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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): November 22, 1999.
EASTBROKERS INTERNATIONAL INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
Delaware 0-26202 52-1807562
(State or Other (Commission File Number) (I.R.S. Employee
Jurisdiction of Identification Number)
Incorporation)
6000 Fairview Road, Suite 1410, Charlotte, North Carolina 28210
(Address of Principal Executive Offices, Including Zip Code)
(704) 643-8220
(Registrant's Telephone Number, Including Area Code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
(a) Acquisition of The JB Sutton Group, LLC (the "Sutton
Acquisition")
Pursuant to an LLC Interest Purchase Agreement (the "Sutton Purchase
Agreement"), dated as of November 22, 1999, by and among the
Registrant, The JB Sutton Group, LLC ("Sutton"), each of the members
and special members of The JB Sutton Group, LLC (the "Sutton
Members") and Mr. Peter Cohen, the Registrant acquired 100% of the
outstanding membership interests of Sutton from the Sutton Members.
In consideration for the Sutton Acquisition, the Registrant issued
to the Sutton Members and Mr. Peter Cohen 40,000 shares of Common
Stock and delivered notes to the Sutton Members in an aggregate
principal amount of $660,000, bearing interest at a rate of 7% per
annum. The notes, which shall be held in escrow for a two-year
period, mature on March 31, 2000 and are convertible at the
Registrant's sole discretion at or prior to their maturity into an
aggregate of 660,000 shares of the Registrant's common stock. Such
conversion of the notes shall satisfy in full all obligations of the
Company thereunder.
Certain additional information regarding the Sutton Acquisition and
the transactions contemplated by the Sutton Purchase Agreement is
included in the Sutton Purchase Agreement which is filed as an
exhibit hereto. The foregoing summary of the Sutton Purchase
Agreement is qualified in its entirety by reference to the complete
text thereof, attached hereto as Exhibit 2.1.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(a) Financial Statements of Business Acquired
The Financial Statements of Businesses Acquired required to be
disclosed hereunder shall be filed by amendment to this
initial report on Form 8-K not later than 60 days after the
date by which this initial report must be filed.
(b) Pro Forma Financial Information
The Pro Forma Financial Information required to be disclosed
hereunder shall be filed by amendment to this initial report
on form 8-K not later than 60 days after the date by which
this initial report must be filed.
(c) Exhibits
The following exhibit is included as part of this report:
2.1 LLC Interest Purchase Agreement, dated as of November 22,
1999, by and among Eastbrokers International Incorporated, The
JB Sutton Group, LLC, Mr. Peter Cohen and each of the Members
and Special Members of The JB Sutton Group, LLC and Mr. Peter
Cohen.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EASTBROKERS INTERNATIONAL INCORPORATED
(Registrant)
Date: December 7, 1999
By:/S/ Kevin D. McNeil
-------------------------------------
(Signature)
Name: Kevin D. McNeil
Title: Executive Vice President,
Treasurer, Secretary and
Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
2.1 LLC Interest Purchase Agreement, dated as of November 22,
1999, by and among the Registrant, The JB Sutton Group,
LLC, each of the members and special members of The JB
Sutton Group, LLC and Mr. Peter Cohen
LLC INTEREST PURCHASE AGREEMENT
by and among
EASTBROKERS INTERNATIONAL INCORPORATED,
THE JB SUTTON GROUP, LLC,
MR. PETER COHEN,
AND
EACH OF THE MEMBERS AND SPECIAL MEMBERS OF
THE JB SUTTON GROUP, LLC
Dated as of November 22, 1999
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LLC INTEREST PURCHASE AGREEMENT
THIS LLC INTEREST PURCHASE AGREEMENT (this "Agreement"), is entered
into this 22nd day of November, 1999, by and among Eastbrokers International
Incorporated, a Delaware corporation ("Eastbrokers"), The JB Sutton Group, LLC
("Sutton"), a limited liability company organized under the laws of the State of
New York, each person whose name appears on ATTACHMENT A hereto, each a member
of Sutton (each, a "Member" and, following the Acquisition, a "Former Sutton
Member") or a Special Member (as defined in the organizational documents of
Sutton) (each, a "Special Member" and, following the Acquisition, a "Former
Special Member") and, only as to Section 2.8(c) and ARTICLE IV-A hereof, Mr.
Peter Cohen, a former member of Sutton ("Mr. Cohen"). Eastbrokers, Sutton, the
Members, the Special Members and Mr. Cohen may sometimes be referred to
collectively herein as the "parties" or individually as a "party."
R E C I T A L S:
WHEREAS, Sutton is a registered broker-dealer engaged in the business
of investment banking, corporate finance and retail distribution of securities
(the "Business");
WHEREAS, Eastbrokers desires to acquire from the Members and Special
Members, and the Members and Special Members desire to exchange for shares of
Eastbrokers' Common Stock, all of their respective Sutton Interests, which
constitute 100% of the outstanding membership interests of Sutton, upon the
terms and subject to the conditions set forth herein; and
WHEREAS, the Board of Directors of Eastbrokers, Sutton and the Members
and Special Members have each determined that it is in the respective best
interests of Eastbrokers, Sutton and the Members and Special Members to
consummate the transactions contemplated hereunder, in which Eastbrokers will
acquire 100% of the outstanding membership interests of Sutton and any other
ownership interests in Sutton from the Members and Special Members;
NOW THEREFORE, in consideration of the premises and mutual covenants
and conditions set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, Eastbrokers, Sutton
and the Members and Special Members hereby agree to the provisions set forth in
this Agreement.
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. In addition to terms defined elsewhere
herein, the following terms have the meanings specified or referred to in this
Section 1.1 and shall be equally applicable to both the singular and plural
forms. Any agreement defined below or elsewhere herein shall mean such agreement
as amended, supplemented and modified from time to time to the extent permitted
by the applicable provisions thereof and by this Agreement. Use of the terms
"herein," "hereof," "herewith," "hereunder" or any similar term shall refer to
this Agreement.
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"Acquisition" shall have the meaning ascribed to such term in Section
2.1 hereof.
"Acquisition Shares" shall have the meaning ascribed to such term in
Section 2.1 hereof.
"Actual Earn-Out Conversion Shares" shall have the meaning ascribed to
such term in Section 2.7 hereof.
"Actual Earn-Out Note Amount" shall have the meaning ascribed to such
term in Section 2.4 hereof.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and attorney's fees and expenses.
"Affiliate" means, with respect to any Person, any other Person which
directly or indirectly controls, is controlled by or is under common control
with such Person.
"Aggregate Earn-Out Note Amount" shall have the meaning ascribed to
such term in Section 2.3(c) hereof.
"Aggregate Note Amount" shall have the meaning ascribed to such term in
Section 2.3(b) hereof.
"Aggregate Litigation Note Amount" shall have the meaning ascribed to
such term in Section 2.1 hereof.
"Agreement" means this LLC Interest Purchase Agreement, including any
exhibits, schedules and attachments hereto.
"Approval" means any approval, authorization, consent, qualification or
registration, or any waiver of any of the foregoing, required to be obtained
from, or any notice, statement, declaration or other communication required to
be filed with or delivered to, any Governmental Authority or any other person.
"ARTICLEs of Organization" means the ARTICLEs of Organization, as
amended, of Sutton.
"Bonus Pool" shall have the meaning ascribed to such term in Section
2.2(b)(i) hereof.
"Business" shall have the meaning ascribed to such term in the first
Recital of this Agreement.
"Cause" shall have the meaning ascribed to such term in Section
7(d)(iii) of the Employment Agreements.
"Certificate of Amendment" means the Certificate of Amendment to the
ARTICLEs of Organization.
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"CERCLA" means the Comprehensive Environmental Response Compensation
and Liability Act of 1980, 42 U.S.C. ss. 9601, et seq., as amended, and the
rules and regulations promulgated thereunder.
"Closing" means the consummation of the transactions contemplated by
this Agreement in accordance with the provisions of ARTICLE IX hereof.
"Closing Consideration Percentage" shall have the meaning ascribed to
such term in Section 2.5(a) hereof.
"Closing Date" shall mean the date upon which the Closing occurs.
"Closing Shares" shall have the meaning ascribed to such term in
Section 2.3(a) hereof.
"Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"Commission" means the United States Securities and Exchange
Commission.
"Common Stock" means the common stock, par value $.05 per share, of
Eastbrokers.
"Confidential Information" shall have the meaning ascribed to such term
in Section 12.4 hereof.
"Consideration" shall have the meaning ascribed to such term in Section
2.1 hereof.
"Consideration Allocation Percentage" shall have the meaning ascribed
to such term in Section 2.8(c) hereof.
"Contract" means any contract, agreement, commitment, undertaking,
arrangement or purchase order (whether oral or written).
"Conversion Shares" shall mean any of the shares of Common Stock into
which the Litigation Note or the Earn-Out Note are converted.
"Delivering Parties shall have the meaning ascribed to such term in
Section 12.4 hereof.
"Earn-Out Conversion" shall have the meaning ascribed to such term in
Section 2.6(b) hereof.
"Earn-Out Conversion Notice" shall have the meaning ascribed to such
term in Section 2.6(b) hereof.
"Earn-Out Conversion Shares" shall have the meaning ascribed to such
term in Section 2.6(b) hereof.
"Earn-Out Escrow Agreement" shall have the meaning ascribed to such
term in Section 2.5 hereof.
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"Earn-Out Escrow Period" shall have the meaning ascribed to such term
in Section 2.5 hereof.
"Earn-Out Maturity Date" shall have the meaning ascribed to such term
in Section 2.6(a) hereof.
"Earn-Out Note" shall have the meaning ascribed to such term in Section
2.3(c) hereof.
"Earn-Out Note Amount" shall have the meaning ascribed to such term in
Section 2.6(a) hereof.
"Earn-Out Interest" shall have the meaning ascribed to such term in
Section 2.3(c) hereof.
"Earn-Out Liquidated Damages" shall have the meaning ascribed to such
term in Section 2.10 hereof.
"Earn-Out Pre-Tax Earnings" means Pre-Tax Earnings of Sutton exclusive
of and after giving effect to any amounts allocable and paid out to the Bonus
Pool as determined by Eastbrokers' regular outside auditors.
"Earn-Out Shares" shall have the meaning ascribed to such term in
Section 2.3(c) hereof.
"Employee" means each Former Sutton Member who executes an Employment
Agreement.
"Employment Agreement" means each agreement, dated as of even date
herewith, by and among Eastbrokers, Sutton and a Former Sutton Member providing
for the employment of such Former Sutton Member by Sutton.
"Encumbrance" means any lien, claim, charge, security interest,
mortgage, pledge, easement, conditional sale or other title, retention
agreement, defect in title, covenant or other restriction of any kind,
including, any restriction on use, voting transfer or other attributes of
ownership.
"Environmental Law" means any environmental or health and/or
safety-related law, regulation, rule, ordinance, order, decree or judgment at
the Federal, state, or local level, whether existing as of the Closing Date,
previously enforced, or subsequently enacted, including but not limited to: (i)
CERCLA; (ii) RCRA; (iii) Federal Water Pollution Control Act, as amended by the
Clean Water Act, as amended, 33 U.S.C. ss. 1251 et seq.; (iv) Toxic Substances
Control Act, 15 U.S.C. ss. 2601 et seq., as amended; (v) Emergency Planning and
Community Right-to-Know Act of 1986, 42 U.S.C. ss. 11001 et seq., as amended;
(vi) Clean Air Act, 42 U.S.C. ss. 7401 et seq., as amended; (vii) Rivers and
Harbors Act, 33 U.S.C. ss. 401 et seq., as amended; (viii) OSHA; (ix) Safe
Drinking Water Act, 42 U.S.C. ss. 300(f) et seq., as amended, and (x) any other
federal, state or local law, regulation, rule, ordinance, order, decree or
judgment currently or hereafter in existence which governs:
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(a) the existence, cleanup and/or remediation of toxic or
Hazardous Substances;
(b) the release or threatened release, emission, discharge or
presence of Hazardous Substances into or in the environment;
(c) the control of Hazardous Substances; or
(d) the use, generation, transport, treatment, handling,
management, storage, disposal, removal or recovery of Hazardous Substances.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"Filing Date" means the date on which the Certificate of Amendment to
the ARTICLEs of Organization of Sutton is filed with the Secretary of State of
the State of New York.
"Financial Statements" shall have the meaning ascribed to such term in
Section 3.6 hereof.
"Five Day Average Share Price" shall have the meaning ascribed to such
term in Section 2.7(b) hereof.
"Former Sutton Member" and "Former Sutton Members" shall have the
meanings ascribed to such term in the first paragraph of this Agreement
"Governmental Authority" means any foreign, federal or national, state
or provincial, municipal or local or other governmental authority, regulatory or
administrative agency, governmental commission, department, board, bureau,
agency or instrumentality, political subdivision, court, tribunal, official
arbitrator or arbitral board.
"Hazardous Substances" means any substance, chemical or waste that is
listed, or contains material amounts of one or more components that are defined,
designated, classified, considered or listed, as hazardous, toxic, radioactive,
or dangerous under any applicable state or federal law; as well as any asbestos
or asbestos-containing material, petroleum, petroleum product or by-product,
crude oil or any fraction thereof, natural gas, natural gas liquids, liquefied
natural gas, synthetic gas usable as fuel, or polychlorinated biphenyl's
("PCBs").
"Indebtedness" means all obligations for borrowed money and accounts
payable, however evidenced, including but not limited to principal and interest.
"Indemnified Liabilities" means damages, claims, complaints, suits,
actions, causes of action, proceedings, investigations, obligations, losses,
liabilities, assessments, penalties, judgments, deficiencies, expenses and
disbursements, including, without limitation, reasonable legal, accounting and
other professional expenses.
"Indemnitee" shall have the meaning ascribed to such term in Section
13.4 hereof.
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"Indemnitor" shall have the meaning ascribed to such term in Section
13.4 hereof.
"Intellectual Property Rights" means all (i) patents, patent
applications, patent disclosures and inventions, (ii) trademarks, service marks,
trade dress, trade names, logos and corporate names and registrations and
applications for registration thereof together with all of the goodwill
associated therewith, (iii) copyrights (registered or unregistered) and
copyrightable works and registrations and applications for registration thereof,
(iv) mask works and registrations and applications for registration thereof, (v)
computer software, data bases and documentation thereof, (vi) trade secrets,
(vii) other intellectual property rights and (viii) copies and tangible
embodiments thereof (in whatever form or medium).
"Interim Financial Statements" shall have the meaning ascribed to such
term in Section 3.6 hereof.
"Laws" means all foreign, federal, state and local laws, statutes,
ordinances and all rules, regulations, requirements (that have the force of law
or regulation), and administrative codes of any Governmental Authority or
Regulatory Agency.
"Liens" shall have the meaning ascribed to such term in Section 3.15(g)
hereof.
"Limited Representations, Warranties and Covenants" means all
representations, warranties and covenants made hereunder by the Parties that are
not "Unlimited Representations, Warranties and Covenants."
"Litigation Conversion" shall have the meaning ascribed to such term in
Section 2.4(b) hereof.
"Litigation Conversion Notice" shall have the meaning ascribed to such
term in Section 2.4(b) hereof.
"Litigation Conversion Shares" shall have the meaning ascribed to such
term in Section 2.4(b) hereof.
"Litigation Escrow Agent" shall have the meaning ascribed to such term
in Section 2.5 hereof.
"Litigation Escrow Agreement" shall have the meaning ascribed to such
term in Section 2.5 hereof.
"Litigation Escrow Period" shall have the meaning ascribed to such term
in Section 2.5 hereof.
"Litigation Interest" shall have the meaning ascribed to such term in
Section 2.4 hereof.
"Litigation Liability" shall have the meaning ascribed to such term in
Section 2.5(b) hereof.
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"Litigation Liquidated Damages" shall have the meaning ascribed to such
term in Section 2.10 hereof.
"Litigation Liquidated Damages Reduction" shall have the meaning
ascribed to such term in Section 2.5(a) hereof.
"Litigation Note" shall have the meaning ascribed to such term in
Section 2.3(b) hereof.
"Litigation Note Amount" shall have the meaning ascribed to such term
in Section 2.4(a) hereof.
"Litigation Interest" shall have the meaning ascribed to such term in
Section 2.3(b) hereof.
"Litigation Maturity Date" shall have the meaning ascribed to such term
in Section 2.4(a) hereof.
"Litigation Shares" shall have the meaning ascribed to such term in
Section 2.3(b) hereof.
"Material Adverse Effect" means a material adverse effect on the
condition (financial or otherwise), results of operations, prospects, assets,
liabilities or business of a Person.
"Maximum Earn-Out Conversion Shares" shall have the meaning ascribed to
such term in Section 2.7 hereof.
"Maximum Earn-Out Liquidated Damages" shall have the meaning ascribed
to such term in Section 2.7 hereof.
"Maximum Other Earn-Out Escrow Assets" shall have the meaning ascribed
to such term in Section 2.7 hereof.
"Member" and "Members" shall have the meanings set forth in the first
paragraph of this Agreement.
"NASD" means the National Association of Securities Dealers, Inc.
"NASDAQ" means the NASD's Automated Quotations System.
"NASDR" means the National Association of Securities Dealers
Regulation, Inc.
"Non-Compete Agreement" means each agreement dated as of even date
herewith, by and among Eastbrokers, Sutton and each Former Sutton Member.
"Notes" shall have the meaning ascribed to such term in Section 2.1
hereof.
"Notice of Claim" shall have the meaning ascribed to such term in
Section 13.4 hereof.
"Operating Agreement" means the Operating Agreement, as amended, of
Sutton.
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"Operating Committee" means the Operating Committee of Eastbrokers.
"Orders" means any consent or other type of decree, injunction,
stipulation, decision, determination, judgment, order, ruling, arbitration or
other award, assessment or writ of any Government Authority or Regulatory
Agency.
"OSHA" means the Occupational Safety and Health Act of 1970,
29 U.S.C.ss. 651 et seq., as amended, and the rules and regulations promulgated
thereunder.
"Owned Real Property" shall have the meaning ascribed to such term in
Section 3.10 hereof.
"Permits" means permits, certificates, Orders, licenses, approvals,
tariffs, registrations and other authorizations.
"Permitted Encumbrances" means (a) liens for taxes and other
governmental charges and assessments which are not yet due and payable, (b)
liens of landlords and liens of carriers, warehousemen, mechanics and
materialmen and (c) other like liens arising in the ordinary course of business
for sums not yet due and payable; PROVIDED, HOWEVER, that "Permitted
Encumbrances" shall not include (i) liens of the types referred to in clauses
(a), (b) or (c) above which exceed $10,000 individually or in the aggregate or
(ii) liens or imperfections which materially detract from the value of or
materially impair the existing use of the property affected by such lien or
imperfection.
"Person" means any individual, corporation, limited liability company,
partnership, limited partnership, limited liability partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, 401(k) or
other employee benefits plan or Governmental Authority or Regulatory Agency.
"Pre-Tax Earnings" shall have the meaning ascribed to such term in
Section 2.2(b) hereof.
"RCRA" means the Resource Conservation and Recovery Act, 42 U.S.C.ss.
6901 et seq., as amended, and the rules and regulations promulgated thereunder.
"Receiving Party" shall have the meaning ascribed to such term in
Section 12.8 hereof.
"Regulatory Agency" means any self-regulatory organization, agency or
instrumentality.
"Returned Litigation Conversion Shares" shall have the meaning ascribed
to such term in Section 2.5(a) hereof.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SIPC" means the Security Investors Protection Corporation.
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"Sutton" shall have the meaning ascribed to such term in the first
paragraph of this Agreement.
"Sutton Interests" means 100% of the outstanding membership interests
of Sutton and any other ownership interests in Sutton.
"Taxes" shall have the meaning ascribed to such term in Section 3.15(n)
hereof.
"Tax Return" shall have the meaning ascribed to such term in Section
3.15(n) hereof.
"Unlimited Representations, Warranties and Covenants" means those
representations, warranties and covenants of the parties hereto as provided in
ARTICLE III, ARTICLE IV and ARTICLE XII.
SECTION 1.2 KNOWLEDGE. The phrase "to the best knowledge of" any
Person, or any similar phrase, as used herein refers to actual personal
knowledge, after reasonable inquiry, of such Person.
ARTICLE II
THE ACQUISITION
SECTION 2.1 ACQUISITION. Upon and subject to the terms and conditions
set forth in this Agreement and in accordance with the Delaware General
Corporation Law and the New York Limited Liability Company Law, on the Closing
Date, Eastbrokers shall acquire (the "Acquisition") 100% of the outstanding
membership interests of Sutton from the Sutton Members and any other ownership
interests in Sutton (collectively, the "Sutton Interests"). In consideration for
the Sutton Interests, Eastbrokers will issue to the Members, the Special Members
and Mr. Cohen 40,000 shares of Common Stock (the "Acquisition Shares") and
deliver each of the Litigation Note and the Earn-Out Note in aggregate principal
amount of $660,000 (the "Aggregate Note Amount") as provided in Section 2.3
hereof. The Notes and the Acquisition Shares are sometimes collectively referred
to herein as the "Consideration" and the Litigation Note and the Earn-Out Note
are sometimes collectively referred to herein as the "Notes."
SECTION 2.2 EFFECTS OF THE ACQUISITION.
(a) STAND-ALONE SUBSIDIARY. From and after the Closing,
Sutton will operate as a wholly-owned stand-alone subsidiary of Eastbrokers and
the Former Sutton Members will be responsible for the day-to-day management of
Sutton, with such rights and responsibilities as are provided in each respective
Former Sutton Member's Employment Agreement. For as long as any Former Sutton
Member is an Employee, the Former Sutton Members who are Employees shall have
the right to designate one Former Sutton Member (who is an Employee) to serve on
the Operating Committee and for so long as Jonathan D. Siegel is employed by
Eastbrokers or a subsidiary of Eastbrokers he shall be the designee to serve on
such Operating Committee.
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(b) ALLOCATION OF PRE-TAX EARNINGS. "Pre-Tax Earnings"
shall mean Sutton's income (loss) after depreciation, amortization, interest and
extraordinary expenses and before federal and state income taxes. Such amount
shall be calculated by Eastbrokers' regular outside auditors in a manner
substantially similar to the historical manner pursuant to which Sutton has
computed Pre-Tax Earnings prior to the Acquisition; PROVIDED, HOWEVER, that such
manner is in accordance with generally accepted accounting principles. During
the period provided in the Employment Agreements, the Pre-Tax Earnings of Sutton
shall be allocated as follows:
(i) Thirty-five percent of the Pre-Tax Earnings shall
be allocated to a bonus pool (the "Bonus Pool"). The distributions to the Bonus
Pool shall be allocated among the Former Sutton Members and the Former Special
Members in accordance with their respective Consideration Allocation
Percentages.
(ii) Twenty-five percent of the Pre-Tax Earnings shall
be payable to Eastbrokers as a management fee (the "Management Fee") as provided
in this Section 2.3(b)(ii). Commencing upon Closing, the Management Fees payable
to Eastbrokers shall begin to accrue and promptly (and in no event later than 30
days) following the last day of each calendar quarter, the Management Fee shall
be paid to Eastbrokers by Sutton in an amount equal to twenty-five percent of
Pre-Tax Earnings of the immediately preceding calendar quarter; PROVIDED,
HOWEVER, that if, within the first 30 days following any calendar quarter, the
Managers of Sutton determines that cash flow considerations make it desirable to
defer payment of the Management Fee, Sutton may defer payment of such Management
Fee if, but only if, payment of all Sutton bonuses, including Bonus Pool
bonuses, is deferred for the same period of time.
(iii) Forty percent of the Pre-Tax Earnings shall
be held as retained earnings and may be used by Sutton for working capital and
general business purposes in connection with the operation of the Business.
(c) WORKING CAPITAL CONTRIBUTION. Simultaneously with the
Closing (or at such other time as the parties hereto may reasonably agree), in
order to satisfy net capital requirements applicable to Sutton, Eastbrokers will
provide Sutton with $1.5 million in working capital in the form of a single
lump-sum payment and the Sutton Members and Special Members may withdraw capital
from Sutton up to an aggregate amount equal to $1.5 million.
SECTION 2.3 DELIVERY OF THE CONSIDERATION.
(a) At the Closing, Eastbrokers will issue the Acquisition
Shares and duly executed certificates representing the Acquisition Shares will
be delivered by Eastbrokers to the Former Sutton Members, allocated among the
Former Sutton Members as provided in Section 2.8(c) hereof;
(b) Of the Aggregate Note Amount, $110,000 is hereby
designated as the "Aggregate Litigation Note Amount" and a note (the "Litigation
Note") in substantially the form attached hereto as ATTACHMENT B-1 made by
Eastbrokers in favor of the Former Sutton Members, bearing interest (the
"Litigation Interest) at an annual rate of 7%, shall be delivered by Eastbrokers
to the Litigation Escrow Agent and shall be held by the Litigation Escrow Agent
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pursuant to the terms of the Litigation Escrow Agreement as provided in Sections
2.5 and 2.8(b) hereof;
(c) Of the Aggregate Note Amount, $550,000 is hereby
designated as the "Aggregate Earn-Out Note Amount" and a note (the "Earn-Out
Note") in substantially the form attached hereto as ATTACHMENT B-2 made by
Eastbrokers in favor of the Former Sutton Members, bearing interest (the
"Earn-Out Interest") at an annual rate of 7%, shall be delivered by Eastbrokers
to the Earn-Out Escrow Agent and shall be held by the Earn-Out Escrow Agent
pursuant to the terms of the Earn-Out Escrow Agreement as provided in Sections
2.7 and 2.8(b) hereof.
SECTION 2.4 LITIGATION NOTE.
(a) At the Closing, Eastbrokers shall cause to be executed and
delivered to the Litigation Escrow Agent the Litigation Note evidencing an
obligation on the part of Eastbrokers to pay each Member and each of the Special
Members such portion (the "Litigation Note Amount") of the Aggregate Litigation
Note Amount as equals the Aggregate Litigation Note Amount multiplied by such
Person's respective Consideration Allocation Percentage, plus any accrued
Litigation Interest thereon. The Aggregate Litigation Note Amount, together with
all accrued Litigation Interest thereon, shall become due and payable on March
31, 2000 (the "Litigation Maturity Date"), unless the Litigation Note shall have
been converted into equity as provided in Section 2.4(b) hereof.
(b) Eastbrokers may, at its sole discretion, elect to convert
(the "Litigation Conversion"), at any time prior to the Litigation Maturity
Date, the Litigation Note into 110,000 shares (the "Litigation Conversion
Shares") of Common Stock at a conversion rate of $1.00 per share. The Litigation
Conversion shall be effected in the following manner: (i) Eastbrokers shall
execute and deliver to the Person holding the Note to be converted and to the
Litigation Escrow Agent notice, in substantially the form attached hereto as
ATTACHMENT C-1 (the "Litigation Conversion Notice"), of its intent to convert
the Note; and (ii) Eastbrokers shall promptly cause to be issued and delivered
to the Litigation Escrow Agent duly executed certificate(s) representing the
Litigation Conversion Shares and the corresponding Note shall immediately and
without further action be cancelled and become null and void and the Litigation
Escrow Agent shall return such cancelled Litigation Note to Eastbrokers. In the
event the Litigation Note is converted as provided herein, the Aggregate
Litigation Note Amount in respect of the converted Litigation Note and any
Litigation Interest thereon shall be deemed fully paid and no further amount
shall be owed by Eastbrokers in respect thereof.
SECTION 2.5 LITIGATION ESCROW AGREEMENT.
(a) At the Closing, the Litigation Note will be placed and
held in escrow pursuant to the terms of an escrow agreement, in substantially
the form attached hereto as EXHIBIT A (the "Litigation Escrow Agreement"), to be
entered into by each of the parties hereto (except for Mr. Cohen). In addition
to the appointment of an escrow agent (the "Litigation Escrow Agent"), the
Litigation Escrow Agreement shall provide for: (A) an escrow period of 24 months
following the Closing (the "Litigation Escrow Period"); (B) the Litigation
Conversion as provided in Section 2.4(b) hereof; (C)(1) in the event such
conversion is elected by Eastbrokers, the return to Eastbrokers of such portion
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(the "Returned Litigation Conversion Shares") of the Litigation Conversion
Shares as equals the excess (if any) of the Litigation Liability over $1
million, and the return to Eastbrokers of any Other Litigation Escrow Assets (as
that term is defined in the Litigation Escrow Agreement) in the same proportion
to the total Other Litigation Escrow Assets as the Returned Litigation
Conversion Shares bear to the total Litigation Conversion Shares and (2) in the
event the Litigation Conversion is not elected by Eastbrokers, reducing the
Litigation Liquidated Damages to be released to the Former Sutton Members and
the Former Special Members by such portion (the "Litigation Liquidated Damages
Reduction") of the Litigation Liquidated Damages as equals the excess (if any)
of the Litigation Liability over $1 million; and (D)(1) in the event such
conversion is elected by Eastbrokers, the delivery of the Litigation Conversion
Shares, less the Returned Litigation Conversion Shares, and the corresponding
Other Litigation Escrow Assets to the Former Sutton Members and the Former
Special Members who are entitled, pursuant to Section 2.8(b) hereof, to an
allocation of Litigation Conversion Shares and any Other Litigation Escrow
Assets and (2) in the event the Litigation Conversion is not elected by
Eastbrokers, the payment of the Litigation Liquidated Damages, less the
Litigation Liquidated Damages Reduction, and the corresponding Other Litigation
Escrow Assets to the Former Sutton Members and the Former Special Members who
are entitled, pursuant to Section 2.8(b) hereof, to an allocation of Litigation
Liquidated Damages and any Other Litigation Escrow Assets. In the event such
conversion is elected by Eastbrokers, upon such Conversion 35,000 out of the
total 110,00 Conversion Shares shall be released immediately from escrow to the
Former Sutton Members and the Former Special Members in accordance with their
respective Consideration Allocation Percentage and in the event such conversion
is not elected by Eastbrokers, Litigation Liquidated Damages in the same
proportion (35:110) shall immediately be released from escrow to the Former
Sutton Members and the Former Special Members in accordance with the same
Consideration Allocation Percentages.
(b) "Litigation Liability" shall mean such liability to
either or both of Eastbrokers and Sutton as results from any litigation during
the Litigation Escrow Period with respect to Sutton or the Members (or Former
Sutton Members, as the case may be) or the Special Members (or Former Special
Members, as the case may be)that arises out of events or circumstances that
occurred or existed either prior to the Acquisition or during the Litigation
Escrow Period and attributable to the acts or omissions of any of the Former
Sutton Members; PROVIDED, HOWEVER, that in calculating the Litigation Liability,
there shall be excluded (i) any liability in connection with any matter
contemplated by Section 3.14 hereof which was not disclosed on Schedule 3.14
hereto, and (ii) any Indemnified Liability for which the Former Sutton Members
shall be responsible pursuant to Section 13.3 hereof. The amount of any
Litigation Liability and the number of Returned Litigation Conversion Shares
required to compensate for such Litigation Liability shall be determined as
provided in Section 2.9 hereof.
(c) In the event the Litigation Note is not converted by
Eastbrokers and the amount due under the Litigation Note is the Reduced
Litigation Note Amount pursuant to clause (B)(2) of Section 2.3(d) hereof, then
the Litigation Interest due shall be limited to the interest accumulated on the
Reduced Litigation Note Amount as though the Reduced Litigation Note Amount had
been bearing interest from the Closing Date to maturity of the Litigation Note.
SECTION 2.6 EARN-OUT NOTE.
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(a) At the Closing, Eastbrokers shall cause to be executed and
delivered to the Earn-Out Escrow Agent the Earn-Out Note evidencing the
obligation on the part of Eastbrokers to pay each Member and the Special Members
such portion (the "Earn-Out Note Amount") of the Aggregate Earn-Out Note Amount
as equals the Aggregate Earn-Out Note Amount multiplied by such Person's
respective Consideration Allocation Percentage, plus any accrued Earn-Out
Interest thereon. The Aggregate Earn-Out Note Amount, together with all accrued
Earn-Out Interest thereon, shall become due and payable on March 31, 2000 (the
"Earn-Out Maturity Date"), unless the Earn-Out Note shall have been converted
into equity as provided in Section 2.6(b) hereof.
(b) Eastbrokers may, at its sole discretion, elect to convert
(the "Earn-Out Conversion"), at any time prior to the Earn-Out Maturity Date,
the Earn-Out Note into 550,000 shares (the "Earn-Out Conversion Shares") of
Common Stock at a conversion rate of $1.00 per share. The Earn-Out Conversion
shall be effected in the following manner: (i) Eastbrokers shall execute and
deliver to the Person holding the Earn-Out Note to be converted and to the
Earn-Out Escrow Agent notice (the "Earn-Out Conversion Notice"), in
substantially the form attached hereto as ATTACHMENT C-2, of its intent to
convert the Earn-Out Note; and (ii) Eastbrokers shall promptly cause to be
issued and delivered to the Earn-Out Escrow Agent duly executed certificate(s)
representing the Earn-Out Conversion Shares and the Earn-Out Note shall
immediately and without further action be cancelled and become null and void and
the Earn-Out Escrow Agent shall return such Earn-Out Note to Eastbrokers. In the
event the Earn-Out Note is converted as provided herein, the Earn-Out Note
Amount and any accrued Earn-Out Interest thereon shall be deemed fully paid and
no further amount shall be owed by Eastbrokers in respect thereof.
SECTION 2.7 EARN-OUT ESCROW AGREEMENT; EARN-OUT ADJUSTMENT. At the
Closing, the Earn-Out Note will be placed and held in escrow pursuant to the
terms of an escrow agreement, in substantially the form attached hereto as
EXHIBIT B (the "Earn-Out Escrow Agreement"), to be entered into by each of the
parties hereto. In addition to the appointment of an escrow agent (the "Earn-Out
Escrow Agent"), the Earn-Out Escrow Agreement shall provide for: (A) an escrow
period of 24 months following the Closing (the "Earn-Out Escrow Period"), (B)
the Earn-Out Conversion as provided in Section 2.6(b) hereof; and (C)(1) in the
event such conversion is elected by Eastbrokers, the delivery of all (the
"Maximum Earn-Out Conversion Shares") of the Earn-Out Conversion Shares and all
(the "Maximum Other Earn-Out Escrow Assets") of the Other Earn-Out Escrow Assets
(as that term is defined in the Earn-Out Escrow Agreement) to the Former Sutton
Members and the Former Special Members who are entitled, pursuant to Section
2.8(b) hereof, to an allocation of Earn-Out Conversion Shares and any Other
Earn-Out Escrow Assets and (2) in the event such conversion is not elected by
Eastbrokers, the payment of the entire Earn-Out Liquidated Damages (the "Maximum
Earn-Out Liquidated Damages") to the Former Sutton Members and the Former
Special Members who are entitled, pursuant to Section 2.8(b) hereof, to an
allocation thereof; PROVIDED, HOWEVER, that if Sutton's Earn-Out Pre-Tax
Earnings for the two years ending with the termination of the Earn-Out Escrow
Period fails to equal or exceed $2.0 million, then the Earn-Out Escrow Agreement
shall provide for (X) in the event Eastbrokers elects to convert the Earn-Out
Note, the delivery to such entitled Former Sutton Members and the Former Special
Members (as long as they remain entitled pursuant to Section 2.8(b) hereof) of
such portion of the Earn-Out Conversion Shares (the "Actual Earn-Out Conversion
Shares") as is set forth in Table X below and any Other Earn-Out Escrow Assets
in the same
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<PAGE>
proportion to the total Other Earn-Out Escrow Assets as the Actual Earn-Out
Conversion Shares bear to the Maximum Earn-Out Conversion Shares, and (Y) in the
event Eastbrokers does not elect to convert the Earn-Out Note, the Payment to
such entitled Former Sutton Members and the Former Special Members (as long as
they remain entitled pursuant to Section 2.8(b) hereof) of such portion of the
Maximum Earn-Out Liquidated Damages as bears the same proportion to the Maximum
Earn-Out Liquidated Damages that the Actual Earn-Out Conversion Shares would
have borne to the Maximum Earn-Out Conversion Shares had Eastbrokers elected to
convert the Earn-Out Note. The Actual Earn-Out Shares shall be up to the amount
indicated in the table below pro rated in proportion to the Earn-Out Pre-Tax
Earnings. By way of example, if the Earn-Out Pre-Tax Earnings are $250,000, then
the Actual Earn-Out Conversion Shares shall be 175,000 multiplied by quotient of
$250,000 divided by $499,999.99; if the Earn-Out Pre-Tax Earnings are
$1,250,000, then the Actual Earn-Out Conversion Shares shall be 325,000 plus (X)
450,000 minus 325,000 multiplied by (Y) the quotient of (a) $1,499,999.99 minus
$1,250,000 divided by (b) $1,499,999.99 minus $1,000,000.
TABLE X
IF EARN-OUT PRETAX EARNINGS ARE: Then Actual Earn-Out
Conversion Shares Shall Be
Pro Rated Up to:
---------------
Between $1,500,000 and $2,000,000 550,000
Between $1,000,000 and $1,499,999.99 450,000
Between $ 500,000 and $999,999.99 325,000
Between $-0- and $499,999.99 175,000.
SECTION 2.8 ALLOCATION OF THE CONSIDERATION AND BONUS POOL.
(a) The Acquisition Shares shall be allocated among the Former
Sutton Members, the Former Special Members and Mr. Cohen pro rata in accordance
with their respective Consideration Allocation Percentage as provided in Section
2.8(c) hereof.
(b) The Bonus Pool, the Litigation Conversion Shares or the
Litigation Liquidated Damages, as the case may be, and any Other Litigation
Escrow Assets and the Earn-Out Conversion Shares or the Earn-Out Liquidated
Damages, as the case may be, and any Other Earn-Out Escrow Assets shall be
released to the Former Sutton Members who are Employees and to the Former
Special Members as long as they are employed by Sutton, allocated in accordance
with the Consideration Allocation Percentages as provided in Section 2.8(c)
hereof; PROVIDED, HOWEVER, that if any Former Sutton Member who is an Employee
terminates his employment without Good Reason (as defined in his respective
Employment Agreement) or is terminated for Cause (as defined in his respective
Employment Agreement) prior to the Release Date (as that term is defined in each
respective escrow agreement), or a Former Special Member shall cease to be
employed by Sutton, such Person shall forfeit the Bonus Pool allocation and the
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Litigation Conversion Shares or the Litigation Liquidated Damages, as the case
may be, and any Other Litigation Escrow Assets and the Earn-Out Conversion
Shares or the Earn-Out Liquidated Damages, as the case may be, and any Other
Earn-Out Escrow Assets, to which he otherwise would have been entitled and such
portion or amount shall be ratably distributed among the other Former Sutton
Members who remain Employees in accordance with their respective Consideration
Allocation Percentages, as equitably adjusted subsequent to such termination of
employment.
(c) The "Consideration Allocation Percentage" of each Former
Sutton Member, each Former Special Member and Mr. Cohen shall be:
(i) as to allocating the 40,000 Acquisition Shares to
be issued at Closing pursuant to Sections 2.1 and 2.3(a) hereof,
the percentage set forth in column I opposite each such Person's
name;
(ii) as to allocating the 35,000 Litigation Conversion
Shares to be released from the Litigation Escrow Account pursuant
to Sections 2.5(a) hereof, the percentage set forth in column II
opposite each such Person's name;
(iii) as to allocating up to the next 450,000 Conversion
Shares to be released from the Litigation Escrow Account and/or
the Earn-Out Escrow Account pursuant to the respective escrow
agreements governing such escrow accounts, the percentage set
forth in column III opposite each such Person's name;
(iv) as to allocating up to the remaining 175,000
Conversion Shares to be released from the Litigation Escrow
Account and/or the Earn-Out Escrow Account pursuant to the
respective escrow agreements governing such escrow accounts, the
percentage set forth in column IV opposite each such Person's
name;
(v) as to allocating up to the Bonus Pool pursuant
to section 2.2(b)(i), the percentage set forth in column V
opposite each such Person's name.
<TABLE>
<CAPTION>
CONSIDERATION ALLOCATION PERCENTAGE
FORMER SUTTON MEMBER
I II III IV V
- ---------------------------------- ---------------- --------------- --------------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
J. Siegel and Bud Clarke and S. 13.6175% 31.1629% 32.04% 35.28% 0.00%
Schoffman TR JB Sutton Group
401K P/S PLN FBO Jonathan D.
Siegel U/A DTD 10/1/95
J. Siegel and Bud Clarke and S. 13.6175% 31.1629% 32.04% 19.87% 0.00%
Schoffman TR JB The JB
15
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSIDERATION ALLOCATION PERCENTAGE
FORMER SUTTON MEMBER
I II III IV V
- ---------------------------------- ---------------- --------------- --------------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
Sutton Group 401K P/S PLN FBO Stephen
C. Schoffman U/A DTD 10/1/95
Jonathan D. Siegel 0.00%* 0.00%* 0.00%* 0.00%* 35.28%
Stephen C. Schoffman 0.00%** 0.00%** 0.00%** 0.00%** 19.87%
Peter Cohen 57.50% 0.00% 0.00% 0.00% 0.00%
Bud Clarke 6.7825% 15.5229% 15.96% 20.76% 20.76%
Steven Caruso 6.7825% 15.5229% 15.96% 20.09% 20.09%
William Grundig 0.8500% 3.3143% 2.00% 2.00% 2.00%
Jason Bishara 0.8500% 3.3143% 2.00% 2.00% 2.00%
* Portions may be allocated to Jonathan D. Siegel from J. Siegel and Bud Clarke and S. Schoffman TR JB Sutton Group 401K P/S PLN FBO
Jonathan D. Siegel U/A DTD 10/1/95.
** Portions may be allocated to Stephen C. Schoffman from J. Siegel and Bud Clarke and S. Schoffman TR JB Sutton Group 401K P/S PLN
FBO Stephen C. Schoffman U/A DTD 10/1/95.
</TABLE>
SECTION 2.9 VALUATION OF LITIGATION LIABILITY; VALUATION OF
RETURNED SHARES.
(a) In assigning value to any Litigation Liability, there
shall be taken into account, without limitation, the following items: legal fees
and expenses; fees and expenses of experts; court costs and filing fees; costs
and expenses related to depositions and discovery; costs and expenses of
arbitration; fines, penalties and fees payable to Governmental Authorities;
Taxes; settlement amounts (whether paid in cash, securities or any other
property); and final judgments (whether awarded by trial by jury, bench trial or
arbitration board). Litigation Liability shall extend to any and all appeals
taken with respect to the underlying claim or claims.
(b) For purposes of calculating the number of Returned
Litigation Conversion Shares required to compensate for any Litigation
Liability, each Litigation Conversion Share shall be valued at its Five Day
Average Share Price or $5.00 per share, whichever is higher. The "Five Day
Average Share Price" shall mean the average of the closing bid prices of the
Common Stock on the NASDAQ SmallCap Market (or on such other United States stock
exchange or public trading market on which the shares of Common Stock trade if,
at the time of valuation, they are not trading on the NASDAQ SmallCap Market),
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as reported by Bloomberg Financial Markets, for the final five trading days of
the Litigation Escrow Period. In the event Eastbrokers does not elect the
Litigation Conversion, the Litigation Liquidated Damages Reduction required to
compensate for any Litigation Liability shall be valued on a dollar-for-dollar
basis.
SECTION 2.10 LIQUIDATED DAMAGES. The Parties acknowledge that, if
either of the Notes is not converted by March 31, 2000 (the "Conversion Date"),
each Member would suffer irreparable damage and, therefore, Eastbrokers agrees,
in such event, to pay into the appropriate escrow account, as liquidated damages
and not as a penalty, an amount (the "Litigation Liquidated Damages" in the case
of the Litigation Note and the "Earn-Out Liquidated Damages" in the case of the
Earn-Out Note) equal to the product of (i) the number of shares of Common Stock
into which any unconverted Note was to have been converted multiplied by (ii)
the closing bid price (the "Closing Bid Price") of the Common Stock on March 31,
2000; PROVIDED, HOWEVER, that, for purposes of calculating liquidated damages,
in the event the Closing Bid Price is below $5.00 per share it shall be deemed
to be $5.00 per share. Payment of such liquidated damages shall satisfy in full
the obligation of Eastbrokers to pay the outstanding Note Amount, plus any
accrued and unpaid interest thereon, of such unconverted Note.
SECTION 2.11 ALLOCATION OF PURCHASE PRICE. To the extent required by
applicable Tax law, the parties shall cooperate with respect to any
determination required to be made as to the allocation of the Acquisition Shares
and Conversion Shares among the assets owned by Sutton as of the Closing,
including the filing of IRS Form 8594.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SUTTON AND THE MEMBERS AND
SPECIAL MEMBERS
As an inducement to Eastbrokers to enter into this Agreement and to
consummate the transactions contemplated hereby, Sutton and the Members and
Special Members, jointly and severally, represent and warrant to Eastbrokers
that on the Closing Date the matters set forth in this ARTICLE III are true and
correct, except as may be set forth in the disclosure schedules attached hereto,
it being understood that such schedules part of this Agreement. Nothing in any
of the schedules shall be deemed adequate to disclose an exception to a
representation or warranty made herein unless the schedule identifies the
exception with particularity and describes the relevant facts in detail.
SECTION 3.1 ORGANIZATION, QUALIFICATION AND AUTHORITY OF SUTTON. (a)
Sutton is a limited liability company duly organized, validly existing and in
good standing under the laws of the State of New York. Sutton has full legal
power and authority and all licenses, permits and authorizations necessary to
own and operate its properties, to carry on its business as presently conducted
and presently proposed to be conducted. Sutton has been duly qualified as a
foreign limited liability company for the transaction of business in, and is in
good standing under the laws of, each jurisdiction in which it owns, leases or
uses property or conducts any business so as to require such qualification,
except where the failure to so qualify would not have a Material Adverse Effect
on Sutton. Except as set forth on SCHEDULE 3.1, Sutton does not have any
subsidiaries, or any direct or indirect ownership in, or any rights or
17
<PAGE>
obligation to acquire any direct or indirect ownership in, or any right or
obligation to acquire any debt securities of, any Person.
(b) Sutton has full power and authority to enter into this
Agreement and each of the Litigation Escrow Agreement and Earn-Out Escrow
Agreement and to perform its obligations hereunder and thereunder. The execution
and delivery of this Agreement and each of the Litigation Escrow Agreement and
Earn-Out Escrow Agreement by Sutton and the performance of the transactions
herein and therein contemplated have been duly authorized by the Members and
Special Members of Sutton, no further internal action on the part of Sutton is
necessary to authorize this Agreement and each of the Litigation Escrow
Agreement and Earn-Out Escrow Agreement and the performance of the transactions
contemplated hereby and thereby. This Agreement has been duly executed and
delivered by Sutton and the Members and Special Members and constitutes the
legal, valid and binding obligation of Sutton and the Members and Special
Members enforceable against them in accordance with its terms.
(c) The Members and Special Members are the sole registered
holders and beneficial owners of the Sutton Interests and own them free and
clear of any and all Encumbrances. The Members and Special Members have the
legal right, title, and authority to transfer their respective Sutton Interests
to Eastbrokers as contemplated hereby. The assignment, sale and transfer of the
Sutton Interests to Eastbrokers in accordance herewith will vest in Eastbrokers'
full right, title and interest in and to all the Sutton Interests, free and
clear of any and all Encumbrances.
SECTION 3.2 MEMBERSHIP INTERESTS. All issued Sutton Interests are
duly authorized, validly issued and fully paid and non-assessable. No options,
warrants or other rights for the purchase of any of the Sutton Interests or any
security convertible into such Sutton Interests are authorized and outstanding.
Except as set forth in SCHEDULE 3.2, or in the Operating Agreement of Sutton
there are no: (i) voting trusts or other contractual commitments or
understandings with respect to the ownership, transfer and voting of the Sutton
Interests; (ii) contracts, commitments or understandings to issue any additional
Sutton Interests; or (iii) securities or rights of any kind outstanding which
are convertible into or exchangeable for any Sutton Interests or other interests
in Sutton.
SECTION 3.3 LIMITED LIABILITY COMPANY ORGANIZATIONAL DOCUMENTS. Copies
of (i) the ARTICLEs of Organization of Sutton, certified by the Secretary of the
State of New York, and (ii) the Operating Agreement of Sutton, certified by a
Manager (or other authorized Member) authorized to certify as to the matters
herein, each of which have been made available to counsel for Eastbrokers, are
true and complete copies of such documents, as amended to date, and are in full
force and effect on the Closing Date.
SECTION 3.4 NO CONFLICT. (a) Except as set forth on SCHEDULE 3.4(A),
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, will not contravene any applicable provision
of any Laws.
(b) Except as set forth on SCHEDULE 3.4(B), with respect
to the terms and conditions of any note, bond, mortgage, indenture, deed of
trust, lease, Contract, Permit, agreement, any other instrument or any Order of
any Governmental Authority or Regulatory Agency to which Sutton is a party or
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<PAGE>
subject or by which any of the Sutton Interests or any assets or property of
Sutton are bound, the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not (i) conflict with
or result in a breach of terms, conditions or provisions; (ii) constitute a
violation, default, event of default (or an event which, with notice or lapse of
time or both, would constitute a default or an event of default) or an event
creating rights of modification, acceleration, termination, cancellation or
other additional rights, or loss of rights; (iii) result in the creation of any
Encumbrance upon any of the Sutton Interests or any assets or property of
Sutton; or (iv) require any authorization, consent, approval or exemption of
other action by notice or declaration to, or filing with, any Governmental
Authority or Regulatory Agency pursuant to the ARTICLEs of Organization or
Operating Agreement of Sutton.
SECTION 3.5 CONSENTS. Except as otherwise set forth on SCHEDULE 3.5
and except for (i) filings of applications and notices with the NASD as may be
required in connection with the transactions contemplated hereby, (ii) the
filing of the Certificate of Amendment with the Secretary of State of the State
of New York and (iii) consents and approvals set forth on SCHEDULE 3.13, no
consent, approval or authorization of, and no declaration or notice to, or
filing or registration with, any Person is required to be obtained, made or
given by Sutton or the Members or Special Members in connection with the
execution, delivery and performance of this Agreement or the consummation by
Sutton or the Members or Special Members of the transactions contemplated by
this Agreement.
SECTION 3.6 FINANCIAL STATEMENTS. Sutton and the Members and Special
Members have heretofore delivered to Eastbrokers true, correct and complete
copies of the audited financial statements of Sutton for the years ended
December 31, 1998 (the "Most Recent Fiscal Year End"), December 31, 1997 and
December 31, 1996 (the "Financial Statements") and the unaudited financial
statements (the "Interim Financial Statements") of Sutton for the nine-month
period ended September 30, 1999. Except as set forth on SCHEDULE 3.6, the
Financial Statements and the Interim Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis. The Financial Statements and the Interim Financial Statements are based
on the books and records of Sutton at the time of their preparation, and fairly
present the financial condition of Sutton as of the dates they were prepared and
the results of the operations of Sutton for the periods indicated, subject, in
the case of the Interim Financial Statements, to normal recurring year-end
adjustments which, except as set forth on Schedule 3.6, will not, individually
or in the aggregate, be material.
SECTION 3.7 NO UNDISCLOSED LIABILITIES. Sutton has no liabilities or
obligations (absolute, accrued, contingent or otherwise) which individually or
in the aggregate would have a Material Adverse Effect on the condition of Sutton
(financial or otherwise), results of operations, prospects, assets, liabilities
or any other aspect of the business of Sutton, except for (a) liabilities and
obligations reflected in either the Financial Statements or Interim Financial
Statements and (b) liabilities and obligations disclosed on SCHEDULE 3.7.
SECTION 3.8 ABSENCE OF CERTAIN CHANGES. Except as set forth in
SCHEDULE 3.8, since the date of the Interim Financial Statements, Sutton and the
Members and Special Members have operated the Business only in the ordinary
course and there has not been:
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<PAGE>
(a) any change in the Business or in the financial condition
or in the operations of Sutton which could reasonably be expected to have a
Material Adverse Effect on Sutton, the Business or the Sutton Interests;
(b) any damage, destruction or loss, not covered by insurance,
with respect to any asset of Sutton;
(c) except in the ordinary course of business, any sale,
assignment, disposition, transfer, lease, mortgage, pledge or Encumbrance of any
assets of Sutton;
(d) any loss of any client which has had or could reasonably
be expected to have a Material Adverse Effect on Sutton, the Business or the
Sutton Interests;
(e) any increase by Sutton in the wages, salaries,
compensation, pension or other benefits payable to any Employee of Sutton except
as consistent with past practices; PROVIDED, HOWEVER, that such increase does
not exceed $10,000;
(f) any increase, cancellation, release or waiver of any
Indebtedness, except for compromise of trade debt in the ordinary course of
business;
(g) except as otherwise provided herein, any declaration or
payment of any dividend or distribution;
(h) any labor trouble, problem or grievance adversely
affecting Sutton;
(i) notice from any client of Sutton that it will or may
cease doing business with Sutton as a result of the transactions contemplated by
this Agreement;
(j) any change in any method of accounting or working
practice; or
(k) any agreement, whether or not in writing, to do any of
the foregoing.
SECTION 3.9 REPORTS. Sutton has timely filed all reports,
registrations and statements, together with any amendments required to be made
with respect thereto, that it was required to file since Sutton's inception with
(i) any Governmental Authority, (ii) the NASD, and (iii) any other Regulatory
Agencies, and has paid all fees and assessments due and payable in connection
therewith. Except for normal examinations conducted by a Governmental Authority
or Regulatory Agency in the regular course of the business of Sutton, no
Governmental Authority or Regulatory Agency has initiated any proceeding or, to
the best knowledge of Sutton, investigation into the business or operations of
Sutton since Sutton's inception. There are no unresolved violations, criticisms
or exceptions by any Governmental Authority or Regulatory Agency with respect to
any report or statement relating to any examinations of Sutton.
SECTION 3.10 TITLE TO REAL PROPERTY. SCHEDULE 3. 10 contains a
complete and accurate list of all real properties owned by Sutton (the "Owned
Real
20
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Property"). Sutton has good and marketable indefeasible fee simple title (both
legal and equitable) to the Owned Real Property, free and clear of any
Encumbrances, except Permitted Encumbrances and Encumbrances set forth on
SCHEDULE 3.10.
SECTION 3.11 REAL PROPERTY LEASES. SCHEDULE 3.11 contains a complete
and accurate list of each lease or similar agreement under which Sutton is (i)
lessee of, or holds or uses, any real property owned by any Person or (ii)
lessor of any of the Owned Real Property. Except as set forth in SCHEDULE 3.11,
Sutton has the right to quiet enjoyment of all the leased real property for the
full term of each such lease or similar agreement relating thereto, and the
leasehold or other interest of Sutton is not subject or subordinate to any
Encumbrance except for Permitted Encumbrances. All leases and similar agreements
referred to in SCHEDULE 3.11 are legally binding and in full force and effect,
and there exists no default or event of default (or an event which, with notice
or lapse of time or both, would constitute a default or event of default)
thereunder on the part of Sutton, or, to the best knowledge of Sutton, the other
party thereto.
SECTION 3.12 TITLE AND CONDITION OF CERTAIN PERSONAL PROPERTY. (a)
True and correct copies of a fixed asset detail listing of Sutton have been
previously made available to Eastbrokers, which listing reflects all personal
tangible assets of Sutton. Set forth in SCHEDULE 3.12 is a list of all equipment
and fixtures subject to any lease or rental agreement to which Sutton is a party
and which requires annual payments in excess of $10,000 per year. Except for
those Encumbrances set forth on SCHEDULE 3.12, there are no Encumbrances, except
Permitted Encumbrances, on any personal property owned by Sutton.
(b) Except as otherwise stated on SCHEDULE 3.12, the
equipment and other personal property used in the Business (i) is in good
operating condition, usable in the ordinary course of business, (ii) is in a
state of normal maintenance and repair, (iii) is sufficient and adequate to
carry on the Business as now conducted and (iv) complies in all respects with
all applicable Laws.
SECTION 3.13 CONTRACTS. (a) SCHEDULE 3.13 contains a complete and
correct list of all Contracts of the following types to which Sutton is a party,
or by which Sutton is bound:
(i) any Contract relating to the future purchase of
services, products, materials or supplies which (A) has a
remaining obligation in excess of $10,000 or (B) otherwise
materially affects the Business;
(ii) any Contract relating to any obligation for borrowed
money or any guarantee or indemnification of an obligation for
borrowed money or any other obligation or liability;
(iii) any Contract that limits the right of Sutton to
compete in any line of business or to compete with any other
Person;
(iv) any Contract (a) relating to any outstanding
commitment for capital expenditures in excess of $10,000 for any
single project (so long as all such contracts not disclosed do
not exceed $50,000 in the aggregate for all projects) or (b) that
otherwise materially affects the Business;
(v) any Contract relating to the employment of any Person;
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(vi) any Contract relating to management services,
consulting or any other similar type contract;
(vii) any Contract relating to Permits to or from Sutton;
or
(viii) excluding Contracts covered in subsections (i)
through (vii) above, any Contract which (a) involves the annual
payment or annual receipt by Sutton of more than $10,000 or (b)
otherwise materially affects the Business.
(b) Except as set forth in SCHEDULE 3.13, all the Contracts
referred to in SCHEDULE 3.13 are legally binding and in full force and effect,
and there exists no default thereunder on the part of Sutton or, to the best
knowledge of Sutton, the other party thereof.
(c) True and complete copies of all documents listed in
SCHEDULE 3.13 have been made available to Eastbrokers.
SECTION 3.14 LITIGATION. Except as otherwise set forth in SCHEDULE
3.14, there is no claim, suit, action, arbitration, or other legal,
administrative or governmental investigation or proceeding pending or, to the
best knowledge of Sutton or the Members or Special Members, threatened against
Sutton or the Members or Special Members, nor is there any Order of any
Governmental Authority to which the Sutton, the Business or the assets or Sutton
Interests are subject.
SECTION 3.15 TAX MATTERS. (a) Sutton has prepared or caused to be
prepared and timely filed or cause to be filed all Tax Returns required to be
filed relating to any and all Taxes concerning or attributable to Sutton or its
operations and such Tax Returns are true and correct and have been completed in
accordance with applicable law.
(b) Sutton (A) has paid all Taxes it is required to pay and
has withheld with respect to its employees, independent contractors or other
third parties Taxes required to be withheld, and (B) has accrued on the Interim
Financial Statements all Taxes attributable to the period covered by the Interim
Financial Statements and has not incurred any liability for Taxes other than in
the ordinary course of business.
(c) Sutton has not been delinquent in the payment of any Tax
nor is there any Tax deficiency outstanding, assessed or proposed against
Sutton, nor has Sutton executed any waiver of any statute of limitations on
extending the period for the assessment or collection of any Tax.
(d) No audit or other examination of any Tax Return of Sutton
is presently in progress, nor has Sutton been notified of any request for such
an audit or other examination.
(e) Sutton has no liabilities for unpaid federal, state, local
and foreign Taxes which have not been accrued or reserved against on the Interim
Financial Statements, whether asserted or unasserted, contingent or otherwise.
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(f) Sutton has made available to Eastbrokers or its legal
counsel, copies of all foreign, federal, state and local income and all state
sales and use Tax Returns for Sutton filed for all periods since its formation.
(g) There are (and immediately following the Closing there
will be) no liens, pledges, charges, claims, restrictions on transfer,
mortgages, security interests or other encumbrances of any sort (collectively,
"Liens") on the assets of Sutton relating to or attributable to Taxes other than
Liens for Taxes not yet due and payable.
(h) Neither Sutton nor the Members or Special Members has
Knowledge of any basis for the assertion of any claim relating or attributable
to Taxes which, if adversely determined, would result in any Lien on the assets
of Sutton.
(i) None of Sutton's assets are treated as "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(j) There is no contract, agreement, plan or arrangement,
including but not limited to the provisions of this Agreement, covering employee
or former employee of Sutton that, individually or collectively, could give rise
to the payment of any amount that would not be deductible as an expense under
applicable law.
(k) Sutton is not a party to any Tax sharing, indemnification
or allocation agreement nor does Sutton owe any amount under any such agreement,
other than this Agreement.
(l) No adjustment relating to any Tax Return filed by Sutton
has been proposed formally or, to the knowledge of Sutton or the Members or
Special Members, informally by any tax authority to Sutton or any representative
thereof.
(m) Since its formation, Sutton has been treated at all times
as a partnership for federal, state and local income Tax purposes, and has not
taken any position on any Tax Return that is inconsistent with such treatment.
Each Member has treated its interest in Sutton as an interest in a partnership
for federal, state and local income tax purposes, and has not taken any action
that is inconsistent with the treatment of Sutton as a partnership for such
purposes
(n) For purposes of this Agreement, (i) the term "Tax" shall
mean any federal, state, local or foreign income, gross receipts, license,
payroll, employment, excise, severance, stamp, occupation, premium, windfall
profits, environmental (including taxes under Section 59A of the Code), custom
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty
or addition thereto, whether disputed or not, and (ii) the term "Tax Return"
shall mean any return, declaration, report, claim for refund or other
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereto.
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SECTION 3.16 COMPLIANCE WITH LAW; PERMITS. (a) Except as otherwise set
forth on SCHEDULE 3.16, the Business has been conducted in compliance with all
Laws and Orders and does not violate, and Sutton is not in conflict with, or in
default or violation of, any Laws and Orders and Sutton has not received any
notice from any Governmental Authority or Regulatory Agency alleging any such
lack of compliance, violation, conflict or default.
(b) (i) Sutton has made and/or possesses all Permits
necessary or desirable for it to own and use its assets and properties and to
conduct the Business, (ii) Sutton is in compliance with the terms of, and has
not violated, such Permits, and (iii) no proceedings are pending or, to the best
knowledge of Sutton, threatened to revoke or limit any such Permit.
SECTION 3.17 INTELLECTUAL PROPERTY. There are no Intellectual
Property Rights owned or used by Sutton or any of the Members or Special Members
which are necessary for the conduct of the Business.
SECTION 3.18 BENEFIT PLANS OF SUTTON. (a) Except as set forth in
SCHEDULE 3.18, Sutton is not, and has never been, a party to (i) any "employee
benefit plan" within the meaning of Section 3(3) of ERISA, (ii) any profit
sharing, pension, defined compensation, bonus, stock option, stock purchase,
disability, severance, health, welfare or incentive plan or agreement, or (iii)
any written or unwritten plan or policy providing for "fringe benefits" to its
employees, including but not limited to vacation, paid holidays, personal leave,
employee discount, educational benefit or similar programs (individually a
"Plan", and collectively the "Plans").
(b) Each Plan is, and has at all times been, operated in all
aspects in substantial compliance with its governing documents, ERISA, the Code,
all regulations, rulings and announcements promulgated or issued under ERISA and
the Code, and all other applicable law, including without limitation, all
reporting, disclosure and other requirements of ERISA applicable to each such
Plan.
(c) Each Plan which is an employee pension benefit plan
(a "Pension Plan"), as defined in Section 3(2) of ERISA, and which is intended
to be qualified under Section 401(a) of the Code, is so qualified, and any trust
through which any such Plan is or has been funded, is exempt from federal income
tax under Section 501(a) of the Code, and no fact or circumstance exists which
would adversely affect the qualified status of any Plan or trust.
(d) Neither any Plan, nor Sutton, nor any "party in interest"
(as defined in Section 3(14) of ERISA, nor any) or "disqualified person" (as
defined in Section 4975 of the Code) nor any fiduciary with respect to any Plan,
nor any other party, has ever been or is presently engaged in any prohibited
transactions as defined by Section 406 or of ERISA or Section 4975 of the Code
for which an exemption is not applicable which could subject Sutton to the tax
or penalty imposed by Section 4975 of the Code or to any liability under Section
502 of ERISA.
(e) There is no event or condition existing which could be
deemed a "reportable event" (within the meaning of Section 4043 of ERISA) with
respect to which the third-day notice requirement has not been waived; no
condition exists which could subject the Sutton to a penalty under Section 4071
of ERISA.
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(f) Sutton is not, and has never been, a party to any "multi-
employer plan", as that term is defined in Section 3(37) of ERISA.
(g) Eastbrokers has been provided with a true and correct
copy of: (i) all plan documents relating to each Plan; (ii) all material
contracts relating to each Plan, including without limitation insurance
contracts, investment management contracts and record keeping arrangements;
(iii) Forms 5500 and any attached schedules with respect to the last three plan
years for each Plan; (iv) the most recent summary plan description of each Plan;
(v) the most recent determination letter issued by the Internal Revenue Service
for each Pension Plan; and (vi) with respect to each Pension Plan that is
intended to qualify under the Code, true and complete employee census
information that will enable counsel for Eastbrokers to determine whether each
such Pension Plan satisfies Section 401(b) 410(b) of the Code and which
identifies by name each employee of Sutton who is a highly compensated employee
(as defined in Section 414(q) of the Code) for the most recent year; and (vii)
in the case of a Pension Plan which is a defined benefit plan, the three most
recent actuarial reports relating to the Plan.
(h) With respect to each Plan, there are no actions, suits
or claims (other than routine claims for benefits in the ordinary course)
pending or threatened against Sutton, and there are no Orders of any
Governmental Authority or Regulatory Agency outstanding against any Plan or any
fiduciary thereof.
(i) With respect to each welfare benefit plan (as defined in
Section (3)(1) of ERISA) ("Welfare Benefit Plan") to which Sutton is, or has
ever been, a party which constitutes a group health plan subject to Section
4980B of the Code, each such Welfare Benefit Plan complies, and in each case has
materially complied, with all applicable requirements of Section 4980B of the
Code.
(j) No Plan that is a Welfare Benefit Plan provides or at any
time provided for non-terminable or non-alterable medical, life or other
benefits described in Section (3)(1) of ERISA, for employees or retirees, and no
Welfare Benefit Plan irrevocably or unalterably commits or at any time committed
Sutton to provide such benefits or any other benefits for any party upon or
following retirement or other termination of employment.
(k) No Pension Plan has suffered an "accumulated funding
deficiency" (as defined in Section 302(a)(2) of ERISA or Section 412(a) of the
Code) and if any Pension Plan is subject to Title IV of ERISA, the present value
of all accrued benefits under the Pension Plan does not exceed the current value
of the assets of the Pension Plan allocable to such accrued benefits, based on
reasonable actuarial assumptions utilized for the Pension Plan in its most
recent actuarial valuations.
(l) All material contributions, premiums or claim payments
required to be made to or on behalf of each Plan by law, contract or the terms
of the Plan have been made.
(m) No termination or partial termination of a Plan within
the meaning of Section 4042 of ERISA or Section 411(d)(3) of the Code has
occurred, and no condition exists that would constitute grounds for termination
or partial termination of any Plan.
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(n) Sutton does not directly or indirectly maintain, or is a
party to or contributes to, or has maintained, or was a party to, or contributed
to any welfare plan that is separately funded or is intended, through any
funding method, trust or arrangement, to be part of a "voluntary employees
beneficiary association" (as defined in Section 509(c)(9) of the Code) or part
of any other funding method, trust or arrangement described in Section 501(c) of
the Code which is intended to be exempt from taxation under Section 501(a) of
the Code.
(o) There is no "disqualified benefit" (as defined in Section
4976(b) of the Code) which would subject Eastbrokers, the Members, the Special
Members or Sutton to tax under Section 4980 of the Code.
(p) Sutton does not have any "leased employees" (as defined
in Section 414(n) of the Code) who must be taken into account for purposes of
Section 414(n)(3) of the Code.
SECTION 3.19 ENVIRONMENTAL AND HEALTH/SAFETY MATTERS. Except as set
forth in Schedule 3.19:
(a) The operation of the Business is and has at all times been
in compliance with all applicable Environmental Laws.
(b) Sutton has obtained, maintained and complied with all
Permits required under Environmental Laws for the operation of the Business and
such Permits will continue to remain in effect without any change to their
respective terms and conditions after the Closing Date and, to the extent
required under any applicable Environmental Law, will be transferred,
re-obtained or otherwise modified by Sutton in such manner as to allow the
uninterrupted operation of the Business;
(c) SCHEDULE 3.19 hereto sets forth a complete and correct
list of all Permits referenced in subparagraph (b) above, copies of which have
been delivered to counsel for Eastbrokers;
(d) No Hazardous Substances have been generated, transported,
stored, treated, recycled, disposed of or otherwise handled in any way in the
operation of the Business;
(e) There are no locations now owned or operated by Sutton
where Hazardous Substances have been generated, transported, stored, treated,
recycled, disposed of or otherwise handled;
(f) There is no past or ongoing release or threat of
release of Hazardous Substances from any of the properties currently owned or
operated by Sutton or, to the best of knowledge of Sutton, from any properties
formerly owned or operated by Sutton;
(g) Sutton has not treated, stored for more than ninety (90)
days, or disposed of any hazardous waste, as such term is used within the
meaning of RCRA or similar applicable state or municipal Law;
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(h) Sutton has not received any notice from any
Governmental Authority, Regulatory Agency or other Person advising that Sutton
is potentially responsible for costs associated with any release or threatened
release of Hazardous Substances or potentially liable for any violation of any
Environmental Law;
(i) No underground storage tanks are or, to the best knowledge
of Sutton, ever were located on any properties currently or previously owned or
leased by Sutton;
(j) No pending or threatened Order, litigation, settlement
or citation with respect to Hazardous Substances exists, and there is no pending
or contingent liability for Hazardous Substances, with respect to or in
connection with the operation of the Business;
(k) There has been no environmental investigation conducted
by any Governmental Authority or Regulatory Agency with respect to the operation
of the Business;
(l) No PCBs or asbestos-containing materials are located on,
contained in or otherwise form a part of any of the assets or properties of
Sutton; and
(m) Sutton has delivered to counsel for Eastbrokers all
environmental audits, reports and assessments concerning the assets or
properties of Sutton which Sutton possesses or reasonably could have obtained.
SECTION 3.20 RECORDS. The books of account, minute books and member-
ship lists (including, without limitation, any transfer of membership interests)
of Sutton, previously delivered by Sutton or the Members or Special Members, are
complete and correct in all respects and there have been no transactions
involving Sutton which properly should have, and were not, set forth therein.
SECTION 3.21 DEPOSITORIES. SCHEDULE 3.21 contains a complete list of
the names, location and account numbers of each bank, trust company, securities
broker or other financial institution in which Sutton has an account, deposits
or other assets on hand and the names of all authorized persons with respect
thereto.
SECTION 3.22 INSURANCE. The assets and properties of Sutton and
the conduct of the Business are insured by insurers of recognized responsibility
in such amounts and against such risks and losses as are adequate therefor in
accordance with past practices and with customary industry practices. All
material insurance policies or binders insuring the property, assets or business
liabilities of Sutton are listed in SCHEDULE 3.22 and are in full force effect
and will be in full force and effect, or substantially comparable replacement
policies will be in full force and effect, on the Closing Date. SCHEDULE 3.22
identifies those pending or threatened claims listed therein as to which the
insurance carrier has denied coverage or has advised Sutton that it is defending
such claim under reservation of right.
SECTION 3.23 TRUE AND COMPLETE COPIES. All copies of agreements,
written contracts and documents delivered and to be delivered hereunder by
Sutton are and will be true and complete copies of such agreements, contracts
and documents as of the respective date on which such agreements, contracts and
documents were delivered.
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SECTION 3.24 BROKERAGE. Except as set forth on SCHEDULE 3.24,
neither Sutton nor any of the Members or Special Members have retained, employed
or incurred any obligation to any investment banker, broker or finder in
connection with the transactions contemplated by this Agreement.
SECTION 3.25 TRANSACTIONS WITH AFFILIATES. Except as set forth on
SCHEDULE 3.25, no Member or, to the knowledge of Sutton and each Member, any
Person in which any Member of Sutton owns any beneficial interest (other than a
publicly-held corporation whose stock is traded on a national securities
exchange or in the over-the counter market and less than one percent of the
stock of which is beneficially owned by all of such Persons), has any agreement,
arrangement or understanding with Sutton or any interest in the Sutton Interests
or any assets or property of Sutton.
SECTION 3.26 BROKER-DEALER REGISTRATION. Sutton is duly
registered as a broker-dealer with the Commission pursuant to Section 15 of the
Exchange Act. Sutton has previously delivered to Eastbrokers a complete and
correct copy of Sutton's current Form BD.
SECTION 3.27 NASD MATTERS. Sutton is a member in good standing of the
NASD. Except as set forth on SCHEDULE 3.27, there are no special restrictions or
limitations imposed by the NASD on the conduct by Sutton of the Business (E.G.,
a "restriction letter").
SECTION 3.28 SIPC/CRD REGISTRATION. Sutton is duly registered with
the SIPC. Sutton has paid all SIPC fees due to date. Sutton is registered with
the Central Registration Depository of the National Association of Securities
Dealers, Inc. under CRD Number 16191.
SECTION 3.29 STATE BROKER-DEALER REGISTRATIONS. Sutton is registered
as a broker-dealer in each State within the United States. All of such
registrations are current and Sutton is in good standing as a registered
broker-dealer in each such state or jurisdiction. As of the Closing Date, no
renewal or registration fee is due or owing to any state. All of Sutton's state
broker-dealer registrations are in good standing.
SECTION 3.30 EMPLOYEES. SCHEDULE 3.30 sets forth the name, job
description and compensation of each employee of Sutton whose earnings during
Sutton's most recent fiscal year was $50,000 or more (including bonuses and
other incentive compensation), and all employees who are expected to receive at
least $50,000 (including bonuses and other incentive compensation) in earnings
in respect of the present fiscal year. To the best knowledge of Sutton, there
are no pending or threatened disputes between Sutton and any of its employees.
SECTION 3.31 REGISTERED PRINCIPALS AND REPRESENTATIVES. Set forth on
SCHEDULE 3.31 is a list of each Person registered as a registered principal or a
registered representative with Sutton, and each state or jurisdiction in which
such individual is registered.
SECTION 3.32 BROKERS' BOND. Sutton currently has in effect a blanket
broker-dealer fidelity bond, a copy of which has previously been delivered to
Eastbrokers.
SECTION 3.33 INTERCOMPANY LIABILITIES. (a) Except as reflected in the
Financial Statements or Interim Financial Statements or except as disclosed on
SCHEDULE 3.33 or SCHEDULE 3.25 attached hereto, there are no liabilities,
contracts or commitments between Sutton, on the one hand, and any Affiliate of
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Sutton, on the other. Except as disclosed on SCHEDULE 3.33 or SCHEDULE 3.25
attached hereto, during the period from the date of the Interim Financial
Statements to the Closing Date, no such liabilities, contracts or commitments
have been paid and no settlements thereof have been made except those paid or
settled on a basis consistent with the past practices of Sutton.
(b) All receivables of Sutton (including loans receivable
and advances other than accounts receivable which are reflected in the balance
sheet, and all such receivables which have arisen since the balance sheet date,
constituted and will constitute only valid claims against third parties not
affiliated with Sutton, arising only from bona fide transactions in the ordinary
course of business and shall be (or have been) fully collected or collectible
when due in accordance with the usual terms customarily utilized by Sutton
without resort to litigation and without defense, offset or counterclaim, in the
aggregate face amounts thereof except to the extent of the normal allowance for
doubtful accounts with respect to accounts receivable computed in a manner
consistent with prior practice as reflected on the balance sheet. Sutton or the
Members have delivered to Buyer an aging schedule for the accounts receivable of
Sutton at the balance sheet date.
SECTION 3.34 FULL DISCLOSURE. No statement by Sutton or the Members
or Special Members contained in this ARTICLE III, the Schedules hereto or in any
written certificate or document furnished to Eastbrokers or any of its
respective representatives or agents, as of the Closing Date, contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statement contained herein or therein not misleading;
PROVIDED, HOWEVER, that Sutton and the Members and Special Members make no
representation or warranty as to the general business and economic condition of
the industry in which the Business is conducted.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE MEMBERS AND SPECIAL
MEMBERS
As a further inducement to Eastbrokers to enter into this Agreement and
to consummate the transactions contemplated hereby, the Members and Special
Members represent and warrant to Eastbrokers that on the Closing Date the
matters set forth below are true and correct except as set forth in the
disclosure schedules attached hereto.
SECTION 4.1 RECORD AND BENEFICIAL OWNERSHIP OF SUTTON INTERESTS. All
of the outstanding Sutton Interests are owned beneficially and of record by the
Members and Special Members, free and clear of any Encumbrances, options,
contracts, preemptive rights, rights of conversion or exchange, or equities
except for such Encumbrances as may be created by this Agreement. There are no
voting trusts, proxies or other agreements or understandings relating to the
voting of the Sutton Interests.
SECTION 4.2 INVESTMENT REPRESENTATIONS. (a) The Acquisition Shares
and Conversion Shares being acquired by the Members and Special Members pursuant
hereto are for each such Person's own respective account. No Member or Special
Member has any intention of selling his Acquisition Shares or Conversion Shares
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in a public distribution in violation of the federal securities laws or any
applicable state securities laws.
(b) Each Member understands and acknowledges that (i) the
Acquisition Shares and Conversion Shares will be unregistered and may be
required to be held indefinitely unless such shares are subsequently registered
under the Securities Act, or an exemption from such registration is available;
(ii) Eastbrokers is under no obligation to file a registration statement with
the Commission with respect to the Acquisition Shares or Conversion Shares; and
(iii) Rule 144 promulgated under the Securities Act, which provides for certain
limited sales of unregistered securities, will not be immediately available with
respect to the Acquisition Shares and Conversion Shares.
SECTION 4.3 REPRESENTATION AND CONSULTATION. Each Member and
Special Member has consulted with and relied upon his own professional advisors
with respect to the Tax, legal and other effects of the transactions
contemplated by this Agreement including, without limitation, the federal, state
and local Tax consequences to each Member and Special Member of the receipt by
each Member and Special Member of the Acquisition Shares and Conversion Shares
in exchange for the Sutton Interests.
SECTION 4.4 FULL DISCLOSURE. No statement by any Member or
Special Member contained in this ARTICLE IV, the Schedules hereto or in any
written certificate or document furnished to Eastbrokers as of the Closing Date
contains any untrue statement of a material fact or omits to state a material
fact necessary under the circumstances in order to make the statements contained
herein or therein not misleading.
SECTION 4.5 U.S. PERSON STATUS. No Member or Special Member is
a "nonresident alien" for purposes of Section 897 of the Code.
ARTICLE IV-A
REPRESENTATIONS AND WARRANTIES OF MR. COHEN
As a further inducement to Eastbrokers to enter into this Agreement and
to consummate the transactions contemplated hereby, Mr. Cohen hereby represents
and warrants to Eastbrokers that on the Closing Date the matters set forth below
are true and correct.
SECTION IV-A.1 INVESTMENT REPRESENTATIONS. The Acquisition Shares
being acquired by Mr. Cohen pursuant hereto are for his own account. Mr. Cohen
has no intention of selling his Acquisition Shares in a public distribution in
violation of the federal securities laws or any applicable state securities
laws. Mr. Cohen understands and acknowledges that (i) the Acquisition Shares
will be unregistered and may be required to be held indefinitely unless such
shares are subsequently registered under the Securities Act, or an exemption
from such registration is available; (ii) Eastbrokers is under no obligation to
file a registration statement with the Commission with respect to the
Acquisition Shares; and (iii) Rule 144 promulgated under the Securities Act,
which provides for certain limited sales of unregistered securities, will not be
immediately available with respect to the Acquisition Shares.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF EASTBROKERS
As an inducement to each of Sutton, the Members and the Special Members
to enter into this Agreement and to consummate the transactions contemplated
hereby, Eastbrokers hereby represents and warrants to each of Sutton and the
Members and Special Members as to the provisions of this ARTICLE V,
SECTION 5.1 ORGANIZATION, QUALIFICATION AND AUTHORITY OF EASTBROKERS.
(a) Eastbrokers is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Eastbrokers has full corporate
power and authority and all material licenses, permits and authorizations
necessary to own and operate its properties, to carry on its business as
presently conducted and presently proposed to be conducted. Eastbrokers has been
duly qualified as a foreign corporation for the transaction of business in, and
is in good standing under the laws of, each jurisdiction in which it owns,
leases or uses property or conducts any business so as to require such
qualification, except where the failure to so qualify would not have a Material
Adverse Effect on Eastbrokers.
(b) Eastbrokers has full corporate power and authority
to enter into this Agreement and each of the Litigation Escrow Agreement and
Earn-Out Escrow Agreement and to perform its obligations hereunder and
thereunder. The execution and delivery of this Agreement and each of the
Litigation Escrow Agreement and Earn-Out Escrow Agreement by Eastbrokers and the
performance of the transactions herein and therein contemplated have been duly
authorized by the Board of Directors of Eastbrokers, and no further corporate
action on the part of Eastbrokers is necessary to authorize this Agreement and
each of the Litigation Escrow Agreement and Earn-Out Escrow Agreement and its
performance of the transactions contemplated hereby and thereby. This Agreement
has been duly executed and delivered by Eastbrokers and constitutes the legal,
valid and binding obligation of Eastbrokers enforceable against it in accordance
with its terms.
SECTION 5.2 NO CONFLICT. (a) Except as set forth on SCHEDULE 5.2(A),
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, will not contravene any applicable provision
of any Laws.
(b) Except as set forth on SCHEDULE 5.2(B), with respect
to the terms, conditions and provisions of any note, bond, mortgage, indenture,
deed of trust, lease, Contract, Permit, agreement, any other instrument or any
Order of any Governmental Authority or Regulatory Agency to which Eastbrokers is
a party or subject or by which any assets or property of Eastbrokers are bound,
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not, (i) conflict with or result in a
breach of terms, conditions or provisions; (ii) constitute a violation, default,
event of default (or an event which, with notice or lapse of time or both, would
constitute a default or an event of default) or an event creating rights of
modification, acceleration, termination, cancellation or other additional
rights, or loss of rights; (iii) result in the creation of any Encumbrance upon
any of the assets or property of Eastbrokers; or (iv) require any authorization,
consent, approval or exemption of other action by notice or declaration to, or
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filing with, any Governmental Authority or Regulatory Agency pursuant to the
ARTICLEs of Incorporation or By-laws of Eastbrokers.
SECTION 5.3 CONSENTS. Except for filings of applications and notices
with the NASD and except as otherwise set forth on SCHEDULE 5.3, no consent,
approval or authorization of, or declaration, filing or registration with, any
Person is required to be obtained, made or given by Eastbrokers in connection
with the execution, delivery and performance of this Agreement or the
consummation by Eastbrokers of the transactions contemplated by this Agreement.
SECTION 5.4 BROKERAGE. Except as set forth on SCHEDULE 5.4,
neither Eastbrokers nor any of its officers or directors has retained, employed
or incurred any obligation to any investment banker, broker or finder in
connection with the transactions contemplated by this Agreement.
SECTION 5.5 FILINGS WITH THE COMMISSION. All documents filed by
Eastbrokers with the Commission pursuant to reporting obligations arising under
the Securities Exchange Act of 1934, as amended, were true and correct in all
material respects as of the date specified in such documents or if no date was
so specified as of the date such documents were filed. Except for consummation
of the transactions contemplated hereby, as of the Closing Date, there has been
no event, development or change in the business of Eastbrokers which would give
rise to an obligation on behalf of Eastbrokers to amend, modify or supplement a
filing with the Commission previously made or to file additional reports,
schedules or documents with the Commission.
ARTICLE VI
PRE-CLOSING COVENANTS
SECTION 6.1 CONDUCT OF BUSINESS. Subsequent to the execution of this
Agreement, the Members and Special Members, shall not, without the prior written
consent of Eastbrokers, take any action or engage in any transaction which could
be reasonably expected to create an obligation for Eastbrokers or Sutton to
publicly disclose such action or transaction.
SECTION 6.2 ASSIGNMENT OF LEASES, OTHER CONTRACTS, PROPERTY AND
EQUIPMENT. Except for such actions or undertakings as may be required to obtain
necessary third party consents to any assignment or transfer required under this
Agreement, each Member agrees not to take any action which would result in a
termination or a modification of the terms of any lease, contract or contract
right, or would otherwise impair the usefulness of any property and equipment of
Sutton, the Members or the Special Members which was, immediately prior to the
execution of this Agreement, used by or useful to Sutton, the Members or the
Special Members in connection with the Business.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF EASTBROKERS
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The obligations of Eastbrokers to consummate, on the Closing Date, the
transactions contemplated by this Agreement will be subject to the satisfaction,
on or before the Closing Date of each of the following conditions, unless waived
in writing by Eastbrokers:
SECTION 7.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE. All
representations and warranties made by each of Sutton, the Members and the
Special Members in this Agreement shall be true and correct in all respects on
the Closing Date. Each of Sutton and the Members and Special Members shall have
performed and complied with all agreements, covenants and conditions required to
be performed and complied with by Sutton and the Members and Special Members,
respectively, prior to the Closing Date; Sutton and the Members and Special
Members each shall have certified to the effect of this Section 8.1 in writing
to Eastbrokers, in a form reasonably satisfactory to Eastbrokers, as of the
Closing Date. Notwithstanding anything to the contrary contained herein, the
Closing of the transactions contemplated hereby shall not be deemed to be a
waiver by Eastbrokers or any Indemnitee of any rights to indemnification under
or pursuant to ARTICLE XIII of this Agreement, irrespective of whether
Eastbrokers or any other Person had knowledge on or before the Closing Date of
the breach by either Sutton or any of the Members or Special Members of any
representation, warranty, agreement, covenant or condition contained in this
Agreement.
SECTION 7.2 APPROVALS; CONSENTS. All Approvals and third-party
Consents required to be obtained by Sutton and the Members and Special Members
to consummate the transactions contemplated by this Agreement shall have been
validly obtained and shall be in full force and effect and all statutory waiting
periods in respect thereof shall have expired or been terminated and copies of
all such Approvals and third-party Consents shall have been delivered to
Eastbrokers.
SECTION 7.3 NO PROCEEDING OR LITIGATION. No action, suit or
proceeding before any court, any other Governmental Authority or Regulatory
Agency shall have been commenced or threatened, and no investigation by any
Governmental Authority or Regulatory Agency shall have been threatened, against
any of the parties to this Agreement or any of the principals, officers,
directors or stockholders of any of them seeking to restrain, prevent or change
the transactions contemplated hereby or questioning the validity or legality of
any of such transactions or seeking damages in connection with any of such
transactions.
SECTION 7.4 LITIGATION ESCROW AGREEMENT; EARN-OUT ESCROW AGREEMENT.
Eastbrokers shall have received an executed copy of each of the Litigation
Escrow Agreement and the Earn-Out Escrow Agreement.
SECTION 7.5 EMPLOYMENT AGREEMENTS; NON-COMPETE AGREEMENTS. Eastbrokers
shall have received copies of the Employment Agreements and Non-Compete
Agreements from and executed by each of the Former Sutton Members identified on
SCHEDULE 7.5 substantially in the form attached hereto as Exhibit C and Exhibit
D, respectively.
SECTION 7.6 ASSIGNMENT. The Former Sutton Members shall have executed
and delivered Assignment Agreements assigning and transferring, at the sole
discretion of Eastbrokers, to either Eastbrokers or Sutton, all real property
and equipment leases, such other contracts and contract rights and all other
property and equipment of Sutton which immediately prior to the Closing Date
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were used or useful to Sutton or the Members or Special Members in connection
with the Business. Additionally,
SECTION 7.7 OTHER DOCUMENTS. Sutton and the Members and Special
Members shall have furnished or caused to be furnished to Eastbrokers the
documents set forth in Section 9.2 and such other documents and certificates as
may be reasonably requested by Eastbrokers.
SECTION 7.8 ORGANIZATIONAL ACTION. Sutton and the Members and
Special Members shall each have taken all organizational action necessary to
approve the transactions contemplated by this Agreement any other document
related to the transactions contemplated herein ("Related Transaction
Documents"), and Sutton and the Members and Special Members shall have furnished
Eastbrokers with copies of resolutions, adopted by the Managers of Sutton
certified by a Manager (or other authorized Member or Special Member) of Sutton
authorized to certify as to the matters therein as of the Closing Date,
authorizing the entry of Sutton into this Agreement and the Related Transaction
Documents and the transactions contemplated hereby and thereby, in form and
substance reasonably satisfactory to counsel for Eastbrokers, in connection with
such transactions.
SECTION 7.9 SECURITIES LAWS EXEMPTIONS. The transfer of the
Acquisition Shares and Conversion Shares shall not be subject to registration
under the Securities Act of 1933, as amended, or under any applicable state
securities laws based on exemptions available on terms and conditions reasonably
acceptable to Eastbrokers.
SECTION 7.10 DUE DILIGENCE REVIEW. The results of the financial,
business, regulatory and legal due diligence shall have proven satisfactory to
Eastbrokers and its legal counsel and other representatives.
SECTION 7.11 BOOK VALUE OF SUTTON. The book value of Sutton as of the
Closing Date shall be not less than $500,000.
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF SUTTON AND THE MEMBERS AND
SPECIAL MEMBERS
The obligations of Sutton and the Members and Special Members to
consummate, on the Closing Date, the transactions contemplated by this Agreement
shall be subject to the satisfaction, on or before the Closing Date, of each of
the conditions contained in this ARTICLE VIII, unless waived in writing by each
of Sutton and the Members and Special Members.
SECTION 8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE. All
representations and warranties made by Eastbrokers herein shall be true and
correct in all material respects as of the Closing Date. Eastbrokers shall have
performed and complied in all material respects with all agreements, covenants
and conditions required by this Agreement to be performed and complied with by
Eastbrokers prior to the Closing Date, and Eastbrokers shall have so certified
to the Members and Special Members on the Closing Date. Notwithstanding anything
to the contrary contained herein, the Closing of the transactions contemplated
hereby shall not be deemed a waiver by the Members or the Special Members or any
Indemnitee of any rights to indemnification pursuant to ARTICLE XIII of this
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Agreement, irrespective of whether Sutton, any Member or Special Member or any
other Person had knowledge on or before the Closing Date of any such breach by
Eastbrokers, of any representation, warranty, agreement, covenant or condition
contained in this Agreement.
SECTION 8.2 APPROVALS; CONSENTS. All Approvals and third-party
Consents required to be obtained by Eastbrokers to consummate the transactions
contemplated by this Agreement shall have been validly obtained and shall be in
full force and effect and all statutory waiting periods shall have expired or
been terminated and copies of such Approvals and third-party Consents shall have
been delivered to the Members and Special Members.
SECTION 8.3 NO PROCEEDING OR LITIGATION. No action, suit or proceeding
before any court or any other Governmental Authority or Regulatory Agency shall
have been commenced or threatened, and no investigation by any Governmental
Authority shall have been threatened, against any of the parties to this
Agreement or any of the principals, officers or directors of any of them seeking
to restrain, prevent or change the transactions contemplated hereby or
questioning the validity or legality of any of such transactions or seeking
damages in connection with any of such transactions.
SECTION 8.4 CORPORATE ACTION. Eastbrokers shall have taken all
corporate action necessary to approve the transactions contemplated by the
Agreement, and Eastbrokers shall have furnished the Members and Special Members
with copies of resolutions, adopted by the Board of Directors of Eastbrokers,
and certified by the Secretary of Eastbrokers as of the Closing Date, in form
and substance reasonably satisfactory to counsel for the Members and Special
Members, in connection with such transactions.
SECTION 8.5 LITIGATION ESCROW AGREEMENT AND EARN-OUT ESCROW AGREEMENT.
The Members and Special Members shall have received an executed copy of the
Litigation Escrow Agreement and the Earn-Out Escrow Agreement.
SECTION 8.6 OTHER DOCUMENTS. Eastbrokers shall have furnished the
Members and Special Members with the documents set forth in Section 9.3 and such
other documents and certificates as may be reasonably requested by the Members
and Special Members.
ARTICLE IX
CLOSING
SECTION 9.1 CLOSING. The Closing shall occur at the close of the NASDAQ
SmallCap Market trading day on November 22, 1999, or such later date as the
parties hereto may mutually agree upon, at the offices of Kelley Drye & Warren
LLP, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, CT 06901 or at such
other place as may be agreed upon.
SECTION 9.2 DELIVERY OF DOCUMENTS BY SUTTON. Sutton and the Members and
Special Members agree to execute and deliver, or cause to be executed and
delivered, to Eastbrokers at the Closing, the following:
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(a) All of the instruments and documents required to be
delivered under ARTICLE VII.
(b) The books of account, minute books, and membership lists
(including any transfers of membership interest) of Sutton, complete and correct
in all respects, and not excluding any transactions involving Sutton or the
Members or Special Members.
(c) A copy of the ARTICLEs of Organization of Sutton as in
effect immediately prior to the Closing Date certified as of a recent date by
the Secretary of the State of New York.
(d) Certificates, as of the most recent practicable dates
as to the good standing of Sutton issued by the Secretaries of State of the
State of New York and any other state in which Sutton is required to be
qualified or licensed to transact business, confirming such good standing on or
immediately prior to the Closing Date.
(e) A copy of Sutton's Organization Agreement as in effect
immediately prior to the Closing Date, certified by a Manager (or other
authorized Member or Special Member) of Sutton authorized to certify as to the
matters therein, in form and substance reasonably satisfactory to counsel for
Eastbrokers, as of the Closing Date.
(f) Resolutions of the Members and Special Members of Sutton
authorizing and approving all matters in connection with this Agreement and the
transactions contemplated hereby, certified by a Manager (or other authorized
Member or Special Member) of Sutton authorized to certify as to the matters
therein as of the Closing Date.
(g) A Certificate of a Manager (or other authorized Member or
Special Member) of Sutton authorized to certify as to the matters herein, dated
as the Closing Date, certifying (i) as to the matters in (e) and (f) above, (ii)
that the ARTICLEs of Organization of Sutton have not been amended, and (iii) to
the incumbency and specimen signature of each officer of Sutton executing this
Agreement and the other agreements contemplated herein.
(h) Opinion of counsel in substantially the form attached
hereto as Exhibit E.
(i) Such other documents as Eastbrokers may reasonably
request.
SECTION 9.3 DELIVERY OF DOCUMENTS BY EASTBROKERS. Eastbrokers agrees
to execute and deliver, or cause to be executed and delivered, to the Members
and Special Members at the Closing the following:
(a) All of the instruments and documents required to be
delivered under ARTICLE VIII.
(b) Such other documents as Sutton or the Members and Special
Members may reasonably request.
SECTION 9.4 FILING OF CERTIFICATE OF AMENDMENT. Concurrent with the
exchange of documents referred to in this ARTICLE IX, and subject to
satisfaction of the conditions set forth herein, Eastbrokers, Sutton and the
Members and Special Members, hereby authorize the filing, on the Closing Date,
of the Certificate of Amendment in the office of the Secretary of State of the
State of New York.
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ARTICLE X
TAX MATTERS
The following provisions shall govern the allocation of
responsibility as between Eastbrokers, Sutton and the Former Members for certain
Tax matters following the Closing Date.
SECTION 10.1 TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE.
Eastbrokers shall prepare or cause to be prepared and file or cause to be filed
all Tax Returns for Sutton for all periods ending on or prior to the Closing
Date which are due after the Closing Date. Eastbrokers shall permit the Former
Sutton Members to review and comment on each such Tax Return described in the
preceding sentence prior to filing. The Former Sutton Members shall reimburse
Eastbrokers for Taxes of Sutton with respect to such period within fifteen (15)
days after payment by Eastbrokers or Sutton of such Taxes to the extent such
Taxes are not reflected in the reserve for Taxes (rather than any reserve for
deferred Taxes established to reflect timing differences between book and Tax
income) shown on the face of the Interim Financial Statements.
SECTION 10.2 TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING
DATE. Eastbrokers shall prepare or cause to be prepared and file or cause to be
filed any Tax Return of Sutton for Tax periods which begin before the Closing
Date and end after the Closing Date. The Former Sutton Members shall pay
Eastbrokers within fifteen (15) days after the date on which Taxes are paid with
respect to such periods an amount equal to the portion of such Taxes which
relates to the portion of such Taxable period ending on the Closing Date to the
extent such Taxes are not reflected in the reserve for Taxes (rather than any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) shown on the face of the Interim Financial Statements. For
purposes of this Section 10.1(b), in the case of any Taxes that are imposed on a
periodic basis and are payable for a Taxable period that includes (but does not
end on) the Closing Date, the portion of such Tax which relates to the portion
of the Taxable period ending on the Closing Date shall (A) in the case of any
Taxes other than Taxes based upon or related to income or receipts, be deemed to
be the amount of such Tax for the entire Taxable period multiplied by a fraction
the numerator of which is the number of days in the Taxable period ending on the
Closing Date and the denominator of which is the number of days in the entire
Taxable period, and (B) in the case of any Tax based upon or related to income
or receipts be deemed to be equal to the amount which would be payable if the
relevant Taxable period ended on the Closing Date. Any credits relating to a
Taxable period that begins before and ends after the Closing Date shall be taken
into account as though the relevant Taxable period ended on the Closing Date.
All determinations necessary to give effect to the foregoing allocations shall
be made in a manner consistent with prior practice of Sutton.
SECTION 10.3 COOPERATION ON TAX MATTERS.
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(a) Eastbrokers, Sutton and the Former Sutton Members shall
cooperate fully, as and to the extent reasonably requested by the other party,
in connection with the filing of Tax Returns pursuant to this Section 10.1 and
any audit, litigation or other proceeding with respect to Taxes. Such
cooperation shall include the retention and the provision of records and
information which are reasonably relevant to any such audit, litigation or other
proceeding and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. Eastbrokers and the Former Sutton Members agree (i) to retain all
books and records with respect to Tax matters pertinent to Sutton and relating
to any Taxable period beginning before the Closing Date until the expiration of
the statute of limitations (and, to the extent notified by Eastbrokers, any
extensions thereof) of the respective Taxable periods, and to abide by all
record retention agreements entered into with any taxing authority, and (ii) to
give the other party reasonable written notice prior to transferring, destroying
or discarding any such books and records and, if the other party so requests,
Eastbrokers and the Former Sutton Members, as the case may be, shall allow the
other party to take possession of such books and records.
(b) Eastbrokers and the Former Sutton Members further agree,
upon request, to use their best efforts to obtain any certificate or other
document from any governmental authority or any other Person as may be necessary
to mitigate, reduce or eliminate any Tax that could be imposed (including, but
not limited to, with respect to the transactions contemplated hereby).
SECTION 10.4 CERTAIN TAXES. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement, shall be paid by the
Former Sutton Members when due, and the Former Sutton Members will, at their own
expense, file all necessary Tax Returns and other documentation with respect to
all such transfer, documentary, sales, use, stamp, registration and other Taxes
and fees, and, if required by applicable law, Eastbrokers will, and will cause
its affiliates to, join in the execution of any such Tax Returns and other
documentation.
ARTICLE XI
TERMINATION
This Agreement may be terminated by the written, mutual consent of all
of the parties hereto, or by either of Eastbrokers, on the one hand, or Sutton
and the Members and Special Members, on the other hand, if any condition to the
obligations hereunder of any of them fails to be met and such failure was not
due to the fault of the party seeking termination. This Agreement shall be
terminated if any Approval or Consent necessary to be received by any Person
pursuant to the terms hereof is not received, or if for any other reason the
Closing does not occur on or prior to December 15, 1999.
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ARTICLE XII
COVENANTS OF THE PARTIES
SECTION 12.1. This section intentionally left blank.
SECTION 12.2 COMMON STOCK. All of the Acquisition Shares and
Conversion Shares on the date of issuance or delivery thereof, shall (a) be duly
authorized, validly issued, fully paid and nonassessable, (b) subject as the
case may be to the Litigation Escrow Agreement and the Earn-Out Escrow
Agreement, be free and clear of any Encumbrances, and (c) bear the following
legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
NOT REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT") AND CANNOT BE
TRANSFERRED OR SOLD UNLESS THEY ARE SUBSEQUENTLY
REGISTERED UNDER THE SECURITIES ACT OR, IN THE
OPINION OF COUNSEL FOR THE ISSUER, AN EXEMPTION
FROM SUCH REGISTRATION IS AVAILABLE.
SECTION 12.3 GOVERNMENTAL AND REGULATORY APPROVALS AND COMPLIANCE. As
promptly as practicable after the Closing, each of the parties hereto shall file
or cause to be filed with appropriate Governmental Authorities and Regulatory
Agencies any notifications, applications or other documents as may be required
to be filed with respect to the transactions contemplated hereby. Each party
hereto agrees to make available to each other party such information as each
party may reasonably request of any other party in order to file any such
required applications, notices and other requisite documents with such
Governmental Authorities and Regulatory Agencies and to provide any additional
information requested by such agencies.
SECTION 12.4 CONFIDENTIALITY. (a) All data, reports, records and other
written and oral information of any kind received by any party hereto or
Affiliates, stockholders, directors, partners, officers, employees, agents,
representatives, consultants or lenders of such party (such party being
hereinafter referred to as the "Receiving Party") from any other party hereto or
Affiliates, stockholders, partners, directors, officers, employees, agents,
representatives or consultants of such other party (such other party being
hereinafter referred to as the "Delivering Party") under this Agreement or in
connection with the transactions contemplated hereby shall be treated as
confidential (collectively, "Confidential Information"). Except as otherwise
provided herein, the Receiving Party shall not disclose or use (and shall not
permit its Affiliates, stockholders, directors, officers, partners, employees,
agents, representatives or consultants to use) Confidential Information for its
own (or their own) benefit and shall use commercially reasonable efforts (and
shall cause its Affiliates, stockholders, partners, directors, officers,
employees, agents, representatives or consultants to use commercially reasonable
efforts) to maintain the confidentiality of Confidential Information. If the
Receiving Party or any of its Affiliates, stockholders, directors, officers,
partners, employees, agents, representatives or consultants is required to
disclose Confidential Information by or to any court, arbitrator, Governmental
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Authority or Regulatory Agency of competent jurisdiction, the Receiving Party
shall, prior to such disclosure, promptly notify the Delivering Party of such
requirement and all particulars related to such requirement. The Delivering
Party shall have the right, at its own cost and expense, to object to such
disclosure and to seek confidential treatment of any Confidential Information to
be so disclosed on such terms as it shall determine.
(b) The restrictions set forth in Section 12.4(a) hereof
shall not apply to the use or disclosure of Confidential Information to the
extent, but only to the extent: (i) permitted or required pursuant to any other
agreement between or among the parties hereto; PROVIDED, HOWEVER, that any such
other agreement of Sutton or the Members or Special Members shall have been
disclosed to Eastbrokers prior to the Closing Date; (ii) necessary by a party
hereto in connection with exercising its or their rights or performing its or
their duties or obligations under this Agreement, or the other agreements
described in clause (i) of this sentence; (iii) contemplated by the last two
sentences of Section 12.8(a) hereof; or (iv) that the Receiving Party can
demonstrate such Confidential Information (A) is or became generally available
to the public through no fault or neglect of the Receiving Party, (B) is
received in good faith on a non-confidential basis from a third party who
discloses such Confidential Information without violating any obligations of
secrecy or confidentiality, or (C) was already in possession of such information
at the time of receipt as shown by prior dated written records.
(c) For the purposes of this Section 12.4, (i) information
which is specific shall not be deemed to be within an exception set forth in
Section 12.4(b) hereof merely because it is embraced by general information
which is within such an exception and (ii) a combination of information shall
not be deemed to be within an exception set forth in Section 12.4(b) hereof
merely because individual aspects of such combination are within such an
exception unless the combination of information itself, its principle of
operation and its value or advantages are within such an exception.
SECTION 12.5 FURTHER ASSURANCES. (a) Upon the terms and subject
to the conditions provided herein, each of the parties hereto shall use all
commercially reasonable efforts to take or cause to be taken all action, or do
or cause to be done all things, or execute or cause to be executed any documents
necessary, proper or advisable under applicable Laws to consummate and make
effective the transactions contemplated by this Agreement, and any other
agreements contemplated hereby or entered into in connection herewith.
(b) On and after the Closing Date, each of the parties hereto
shall take all commercially reasonable appropriate action and execute any
additional documents, instruments or conveyances of any kind (not containing
additional representations and warranties) which may be reasonably necessary to
carry out any of the provisions of this Agreement, or any other agreement
contemplated hereby or entered into in connection herewith.
SECTION 12.6 Each party hereto acknowledges that the unique nature
of the provisions of this ARTICLE XII renders money damages an inadequate remedy
for breach by any party of its obligations hereunder, and the parties each agree
that in the event of such breach, the non-breaching party will, upon instituting
proper action, be entitled to a decree of specific performance.
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ARTICLE XIII
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS;
INDEMNIFICATION
SECTION 13.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
The Limited Representations, Warranties and Covenants of the parties shall
survive the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby until the fifth anniversary
of the Closing Date or, if the closing shall not have taken place, for a period
of six (6) months after the termination of this Agreement. The Unlimited
Representations, Warranties and Covenants shall survive indefinitely other than
as otherwise set forth under applicable statutes of limitations. No suit, action
or proceeding may be commenced by any party hereto with respect to any claim
arising out of or relating to the Limited Representations, Warranties and
Covenants after the fifth anniversary of the Closing. Notwithstanding the
foregoing, and subject to the other provisions of this ARTICLE XIII, the parties
shall have the right to commence a suit, action or proceeding after the fifth
anniversary of Closing Date with respect to claims arising out of or relating to
the Unlimited Representations, Warranties and Covenants.
SECTION 13.2 INDEMNIFICATION BY EASTBROKERS. Subject to Sections 13.1
and 13.4, Eastbrokers shall indemnify the Former Sutton Members for, and shall
hold each of them harmless from, any and all Indemnified Liabilities asserted
against or incurred or sustained by any of them relating to, associated with or
arising out of any breach of the warranties or representations of Eastbrokers
set forth in ARTICLE V of this Agreement or the covenants of Eastbrokers set
forth in this Agreement.
SECTION 13.3 INDEMNIFICATION BY SUTTON. Subject to Sections 13.1 and
13.4, the Former Sutton Members shall indemnify Eastbrokers and its Affiliates,
and directors and officers of each of them, for, and shall hold each of them
harmless from, any and all Indemnified Liabilities asserted against or incurred
or sustained by any of them relating to, associated with or arising out of (i)
any breach of any of the warranties or representations of the Former Sutton
Members set forth in ARTICLE III, ARTICLE IV or ARTICLE XII of this Agreement,
(ii) any breach of any of the covenants of Sutton or the Former Sutton Members
set forth in this Agreement, or (iii) any Taxes of Sutton or the Former Sutton
Members with respect to any Taxable Period or portion thereof ending on or
before the Closing Date (or for any Taxable Period beginning before and ending
after the Closing Date to the extent allocable (determined in a manner
consistent with ARTICLE X) to the portion of such period beginning before and
ending on the Closing Date) and (iv) unpaid Taxes of any person (other than
Sutton), as a transferee or successor, by contract or otherwise. In addition,
the Former Sutton Members shall indemnify Eastbrokers and Sutton and the
Affiliates, directors and officers of Eastbrokers, for all Indemnified
Liabilities asserted against, incurred or sustained by Eastbrokers or Sutton
relating to, associated with or arising out of, any and all liabilities or
obligations of the Former Sutton Members other than: (i) obligations fully
reserved for on the balance sheet of Sutton included in the Interim Financial
Statements; (ii) liabilities set forth on the Schedules hereto except for
liabilities relating to or arising from the matters set forth on SCHEDULE 3.15;
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(iii) liabilities incurred in connection with the operation of the Business
after the Closing Date; and (iv) liabilities of which the Members or Special
Members knew or should have known.
SECTION 13.4 INDEMNIFICATION PROCEDURE. (a) Within a reasonable
time after obtaining knowledge thereof, a Person who may be entitled to
indemnification hereunder (the "Indemnitee") shall promptly give the Party who
may be obligated to provide such indemnification (the "Indemnitor") written
notice of any Indemnified Liability which the Indemnitee has determined has
given or could give rise to a claim for indemnification hereunder (a "Notice of
Claim"); PROVIDED, HOWEVER, that no failure or delay in giving any such Notice
of Claim shall relieve the Indemnitor of its obligations except, and only to the
extent, that it is materially prejudiced thereby. A Notice of Claim shall
specify in reasonable detail the nature and all known particulars related to an
Indemnified Liability. The Indemnitor shall perform its indemnification
obligations in respect of an Indemnified Liability described in a Notice of
Claim under Sections 13.2 or 13.3 hereof, as the case may be, within 30 days
after the Indemnitor shall have received such Notice of Claim; PROVIDED,
HOWEVER, such obligation shall be suspended so long as the Indemnitor is in good
faith performing its obligations under Section 13.4(b) hereof with respect to
such Indemnified Liability.
(b) (i) The Indemnitor shall promptly inform the Indemnitee
(A) of all material developments with respect to a matter which is the subject
of a Notice of Claim and (B), after the Indemnitor has made a good faith
determination based on the facts alleged in such Notice of Claim or which have
otherwise become known to the Indemnitor, either that the Indemnitor
acknowledges that it has an indemnification obligation hereunder in respect of
such Indemnified Liability or that the Indemnitor has made a good faith
determination that it has no indemnification obligation hereunder in respect of
such Indemnified Liability.
(ii) Except as set forth in Section 13.4(c), the
Indemnitee shall have the right, but not the obligation, to participate, at its
own cost and expense, in the defense, contest or other opposition of any such
third party claim, demand, suit, action or proceeding through legal counsel
selected by it. The Indemnitee shall have the right, but not the obligation, to
assert any and all cross-claims or counterclaims which it may have. So long as
the Indemnitor is in good faith performing its obligations under this Section
13.4(b), the Indemnitee shall (i) at Indemnitor's cost and expense, cooperate in
all reasonable ways with, make its relevant files and records available for
inspection and copying by, make its employees reasonably available to and
otherwise render reasonable assistance to the Indemnitor upon request and (ii)
not compromise or settle any such claim, demand, suit, action or proceeding
without the prior written consent of the Indemnitor.
(iii) If the Indemnitor fails to perform its
obligations under this Section 13.4(b), or if the Indemnitor shall have informed
the Indemnitee in writing in accordance herewith that the Indemnitor does not
have an indemnification obligation hereunder in respect of such Liability, then
the Indemnitee shall have the right, but not the obligation, to take the actions
which the Indemnitor would have had the right to take in connection with the
performance of such obligations and, if the Indemnitee is entitled to
indemnification hereunder in respect of the event or circumstance as to which
the Indemnitee takes such actions, then the Indemnitor shall, in addition to
indemnifying Indemnitee for the Liability, indemnify the Indemnitee for all of
42
<PAGE>
the legal, accounting and other costs, fees and expenses reasonably and actually
incurred in connection therewith.
(iv) If the Indemnitor proposes to settle or compromise
any such third party action, demand, claim, suit or proceeding, the Indemnitor
shall give written notice to that effect (together with a statement in
reasonable detail of the terms and conditions of such settlement or compromise)
to the Indemnitee a reasonable time prior to effecting such settlement or
compromise. Notwithstanding anything contained herein to the contrary, the
Indemnitee shall have the right to object to the settlement or compromise of any
such third party action, demand, claim, suit or proceeding whereupon (i) the
Indemnitee will assume the defense, contest or other opposition of any such
third party action, demand, claim, suit or proceeding for its own account and as
if it were the Indemnitor and (ii) the Indemnitor shall be released from any and
all liability with respect to any such third party action, demand, claim, suit
or proceeding to the extent that such liability exceeds the liability which the
Indemnitor would have had in respect of such a settlement or compromise.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
SECTION 14.1 ENTIRE AGREEMENT. This Agreement (including the Schedules
attached hereto) and the agreements referred to herein contain the entire
agreement between the parties with respect to the transactions contemplated
hereby, and supersede all written or verbal negotiations, representations,
warranties, commitments, offers, bids, solicitations and other understandings
prior to the Closing Date between Eastbrokers, on the one hand, and Sutton and
the Members and Special Members, on the other hand. There are no agreements,
covenants, representations or warranties with respect to the transactions
contemplated hereby other than those expressly set forth herein or in any
agreement or other instrument contemplated hereby.
SECTION 14.2 AMENDMENT. This Agreement may not be amended except by
an instrument in writing signed on behalf of each of the parties hereto.
SECTION 14.3 EXTENSION; WAIVER. No extension or waiver of any
provision of this Agreement shall be binding upon a party unless such extension
or waiver is expressly set forth in a written instrument signed by the party or
parties to be bound thereby and delivered pursuant to Section 14.13 hereof. Such
extension or waiver shall be effective only to the extent specifically set forth
in such written instrument. Neither the exercise (from time to time and at any
time) by a party of, nor the delay or failure (at any time or for any period of
time) to exercise, any right, power or remedy shall constitute a waiver of the
right to exercise, or impair, limit or restrict the exercise of, such right,
power or remedy or any other right, power or remedy at any time or from time to
time thereafter. No waiver of any right, power or remedy of a party shall be
deemed to be a waiver of any other right, power or remedy of such party or
shall, except to the extent so waived, impair, limit or restrict the exercise of
such right, power or remedy.
SECTION 14.4 HEADINGS. The article and section headings contained
in this Agreement are for references purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
43
<PAGE>
SECTION 14.5 SEVERABILITY. In the event that any particular
provision or provisions of this Agreement shall for any reason be determined to
be unenforceable, or in violation of any law, Order or regulation, such
unenforceability or violation shall not affect the remaining provisions of this
Agreement which shall continue in full force and effect and be binding upon the
parties.
SECTION 14.6 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 14.7 ASSIGNMENT; THIRD PARTY BENEFICIARIES. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any party hereto without the prior written consent of the other
parties except that Eastbrokers may freely assign this Agreement to any of its
subsidiaries; PROVIDED, HOWEVER, that such subsidiary shall be and shall remain,
during any period that the obligations of Eastbrokers under this Agreement shall
continue, a wholly-owned subsidiary of Eastbrokers. Subject to the preceding
sentence, this Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns. Except as otherwise provide herein, this Agreement shall
not confer any rights on any Persons other than parties to this Agreement as
provided herein.
SECTION 14.8 INVESTIGATIONS. The respective representations and
warranties of the parties contained herein or in any certificates or other
documents delivered prior to or at the Closing shall not be deemed waived or
otherwise affected by any investigation made by any party hereto.
SECTION 14.9 EXPENSES. Except as otherwise provided in this
Agreement, the Former Sutton Members will pay their own respective legal and
other expenses (i) incurred by them or on their behalf, or (ii) incurred by
Sutton or on its behalf prior to the Closing, and Eastbrokers will pay the legal
and other expenses incurred by it or on its behalf, in each case in connection
with the negotiation and preparation of this Agreement and the transactions
contemplated herein whether or not such transactions are completed or this
Agreement is terminated.
SECTION 14.10 GOVERNING LAW. This Agreement shall be governed by the
laws of the State of New York as to all matters including, without limitation,
matters of validity, construction, effect, performance and enforcement and
excluding any choice-of-law or conflicts-of-law principles that may require the
application of the laws of another jurisdiction.
SECTION 14.11 ARBITRATION. The parties hereto agree that any dispute
arising out of or relating to this Agreement or any other agreement relating
hereto or arising out of the transactions contemplated hereby or thereby that is
not resolved by the parties within thirty (30) days after notice of such dispute
has been received by all parties in accordance with the notice provisions of
this Agreement shall be submitted in accordance with the rules of the NASDR to
NASDR for resolution at a location suggested by the aggrieved party and
acceptable to the NASDR. In the event the NASDR declines to arbitrate such
proceeding, each party agrees that such dispute shall be submitted in accordance
44
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with the rules of the American Arbitration Association to the American
Arbitration Association for resolution at a location suggested by the aggrieved
party and acceptable to the American Arbitration Association. The parties agree
that all costs and expenses, including, without limitation, legal fees incurred
in connection with such proceeding, shall be borne by the party against whom the
dispute is resolved.
SECTION 14.12 AMBIGUITY IN DRAFTING. Each party shall have been
deemed to have participated equally in the negotiations in connection with and
the drafting of this Agreement and any ambiguity in this Agreement shall not be
construed against any purported author thereof.
SECTION 14.13 NOTICES. All notices, requests, demands and other
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been given as follows: on the day established by the
sender as having been delivered personally or by telecopier (with confirmation);
on the day delivered by a private courier as established by the sender by
evidence obtained from the courier; or on the third (3rd) day after the date
mailed, by certified or registered mail, return receipt requested, postage
prepaid. Such communications, to be valid, must be addressed as follows:
(a) If to Sutton (prior to the Closing):
The JB Sutton Group, LLC
575 Underhill Boulevard
Syosset, New York 11791
Attention: Mr. Jonathan D. Siegel
Telecopy No.: (516) 677-6334
45
<PAGE>
If to Eastbrokers or Sutton (after the Closing):
Eastbrokers International Incorporated
6300 Fairview Road, Suite 1410
Charlotte, North Carolina 28210
Attention: Mr. Martin A. Sumichrast
Telecopy No.: (704) 643-8097
with a copy to:
The JB Sutton Group, LLC
575 Underhill Boulevard
Syosset, New York 11791
Attention: Mr. Jonathan D. Siegel
Telecopy No.: (516) 677-6334
and to:
Kelley Drye & Warren LLP
Two Stamford Plaza
281 Tresser Boulevard
Stamford, Connecticut 06901
Attention: Paul F. McCurdy, Esq.
Telecopy No.: (203) 327-2669
(b) If to a Member or Special Member, to the address set forth
in the column opposite such Person's name on ATTACHMENT A hereto with a copy to
the person and at the address set forth in the column opposite such such
Person's address on ATTACHMENT A hereto, or to such other address or to the
attention of person or persons as the recipient party has specified by prior
written notice to the sending party (or in the case of counsel, to such other
readily ascertainable business address as such counsel may hereafter maintain).
If more than one method for sending notice as set forth above is used, the
earliest notice date established as set forth above shall control.
46
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this LLC Interest
Purchase Agreement to be executed as of the date first written above.
EASTBROKERS INTERNATIONAL
INCORPORATED
By: ------------------------------------
Name: Martin A. Sumichrast
Title: Chairman &
Chief Executive Officer
THE JB SUTTON GROUP
By:------------------------------
Name: Jonathan D. Siegel
Title: President
- ----------------------------------
Jonathan D. Siegel, Member
- ----------------------------------
Bud Clarke, Member
- ----------------------------------
Steve Caruso, Member
- ----------------------------------
Stephen C. Schoffman, Member
- ----------------------------------
Peter Cohen, as to Section
2.8(c) and ARTICLE IV-A
hereto only.
- -----------------------------------
William Grundig
47
<PAGE>
- ------------------------------------
Jason Bishara
J. Siegel and Bud Clarke and S. Schoffman
TR JB Sutton Group 401K P/S PLN FBO
Stephen C. Schoffman U/A DTD 10/1/95
By:----------------------------------
Jonathan D. Siegel, as Trustee
- -------------------------------------
Bud Clarke, as Trustee
- -------------------------------------
Stephen C. Schoffman, as Trustee
and Plan Participant/Beneficiary
J. Siegel and Bud Clarke and S. Schoffman
TR JB Sutton Group 401K P/S PLN FBO
Jonathan D. Siegel U/A DTD 10/1/95
By:----------------------------------
Bud Clarke, as Trustee
- --------------------------------------
Stephen C. Schoffman, as Trustee
- ---------------------------------------
Jonathan D. Siegel, as Trustee and
Plan Participant Beneficiary
48
<PAGE>
<TABLE>
<CAPTION>
ATTACHMENT A
NAME ADDRESS "CC" NAME AND
ADDRESS
- ---------------------------------------------------- ------------------------------------------- ------------------
<S> <C> <C>
Jonathan D. Siegel, Member C/o The JB Sutton Group, LLC, N/A
575 Underhill Boulevard,
Syosset, New York 11791
Bud Clarke, Member C/o The JB Sutton Group, LLC, N/A
575 Underhill Boulevard,
Syosset, New York 11791
Steve Caruso, Member C/o The JB Sutton Group, LLC, N/A
575 Underhill Boulevard,
Syosset, New York 11791
Stephen C. Schoffman, Member C/o The JB Sutton Group, LLC, N/A
575 Underhill Boulevard,
Syosset, New York 11791
J. Siegel and Bud Clarke and S. Schoffman TR JB C/o The JB Sutton Group, LLC, N/A
Sutton Group 401K P/S PLN FBO Stephen C. 575 Underhill Boulevard,
Schoffman U/A DTD 10/1/95, Member Syosset, New York 11791
J. Siegel and Bud Clarke and S. Schoffman TR JB C/o The JB Sutton Group, LLC, N/A
Sutton Group 401K P/S PLN FBO Jonathan D. 575 Underhill Boulevard,
Siegel U/A DTD 10/1/95, Member Syosset, New York 11791
William Grundig, Special Member C/o The JB Sutton Group, LLC, 575 N/A
Underhill Boulevard,
Syosset, New York 11791
Jason Bishara, Special Member C/o The JB Sutton Group, LLC, 575 N/A
Underhill Boulevard,
Syosset, New York 11791
</TABLE>
49
<PAGE>
ATTACHMENT B-1
FORM OF LITIGATION NOTE
$ 110,000 November ___, 1999
FOR VALUE RECEIVED, Eastbrokers International Incorporated, a Delaware
corporation with its principal place of business located at 6300 Fairview Road,
Suite 1410, Charlotte, North Carolina 28210 (the "Maker"), promises to pay the
principal sum of One-Hundred Ten Thousand Dollars ($110,000) (the "Aggregate
Litigation Amount"), together with any accrued interest thereon, to [PAYEE'S
NAME], individuals whose place of employment is located at [ADDRESS OF THE JB
SUTTON GROUP, LLC] (the "Payee"). The Aggregate Litigation Amount shall bear
interest at the rate of seven percent (7%) per annum and shall be payable in
full at the Payee's address as set forth above or such other location as may
later be agreed upon, on March 31, 2000 (the "Litigation Maturity Date").
Payment of the Aggregate Litigation Amount and any accrued interest thereon
shall be made in immediately available United States currency. This Promissory
Note is subject to the terms and conditions of that certain LLC Interest
Purchase Agreement, dated as of even date herewith (the "Purchase Agreement"),
concerning the purchase by Maker of 100% of the outstanding membership interests
of The JB Sutton Group, LLC). Pursuant to the Purchase Agreement, this
Litigation Note may be converted (the "Litigation Conversion") at the sole
discretion of the Maker into 110,000 shares of the Common Stock of the Maker
upon execution and delivery of the Litigation Conversion Notice as provided in
the Purchase Agreement, and delivery of duly executed certificates representing
such shares of Common Stock shall constitute full satisfaction of any and all
obligations of the Maker under this Litigation Note.
This Note shall be governed by and enforced in accordance with the
laws of the State of New York.
IN WITNESS WHEREOF, the Maker has executed this Litigation Note on
the date first written above.
EASTBROKERS INTERNATIONAL
INCORPORATED
By:-----------------------------------
Name: Martin A. Sumichrast
Title: Chairman & Chief Executive
Officer
Attest:
By:-----------------------------
50
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ATTACHMENT B-2
FORM OF EARN-OUT NOTE
$ 550,000 November ___, 1999
FOR VALUE RECEIVED, Eastbrokers International Incorporated, a Delaware
corporation with its principal place of business located at 6300 Fairview Road,
Suite 1410, Charlotte, North Carolina 28210 (the "Maker"), promises to pay the
principal sum of five-Hundred Fifty Thousand Dollars ($550,000) (the "Aggregate
Earn-Out Amount"), together with any accrued interest thereon, to [PAYEE'S
NAME], individuals whose place of employment is located at [ADDRESS OF THE JB
SUTTON GROUP, LLC] (the "Payee"). The Aggregate Earn-Out Amount shall bear
interest at the rate of seven percent (7%) per annum and shall be payable in
full at the Payee's address as set forth above or such other location as may
later be agreed upon, on March 31, 2000 (the "Earn-Out Maturity Date"). Payment
of the Aggregate Earn-Out Amount and any accrued interest thereon shall be made
in immediately available United States currency. This Earn-Out Note is subject
to the terms and conditions of that certain LLC Interest Purchase Agreement,
dated as of even date herewith (the "Purchase Agreement"), concerning the
purchase by Maker of 100% of the outstanding membership interests of The JB
Sutton Group, LLC). Pursuant to the Purchase Agreement, this Earn-Out Note may
be converted (the "Earn-Out Conversion") at the sole discretion of the Maker
into 550,000 shares of the Common Stock of the Maker upon execution and delivery
of the Earn-Out Conversion Notice as provided in the Purchase Agreement, and
delivery of duly executed certificates representing such shares of Common Stock
shall constitute full satisfaction of any and all obligations of the Maker under
this Earn-Out Note.
This Note shall be governed by and enforced in accordance with the
laws of the State of New York.
IN WITNESS WHEREOF, the Maker has executed this Earn-Out Note on the
date first written above.
EASTBROKERS INTERNATIONAL
INCORPORATED
By:--------------------------------------
Name: Martin A. Sumichrast
Title: Chairman & Chief Executive Officer
Attest:
By:--------------------------------
51
<PAGE>
ATTACHMENT C-1
FORM OF LITIGATION CONVERSION NOTICE
To: [Litigation Escrow Agent], as Litigation Escrow Agent Date:
[Members' Names]
Eastbrokers International Incorporated ("Eastbrokers"), pursuant to the
provisions set forth in that certain LLC Interest Purchase Agreement, dated as
of November 22, 1999, by and among Eastbrokers, The JB Sutton Group, LLC and the
Members and Special Members of The JB Sutton Group, LLC, being the Maker of the
Litigation Note executed in favor of the above named person (exclusive of the
escrow agent) ("Payee"), hereby converts such Litigation Note into 110,000
shares of Common Stock of Eastbrokers International Incorporated. Upon delivery
by Eastbrokers to the Litigation Escrow Agent of such shares of Common Stock,
any and all rights of the Payee under such Litigation Note are terminated, and
any and all obligations of Eastbrokers in respect of such Litigation Note are
satisfied in full.
EASTBROKERS INTERNATIONAL
INCORPORATED
By:----------------------------------------
Name:
Title:
52
<PAGE>
ATTACHMENT C-2
FORM OF EARN-OUT CONVERSION NOTICE
To: [Earn-Out Escrow Agent], as Earn-Out Escrow Agent Date:
[Members' Names]
Eastbrokers International Incorporated ("Eastbrokers"), pursuant to the
provisions set forth in that certain LLC Interest Purchase Agreement, dated as
of November 22, 1999, by and among Eastbrokers, The JB Sutton Group, LLC and the
Members and Special Members of The JB Sutton Group, LLC, being the Maker of the
Earn-Out Note executed in favor of the above named persons (exclusive of the
escrow agent) ("Payee"), hereby converts such Earn-Out Note into 550,000 shares
of Common Stock of Eastbrokers International Incorporated. Upon delivery by
Eastbrokers to the above named Earn-Out Escrow Agent of such shares of Common
Stock, any and all rights of the Payee under such Earn-Out Note are terminated,
and any and all obligations of Eastbrokers in respect of such Earn-Out Note are
satisfied in full.
EASTBROKERS INTERNATIONAL
INCORPORATED
By:----------------------------------------
Name:
Title:
53
<PAGE>
SCHEDULES
3.1 Ownership of Other Securities or Indebtedness
3.2 Outstanding Rights for Sutton Interests
3.4(a) Legal Conflicts - Sutton
3.4(b) Contractual Conflicts - Sutton
3.5 Sutton Consents
3.6 Financial Statements and Adjustments Thereto
3.7 Liabilities
3.8 Certain Changes
3.10 Owned Real Property and Encumbrances Thereon
3.11 Real Property Leases
3.12 Equipment and Fixtures and Encumbrances Thereon
3.13 Contracts
3.14 Litigation
3.16 Compliance; Permits
3.18 Benefit Plans
3.19 Environmental and Health/Safety Matters
3.21 Depositories
3.22 Insurance Policies
3.24 Brokerage
3.25 Transactions with Affiliates of Sutton
3.27 NASD Matters
3.30 Sutton Employees
3.31 Registered Principals and Representative
3.33 Intercompany Liabilities
5.2(a) Legal Conflicts - Eastbrokers
5.2(b) Contractual Conflicts - Eastbrokers
5.3 Eastbrokers Consents
5.4 Brokerage
7.5 Former Sutton Members Signing Employment and Non-Compete
Agreements
54
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS.......................................................1
SECTION 1.1 Definitions...............................................1
ARTICLE II THE ACQUISITION...................................................9
SECTION 2.1 Acquisition...............................................9
SECTION 2.2 Effects of the Acquisition................................9
SECTION 2.3 Delivery of the Consideration............................10
SECTION 2.4 Litigation Note..........................................11
SECTION 2.5 Litigation Escrow Agreement..............................11
SECTION 2.6 Earn-Out Note............................................12
SECTION 2.7 Earn-Out Escrow Agreement; Earn-Out Adjustment...........13
SECTION 2.8 Allocation of the Consideration and Bonus Pool...........14
SECTION 2.9 Valuation of Litigation Liability; Valuation of
Returned Shares........................................16
SECTION 2.10 Liquidated Damages......................................16
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SUTTON AND
THE MEMBERS AND SPECIAL MEMBERS..................................17
SECTION 3.1 Organization, Qualification and Authority of Sutton.....17
SECTION 3.2 Membership Interests....................................18
SECTION 3.3 Limited Liability Company Organizational Documents......18
SECTION 3.4 No Conflict.............................................18
SECTION 3.5 Consents................................................19
SECTION 3.6 Financial Statements....................................19
SECTION 3.7 No Undisclosed Liabilities..............................19
SECTION 3.8 Absence of Certain Changes..............................19
SECTION 3.9 Reports.................................................20
SECTION 3.10 Title to Real Property..................................20
SECTION 3.11 Real Property Leases....................................20
SECTION 3.12 Title and Condition of Certain Personal Property........21
SECTION 3.13 Contracts...............................................21
SECTION 3.14 Litigation..............................................22
SECTION 3.15 Tax Matters.............................................22
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SECTION 3.16 Compliance with Law; Permits............................23
SECTION 3.17 Intellectual Property...................................24
SECTION 3.18 Benefit Plans of Sutton.................................24
SECTION 3.19 Environmental and Health/Safety Matters.................26
SECTION 3.20 Records.................................................27
SECTION 3.21 Depositories............................................27
SECTION 3.22 Insurance...............................................27
SECTION 3.23 True and Complete Copies................................27
SECTION 3.24 Brokerage...............................................27
SECTION 3.25 Transactions with Affiliates............................27
SECTION 3.26 Broker-Dealer Registration..............................28
SECTION 3.27 NASD Matters............................................28
SECTION 3.28 SIPC/CRD Registration...................................28
SECTION 3.29 State Broker-Dealer Registrations.......................28
SECTION 3.30 Employees...............................................28
SECTION 3.31 Registered Principals and Representatives...............28
SECTION 3.32 Brokers' Bond...........................................28
SECTION 3.33 Intercompany Liabilities................................28
SECTION 3.34 Full Disclosure.........................................29
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE MEMBERS
AND SPECIAL MEMBERS...........................................29
SECTION 4.1 Record and Beneficial Ownership of Sutton Interests.....29
SECTION 4.2 Investment Representations..............................29
SECTION 4.3 Representation and Consultation.........................30
SECTION 4.4 Full Disclosure.........................................30
ARTICLE IV-A REPRESENTATIONS AND WARRANTIES OF MR. COHEN....................30
SECTION IV-A.1 Investment Representations..............................30
ARTICLE V REPRESENTATIONS AND WARRANTIES OF EASTBROKERS.....................30
SECTION 5.1 Organization, Qualification and Authority
of Eastbrokers......................................31
SECTION 5.2 No Conflict.............................................31
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SECTION 5.3 Consents................................................31
SECTION 5.4 Brokerage...............................................32
SECTION 5.5 Filings with the Commission.............................32
ARTICLE VI PRE-CLOSING COVENANTS............................................32
SECTION 6.1 Conduct of Business.....................................32
SECTION 6.2 Assignment of Leases, Other Contracts,
Property and Equipment................................32
ARTICLE VII CONDITIONS TO THE OBLIGATIONS OF EASTBROKERS....................32
SECTION 7.1 Representations and Warranties; Performance.............32
SECTION 7.2 Approvals; Consents.....................................33
SECTION 7.3 No Proceeding or Litigation.............................33
SECTION 7.4 Litigation Escrow Agreement; Earn-Out Escrow Agreement..33
SECTION 7.5 Employment Agreements; Non-Compete Agreements...........33
SECTION 7.6 Assignment..............................................33
SECTION 7.7 Other Documents.........................................33
SECTION 7.8 Organizational Action...................................34
SECTION 7.9 Securities Laws Exemptions..............................34
SECTION 7.10 Due Diligence Review....................................34
SECTION 7.11 Book Value of Sutton....................................34
ARTICLE VIII CONDITIONS TO THE OBLIGATIONS OF SUTTON AND THE
MEMBERS AND SPECIAL MEMBERS...................................34
SECTION 8.1 Representations and Warranties; Performance.............34
SECTION 8.2 Approvals; Consents.....................................35
SECTION 8.3 No Proceeding or Litigation.............................35
SECTION 8.4 Corporate Action........................................35
SECTION 8.5 Litigation Escrow Agreement and Earn-Out
Escrow Agreement......................................35
SECTION 8.6 Other Documents.........................................35
ARTICLE IX CLOSING.........................................................35
SECTION 9.1 Closing.................................................35
SECTION 9.2 Delivery of Documents by Sutton.........................35
SECTION 9.3 Delivery of Documents by Eastbrokers....................36
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SECTION 9.4 Filing of Certificate of Amendment......................36
ARTICLE X TAX MATTERS....................................................37
SECTION 10.1 Tax Periods Ending On or Before the
Closing Date..........................................37
SECTION 10.2 Tax Periods Beginning Before and Ending
After the Closing Date................................37
SECTION 10.3 Cooperation on Tax Matters..............................37
SECTION 10.4 Certain Taxes...........................................38
ARTICLE XI TERMINATION....................................................38
ARTICLE XII COVENANTS OF THE PARTIES.......................................38
SECTION 12.1 ........................................................39
SECTION 12.2 Common Stock............................................39
SECTION 12.3 Governmental and Regulatory Approvals and Compliance....39
SECTION 12.4 Confidentiality.........................................39
SECTION 12.5 Further Assurances......................................40
ARTICLE XIII SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS; INDEMNIFICATION.................................41
SECTION 13.1 Survival of Representations, Warranties and Covenants...41
SECTION 13.2 Indemnification by Eastbrokers..........................41
SECTION 13.3 Indemnification by Sutton...............................41
SECTION 13.4 Indemnification Procedure...............................42
ARTICLE XIV MISCELLANEOUS PROVISIONS......................................43
SECTION 14.1 Entire Agreement........................................43
SECTION 14.2 Amendment...............................................43
SECTION 14.3 Extension; Waiver.......................................43
SECTION 14.4 Headings................................................43
SECTION 14.5 Severability............................................43
SECTION 14.6 Counterparts............................................44
SECTION 14.7 Assignment; Third Party Beneficiaries...................44
SECTION 14.8 Investigations..........................................44
SECTION 14.9 Expenses................................................44
SECTION 14.10 Governing Law...........................................44
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SECTION 14.11 Arbitration.............................................44
SECTION 14.12 Ambiguity in Drafting...................................45
SECTION 14.13 Notices.................................................45
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