firm pursuant to Section 10,
or in the case of termination of Member's employment by the Firm for Cause or on
account of Extended Absence, the 90-day period beginning on the date of
termination.
12. Prior Notice Required. Member hereby agrees that prior to
accepting employment with any other person or entity prior to the date of
termination, Member will provide such prospective employer with written notice
of the provisions of this Agreement, with a copy of such notice delivered
simultaneously to the General Counsel of Acquiror.
13. Indemnification. Member hereby agrees that it shall indemnify
each Acquiror Party as an Indemnifying Party as set forth in Articles 7 and 9 of
the Merger Agreement.
14. Taxes.
(a) Tax Returns. Member hereby agrees to prepare and file (or
cause to be prepared and filed) when due (taking into account any applicable
extensions) all of his, her or its Tax Returns related to periods during which
the Merger occurs, and Member will timely pay all Taxes reflected on such Tax
Returns (or which are due with respect to such Tax Returns after adjustment by
any taxing authority). Member further agrees to cooperate with Acquiror and to
provide Acquiror with any documentation as reasonably requested in establishing
the timely filing of such Tax Returns and timely payment of such Taxes.
(b) Tax Treatment of the Common Stock. Member agrees that the
Acquiror Common Stock subject to the restrictions on Transfer (as described in
Section 4 herein) and received by the Members in the Merger will be valued for
all U.S. federal income tax purposes at 100% of the mean of the high and low of
the trading price of the Acquiror Common Stock on the Effective Date.
(c) Cooperation. Member agrees to cooperate with the Tax Matters
Partner (as defined in Section 6231(a)(7) of the Code) (or its designee) to the
extent reasonably requested in any Tax audit, examination or other proceeding
involving the Company, the Partnership or any Subsidiary that is treated as a
partnership for U.S. federal income tax purposes for any taxable period that
relates to periods prior to the Closing. Member further agrees that the existing
Tax Matters Partner (or if the existing Tax Matters Partners does not so act,
the Acquiror (or its designee)) shall have the right to designate or appoint any
individual or entity in the name and on behalf of such Member, as the Tax
Matters Partner, with respect to any taxable year of the Company, the
Partnership or any of their Subsidiaries.
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(d) Overpayments and Underpayments. The parties hereby agree that
in the event the Company makes distributions to Member pursuant to the terms of
4.01(c)(i) or (iv) of the Merger Agreement, the parties shall as promptly as
practicable after the Closing determine whether the actual amount of Taxes owed
by Member in respect of the net earnings of the Company during the period from
July 1, 2000 to the Closing Date (after taking into account Tax credits and
other available Tax assets and not including any Taxes payable as the result of
sales or other dispositions requiring the recognition of unrealized gains
reflected on the June 30, 2000 Financial Statements (including the "short
against the box" positions)) is greater than (an "Underpayment") or less than
(an "Overpayment") the amounts distributed to such Member with respect to the
period from July 1, 2000 to the Closing Date in respect to such Taxes, and, in
the event of an Overpayment, Member shall promptly pay to Acquiror and, in the
event of an Underpayment, Acquiror shall promptly pay to Member, the amount of
such difference.
15. Intentionally Omitted.
16. Covenants Generally. (a) Member's covenants as set forth in
Sections 5 through 14 of this Agreement are from time to time referred to herein
as the "Covenants." If any of the Covenants is finally held to be invalid,
illegal or unenforceable (whether in whole or in part), such Covenant shall be
deemed modified to the extent, but only to the extent, of such invalidity,
illegality or unenforceability and the remaining such Covenants (or part of such
Covenants, as the case may be) shall not be affected thereby; provided, however,
that if any of such Covenants is finally held to be invalid, illegal or
unenforceable because it exceeds the maximum scope determined to be acceptable
to permit such provision to be enforceable, such Covenant will be deemed to be
modified to the minimum extent necessary to modify such scope in order to make
such provision enforceable hereunder.
(b) Member understands that the provisions of the Covenants may
limit Member's ability to earn a livelihood in a business similar to the
business of the Firm.
(c) Member acknowledges that a violation on Member's part of any
of the Covenants would cause irreparable damage to the Firm. Accordingly, Member
agrees that the Firm will be entitled to injunctive relief for any actual or
threatened violation of any of the Covenants in addition to any other remedies
it may have.
(d) Acquiror will at all times maintain an effective S-8 or other
registration statement covering shares of Acquiror Common Stock to be delivered
pursuant to the restricted stock unit awards specified in Section 3.05 of the
Merger Agreement and in connection with the administration of such awards shall
treat the Member in the same manner as similarly titled employees of Acquiror
and its subsidiaries.
17. Waiver and Release. (a) Member hereby irrevocably waives any
right to contest the terms of the Merger Agreement and the transactions
contemplated thereby,
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whether on the grounds of unequal or disparate treatment, inconsistency or
conflict with the terms and provisions of the Operating Agreement.
(b) Member hereby irrevocably releases Acquiror, each and every
affiliate, shareholder, subsidiary, partner, officer, member, director and
employee of Acquiror and its affiliates in their capacities as such
("Releasees") from any claims, liabilities, costs, expenses, actions, suits or
demands however arising, whether at law or in equity, contingent, known or
unknown, which Member or his heirs, successors or assigns may have or assert, in
respect of any interest in the Company and its affiliates or arising out of any
Membership Interest, Partnership Interest, or Member, partnership or employment
relationship with the Company or its affiliates which Member or Member's heirs,
successors or assigns may have or have had; provided that this release shall not
extend to (i) agreements entered into hereunder or in connection with the
transactions contemplated by the Merger Agreement and (ii) any conduct that
resulted from a Releasee's bad faith, fraud or criminal act or omission.
18. Arbitration. Subject to the provisions of Sections 19 and 20
hereof, any dispute, controversy or claim between Member and the Firm arising at
or after the Effective Time out of or relating to or concerning the provisions
of this Agreement, relating to or arising out of Member's employment with the
Firm or otherwise concerning any rights, obligations or other aspects of
Member's employment relationship in respect of the Firm ("Employment Related
Matters"), shall be finally settled by arbitration in New York City before, and
in accordance with the rules then obtaining of, the New York Stock Exchange,
Inc. (the "NYSE") or, if the NYSE declines to arbitrate the matter, the American
Arbitration Association (the "AAA") in accordance with the commercial
arbitration rules of the AAA.
19. Injunctive Relief; Submission to Jurisdiction; Specific
Performance. (a) Notwithstanding the provisions of Section 18, and in addition
to its right to submit any dispute or controversy to arbitration, the Firm may
bring an action or special proceeding in a state or federal court of competent
jurisdiction sitting in the City of New York, whether or not an arbitration
proceeding has theretofore been or is ever initiated, for the purpose of
temporarily, preliminarily, or permanently enforcing the provisions of the
Covenants, or to enforce an arbitration award, and, for the purposes of this
Section 19, Member (i) expressly consents to the application of Section 20 to
any such action or proceeding, (ii) agrees that proof will not be required that
monetary damages for breach of the provisions of the Covenants would be
difficult to calculate and that remedies at law would be inadequate and (iii)
irrevocably appoints the General Counsel of Acquiror as Member's agent for
service of process in connection with any such action or proceeding, who shall
promptly advise Member of any such service of process.
(b) Each party hereto severally acknowledges that it will be
impossible to measure in money the damage to the other party if the party hereto
fails to comply with any of the obligations imposed by this Agreement and that
every such obligation is material. Accordingly, each party hereto severally
agrees that injunctive relief or other equitable remedy, in addition to remedies
at law or damages, is the appropriate remedy for any such
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failure and will not oppose the granting of such relief on the basis that the
other party has an adequate remedy at law.
20. Choice of Forum. (a) MEMBER AND THE FIRM HEREBY IRREVOCABLY
SUBMIT TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN
THE CITY OF NEW YORK OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO OR CONCERNING THIS AGREEMENT OR ANY EMPLOYMENT RELATED MATTER THAT
IS NOT OTHERWISE ARBITRATED ACCORDING TO THE PROVISIONS OF SECTION 18 HEREOF.
This includes any suit, action or proceeding to compel arbitration or to enforce
an arbitration award. This also includes any suit, action, or proceeding arising
out of or relating to any post-employment Employment Related Matters. Member and
the Firm acknowledge that the forum designated by this Section 20 has a
reasonable relation to this Agreement, and to Member's relationship to the Firm.
Notwithstanding the foregoing, nothing herein shall preclude the Firm from
bringing any action or proceeding in any other court for the purpose of
enforcing the provisions of Sections 18, 19 or 20.
(b) The agreement of Member and the Firm as to forum is
independent of the law that may be applied in the action, and Member and the
Firm agree to such forum even if the forum may under applicable law choose to
apply non-forum law. Member and the Firm hereby waive, to the fullest extent
permitted by applicable law, any objection which Member or the Firm now or
hereafter may have to personal jurisdiction or to the laying of venue of any
such suit, action or proceeding in any court referred to in Section 20(a).
Member and the Firm undertake not to commence any action arising out of or
relating to or concerning this Agreement in any forum other than a forum
described in this Section 20. Member and the Firm agree that, to the fullest
extent permitted by applicable law, a final and non-appealable judgment in any
such suit, action or proceeding in any such court shall be conclusive and
binding upon Member and the Firm.
21. Choice of Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO PRINCIPLES OF CONFLICT OF LAWS.
22. No Right to Employment. Nothing in this Agreement or the
Merger Agreement shall confer upon Member the right to employment or continued
employment by the Firm or affect the Firm's right to terminate such employment
at will.
23. Miscellaneous. (a) This Agreement and the Merger Agreement
shall supersede any other agreement, written or oral, pertaining to the matters
covered herein.
(b) Notices hereunder shall be delivered to Acquiror at its
principal executive office directed to the attention of its General Counsel, and
to Member at Member's last address appearing in the Firm's employment records.
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(c) This Agreement may not be amended or modified, other than by
a written agreement executed by Member and Acquiror or its successors, nor may
any provision hereof be waived other than by a writing executed by Member or
Acquiror or its successors; provided, that any waiver, consent, amendment or
modification of any of the provisions of this Agreement will not be effective
against the Firm without the written consent of Acquiror or its successors.
Member may not, directly or indirectly (including by operation of law), assign
Member's rights or obligations hereunder without the prior written consent of
Acquiror or its successors, and any such assignment by Member in violation of
this Agreement shall be void. This Agreement shall be binding upon Member's
permitted successors and assigns. Without impairing Member's obligations
hereunder, Acquiror may at any time and from time to time assign its rights and
obligations hereunder to any of its subsidiaries or affiliates (and have such
rights and obligations reassigned to it or to any other subsidiary or
affiliate). This Agreement shall be binding upon and inure to the benefit of the
Firm and its assigns.
(d) Without limiting the provisions of Section 16(a) hereof, if
any provision of this Agreement is finally held to be invalid, illegal or
unenforceable (whether in whole or in part), such provision shall be deemed
modified to the extent, but only to the extent, of such invalidity, illegality
or unenforceability and the remaining provisions shall not be affected thereby.
(e) Except as expressly provided herein, this Agreement shall not
confer on any person other than Acquiror, the Firm and each Member any rights or
remedies hereunder.
(f) The captions in this Agreement are for convenience of
reference only and shall not define or limit the provisions hereof.
-18-
<PAGE> 82
IN WITNESS WHEREOF, each signatory hereto has caused this
Agreement, including the written consent evidenced hereby, to be executed and
delivered this 10th day of September, 2000.
THE GOLDMAN SACHS GROUP, INC.
(on its behalf, and on behalf of its
subsidiaries and affiliates)
By:
--------------------------------
Name:
SLK LLC
(with respect to Section 1(b) only)
By SLK Management Inc., its Managing
Member
By:
--------------------------------
Name:
(As received by SLK LLC at its principal office)
MEMBER
---------------------------------
Name:
