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ASSET PURCHASE AGREEMENT
among
HALES CAPITAL ADVISORS, L.L.C.,
ITS MEMBERS,
ARCH CAPITAL GROUP LTD.
and
HALES & COMPANY INC.
Dated as of October 31, 2000
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TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS, ETC.
1.1 Definitions.......................................................1
1.2 Other Terms.......................................................6
1.3 Accounting Terms and Determinations...............................8
1.4 Rules of Construction.............................................8
ARTICLE II
PURCHASE AND SALE
2.1 Purchase and Sale of Company Assets...............................9
2.2 Restricted Assets.................................................9
2.3 Purchase Price...................................................10
2.4 Instruments of Transfer and Conveyance...........................10
2.5 Assumption of Liabilities........................................11
2.6 Assumption of Contracts..........................................11
2.7 Allocation of Purchase Price.....................................11
ARTICLE III
CLOSING DATE; CLOSING
3.1 Closing Date; Closing............................................12
3.2 Effective Date...................................................13
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE MEMBERS AND THE COMPANY
4.1 Organization, Etc................................................13
4.2 Outstanding Membership Interests.................................14
4.3 Authorization; Execution and Delivery, Etc.......................14
4.4 Consents and Approvals of Governmental Authorities...............14
4.5 No Violation.....................................................14
4.6 Financial Statements.............................................15
4.7 Absence of Certain Changes.......................................16
4.8 Tax Matters......................................................17
4.9 Employee Benefits................................................17
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4.10 Assets, Contracts and Other Data.................................18
4.11 Absence of Undisclosed Liabilities...............................20
4.12 Restrictions on Business Activities..............................21
4.13 Agreements in Full Force and Effect..............................21
4.14 Legal Proceedings, Etc...........................................21
4.15 Environmental Matters............................................21
4.16 Non-Infringement of Certain Rights of Others.....................23
4.17 Brokers..........................................................23
4.18 Labor Matters....................................................23
4.19 Affiliate Agreements.............................................24
4.20 Investment Matters...............................................24
4.21 Material Facts...................................................24
4.22 Sale of Hales & Associates, Inc. Assets..........................25
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE BUYER
5.1 Corporate Organization...........................................25
5.2 Capitalization...................................................25
5.3 Authorization; Execution and Delivery, Etc.......................26
5.4 Consents and Approvals of Governmental Authorities...............26
5.5 No Violation.....................................................26
5.6 SEC Documents....................................................27
5.7 Financial Statements.............................................27
5.8 Legal Proceedings, Etc...........................................28
ARTICLE VI
COVENANTS OF THE MEMBERS AND THE COMPANY
6.1 Regular Course of Business.......................................28
6.2 Certain Prohibited Activities....................................29
6.3 Dividends........................................................29
6.4 Capital Expenditures.............................................30
6.5 Borrowing........................................................30
6.6 Insurance........................................................30
6.7 Returns; Taxes; Etc..............................................30
6.8 Access...........................................................30
6.9 Repayment of Marsh Note..........................................31
6.10 Approvals........................................................31
6.11 Counterpart to this Agreement....................................31
6.12 Further Assurances...............................................32
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ARTICLE VII
CONDITIONS TO OBLIGATIONS OF THE MEMBERS AND THE COMPANY
7.1 Representations and Warranties True..............................32
7.2 Performance of Covenants.........................................32
7.3 No Governmental or Other Proceeding or Litigation................32
7.4 Approvals........................................................33
7.5 No Material Adverse Change.......................................33
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF THE PARENT AND THE BUYER
8.1 Representations and Warranties True..............................33
8.2 Performance of Covenants.........................................34
8.3 No Governmental or Other Proceeding or Litigation................34
8.4 Approvals and Consents...........................................34
8.5 No Material Adverse Change.......................................34
8.6 Consents.........................................................34
8.7 Debt.............................................................34
8.8 Employment Arrangements..........................................35
8.9 Tax Lien Waivers.................................................35
8.10 Section 1445 Certificate.........................................35
8.11 Escrow Agreement.................................................35
8.12 Opinion of Counsel...............................................35
8.13 Officer's Certificate............................................35
ARTICLE IX
TERMINATION AND ABANDONMENT, ETC.
9.1 Methods of Termination...........................................36
ARTICLE X
SURVIVAL AND INDEMNIFICATION
10.1 Survival.........................................................37
10.2 Indemnification by the Members and the Company...................37
10.3 Indemnification by Parent and Buyer..............................38
10.4 Indemnification Process..........................................38
10.5 Tax Matters......................................................39
10.6 Fraud: Exclusive Remedy..........................................39
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ARTICLE XI
CERTAIN AGREEMENTS
11.1 Agreement Not to Compete.........................................40
11.2 Confidentiality..................................................43
11.3 Non-Solicitation.................................................44
11.4 Fund Matters.....................................................45
11.5 Specific Relief..................................................45
11.6 Transfer Restriction.............................................46
11.7 Bulk Transfer Laws...............................................47
11.8 Post-Closing Activities..........................................47
11.9 Transfer and Sales Tax...........................................47
ARTICLE XII
REGISTRATION RIGHTS
12.1 Requested Registration...........................................48
12.2 Piggyback Registration...........................................51
12.3 Expenses of Registration.........................................52
12.4 Registration Procedures..........................................53
12.5 Indemnification..................................................54
12.6 Preparation; Reasonable Investigation............................56
12.7 Information by the Holders.......................................57
12.8 Rule 144 Reporting and Sales.....................................57
12.9 Holdback Agreements..............................................58
ARTICLE XIII
MISCELLANEOUS PROVISIONS
13.1 Amendment and Modification.......................................58
13.2 Waiver of Compliance.............................................58
13.3 Notices..........................................................58
13.4 Assignment.......................................................59
13.5 No Third Party Beneficiary Rights................................60
13.6 Employment Arrangements..........................................60
13.7 Press Releases...................................................60
13.8 Confidentiality by Parent........................................60
13.9 Form W-2.........................................................61
13.10 Governing Law....................................................61
13.11 Submission to Jurisdiction.......................................62
13.12 Expenses.........................................................62
13.13 Counterparts.....................................................62
13.14 Headings.........................................................62
13.15 Entire Agreement.................................................62
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Schedules
2.1(a) Transferred Assets
2.1(b) Excluded Assets
2.5 Assumed Liabilities
2.6 Assumed Contracts
4.1 Foreign Qualifications
4.2 Outstanding Equity Interests
4.4 Governmental Approvals
4.5 Consents
4.6(a) Audited Financial Statements
4.6(b) Unaudited Financial Statements
4.7 Absence of Certain Changes
4.8 Tax Matters
4.9(a) Benefit Plans
4.9(d) Parachute Payments
4.10(b) Intellectual Property Matters
4.10(c) Insurance Policies
4.10(d) Contracts, Agreements, Etc.
4.10(e) Indebtedness
4.10(f) Equity Interests in Others
4.10(g) Permits
4.11 Undisclosed Liabilities
4.12 Restrictions on Business Activities
4.14 Legal Proceedings
4.16 Non-Infringement of Certain Rights of Others
4.17 Brokers
4.18(a) Labor Matters
4.18(b) Employee Information
4.19 Affiliate Agreements
8.6 Consents
8.7 Outstanding Indebtedness
Exhibits
A Form of Opinion of Counsel for Company
B Form of Executive Compensation Plan
C Form of Bill of Sale
D Form of Escrow Agreement
E Form of Assignment and Assumption Agreement
F Form of Subscription Agreement
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Exhibit A
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of October 31, 2000 (the "Agreement"),
among Hales Capital Advisors, L.L.C., an Illinois limited liability company (the
"Company"), the class A members of the Company as listed on the signature pages
hereof (the "Class A Members"), the class C member of the Company as listed on
the signature pages hereof (the "Class C Member," and together with the Class A
Members, the "Members"), Arch Capital Group Ltd., a Delaware corporation
("Parent"), and Hales & Company Inc., a Delaware corporation and a wholly owned
subsidiary of Parent ("Buyer").
WITNESSETH:
WHEREAS, subject to the terms and conditions of this Agreement, Buyer
desires to purchase the Transferred Assets and assume the Assumed Liabilities
(each as defined herein), and the Company desires to sell the Transferred Assets
and assign the Assumed Liabilities;
NOW, THEREFORE, in consideration of the premises and the mutual covenants,
agreements, representations and warranties herein contained, it is agreed that:
ARTICLE I
DEFINITIONS, ETC.
1.1 Definitions.
The following terms, as used herein, have the following meanings:
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
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"Asset" means any asset or property, whether real or personal, tangible or
intangible, contingent or fixed, including contractual rights.
"Assumed Liabilities" means (i) the $1.2 million capital commitment under
the Fund GP Agreement as the assignee of Seller's interest in the Fund General
Partner, including a capital call by the Fund on or after the Effective Date and
(ii) all business expenses incurred in the ordinary course and consistent with
past practice incurred in compliance with this Agreement on or after the
Effective Date and prior to the Closing.
"Business" means all of the businesses and activities of the Company and of
Hales & Associates as they have been conducted through the date hereof,
including all businesses and activities generating the revenues reflected in the
Company December 31 Financial Statements and the Company September 30 Financial
Statements.
"Business Day" means any day other than a Saturday, a Sunday or a day on
which commercial banks in New York, New York are required or authorized to be
closed.
"Cash Distribution" means a distribution by the Company to the Members of
the cash and cash equivalents held by it in an aggregate amount expected to
equal $3 million.
"Change in Control" means any Person (within the meaning of the Exchange
Act), other than a Permitted Person, being or becoming the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
Voting Securities representing more than 50% of the total voting power of all
the then outstanding Voting Securities.
"Code" means the Internal Revenue Code of 1986.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, par value $.01 per share, of Parent.
"Employment Agreement" means the employment agreement dated as of the date
hereof between Buyer and Jeffery B. Cappel.
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"Equity Interest" in any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any preferred Equity Interests.
"ERISA" means the Employee Retirement Income Security Act of 1974 and the
rules and regulations promulgated thereunder.
"Exchange Act" means the Securities Exchange Act of 1934 and the rules and
regulations promulgated thereunder.
"Excluded Liabilities" means Liabilities of the Company or any of the
Members in his or its capacity as a member of the Company, whether arising
before or after the date hereof, other than Assumed Liabilities.
"Fund" means Distribution Partners Investment Capital, L.P., a Delaware
limited partnership.
"Fund Agreement" means the Limited Partnership Agreement of the Fund dated
November 17, 1999, as amended as of December 15, 1999 and May 8, 2000, and as in
effect on the date hereof.
"Fund General Partner" means Distribution Investors, LLC, a Delaware
limited liability company.
"Fund GP Agreement" means the Limited Liability Company Agreement of the
Fund General Partner dated as of May 8, 2000 and as in effect on the date
hereof.
"Fund GP Interest" means the membership interests in the Fund General
Partner held by the Company, as described on Schedule 2.1(a).
"Governmental Authority" shall mean any government or political subdivision
of the United States or any other country or any agency, authority, board,
bureau, central bank, securities exchange, commission, department or
instrumentality thereof or therein, including any court, tribunal, grand jury or
arbitrator, in each case whether foreign or domestic, or any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to such government or political subdivision.
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"Hales & Associates" means Hales & Associates, Inc., an Illinois
corporation.
"Holder" means any registered holder of Registrable Securities.
"in the ordinary course" means, with respect to any Person, in the ordinary
course of business of such Person consistent with past practice.
"Initiating Holder" means any Holder or Holders initiating a request for
registration under Section 12.1.
"Intellectual Property" means patents, copyrights, trademarks, trade names,
service marks, logos, domain names, URLs, web addresses and sites, registrations
and applications for any of the foregoing, computer programs, proprietary and
confidential information, trade secrets and know-how and goodwill associated
with any of the foregoing and all remedies against infringements thereof and
rights to protection of interests therein under all laws.
"Laws" means any applicable federal, state, local or foreign statutes,
laws, codes, common law rules, ordinances, rules, regulations, permits,
licensing or other requirements or any judicial or administrative decision of
any Governmental Authority.
"Liability" or "Liabilities" means, with respect to any Person, any
liability, obligation or commitment of such Person of any kind, character or
description, whether known or unknown, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated, secured or unsecured, joint or several,
due or to become due, vested or unvested, executory, determined, determinable or
otherwise and whether or not the same is required to be accrued on the financial
statements of such Person.
"Lien" means any lien, pledge, mortgage, security interest, claim, charge
or other encumbrance of any kind whatsoever.
"Marsh Note" means the $2.0 million convertible note of the Company dated
April 12, 2000 issued to Marsh & McLennan Risk Capital Holdings, Ltd.
"Orders" means any judgment, decree, order, regulation, injunction, writ or
rule of any Governmental Authority.
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"Parent SEC Documents" means (i) the annual reports on Form 10-K of Parent
for the fiscal year ended December 31, 1999, (ii) the quarterly reports on Form
10-Q of Parent for the fiscal quarters ended March 31 and June 30, 2000, (iii)
Parent's proxy statements relating to meetings of, or actions taken without a
meeting by, its stockholders held since December 31, 1999, and (iv) all other
reports, filings, registration statements and other documents filed by Parent
with the Commission since December 31, 1999.
"Permits" means all licenses, permits, exemptions, authorizations,
registrations, filings and approvals of or with Governmental Authority.
"Permitted Persons" means (A) Parent; (B) any Related Party; or (C) any
group (as defined in Rule 13d-3 under the Exchange Act) comprised of any or all
of the foregoing.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, limited liability
partnership, limited partnership, trust, unincorporated organization or
government or any agency or political subdivision thereof or other entity.
"register," "registered" and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act (and any post-effective amendments filed or required to be filed)
and the declaration or ordering of effectiveness of such registration statement.
"Registrable Securities" means (A) the Shares and (B) any shares of Common
Stock issued as a dividend or other distribution with respect to, or in exchange
for or in replacement of, the Shares. As to any particular Registrable
Securities, such Registrable Securities shall cease to be Registrable Securities
when (i) a registration statement with respect to the sale by the Holder thereof
shall have been declared effective under the Securities Act and such securities
shall have been disposed of in accordance with such registration statement, (ii)
they shall have been distributed to the public in accordance with Rule 144,
(iii) such Registrable Securities may be sold without restriction under the
Securities Act, or (iv) they shall have ceased to be outstanding.
"Registration Expenses" means all expenses incurred by the Company in
compliance with Sections 12.1, 12.2 and 12.4, including all registration and
filing fees, printing expenses,
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fees and disbursements of counsel for Parent, blue sky fees and expenses and the
expense of any special audits incident to or required by any such registration.
"Related Agreements" means the Employment Agreement, the Escrow Agreement
and the agreements and instruments contemplated by Sections 2.2, 2.4, 2.6 and
8.14.
"Related Party" means (A) a majority-owned subsidiary of Parent; (B) a
trustee or other fiduciary holding securities under an employee benefit plan of
Parent or any majority-owned subsidiary of Parent; or (C) a corporation owned
directly or indirectly by the stockholders of Parent in substantially the same
proportion as their ownership of Voting Securities.
"Securities Act" means the Securities Act of 1933 and the rules and
regulations promulgated thereunder.
"Selling Expenses" means all underwriting discounts and selling commissions
applicable to the sale of Registrable Securities and all fees and disbursements
of any counsel for the Holders.
"Taxes" means (i) any and all federal, state, provincial, local and foreign
income, profits, estimated, alternative minimum, franchise, sales, value added,
use, employment, payroll, occupation, real property, personal property, excise,
gross receipts, license, customs, duties, capital stock, windfall profit,
withholding, social security (or similar), unemployment, disability,
registration, and other taxes, assessments, imposts, fees, charges or duties of
any kind whatsoever, (ii) any interest, additions to tax and penalties with
respect to any item described in clause (i) hereof and (iii) any transferee,
successor, joint and several or contractual liability (including liability as an
indemnitor, guarantor, surety or in a similar capacity, or liability pursuant to
U.S. Treasury Regulation Section 1.1502-6 (or any comparable state, local or
foreign provision)) in respect of any item described in clause (i) or (ii)
hereof.
"Voting Security" means any security of Parent which carries the right to
vote generally in the election of directors.
1.2 Other Terms.
Each of the following terms is defined in the Section set forth opposite
such term:
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Term Section
Agreement..................................................... Preamble
Assumed Contracts............................................. 2.6
Assumed Liabilities........................................... 2.5
Buyer......................................................... Preamble
Buyer Indemnified Party....................................... 10.3
Cash Consideration............................................ 2.3
Cause......................................................... 11.1(f)
Class A Members............................................... Preamble
Class C Member................................................ Preamble
Closing....................................................... 3.1
Closing Date.................................................. 3.1
Company....................................................... Preamble
Company Benefit Plans......................................... 4.9(a)
Company December 31 Balance Sheet............................. 4.6(a)
Company December 31 Financial Statements...................... 4.6(a)
Company Indemnified Party..................................... 10.3
Company September 30 Balance Sheet............................ 4.6(b)
Company September 30 Financial Statements..................... 4.6(b)
Confidential Material......................................... 11.2(a)
Effective Date................................................ 3.2
Environmental Laws............................................ 4.15(a)
Environmental Permits......................................... 4.15(a)
Escrow Agreement.............................................. 3.1
Excluded Assets............................................... 2.1(b)
Final Prospectus.............................................. 12.5(f)
Hales Asset Purchase Agreement................................ 4.22(a)
Hazardous Substance........................................... 4.15(a)
Indemnified Party............................................. 10.4
Indemnifying Party............................................ 10.4
Losses........................................................ 10.2
Material Adverse Effect....................................... 4.1
Material Contracts............................................ 4.10(d)
Members....................................................... Preamble
Non-Compete Period............................................ 11.1(e)
Other Stockholders............................................ 12.1(b)
Parent........................................................ Preamble
Parent December 31 Balance Sheet.............................. 5.7(a)
Parent December 31 Financial Statements....................... 5.7(a)
Parent June 30 Balance Sheet.................................. 5.7(b)
Parent June 30 Financial Statements........................... 5.7(b)
Parent Material Adverse Effect................................ 5.5
PCB........................................................... 4.15(a)
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Pre-Closing Confidential Material............................. 13.8(a)
Purchase Price................................................ 2.3
Registration Indemnified Party................................ 12.5(c)
Registration Indemnifying Party............................... 12.5(c)
Representatives............................................... 11.2(a)
Restricted Asset.............................................. 2.2
Returns....................................................... 4.8
Shares........................................................ 2.3
Shelf Registration............................................ 12.1(a)
Tax Indemnity................................................. 10.2
Transferred Assets............................................ 2.1(a)
1.3 Accounting Terms and Determinations.
Unless otherwise specified herein, all accounting terms used herein shall
be interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder shall be prepared, in
accordance with generally accepted accounting principles in the United States as
in effect on the date hereof, applied on a consistent basis.
1.4 Rules of Construction.
(a) The definitions in Section 1.1 shall apply equally to both the singular
and plural forms of the terms defined. Whenever the context may require, any
pronoun shall include the corresponding masculine, feminine and neuter forms.
The words "include," "includes" and "including" shall be deemed to be followed
by the phrase "without limitation."
(b) Unless the context shall otherwise require, all references herein to
(i) Articles, Sections, Exhibits and Schedules shall be deemed references to
Articles and Sections of, and Exhibits and Schedules to, this Agreement, (ii)
Persons include their respective permitted successors and assigns or, in the
case of governmental Persons, Persons succeeding to the relevant functions of
such Persons, (iii) agreements and other contractual instruments include
subsequent amendments, assignments, and other modifications thereto to the date
hereof and thereafter, but in the case of any amendment, assignment or
modification after the date hereof, only to the extent such amendments,
assignments or other modifications thereto are not prohibited by their terms or
the terms hereof, (iv) statutes and related regulations include any amendments
of same and any successor statutes and regulations, and (v) time shall be deemed
to be to New York City time.
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(c) Whenever a representation or warranty is made herein as being "to the
knowledge of" or "known," it is understood and agreed that the person making
such representation has made or caused to be made (and the results thereof
reported to him) a reasonable investigation which is appropriate to determine
the accuracy of such representation or warranty.
ARTICLE II
purchase and sale
2.1 Purchase and Sale of Company Assets.
(a) Subject to the terms and conditions of this Agreement, Buyer agrees to
purchase from the Company, and the Company agrees to sell, transfer and deliver
to Buyer on the Closing Date, all of the Assets listed on Schedule 2.1(a) (the
"Transferred Assets") other than the Fund GP Interest, and Parent agrees to
purchase from the Company, and the Company agrees to sell, transfer and deliver
to Parent, the Fund GP Interest, in each case, free and clear of any Lien,
against payment of the Purchase Price as set forth in Section 3.1.
(b) Schedule 2.1(b) sets forth all Assets of the Company on the date hereof
other than the Transferred Assets (the "Excluded Assets").
2.2 Restricted Assets.
(a) In the event that any permit, license, franchise, governmental
authorization, contract, agreement, equipment lease, right or obligation of the
Company included as part of the Transferred Assets on the Closing Date is not
assignable to Buyer by its terms or by virtue of its subject matter (each, a
"Restricted Asset"), the Company shall use all reasonable efforts, and Buyer
shall cooperate reasonably with the Company, (i) to promptly obtain the consents
and waivers necessary to convey or cause to be conveyed to Buyer all of the
Restricted Assets, and (ii) as of and subject to the occurrence of the Closing,
convey to Buyer the Restricted Assets for which the Company has received the
necessary consents and waivers.
(b) To the extent that the consents and waivers necessary to assign,
transfer, sublease or sublicense any of the Restricted Assets are not obtained
as of the Closing Date, the Company shall, commencing on the Closing Date and
subject to the occurrence of the Closing and continuing for the duration of the
useful life of each such Restricted Asset, use reason-
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able efforts to (i) provide to Buyer the benefits of any such Restricted Asset
not assigned, transferred or subleased due to the Company's failure or
inability, as the case may be, to obtain such consent or waiver, (ii) cooperate
with Buyer to reach a reasonable and lawful arrangement designed to provide the
benefits of each such Restricted Asset to Buyer during the useful life of such
Restricted Asset and (iii) enforce at the request of Buyer, or allow Buyer to
enforce, any rights of the Company under any such Restricted Asset against the
issuer thereof or the other party or parties thereto (including the right to
elect to terminate any of the foregoing in accordance with the terms thereof
upon the request of Buyer).
2.3 Purchase Price.
The consideration for the Transferred Assets and the covenants in Sections
11.1, 11.2, 11.3, 11.4 and 11.5 shall consist of 300,000 shares of Common Stock
(the "Shares") and $1,996,570 in cash, subject to increase pursuant to Section
3.2 hereof (the "Cash Consideration," and, together with the Shares, the
"Purchase Price"). Of the Cash Consideration, $146,570 shall be deemed to be for
the Assets listed on Schedule 2.1(a) under "Other Tangible Assets" (other than
the Fund GP Interest). The parties expressly agree that the item "Prepaid
Insurance" on Schedule 2.1(a) does not include tail coverage or additional
limits for the Company, which shall be paid by the Company at its own expense.
2.4 Instruments of Transfer and Conveyance.
(a) The sale, conveyance, transfer, assignment and delivery of the
Transferred Assets, as herein provided, shall be effected by delivery by the
Company at the Closing of the bill of sale attached as Exhibit C and such
assignments, certificates or other instruments of transfer and conveyance, duly
executed by the Company, as Buyer shall reasonably request to vest in Buyer good
and marketable title to the Transferred Assets, free and clear of any Lien.
(b) The Members and the Company agree that they, and each of them, will on
the Closing Date with respect to all of the Transferred Assets, and from time to
time after the Closing Date, upon the reasonable request of Buyer, do, execute,
acknowledge and deliver, and will cause to be done, executed, acknowledged and
delivered, all such further acts, deeds, certificates, assignments, transfers,
conveyances, powers of attorney and assurances as may be reasonably requested by
Buyer to assure or confirm Buyer's good and marketable title to and
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interest in, or to enable it to deal with and dispose of any of, the Transferred
Assets.
2.5 Assumption of Liabilities.
Buyer does not hereby assume or undertake or agree to assume any Liability
(including any Liability relating to Taxes) except the Assumed Liabilities.
2.6 Assumption of Contracts.
The parties hereto acknowledge and agree that neither Parent nor Buyer
shall assume, or be obligated to assume, any Liability of the Company other than
those expressly identified in Section 2.5. Subject to the terms and conditions
set forth in this Agreement, at the Closing, Buyer shall assume in accordance
with their respective terms the obligations arising after the Closing Date under
the contracts to be purchased by Buyer pursuant to Sections 2.1 and 2.2 and set
forth on Schedule 2.6 (the "Assumed Contracts"). The assumption of such
obligations shall be effected by the delivery by Buyer at the Closing of such
instruments of assumption, duly executed by Buyer, as the Company shall
reasonably request.
2.7 Allocation of Purchase Price.
Following the Closing, Buyer shall prepare a statement setting forth the
allocation of the Purchase Price among the Transferred Assets, which shall be
agreed to by the Company. The parties hereby agree that the fair market value
from the Shares for the purposes of such allocation shall be equal to the
average of high and low sales prices of the Common Stock as reported on the
Nasdaq National Market on the Closing Date, discounted as appropriate. The
Company, the Members, Buyer and Parent shall each, to the maximum extent
permitted under applicable law, (i) file, or cause to be filed, all Returns in a
manner consistent with such allocation and (ii) not take any action inconsistent
therewith. If any tax authority challenges such allocation, the party receiving
notice of such challenge shall give the other party prompt written notice
thereof and the parties shall cooperate in good faith in order to preserve the
effectiveness of such allocation.
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ARTICLE III
CLOSING DATE; CLOSING
3.1 Closing Date; Closing.
The Closing hereunder shall take place at the offices of Cahill Gordon &
Reindel, 80 Pine Street, New York, New York 10005, on the second Business Day
after each of the conditions set forth in Articles VII and VIII shall have been
satisfied or waived, or at such other time and place as the parties hereto shall
agree (the "Closing Date").
Upon satisfaction or waiver of all such conditions:
(i) the Company shall deliver to Buyer and Parent the instruments of
transfer and conveyance required by Section 2.4 to evidence the ownership
and possession of (x) the Transferred Assets other than the Fund GP
Interest by Buyer and (y) the Fund GP Interest by Parent, and the Company
and the Members shall deliver any and all certificates and other documents
reasonably requested by Buyer evidencing or confirming any and all title,
right and interest therein and thereto;
(ii) Buyer shall deliver to the Company the instruments of assumption
and other documents reasonably requested by the Company and the Members
required by Section 2.5 to evidence Buyer's assumption of the Assumed
Liabilities and by Section 2.6 to evidence Buyer's assumption of the
Assumed Contracts;
(iii) Buyer shall deliver to the Company the Cash Consideration by
wire transfer of immediately available funds to an account specified by the
Company, and
(iv) Parent shall issue the certificate representing the Shares in the
name of the Company, and the Company shall execute a blank and undated
stock power for such certificate to Parent, both of which shall be held in
escrow pursuant to the Escrow Agreement in the form attached as Exhibit D
(the "Escrow Agreement");
(v) the Members shall deliver the Letters of Credit (as defined in the
Escrow Agreement) with an aggregate face amount for $1,850,000 and meeting
the other requirements set forth in the Escrow Agreement.
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Upon the occurrence of the events described in clauses (i) through (v)
immediately above, the closing hereunder will be deemed accomplished (the
"Closing").
3.2 Effective Date.
Upon consummation of the Closing, the Closing will be deemed to be
effective as of November 1, 2000 (the "Effective Date") and the Assets and
Liabilities transferred pursuant to this Agreement shall be deemed to be
transferred as of the Effective Date. The Cash Consideration paid to the Company
pursuant to Section 2.3 shall be increased by the amount of Assumed Liabilities
paid by the Company on or after the Effective Date and prior to Closing
described in clause (ii) of the definition thereof; provided that the Company
gives prompt written notice to Parent and Buyer of such Assumed Liabilities
prior to the Closing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE MEMBERS AND THE COMPANY
Each Member (individually as to himself or itself (and not as to any other
Member) and jointly and severally as to the Company) and the Company hereby
represent and warrant, as of the date hereof and as of the Closing Date, to
Buyer and Parent as follows:
4.1 Organization, Etc.
The Company is a limited liability company duly organized, validly existing
and in good standing under the laws of the State of Illinois and has full
organizational power and authority to conduct its business as presently
conducted, and to own or lease the properties and assets it now owns or holds
under lease, and is duly qualified or licensed to do business and is in good
standing as a foreign limited liability company in every jurisdiction in which
the conduct of its business or the ownership or leasing of properties requires
it to be so qualified or licensed (which jurisdictions are set out in Schedule
4.1), except where the failure to be so qualified or licensed would not
reasonably be expected to have a material adverse effect on the business,
Assets, Liabilities, condition (financial or otherwise) or results of operations
of the Business or an adverse effect on the ability of the Company or the
Members to consummate the transactions contemplated hereby or to fulfill their
obligations under this Agreement or the Re-
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lated Agreements to which they are party (a "Material Adverse Effect").
4.2 Outstanding Membership Interests.
Except as set forth on Schedule 4.2, on and as of the date hereof and as of
the Closing Date, all of the Equity Interests of the Company are and will be
owned by the Members, free and clear of any Lien, and all Equity Interests have
been validly issued, fully paid and nonassessable. The Company does not have,
and as of the Closing Date will not have, outstanding, and is not, and as of the
Closing Date will not be, bound by or subject to, any subscription, option,
warrant, call, right, contract, commitment, agreement, understanding or
arrangement to issue any additional Equity Interests, including any right of
conversion or exchange under any outstanding security or other instrument,
except pursuant to the Marsh Note.
4.3 Authorization; Execution and Delivery, Etc.
Each of the Members and the Company has full power and authority to execute
and deliver this Agreement and the Related Agreements to which it is, or will
be, a party and to consummate the transactions contemplated hereby and thereby.
Each of the Members and the Company has duly authorized, executed and delivered
this Agreement and the Related Agreements to which it is, or will be, a party.
This Agreement constitutes, and the Related Agreements, when executed and
delivered, will each constitute, the valid and binding agreement of the Members
and the Company, to the extent each is a party thereto, each enforceable in
accordance with its terms.
4.4 Consents and Approvals of Governmental Authorities.
Except as set forth on Schedule 4.4, no Permit of any Governmental
Authority is required in connection with the execution and delivery by the
Members and the Company of this Agreement and the Related Agreements to which
each is, or will be, a party or the performance by any Member or the Company of
its obligations hereunder and thereunder.
4.5 No Violation.
(a) Except as set forth on Schedule 4.5, the execution and delivery by the
Members and the Company of this Agreement and the Related Agreements to which
they are party and the consummation by the Members and the Company of the
transactions
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contemplated hereby and thereby will not (w) constitute or result in a breach of
any term, condition or provision of, or constitute a default (or an event which,
with notice or the lapse of time, or both, reasonably can be expected to create
a default or Lien), or result in the creation of any Lien upon any Transferred
Assets, under, (i) the limited liability company agreement of the Company or any
organizational or governing document of any Member, (ii) any mortgage,
indenture, loan or credit agreement or any other material agreement or
instrument to which any of the Members or the Company is a party, or by which
any of the Transferred Assets is bound or affected, (x) violate any Law (except
to the extent as could not, individually or in the aggregate reasonably be
expected to have a Material Adverse Effect), (y) result in the loss of any
license, franchise, permit, legal privilege or legal right necessary to operate
the Business, or (z) give the right of termination to any party to any Material
Contract.
(b) Except as set forth on Schedule 4.5, (i) the Company and the Members
are in compliance with the limited liability company agreement of the Company,
(ii) the Company is in compliance with all mortgages, indentures, loan or credit
agreements to which it is a party or by which any of its Assets is bound or
affected, and (iii) the Company is in compliance with all Laws.
4.6 Financial Statements.
(a) the Company has provided to Buyer and Parent true and complete copies
of the audited balance sheet of the Company at December 31, 1999 (the "Company
December 31 Balance Sheet") and the audited statements of income and cash flows
of the Company for the fiscal year then ended (collectively, with the Company
December 31 Balance Sheet, the "Company December 31 Financial Statements").
Other than as set forth on Schedule 4.6(a), the Company December 31 Financial
Statements fairly present, in all material respects, the financial position of
the Company at December 31, 1999 and the results of operations and cash flows of
the Company for the period then ended, and have been prepared in accordance with
U.S. generally accepted accounting principles consistently applied. The Company
December 31 Balance Sheet reflects all Liabilities of the Company as of the date
thereof, of the type required to be reflected or disclosed on a balance sheet
prepared in accordance with U.S. generally accepted accounting principles.
(b) The Company has provided to Buyer and Parent true and complete copies
of the unaudited balance sheet of the
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Company at September 30, 2000 (the "Company September 30 Balance Sheet") and the
unaudited statements of income of the Company for the nine-month period then
ended (collectively, with the Company September 30 Balance Sheet, the "Company
September 30 Financial Statements"). The Company September 30 Financial
Statements fairly present, in all material respects, the financial position of
the Company at September 30, 2000 and the results of operations of the Company
for the nine-month period then ended.
4.7 Absence of Certain Changes.
From December 31, 1999 to the date of this Agreement, the Business has been
conducted in the ordinary and usual course consistent with past practice and,
except as set forth on Schedule 4.7, there has not been (a) any material adverse
change in the business, Assets, Liabilities, condition (financial or otherwise)
or results of operations of the Business (other than any such change affecting
the investment banking industry and the merchant banking industry in general);
(b) any disposal or lapse of any Intellectual Property which has had, or could
reasonably be expected to have, a Material Adverse Effect; (c) any actual or, to
the knowledge of the Company or the Members, threatened work stoppage or
employee dispute; (d) any capital expenditures (or leases in the nature of a
conditional purchase of capital equipment) in excess of $25,000 individually or
$50,000 in the aggregate; (e) any change by the Company in its accounting
methods or principles; (f) any payment by the Company of any bonus or increase
of any compensation payable to any officer or employee or entry into (or
amendment of) any employment, severance or similar agreement with any director,
officer or employee; (g) any adoption of or change in any Plan or employment
policy; (h) any damage, destruction or loss to any material Asset of the
Company, which the Company or any Member has a reasonable basis to believe has
occurred, whether or not covered by insurance; (i) any sale (other than sales of
inventory in the ordinary course of business), assignment, conveyance, lease, or
other disposition of any asset or property of the Company (except the
disposition of disposable assets and assets that have become obsolete or
unusable, all in the ordinary course of business) or mortgage, pledge, or
imposition of any lien or other encumbrance on any asset or property of the
Company; or (j) any agreement, whether or not in writing, to do any of the
foregoing.
<PAGE>
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4.8 Tax Matters.
Except as set forth on Schedule 4.8, (a) all material returns,
declarations, reports, statements and other documents required to be filed in
respect of Taxes ("Returns") relating to the Business and the Transferred Assets
have been duly filed on a timely basis with the appropriate governmental
agencies in all jurisdictions in which such Returns are required to be filed and
were correct and complete in all material respects; (b) all material Taxes
relating to the Business and the Transferred Assets attributable to any taxable
period (or portion thereof) of the Company ending on or prior to the date hereof
have been timely paid or, if not yet due and payable, have been specifically
accrued on the Closing Balance Sheet; (c) no issues of a recurring nature have
been raised (and are currently pending) by the Internal Revenue Service or any
other taxing authority in writing in connection with any of the Returns referred
to in the foregoing clauses and no examination of such Returns is currently in
progress nor, to the knowledge of the Company or the Members, threatened, and no
deficiencies have been asserted or assessed against the Company by any taxing
authority and no such deficiency has been proposed or threatened; (d) no waivers
of statutes of limitation with respect to such Returns have been given by or
requested from the Company or the Shareholders; (e) there are no liens for Taxes
(other than for current Taxes not yet due and payable) on the Transferred
Assets; (f) none of the Transferred Assets is property that is required to be
treated as being owned by any other person pursuant to the safe harbor lease
provisions of former Section 168(f)(8) of the Internal Revenue Code of 1954, as
in effect immediately prior to enactment of the Tax Reform Act of 1986; (g) none
of the Transferred Assets directly or indirectly secures any debt the interest
on which is tax exempt under Section 103(a) of the Code; and (h) none of the
Assets is "tax exempt use property" within the meaning of Section 168(h) of the
Code.
4.9 Employee Benefits.
(a) Schedule 4.9(a) sets forth a true and complete list of each material
"employee benefit plan" (within the meaning of Section 3(3) of ERISA), and all
severance, change in control or employment plans, programs or agreements, and
vacation, incentive, bonus, stock option, stock purchase, and restricted stock
plan, program or policy sponsored or maintained by the Company, in which present
or former officers, employees or directors of the Company participate
(collectively, the "Company Benefit Plans").
<PAGE>
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(b) The Company Benefit Plans are in compliance in all material respects
with all applicable requirements of ERISA, the Code, and other applicable laws
and have been administered in all material respects in accordance with their
terms and such laws. Each Company Benefit Plan which is intended to be qualified
within the meaning of Section 401 of the Code has received a favorable
determination letter as to its qualification, and nothing has occurred that
could reasonably be expected to affect such qualification. The Company is not
subject to any current or future Liability, whether directly or indirectly,
under Title IV of ERISA.
(c) There is no pending or, to the knowledge of the Company or the Members,
threatened claim or governmental agency investigation and no pending or, to the
knowledge of the Company or the Members, threatened litigation with respect to
any Company Benefit Plans, other than ordinary and usual claims for benefits by
participants and beneficiaries.
(d) No Company Benefit Plan exists that, as a result of the execution of
this Agreement or the announcement or consummation of the transactions
contemplated by this Agreement, could result in the payment or provision to any
present or former officer, employee or director of the Company of any money or
other property or could result in the acceleration or provision of any other
rights or benefits to any present or former officer, employee or director of the
Company. Except as otherwise set forth in Schedule 4.9(d), no such payment,
right or benefit would constitute a parachute payment within the meaning of
Section 280G under the Code.
4.10 Assets, Contracts and Other Data.
(a) The Transferred Assets and the Excluded Assets constitute all of the
Assets of the Company. The Transferred Assets constitute all Assets that are
material to and required in the conduct of the Business. The Company has
provided to Parent and Buyer true and complete copies of all contracts and
written agreements (including all amendments, supplements or waivers thereto)
which constitute or represent Transferred Assets of the Company. Except as set
forth on Schedule 4.10(a), the Company has good and marketable title to all of
the Transferred Assets, free and clear of all Liens. At the Closing, Buyer will
have good and marketable title to all of the Transferred Assets, free and clear
of all Liens.
(b) Schedule 4.10(b) contains a complete and accurate list of all of the
Intellectual Property owned by or li-
<PAGE>
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censed to the Company. Except as set forth on Schedule 4.10(b), (i) the Company
has or owns, directly or indirectly, all right, title and interest to such
Intellectual Property or has the perpetual right to use such Intellectual
Property without consideration; to the knowledge of the Members or the Company,
none of the rights of the Company in or to use such Intellectual Property has
been or is currently being or is threatened to be infringed or challenged; (ii)
all of the patents, trademark registrations, service mark registrations, trade
name registrations and copyright registrations included in such Intellectual
Property have been duly issued and have not been cancelled, abandoned or
otherwise terminated; and (iii) all of the patent applications, trademark
applications, service mark applications, trade name applications and copyright
applications included in such Intellectual Property have been duly filed. To the
knowledge of the Members or the Company, the Company owns or has adequate
licenses or other rights to use all Intellectual Property, know-how and
technical information required for the operation of the Business.
(c) Schedule 4.10(c) contains a complete and accurate list of all policies
of insurance relating to the Business currently in force in the name of and for
the benefit of the Company, including such policies covering public and product
liability, properties, buildings, machinery, equipment, furniture, fixtures and
operations.
(d) Schedule 4.10(d) contains a complete and accurate list of all existing
outstanding contracts and commitments, whether written or oral, of the Company,
(i) the terms of which provide for the payment in excess of $10,000 by the
Company after the date hereof as the recipient of goods or services or involve
the receipt in excess of $10,000 by the Company as the provider of goods or
services, (ii) whereby the Company leases equipment or real property, (iii)
whereby the Company has a firm commitment to purchase capital equipment (or
lease in the nature of a conditional purchase of capital equipment), (iv) which
continue for a period of twelve months or more and are not subject to a
unilateral right of termination by the Company without consideration, (v) which
restrict or purport to restrict any business activities or freedom of the
Company or any of its officers or employees to engage in any business or to
compete with any person, except for obligations to maintain confidentiality of
client information in the ordinary course, or (vi) which relate to employment,
consulting and agency agreements which provide for any severance or termination
benefit, or any other agreements, contracts and commitments. The existing
outstanding contracts and commitments de-
<PAGE>
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scribed in clauses (i) through (vi) of the preceding sentence are called the
"Material Contracts". Except as set forth on Schedule 4.10(d) or Schedule 4.5,
the Company is not in default (nor is there any event which with notice or lapse
of time or both would constitute a default) under any of the Material Contracts.
(e) Schedule 4.10(e) contains a complete and accurate list of all
indebtedness for borrowed money of the Company showing the aggregate amount by
way of principal and interest outstanding as of the date hereof and, by the
terms of agreements governing such indebtedness, is expected to be outstanding
on the Closing Date.
(f) Schedule 4.10(f) contains a complete and accurate list of all
corporations, partnerships, joint ventures or other business entities in which
the Company owns an Equity Interest of 5% or more, including the percentage of
the Company's Equity Interest therein. Except as disclosed on Schedule 4.10(f),
the Company does not have any commitment or understanding with respect to the
purchase, repurchase or taking possession of any securities or equity interest
in any corporation, partnership, joint venture or other business entity.
(g) Except as otherwise set forth on Schedule 4.10(g), the Company holds
all Permits necessary to conduct the Business and to own or lease the
Transferred Assets. Such necessary Permits have not been revoked, rescinded,
annulled or otherwise terminated nor, to the knowledge of the Members or the
Company, has any action, investigation or proceeding been commenced to effect
such revocation, rescission, annulment or termination.
4.11 Absence of Undisclosed Liabilities.
Except as disclosed in Schedule 4.11, the Company has no Liabilities that,
individually or in the aggregate, are or would be material to the business,
Assets, Liabilities, condition (financial or otherwise) or results of operation
of the Business, except to the extent the same are:
(i) explicitly disclosed in this Agreement or any Schedule to this
Agreement, or which are of the type or kind required to be disclosed in the
Schedules hereto but are not disclosed solely because they are incurred in
the ordinary course of business consistent with past practices; or
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(ii) reflected on the Company September 30 Balance Sheet and not paid
or discharged.
4.12 Restrictions on Business Activities.
Except as otherwise set forth on Schedule 4.12, there is no agreement
(whether a noncompete agreement, nondisclosure agreement or otherwise),
commitment, judgment, injunction, order or decree to which the Company, any
Member or any employee of the Company is a party or which is otherwise binding
upon the Company or any Member which has or may have the effect of prohibiting
or impairing any business practice or activities of the Business. Without
limiting the foregoing, neither the Company nor any Member has entered into any
agreement under which it is restricted from selling, licensing or otherwise
distributing any of the Transferred Assets or which could limit in any material
respect Buyer's use or operation of the Transferred Assets in providing services
to customers or potential customers or any class of customers in any geographic
area, during any period of time or in any segment of any market.
4.13 Agreements in Full Force and Effect.
Except as specifically noted on the Schedules attached hereto, all
contracts, agreements, leases, certificates, permits, licenses and other
instruments included in such Schedules attached hereto are, to the knowledge of
the Members or the Company, valid and in full force and effect.
4.14 Legal Proceedings, Etc.
Except as set forth on Schedule 4.14, there is no legal, administrative,
arbitration or other action or proceeding or governmental investigation pending
or, to the knowledge of the Company or the Members, threatened against the
Company or any director, officer or employee thereof or any Plan or the trustee
of any Plan.
4.15 Environmental Matters.
(a) The Company has obtained and currently maintains all material Permits
(the "Environmental Permits") which are presently required with respect to the
operation of the Business under Laws now in existence relating to pollution or
protection of public or employee health or the environment, including laws and
regulations relating to emissions, discharges or releases of any Hazardous
Substance into the environment (including ambient air, indoor air, surface
water, groundwater,
<PAGE>
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drinking water supply, land surface or subsurface strata located both on and
off-site) or otherwise relating to the manufacture, processing, distribution,
generation, use, removal, abatement, remediation, treatment, storage, disposal,
transport, handling, import or export of any Hazardous Substance (the
"Environmental Laws"). The term "Hazardous Substance" means any toxic or
hazardous substances, constituents, pollutants, contaminants or wastes,
including asbestos, polychlorinated biphenyls ("PCB"), petroleum or any
petroleum products or wastes regulated under applicable Environmental Laws. The
Company has not been notified in writing by any governmental entity that any of
the Environmental Permits will or may be revoked, rescinded, annulled or
otherwise terminated.
(b) The Company is, to its knowledge, in compliance in all material
respects with the terms and conditions of all applicable Environmental Permits
and Environmental Laws.
(c) There is no civil, criminal or administrative action, suit, demand,
claim, hearing, notice of violation, order, investigation, proceeding, notice or
demand letter received by or pending or, to the knowledge of the Members or the
Company, threatened against the Company under any Environmental Law or any
order, decree, judgment or injunction entered or approved under such
Environmental Law.
(d) To the knowledge of the Members or the Company, there has been no
release, storage, treatment or disposal of any Hazardous Substance from, into,
at or on any real property owned or leased by the Company which has resulted in
or would reasonably be expected to result in a material violation by the Company
under the Environmental Laws.
(e) There are no above- or underground storage tanks or PCB containing
transformers on, about or beneath any real property owned or leased by the
Company, nor were there any at any real property formerly utilized by the
Company.
(f) To the knowledge of the Members or the Company, there are no conditions
on, about, beneath or arising from any real property currently or formerly owned
or leased by the Company which might, under any Environmental Law, result in any
liability or the imposition of a statutory lien, or which would or may require
any "response," "removal" or "remedial action" as defined in any Environmental
Law, or any other action, including reporting, monitoring, clean-up or
contribution of funds.
<PAGE>
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4.16 Non-Infringement of Certain Rights of Others.
Except as disclosed on Schedule 4.16, to the knowledge of the Members or
the Company, none of the services performed or products manufactured or sold by
the Company or Intellectual Property used by the Company infringes the patent,
trademarks, trade names, service marks, copyrights or other similar rights of
any other person, and no other person has asserted in writing that the services
performed or products manufactured or sold by the Company infringe any such
rights.
4.17 Brokers.
Except as disclosed on Schedule 4.17, no broker or finder has acted
directly or indirectly for the Members or the Company in connection with this
Agreement or the transactions contemplated hereby, and no broker or finder is
entitled to any brokerage or finder's fee or other commission in respect thereof
based in any way on agreements, arrangements or understandings made by or on
behalf of the Members or the Company.
4.18 Labor Matters.
(a) Except as described on Schedule 4.18(a); (i) there are no pending
strikes, lockouts, slowdowns, work stoppages, grievances, arbitration
proceedings, unfair labor practice charges or other similar controversies
between the Company and any of its employees and the Company has no knowledge of
a threat of any such event; (ii) no agreement restricts the Company from
relocating, closing or terminating any of its operations or facilities or any
portion thereof; and (iii) to the knowledge of the Members or the Company, no
such agreement, action, proceeding or occurrence is threatened or contemplated
by any Person.
(b) Schedule 4.18(b) sets forth the following information for each employee
of the Company (including each such person on leave or layoff status): employee
name and job title current annual rate of compensation (identifying bonuses
separately) and any change in compensation since December 31, 1999. Schedule
4.18(b) describes each material employment, severance, change of control,
consulting, commission, agency or representative agreement or arrangement to
which the Company is a party or is otherwise bound, including all agreements and
commitments relating to wages, hours, severance, retirement benefits or
annuities, or other terms or conditions of employment (other than unwritten
employment arrangements terminable at will without payment of any contractual
severance or other amount). Except
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as described on Schedule 4.18(b), as of the date of this Agreement, none of the
employees of the Company has, to the knowledge of the Members or the Company,
indicated a desire to terminate his or her employment, or any intention to do so
in connection with the transactions contemplated hereunder.
4.19 Affiliate Agreements.
Except as described on Schedule 4.19, (a) there are no agreements,
arrangements or understandings currently in force and (b) during the past three
years there have not been any material transactions, in either case between or
involving the Company, on the one hand, and any Member or any Affiliate of any
Member or the Company or any present or former director, member or officer of
the Company or any member of the immediate family or any person or entity
controlling or controlled by any of such Persons, on the other hand.
4.20 Investment Matters.
Each of the Members and the Company is capable of evaluating the merits and
risks of its investment in the Shares, and has the capacity to protect its own
interests in making its investment in the Shares. Each of the Members and the
Company (i) understands that the Shares have not been registered under the
Securities Act, or under any state securities laws, and are being offered and
sold in reliance upon federal and state exemptions for transactions not
involving any public offering, (ii) is acquiring the Shares solely for its own
account for investment purposes, and not with a view to the distribution
thereof, (iii) is a sophisticated investor with knowledge and experience in
business and financial matters, (iv) has received certain information concerning
Parent and has had the opportunity to obtain additional information as desired
in order to evaluate the merits and the risks inherent in holding the Shares,
(v) is able to bear the economic risk and lack of liquidity inherent in holding
the Shares and (vi) understands that certificate(s) representing the Shares will
contain legends relating to the restrictions on transfer thereof.
4.21 Material Facts.
Neither this Agreement nor any Schedule or exhibit hereto, nor any written
statement or certificate furnished in connection herewith or any of the
transactions contemplated hereby, contains an untrue statement of a material
fact or omits to state a material fact that is necessary in order to
<PAGE>
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make the statements contained herein and therein, in the light of the
circumstances under which they are made, not misleading.
4.22 Sale of Hales & Associates, Inc. Assets.
(a) The asset purchase agreement between the Company and Hales & Associates
(the "Hales Asset Purchase Agreement") (i) has been duly authorized, executed
and delivered by the parties thereto and conveyed to the Company the assets set
forth in the schedules attached thereto, free of any Liens, and (ii) is
enforceable by the Company and, following the Closing by Buyer, against Hales &
Associates in accordance with its terms.
(b) The representations and warranties contained in the Hales Asset
Purchase Agreement are true and correct as if made on the date hereof.
(c) The transactions contemplated by the Hales Asset Purchase Agreement
shall have been consummated prior to the Closing Date.
(d) A true and complete executed copy of the Hales Asset Purchase Agreement
has been provided to Parent and Buyer prior to the Closing Date.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE BUYER
Each of Parent and Buyer hereby represents and warrants, as of the date
hereof and as of the Closing Date, to the Members and the Company as follows:
5.1 Corporate Organization.
Each of Parent and Buyer is a corporation duly organized, validly existing
and in good standing under the laws of Delaware.
5.2 Capitalization.
(a) The Shares have been duly authorized and, when issued pursuant to this
Agreement, will be validly issued, fully paid and non-assessable.
(b) The authorized capital of Parent consists of (i) 20,000,000 shares of
preferred stock, par value $0.01 per
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share, of which no shares were issued and outstanding as of the date hereof; and
(ii) 80,000,000 shares of Common Stock, of which 12,408,017 shares were issued
and outstanding as of September 30, 2000. As of September 30, 2000, Parent had
reserved (A) 1,375,175 shares of Common Stock for issuance pursuant to
outstanding options to purchase Common Stock, (B) an additional 911,142 shares
of Common Stock for issuance pursuant to Parent benefit plans and (C) 4,451,680
shares of Common Stock for issuance pursuant to outstanding warrants to purchase
Common Stock. Except as disclosed in the foregoing or in Parent SEC Documents,
there are no outstanding options, warrants, scrip, rights to subscribe for,
calls or commitments of any character whatsoever relating to, or securities or
rights convertible into, any shares of capital stock of Parent, or contracts,
commitments, understandings or arrangements by which Parent is or may become
bound to issue additional shares of capital stock of Parent.
5.3 Authorization; Execution and Delivery, Etc.
Each of Parent and Buyer has full corporate power and authority to execute
and deliver this Agreement and the Related Agreements to which it is, or will
be, a party and to consummate the transactions contemplated hereby and thereby.
Each of Parent and Buyer has duly authorized, executed and delivered each of
this Agreement and the Related Agreements to which it is, or will be, a party.
This Agreement constitutes, and the Related Agreements to which Parent or Buyer
is a party, when executed and delivered, will each constitute, the valid and
binding agreement of Parent or Buyer, as the case may be, to the extent each is
a party thereto, enforceable in accordance with its terms.
5.4 Consents and Approvals of Governmental Authorities.
No Permit of any Governmental Authority is required in connection with the
execution and delivery by Parent or Buyer of this Agreement and the Related
Agreements to which it is, or will be, a party or the performance by Parent or
Buyer of its obligations hereunder and thereunder.
5.5 No Violation.
The execution and delivery by each of Parent and Buyer of this Agreement
and the Related Agreements to which it is a party and the consummation by Parent
and Buyer of the transactions contemplated hereby and thereby will not (a)
con-
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stitute or result in a breach of any term, condition or provision of, or
constitute a default (or an event which, with notice or the lapse of time, or
both, reasonably can be expected to create a default or Lien) under, (i) its
certificate of incorporation or by-laws, or (ii) any mortgage, indenture, loan
or credit agreement or any other material agreement or instrument to which it is
a party, or by which any of its Assets is bound or affected or (b) violate any
Law which violation would reasonably be expected to have a material adverse
effect on the business, Assets, Liabilities, condition (financial or otherwise)
or results of operations of Parent and its subsidiaries taken as a whole or an
adverse effect on the ability of Parent or Buyer to consummate the transactions
contemplated hereby or to fulfill its obligations under this Agreement or the
Related Agreements to which it is a party (a "Parent Material Adverse Effect").
5.6 SEC Documents.
Parent has filed all reports, filings, registration statements and other
documents required to be filed by it with the Commission since December 31,
1999. As of its filing date, each Parent SEC Document complied as to form in all
material respects with the applicable requirements of the Securities Act and/or
the Exchange Act, as the case may be. As of their filing dates, the Parent SEC
Documents, taken as a whole, did not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading, except to the extent that such statements or omissions
have been modified or superseded by a later filed Parent SEC Document. The
Common Stock is currently quoted on the Nasdaq National Market.
5.7 Financial Statements.
(a) The audited balance sheet of Parent at December 31, 1999 (the "Parent
December 31 Balance Sheet") and the audited statements of income and cash flows
of Parent for the fiscal year then ended (collectively, with the Parent December
31 Balance Sheet, the "Parent December 31 Financial Statements") included in the
Parent SEC Documents fairly present, in all material respects, the financial
position of Parent at December 31, 1999 and the results of operations and cash
flows of Parent for the period then ended, and have been prepared in accordance
with U.S. generally accepted accounting principles consistently applied. The
Parent December 31 Balance Sheet reflects all Liabilities of Parent as of the
date thereof, of the
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type required to be reflected or disclosed on a balance sheet prepared in
accordance with U.S. generally accepted accounting principles.
(b) The unaudited balance sheet of Parent at June 30, 2000 (the "Parent
June 30 Balance Sheet") and the unaudited statements of income and cash flows of
Parent for the six-month period then ended (collectively, with the Parent June
30 Balance sheet, the "Parent June 30 Financial Statements") included in the
Parent SEC Documents fairly present, in all material respects, the financial
position of Parent at June 30, 2000 and the results of operations and cash flows
of Parent for the six-month period then ended.
5.8 Legal Proceedings, Etc.
Except as disclosed in the Parent SEC Documents, there is no legal,
administrative, arbitration or other action or proceeding or governmental
investigation pending or, to the knowledge of Buyer or Parent, threatened
against Buyer or Parent or any director, officer or employee thereof which, if
adversely determined, would reasonably be expected to have a Parent Material
Adverse Affect.
ARTICLE VI
COVENANTS OF THE MEMBERS AND THE COMPANY
From the date hereof to the Closing Date, and, with respect to Sections
6.7, 6.8 through 6.12, at all times thereafter, except as otherwise provided by
this Agreement or as agreed by Parent and Buyer in writing, the Members (as to
himself or itself (and not as to any other Member)) and the Company shall
comply, and the Members shall cause the Company to comply, with the following
covenants:
6.1 Regular Course of Business.
The Company will: (a) carry on its business in the ordinary course (except
as requested by Buyer); (b) use all reasonable best efforts to preserve its
business organization, goodwill, Permits and Intellectual Property; (c) comply
in all material respects with all Laws applicable to the Business; (d) use all
reasonable best efforts to keep available the services of all present officers,
agents and employees; (e) use all reasonable best efforts to preserve its
current relationships with clients, customers, vendors, service providers,
distributors, suppliers, brokers and other Persons with or through whom
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it conducts business; and (f) performs its obligations under all contracts and
commitments to which it is a party or by which it is bound or subject.
6.2 Certain Prohibited Activities.
The Company shall not: (i) issue, sell or deliver, or agree to issue, sell
or deliver, any of its Equity Interests, or grant or issue, or agree to grant or
issue, any subscription, option, warrant or other right calling for the issue
thereof; (ii) purchase any Equity Interests or any other securities of any other
Person; (iii) make any material change in any Plan other than as may be required
by applicable law or in the ordinary course of business consistent with past
practice, or enter into any new or amended compensation arrangement (including
any change in compensation or benefits) for any officer or employee of the
Company; (iv) sell or otherwise dispose of or mortgage or pledge any Assets; (v)
cancel any debts or claims (including accounts receivable) owing to it; (vi)
merge or consolidate with any other corporation or acquire control of any other
corporation or business entity or take any steps incident to, or in furtherance
of, any of such actions, whether by entering into an agreement providing
therefor or otherwise; (vii) make any material alteration in the manner of
keeping its books, accounts or records, or in the accounting practices therein
reflected except as required by law or generally accepted accounting principles
(other than as required by this transaction); (viii) make any change in its
method of Tax accounting, make any new election with respect to Taxes or modify
or revoke any existing election with respect to Taxes; (ix) enter into any other
transaction or make or enter into any contract or commitment which is not in the
ordinary course of business; (x) take any action or course of action
inconsistent with its compliance with the covenants and agreements contained in
this Agreement; or (xi) take or agree to commit to take any action that would
make any representation or warranty of the Company or a Member contained herein
inaccurate in any material respect at the Closing or omit to take any action
necessary to prevent any such representation or warranty from being inaccurate
in any material respect at such time.
6.3 Dividends.
The Company shall not declare, set aside, make or pay any dividend or other
distribution or payment on or in respect of any of its Equity Interests, nor
shall the Company, directly or indirectly, purchase or redeem or otherwise
acquire or agree
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to purchase, redeem or acquire any of its Equity Interests; provided that the
Cash Distribution shall be permitted.
6.4 Capital Expenditures.
The Company shall not, without Buyer's prior written consent, make any
capital expenditures or enter into any leases for capital equipment or real
estate, or commitments with respect thereto.
6.5 Borrowing.
The Company shall not incur, assume or guarantee any indebtedness or other
obligation other than trade payables in the ordinary course of business.
6.6 Insurance.
The Company will maintain adequate coverage consistent with past practice
(which shall in any event not be less than that in effect on the date hereof)
under commercially reasonable insurance policies with financially reputable
insurers and will not take (or fail to take) any action that would enable the
insurers under such policies to avoid liabilities pursuant to the terms of such
insurance policies with respect to matters occurring on or prior to the Closing
Date.
6.7 Returns; Taxes; Etc.
The Company, to the extent the failure to do so could adversely affect the
Business or the Transferred Assets following the Closing, (a) will duly and
timely file, or cause to be duly and timely filed, or duly file timely requests
for extensions for, all of its Returns required to be filed with federal, state,
local and foreign authorities; (b) will timely pay on or prior to the due date
all Taxes lawfully levied or assessed upon it or the Transferred Assets and all
of its Taxes which shall become due or shall have accrued and (c) shall not
settle or compromise any material Tax liability relating to the Transferred
Assets, make, revoke or modify any material Tax election relating to the
Transferred Assets, or request or consent to a change in any method of tax
accounting relating to the Transferred Assets.
6.8 Access.
From the date hereof until the Closing, upon reasonable notice, the Company
shall cause its officers, directors,
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employees, auditors and agents to (i) afford the officers, employees and
authorized agents and representatives of Buyer and Parent reasonable access,
during normal business hours and upon reasonable advance notice, to the offices,
properties, books and records of the Company and to its officers, employees,
agents, accountants and actuaries and (ii) furnish to the officers, employees
and authorized agents and representatives of Buyer and Parent such additional
financial and operating data and other information regarding the Business and
the Transferred Assets as are available to the Company or as may be prepared or
compiled by the Company as Buyer may from time to time reasonably request. No
investigation or access to information pursuant to this Section 6.8 shall affect
any representation or warranty hereunder or otherwise affect the rights and
remedies available to Buyer and Parent hereunder.
6.9 Repayment of Marsh Note.
The Company shall use a portion of the Cash Consideration immediately upon
receipt thereof to repay the Marsh Note in full.
6.10 Approvals.
The Members and the Company shall (i) use their reasonable best efforts to
obtain all governmental and third party approvals and consents necessary for the
consummation of the transactions contemplated hereby and by the Related
Agreements; and (ii) make or cause to be made any and all declarations, filings
and registrations with Governmental Authorities as are necessary for the
consummation of the transactions contemplated hereby and by the Related
Agreements.
6.11 Counterpart to this Agreement.
In the event that any Person (in which the Members and/or the Company,
singly or in the aggregate, owns more than 50% of the ownership interests) other
than the Company becomes a Service Provider (as defined in the Fund Agreement)
and receives any portion of the Management Fee (as defined in the Fund
Agreement), the Members agree to cause such Person to enter into a counterpart
to this Agreement pursuant to which such Person agrees to be bound by the
agreements in Articles VI, XI and XIII.
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6.12 Further Assurances.
The Members and the Company agree to do or cause to be done such further
acts and things and deliver or cause to be delivered to Parent and Buyer such
additional agreements and instruments as Parent or Buyer may reasonably request
to carry into effect the purposes of this Agreement and the Related Agreements
or to better assure and confirm unto Parent and Buyer their rights, powers and
remedies hereunder and thereunder.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF THE MEMBERS AND THE COMPANY
The obligations of the Company and the Members under this Agreement to
consummate the sale of the Transferred Assets and the other transactions
contemplated hereby shall be subject to the satisfaction, on or before the
Closing Date, of the following conditions:
7.1 Representations and Warranties True.
The representations and warranties contained in Article V shall be true and
accurate in all material respects as of the date when made and at and as of the
Closing Date (and with respect to those representations stated to be as of a
different date, as of such date).
7.2 Performance of Covenants.
Parent and Buyer shall have performed and complied, in all material
respects, with each and every covenant, agreement and condition required by this
Agreement and the Related Agreements to which it is a party to be performed or
complied with by it prior to or on the Closing Date.
7.3 No Governmental or Other Proceeding or Litigation.
No order of any Government Authority shall be in effect which restrains or
prohibits the transactions contemplated hereby and by the Related Agreements,
and no suit, action or proceeding by any Governmental Authority shall have been
instituted and be continuing which questions the validity or legality of the
transactions contemplated hereby or by the Related Agreements.
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7.4 Approvals.
All approvals of Governmental Authorities, the granting of which are
necessary to the consummation of the transactions contemplated hereby and by the
Related Agreements, shall have been obtained; and any waiting period required by
the Hart-Scott-Rodino Act shall have expired.
7.5 No Material Adverse Change.
After the date of this Agreement, there shall not have occurred any
material adverse change in the condition (financial or otherwise) or results of
operations of the business of Parent and its subsidiaries taken as a whole.
7.6 Assignment and Assumption Agreement.
On or before the Closing Date, the Parent shall have entered into an
Assignment and Assumption Agreement substantially in the form of Exhibit E
hereto. This condition shall be satisfied by execution of such Assignment and
Assumption Agreement by Parent and delivery thereof to the Company.
7.7 Subscription Agreement.
On or before the Closing Date, the Parent shall have entered into a
Subscription Agreement substantially in the form of Exhibit F hereto. This
condition shall be satisfied by execution of such Subscription Agreement by
Parent and delivery thereof to the Company.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF THE PARENT AND THE BUYER
The obligations of Parent and Buyer under this Agreement to consummate the
purchase of the Transferred Assets and the other transactions contemplated
hereby shall be subject to the satisfaction, on or before the Closing Date, of
the following conditions:
8.1 Representations and Warranties True.
The representations and warranties contained in Article IV shall be true
and accurate in all material respects as of the date when made and at and as of
the Closing Date (or with respect to those representations and warranties stated
to be as of a different date, as of such date).
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8.2 Performance of Covenants.
The Members and the Company shall have performed and complied, in all
material respects, with each and every covenant, agreement and condition
required by this Agreement and by the Related Agreements to which they are a
party to be performed or complied with by them prior to or on the Closing Date.
8.3 No Governmental or Other Proceeding or Litigation.
No order of any Governmental Authority shall be in effect which restrains
or prohibits the transactions contemplated hereby and by the Related Agreements,
and no suit, action or proceeding by any Governmental Authority shall have been
instituted and be continuing which questions the validity or legality of the
transactions contemplated hereby or by the Related Agreements.
8.4 Approvals and Consents.
All approvals of Governmental Authorities, the granting of which are
necessary for the consummation of the transactions contemplated hereby and by
the Related Agreements shall have been obtained; and any waiting period required
by the Hart-Scott-Rodino Act shall have expired.
8.5 No Material Adverse Change.
After the date of this Agreement, there shall have not occurred any
material adverse change in the Assets, Liabilities, condition (financial or
otherwise) or results of operations of the Business.
8.6 Consents.
All consents, waivers and acknowledgments and amendments listed on Schedule
8.6 shall have been obtained and/or executed and delivered on terms and
conditions reasonably satisfactory to Parent and Buyer and shall be in full
force and effect.
8.7 Debt.
The Marsh Note and any other indebtedness of the Company (other than
indebtedness listed on Schedule 8.7) shall have been repaid in full or shall be
repaid simultaneous with
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the Closing, and Buyer shall have received satisfactory evidence to such effect.
8.8 Employment Arrangements.
Parent and Buyer shall be satisfied with the arrangements to be made with
employees of the Company, including any benefit plans, which shall not be
inconsistent with those set forth for certain executive employees on Exhibit B.
8.9 Tax Lien Waivers.
Except to the extent agreed to by the Company and Buyer, the Company shall
have obtained and delivered to Parent and Buyer tax lien waivers or
certification that Taxes are current from all jurisdictions in which Transferred
Assets are located and which provide such tax lien waivers.
8.10 Section 1445 Certificate.
The Company shall have furnished to Parent and Buyer a certificate that the
Company is not a foreign person within the meaning of Section 1445 of the Code,
which certificate shall set forth all information required by, and otherwise be
executed in accordance with, Treas. Reg. ss. 1.1445-2(b).
8.11 Escrow Agreement.
The parties hereto shall have executed and delivered the Escrow Agreement.
8.12 Opinion of Counsel.
The Members and the Company shall have delivered to Parent and Buyer an
opinion of their counsel, dated the Closing Date, substantially in the form
attached hereto as Exhibit A.
8.13 Officer's Certificate.
The Members and the Company shall have furnished Parent and Buyer with an
officer's certificate to evidence compliance with the conditions set forth in
this Article VIII as may be reasonably requested by Parent or Buyer.
8.14 Assignment and Assumption Agreement.
On or before the Closing Date, the Company shall have entered into an
Assignment and Assumption Agreement substan-
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tially in the form of Exhibit E hereto. This condition shall be satisfied by
execution of such Assignment and Assumption Agreement by the Company and
delivery thereof to the Parent.
8.15 Subscription Agreement.
On or before the Closing Date, the Fund General Partner shall have accepted
the subscription of Parent evidenced by a Subscription Agreement substantially
in the form of Exhibit F hereto. This condition shall be satisfied by execution
of such Subscription Agreement by Fund General Partner, and delivery thereto to
Parent.
8.16 Continuing Insurance Coverage.
Parent and Buyer shall be reasonably satisfied with the continuing
arrangements of Seller with regard to its insurance coverage.
ARTICLE IX
TERMINATION AND ABANDONMENT, ETC.
9.1 Methods of Termination.
This Agreement may be terminated at any time prior to Closing:
(a) by Parent or the Company, if the Closing shall have not occurred by
December 1, 2000;
(b) by a written instrument executed and delivered by Parent and the
Company;
(c) by Parent, if there has been a material violation or breach by any of
the Members or The Company of any agreement, representation or warranty
contained in this Agreement which has rendered the satisfaction of any condition
to the obligations of Parent and Buyer specified in Article VIII impossible and
such violation or breach has not been waived by Parent or Buyer or cured by the
Members and/or the Company within 10 days following its occurrence; or
(d) by the Company, if there has been a material violation or breach by
Parent or Buyer of any agreement, representation or warranty contained in this
Agreement which has rendered the satisfaction of any condition to the
obligations of the Members and the Company specified in Article VII impos-
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sible and such violation or breach has not been waived by the Members and the
Company within 10 days following its occurrence.
ARTICLE X
SURVIVAL AND INDEMNIFICATION
10.1 Survival.
All representations and warranties shall survive the consummation of the
transaction contemplated hereby and continue until the second anniversary of the
Closing Date; provided, however, that (i) except with respect to the Class C
Member, all representations and warranties contained in Section 4.10 shall
survive until the fifth anniversary of the Closing Date and (ii) all
representations and warranties relating to Taxes shall survive until 30 days
after the expiration of all applicable statutes of limitations relating to such
Taxes.
10.2 Indemnification by the Members and the Company.
The Members and the Company, jointly and severally, agree to indemnify and
hold harmless Parent, Buyer, their Affiliates and officers, directors,
employees, agents, successors and assigns of the foregoing (each, a "Buyer
Indemnified Party") against any and all Liabilities and costs and damages
(including amounts paid in settlement and reasonable costs of investigation and
legal expenses) (collectively, "Losses") arising out of or relating to (i) a
breach of any representation, warranty, covenant or agreement of any the Members
or the Company in this Agreement or in any certificate or instrument delivered
pursuant hereto or (ii) any of the Excluded Liabilities; provided, however, that
the assets held in escrow under the Escrow Agreement shall be the sole and
exclusive remedy of the Buyer Indemnified Parties for all such Losses, except
for any Losses arising out of or relating to a breach of a representation or
warranty relating to Taxes (the "Tax Indemnity") after all of the amounts held
in escrow under the Escrow Agreement have been released. After all of the
amounts held in escrow under the Escrow Agreement have been released, the Tax
Indemnity shall be limited to the fair market value of the assets in escrow
immediately before such release. In addition, Gordon G. Pratt and Conning
Corporation shall have no liability whatsoever for a breach of Section 4.22.
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10.3 Indemnification by Parent and Buyer.
Parent and Buyer, jointly and severally, agree to indemnify and hold
harmless the Company, the Members, their Affiliates and officers, directors,
employees, agents, successors and assigns of the foregoing and the Members in
their capacities as such (each, a "Company Indemnified Party") against any and
all Losses arising out of or related to (i) a breach of any representation,
warranty, covenant or agreement of Parent or Buyer or in any certificate or
instrument delivered pursuant hereto or (ii) any of the Assumed Liabilities;
provided, however, that this indemnity shall be limited, at any time, to the
fair market value of the assets in escrow under the Escrow Agreement at such
time.
10.4 Indemnification Process.
In the case of any claim asserted by a third party against a party entitled
to indemnification under this Agreement (the "Indemnified Party"), notice shall
be given by the Indemnified Party to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and the
Indemnified Party shall permit the Indemnifying Party (at the expense of such
Indemnifying Party) to assume the defense of any claim or any litigation
resulting therefrom; provided that (i) the counsel for the Indemnifying Party
who shall conduct the defense of such claim or litigation shall be reasonably
satisfactory to the Indemnified Party, (ii) the Indemnified Party may
participate in such defense at such Indemnified Party's expense, and (iii) the
omission by any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its indemnification obligation under this
Agreement except to the extent that such omission results in a failure of actual
notice to the Indemnifying Party and such Indemnifying Party is materially
damaged as a result of such failure to give notice. Except with the prior
written consent of the Indemnified Party, no Indemnifying Party, in the defense
of any such claim or litigation, shall consent to entry of any judgment or enter
into any settlement that provides for injunctive or other nonmonetary relief
affecting the Indemnified Party or that does not include as an unconditional
term thereof the giving by each claimant or plaintiff to such Indemnified Party
of a release from all liability with respect to such claim or litigation. In the
event that the Indemnified Party shall in good faith determine that the conduct
of the defense of any claim subject to indemnification hereunder or any proposed
settlement of any such claim by
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the Indemnifying Party might be expected to affect adversely the Indemnified
Party's Tax liability or the ability of Buyer to conduct its business, or that
the Indemnified Party may have available to it one or more defenses or
counterclaims that are inconsistent with one or more of those that may be
available to the Indemnifying Party in respect of such claim or any litigation
relating thereto, the Indemnified Party shall have the right at all times to
take over and assume control over the defense, settlement, negotiations or
litigation relating to any such claim at the sole cost of the Indemnifying
Party; provided that if the Indemnified Party does so take over and assume
control, the Indemnified Party shall not settle such claim or litigation without
the written consent of the Indemnifying Party, such consent not to be
unreasonably withheld or delayed. In the event that the Indemnifying Party does
not accept the defense of any matter as above provided, the Indemnified Party
shall have the full right to defend against any such claim or demand and shall
be entitled to settle or agree to pay in full such claim or demand with the
written consent of the Indemnifying Party, such consent not to be unreasonably
withheld or delayed. In any event, the Indemnifying Party and the Indemnified
Party shall cooperate in the defense of any claim or litigation subject to this
Section 10.4 and the records of each shall be available to the other with
respect to such defense.
10.5 Tax Matters.
All indemnification payments under this Article X shall be deemed
adjustments to the Purchase Price for all income tax purposes.
10.6 Fraud: Exclusive Remedy.
The limitations set forth in this Article X shall not apply to fraud by any
party. Except as expressly otherwise provided in this Agreement, in the absence
of fraud and notwithstanding any rights that would otherwise be available
hereunder, the indemnification provisions of this Article X set forth the sole
and exclusive remedy of (i) the Buyer Indemnified Parties following the Closing
against the Company, the Members and their Affiliates, and (ii) the Company
Indemnified Parties following the Closing against Parent, Buyer and their
Affiliates, in each case, with respect to any claim for relief resulting from,
arising out of or otherwise by virtue of this Agreement and the transactions
contemplated hereby (other than Article XII and the transactions contemplated
thereby).
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ARTICLE XI
CERTAIN AGREEMENTS
The Members (as to himself or itself) and the Company shall comply, and the
Members shall cause the Company to comply, with the following covenants:
11.1 Agreement Not to Compete.
For and in consideration of (i) Parent and Buyer's entering into this
Agreement, (ii) payment of the Purchase Price, (iii) the assumption by Buyer of
the Assumed Liabilities, (iv) in the case of Jeffery B. Cappel, Gordon G. Pratt,
Vincent H. Trapani and William Weiland, the compensation arrangements set forth
in Exhibit B and (v) in the case of Jeffery B. Cappel, the Employment Agreement:
(a) Cappel. During the applicable Non-Compete Period, Jeffery B. Cappel
agrees that he will not, except as an employee of and through Buyer, (i) perform
or provide any services or products of the type, similar to or competitive with
those performed or provided by Parent or any of its subsidiaries; (ii) otherwise
engage in any business or activities competitive with Parent or any of its
subsidiaries; (iii) beneficially own any securities or interests in any Person
that engages in conduct described in clause (i) or (ii); or (iv) place for
employment any independent consultant or employee with any Person that engages
in conduct described in clause (i) or (ii), in each case anywhere in the world.
(b) Pratt, Trapani and Weiland. During the applicable Non-Compete Period,
each of Gordon G. Pratt, Vincent H. Trapani and William Weiland agrees that he
will not, except as an employee of and through Buyer, (i) perform or provide any
services or products of the type, similar to or competitive with those performed
or provided by the Business; (ii) otherwise engage in any business or activities
competitive with the Business; (iii) beneficially own any securities or
interests in any Person that engages in conduct described in clause (i) or (ii);
or (iv) place for employment any independent consultant or employee with any
Person that engages in conduct described in clause (i) or (ii), in each case
anywhere in the world. The foregoing shall not be deemed to prohibit or restrict
(x) the performance by Mr. Pratt of his obligations under and pursuant to the
Fund Agreement or the Fund GP Agreement in the ordinary course of business and
consistent with past practice or (y) at any time when Mr. Pratt is not employed
by the Company or
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Buyer, Mr. Pratt's ability to participate in, manage or participate in the
management of any investment vehicle that has a principal focus of acquiring
interests in corporations, partnerships, limited liabilities companies and other
entities.
(c) Company. The Company agrees that it will not, without the consent of
Buyer, (i) perform or provide any services or products of the type, similar to
or competitive with those performed or provided by the Business; (ii) otherwise
engage in any business or activities competitive with the Business; (iii)
beneficially own any securities or interests in any Person that engages in
conduct described in clause (i) or (ii); or (iv) place for employment any
independent consultant or employee with any Person that engages in conduct
described in clause (i) or (ii), in each case anywhere in the world.
(d) The foregoing shall not prohibit the ownership by any Person of
securities listed on a national securities exchange or traded on the Nasdaq
National Market representing, together with any securities beneficially owned by
any Person or Persons with which such first Person is a group (within the
meaning of the Exchange Act), less than 1% of the outstanding class of such
securities.
(e) "Non-Compete Period" means, with respect to any Person, the period
beginning on the Closing Date and ending on:
(i) the third anniversary of the Closing Date or the date of termination,
whichever is later, if such employment is terminated for any reason
(other than for Cause) by the Company after 30 months following the
Closing Date or, in the case of Mr. Cappel, his employment is
terminated for any reason (other than for Cause) or pursuant to
Section 4(b) of the Employment Agreement after 30 months following the
Closing Date;
(ii) the fifth anniversary of the Closing Date, if either:
(A) such employment is terminated before the third anniversary of the
Closing Date (x) by such Person voluntarily or (y) by the Company
for Cause, or
(B) such employment is terminated for any reason (other than for
Cause) by the Company within 30 months of the Closing Date or, in
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the case of Mr. Cappel, his employment is terminated for any
reason (other than for Cause) or pursuant to Section 4(b) of the
Employment Agreement within 30 months of the Closing Date; or
(iii) the second anniversary of the date of termination of employment of
such Person with Buyer, if such employment is terminated after the
third anniversary of the Closing Date either (x) by such Person
voluntarily or (y) by the Company for Cause.
If, prior to the third anniversary of the Closing Date, Mr. Cappel and Parent do
not agree on an extension of the Employment Agreement, the Non-Compete Period
with respect to Mr. Cappel shall terminate on the later of (x) the fifth
anniversary of the Closing Date and (y) the second anniversary of his
termination of employment. In such event or in the case of termination of
employment of such Person under either clause (i) or (iii) above, Parent, at its
option, may extend the Non-Compete Period by an additional two years by paying
such Person, prior to the commencement of the extended period, a lump sum equal
to his annual base salary for the year in which his employment is terminated.
(f) "Cause" means, with respect to the termination of employment of any
Person, (i) the commission by such Person of an act of fraud, dishonesty or
embezzlement (including the unauthorized disclosure or use of confidential or
proprietary information of Parent, Buyer or any of their subsidiaries) or other
act or omission intended or with consequences that bring, or could reasonably be
expected to bring, Parent, Buyer or any of their subsidiaries into disrepute or
otherwise materially harm, or could reasonably be expected to materially harm,
its commercial relationships; (ii) such Person pleads guilty or no contest to or
is convicted of any criminal offense for which a penalty of imprisonment may be
imposed (other than an offense under road traffic legislation); (iii) material
misconduct as an employee of Buyer or other conduct tending to bring Parent,
Buyer or any of their subsidiaries or shareholders into disrepute or material
failure to comply with any guidelines adopted or promulgated by the Board of
Directors of Parent or Buyer; (iv) abandonment or material neglect by such
Person of any of the duties for which he has been employed by Buyer; (v)
material failure of such Person to comply with or carry out the instructions of
the Board of Directors of Parent or Buyer; or (vi) material breach by such
Person of his duties under this
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Agreement, or material failure to carry out any of such duties, including
Section 11.1, 11.2, 11.3 or 11.4.
(g) If at any time of enforcement of this Section 11.1, a court shall hold
that the duration, scope or area restrictions stated herein are unreasonable
under circumstances then existing, the parties agree that the maximum duration,
scope or are reasonable under such circumstances shall be substituted for the
stated duration, scope or area and that the court shall be allowed to review the
restrictions contained herein to cover the maximum period, scope and area
permitted by law.
(h) Promptly following the Closing, the Company shall change, and the
Members shall cause Hales & Associates, Inc. to change, its legal and trade
names to a name that does not include the words "Hales," "Hale" or any other
trade name currently used by the Company. Neither the Company nor any Member or
any of their Affiliates shall, directly or indirectly, use a legal or trade name
that includes the words "Hales," "Hale" or any other trade name currently used
by the Company.
11.2 Confidentiality.
For and in consideration of (i) Parent and Buyer's entering into this
Agreement, (ii) payment of the Purchase Price, (iii) the assumption by Buyer of
the Assumed Liabilities, (iv) in the case of Jeffery B. Cappel, Gordon G. Pratt,
Vincent H. Trapani and William Weiland, the compensation arrangements set forth
in Exhibit B and (v) in the case of Jeffery B. Cappel, the Employment Agreement:
(a) Subject to Section 11.2(b), unless otherwise agreed to in writing by
Parent, each of the Company and the Members agrees that (i) he or it will, and
will cause each of its or his Affiliates, directors, officers, employees, agents
and representatives (collectively, "Representatives") to, keep all Confidential
Material confidential and not to disclose or reveal any Confidential Material to
any Person other than Parent and its Subsidiaries and their directors, officers
and employees and (ii) he or it will not, and will not cause or permit any of
his or its Representatives to, use Confidential Material for any purpose.
"Confidential Material" means information, whether written or oral, which
relates to the Business or otherwise constitutes a Transferred Asset, including
minute books, financial statements, accounting records, memoranda, lists,
databases, contracts, summaries, notes, analyses, compi-
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lations, forecasts, studies or other documents (including, in each case, those
in electronic form); provided that "Confidential Material" shall exclude any
such information that is or becomes generally available to the public other than
as a result of a disclosure by any of the Company or Members, any of their
respective Representatives, members or stockholders or any other person who is
bound under a legal, contractual or fiduciary obligation not to make sure
disclosure.
(b) Each of the Company and the Members agrees that, in the event that he
or it or any of his or its Representatives is requested pursuant to, or required
by, applicable law, regulation, rule or by legal process to disclose any
Confidential Material, it or he will provide Parent with prompt notice of such
request or requirement in order to enable Parent to seek an appropriate
protective order or other remedy, and will consult with Parent with respect to
Parent's taking steps to resist or narrow the scope of such request or
requirement, or to waive compliance, in whole or in part, with the terms of this
Agreement. In any such event, the Company or Member will disclose only that
portion of any Confidential Material which it or he is advised by counsel is
legally required and will use its or his reasonable best efforts to ensure that
all Confidential Material and other information that is so disclosed will be
accorded confidential treatment.
11.3 Non-Solicitation.
For and in consideration of (i) Parent and Buyer's entering into this
Agreement, (ii) payment of the Purchase Price, (iii) the assumption by Buyer of
the Assumed Liabilities, (iv) in the case of Jeffery B. Cappel, Vincent H.
Trapani, William Weiland and Gordon G. Pratt, the compensation arrangements set
forth in Exhibit B and (v) in the case of Jeffery B. Cappel, the Employment
Agreement, each of the Company and the Members covenants and agrees that he or
it shall not, and shall not cause or permit any of his or its Representatives,
to, directly or indirectly, for himself or itself or for any other Person, (a)
solicit, encourage or induce any client, customer, broker, supplier, agent,
distributor or employee to discontinue or limit his or its business
relationships with, or to otherwise divert his or its business from, Parent or
any of its subsidiaries (other than Buyer) in respect of the Business or Buyer,
or (b) solicit for employment, recruit, attempt to employ, induce the employment
of or employ any employee or independent consultant of Parent, Buyer or any of
their respective subsidiaries, including any employee of the Company who becomes
an employee of Buyer; provided that in the case of the
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Class C Member the foregoing shall not apply following the third anniversary of
the Closing Date.
11.4 Fund Matters.
For and in consideration of (i) Parent and Buyer's entering into this
Agreement, (ii) payment of the Purchase Price, (iii) the assumption by Buyer of
the Assumed Liabilities, (iv) in the case of Jeffery B. Cappel, Gordon G. Pratt,
Vincent H. Trapani and William Weiland, the compensation arrangements set forth
in Exhibit B and (v) in the case of Jeffery B. Cappel, the Employment Agreement:
(a) Each of Gordon G. Pratt and Jeffery B. Cappel covenants and agrees that
he will consult with Buyer in good faith prior to taking any significant action
under the Fund GP Agreement, including issuing call notices, incurring expenses
other than in the ordinary course of business consistent with past practice,
consenting to any transfer of interests in the Fund General Partner, causing the
Fund General Partner to withdraw as general partner of the Fund or taking any
action that requires the unanimous consent of the managers of the Fund General
Partner (including those specified in Section 4.1.1(c), 9.2(c) and 13.1.1 of the
Fund GP Agreement).
(b) Each of the Company and Members agrees that, without the prior written
consent of Buyer, it or he will not participate in, manage, participate in the
management or operation of, or place for hire any independent consultant or
employee with, any investment vehicle which is the successor to the Fund or
which is similar in scope or purpose to the Fund or which otherwise has a
principal focus of acquiring interests in corporations, partnerships, limited
liabilities companies and other entities that are principally involved in the
insurance businesses, other than, in any case, (i) the Fund or (ii) any limited
partnership of which Buyer or an Affiliate thereof is the sole general partner,
any limited liability company of which Buyer or an Affiliate thereof is the sole
manager or any corporation of which Buyer has the right to appoint a majority of
the Board of Directors; provided, however, that this Section 11.4(b) shall not
apply to Mr. Pratt at any time that he is not employed by the Company or Buyer.
11.5 Specific Relief.
Each of the Company and the Members agrees that Parent's and Buyer's remedy
at law for any breach of Section 11.1, 11.2, 11.3 or 11.4 is inadequate and that
in the event of any
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such breach or violation, each of Parent and Buyer shall be entitled to
injunctive relief in addition to any other remedy at law, in equity or under
this Agreement to which Parent or Buyer may be entitled. Without limiting the
generality of the preceding sentence, the parties acknowledge and agree that it
is impossible to measure in monies all of the damages that would accrue to each
of Parent and Buyer by reason of any breach of Section 11.1, 11.2, 11.3. or
11.4. Each of the Company and the Members waives in advance any claim or
defense, and agrees not to claim, that an adequate remedy at law exists, in any
action or proceeding that may in the future be commenced by Parent and/or Buyer
to enforce such provisions.
11.6 Transfer Restriction.
(a) Until the earlier to occur of (i) the second anniversary of the Closing
Date and (ii) a Change in Control, neither the Company nor any of the Members
shall, without the prior written consent of Parent, directly or indirectly, (x)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant for
the sale of, or otherwise dispose of or transfer any Shares or any securities
convertible into or exchangeable or exercisable for any Shares, or request the
filing of any registration statement under the Securities Act with respect to
any of the foregoing, or (y) enter into any swap or any other agreement or any
transaction that transfers, in whole or in part, directly or indirectly, the
economic consequence of ownership of Shares, whether any such swap transaction
is to be settled by delivery of any Shares or other securities, in cash or
otherwise.
(b) Notwithstanding Section 11.6(a), the transfer of Shares (i) between or
among the Company and/or one or more Class A Members and (ii) by any Member for
estate planning purposes to such Member's spouse or lineal descendants
(including legally adopted descendants) or any trust, custodial account or
partnership for the sole benefit of such Member's spouse and/or lineal
descendants (including legally adopted descendants) shall be permitted, so long
as (x) the proposed transferor gives prior notice thereof to Parent and (y) if
the transferee is not the Company or a Member, agrees to be bound by the
provisions of this Section 11.6 by an agreement in writing delivered to Parent.
Upon a permitted transfer pursuant to this Section 11.6, Parent will promptly
issue a new stock certificate in exchange for the old certificate representing
the number of shares of Common Stock transferred and the name of the transferee,
as requested in writing by the transferor.
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11.7 Bulk Transfer Laws.
Without admitting that the bulk transfer provisions of the Uniform
Commercial Code or other similar laws (including, bulk transfer or sale laws
relating to Taxes) are applicable to the transactions covered by this Agreement
and the Related Agreements, it is understood and agreed that the parties will
not comply with such laws. The Company and the Members jointly and severally
agree to indemnify and hold Parent and Buyer harmless from and against any and
all Losses which may be asserted against Parent or Buyer or the Transferred
Assets by reason of such noncompliance without regard or application to any of
the limitations expressed in Article X.
11.8 Post-Closing Activities.
(a) From and after the Closing, the Company and the Members promptly shall
forward or refer to Buyer: (i) in the form received (endorsed to the order of
Buyer, if necessary), any payments which they or any of their Affiliates may
receive (such as payments of accounts receivable) which are included in the
Transferred Assets or which are proceeds thereof, and (ii) any orders, inquiries
and bid requests received by any of them with respect to or otherwise relating
to the Business.
(b) Promptly following the Closing, the Company shall, if requested by
Buyer, mail notices, in forms approved by Buyer in advance, to clients and
specified suppliers of the Company, advising them of the sale of the Business
and, in the case of notices to clients, of the continuation of the Business by
Buyer.
11.9 Transfer and Sales Tax.
(a) Notwithstanding any provisions of law imposing the burden of such taxes
on the Company or Buyer, as the case may be, the Company shall be responsible
for and shall pay (a) all sales, use, real estate transfer and other similar
taxes (and any interest, penalties and other additions to such taxes and or any
related costs or expenses), and (b) all governmental charges, if any, upon the
sale or transfer of any of the Assets hereunder. If the Company shall fail to
pay such amounts on a timely basis, Buyer or Parent may pay such amounts to the
appropriate governmental authority or authorities, and the Company shall
promptly reimburse Buyer or Parent for any amounts so paid by Buyer or Parent.
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(b) At the Closing, the Company and Buyer shall deliver to each other such
properly completed resale exemption certificates and other similar certificates
or instruments as are necessary to claim available exemptions from the payment
of sales, transfer, use or other similar taxes under applicable law.
ARTICLE XII
REGISTRATION RIGHTS
12.1 Requested Registration.
(a) Request for Registration. If Parent shall receive from Holders of more
than 25% of the Registrable Securities then outstanding a written request that
Parent effect any registration with respect to all or a part of the Registrable
Securities (which request shall (i) identify the Initiating Holder(s), (ii)
state the amount of Registrable Securities to be included by such Initiating
Holders in such registration, (iii) indicate the method of distribution of such
Registrable Securities and (iv) indicate whether such registration is requested
to be a shelf registration under Rule 415 of the Securities Act (a "Shelf
Registration")), Parent will:
(1) promptly give written notice of the proposed registration to all
other Holders of Registrable Securities;
(2) as soon as reasonably practicable, but in no event later than the
30th day following the receipt by Parent of the written request for
registration, use reasonable efforts to prepare and file with the
Commission a registration statement and use all reasonable efforts to
effect such registration of all or such portion of such Registrable
Securities as is specified in such request, together with all or such
portion of the Registrable Securities of any Holder or Holders joining in
such request as is specified in a written request received by Parent within
15 Business Days after written notice from Parent is given under Section
12.1(a)(1) above; provided that Parent shall not be obligated to effect, or
take any action to effect, any such registration pursuant to this Section
12.1:
(i) more than twice;
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(ii) if Parent is not then eligible to file a registration
statement on Form S-3 (or any successor form); or
(iii) within 180 days of the effective date of the most recent
registration pursuant to Section 12.2 in which securities held by the
Initiating Holders could have been included for sale or distribution;
and
(3) if necessary, supplement or amend any Shelf Registration and use
all reasonable efforts to effect any such supplement or amendment, as
required hereunder, by the registration form utilized by Parent or by the
instructions applicable to such registration form or by the Securities Act.
The registration statement filed pursuant to the request of the Initiating
Holders may, subject to the provisions of Section 12.1(b), include other
securities to be issued for the account of Parent and securities of Parent which
are held by officers or directors of Parent, or which are held by persons who,
by virtue of agreements with Parent, are entitled to include their securities in
any such registration.
The registration rights set forth in this Section 12.1 shall be assignable,
in whole or in part, to any transferee of Registrable Securities, provided such
transferee agrees to be bound by all provisions of this Article XII.
(b) Underwriting. If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise Parent as a part of their request made pursuant to this
Section 12.1.
Subject to the further applicable provisions of this Article XII, if Parent
desires to include shares of Common Stock to be offered for its own account in
such registration, if officers or directors of Parent or any of its subsidiaries
shall request inclusion of their securities of Parent in any registration
pursuant to this Section 12.1 and/or if holders of securities (other than
Registrable Securities) of Parent who are entitled, by contract with Parent or
otherwise, to have securities included in such a registration request such
inclusion (collectively, the "Other Stockholders"), the securities of Parent to
be offered for the account of Parent and/or such Other Stockholders, as
applicable, shall be included in the underwriting. The Holders whose securities
are to be included in
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such registration and Parent shall (together with all Other Stockholders
proposing to distribute their securities (other than Registrable Securities)
through such underwriting) enter into and perform their respective obligations
under (including entering into a lock-up agreement as reasonably requested by
the representative(s) of the underwriter or underwriters) an underwriting
agreement in customary form with the representative(s) of the underwriter or
underwriters selected for such underwriting by the Initiating Holders and
reasonably acceptable to Parent. Notwithstanding any other provision of this
Section 12.1, if the representative or representatives determines or determine
that marketing factors require a limitation on the number or type of securities
to be underwritten, the representative or representatives may limit the number
or type of securities to be included in the registration and underwriting to the
extent so required by such limitations according to the following "cutback"
priority: first, the securities of Parent held by Other Stockholders of Parent
shall be reduced, on a pro rata basis (based on the number of securities
requested to be included in such underwriting by such Other Stockholders);
second, the securities of Parent to be offered for its own account shall be
reduced; and third, the securities of Parent held by the Holders shall be
reduced on a pro rata basis (based on the number of securities requested to be
included in such underwriting by the Holders). If any Other Stockholder who has
requested inclusion in such registration as provided above disapproves of the
terms of the underwriting, such person may elect to withdraw therefrom by
written notice to Parent, the underwriter and the Initiating Holders prior to
the effectiveness of the related registration statement. The securities so
withdrawn shall also be withdrawn from registration.
(c) Notwithstanding the foregoing, if Parent shall furnish to Holders
requesting the filing of a registration statement pursuant to this Section 12.1
a certificate signed by the President or Chief Executive Officer of Parent
stating that, in the good faith judgment of the Board of Directors of Parent, it
would be inadvisable for such registration statement to be filed and such
registration statement should therefore be delayed, then Parent shall have the
right to defer such filing; provided that the aggregate number of days of
deferrals made pursuant to this Section 12.1(c) and Section 12.1(d) shall not in
the aggregate exceed ninety days in any twelve-month period.
(d) Notwithstanding the foregoing, in the case of a Shelf Registration, if
Parent shall furnish to Holders whose securities are included in a Shelf
Registration a certificate signed by the President or Chief Executive Officer of
Parent
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stating that, in the good faith judgment of the Board of Directors of Parent, it
would be inadvisable for any sale or distribution of the securities under the
Shelf Registration to be made, then the Holders agree not to effect any public
sale or distribution of the securities registered under the Shelf Registration;
provided that the aggregate number of days of deferrals made pursuant to this
Section 12.1(d) and Section 12.1(c) shall not in the aggregate exceed ninety
days in any twelve-month period.
12.2 Piggyback Registration.
(a) If at any time Parent shall determine to register any of its equity
securities either for its own account or for the account of a security holder or
holders, other than a registration relating solely to benefit plans, or a
registration relating solely to a transaction under Rule 145 under the
Securities Act, or a registration on any registration form which does not permit
secondary sales or does not include substantially the same information as would
be required to be included in a registration statement covering the sale of
Registrable Securities, Parent will:
(1) promptly give to each of the Holders a written notice thereof; and
(2) include in such registration and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made by the Holders within fifteen Business Days after receipt of
the written notice from Parent described in clause (1) above, except as set
forth in Section 12.2(b). Such written request may specify all or a part of
the Holders' Registrable Securities.
(b) Underwriting. If the registration of which Parent gives notice is for a
registered public offering involving an underwriting, Parent shall so advise
each of the Holders as a part of the written notice given pursuant to Section
12.2(a)(1). In such event, the right of each of the Holders to registration
pursuant to this Section 12.2 shall be conditioned upon such Holders'
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. The
Holders whose securities are to be included in such registration shall (together
with Parent and the Other Stockholders distributing their securities through
such underwriting) enter into and perform their respective obligations under
(including entering into a lock-up
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agreement as reasonably requested by the representative(s) of the underwriter or
underwriters) an underwriting agreement in customary form with the
representative or representatives of the underwriter or underwriters selected
for underwriting by Parent or, if such registration has been initiated by any
Other Stockholder, by such Other Stockholder. Notwithstanding any other
provision of this Section 12.2, if the representative or representatives
determines or determine that marketing factors require a limitation on the
number or type of securities to be underwritten, the representative or
representatives may limit the number or type of securities to be included in the
registration and underwriting to the extent so required by such limitations
according to the following "cutback" priority: first, the securities of Parent
held by the Holders and Other Stockholders (other than any Other Stockholder who
requested such registration or is entitled to participate in such registration
as a "demand" or "requested" registration) shall be reduced on a pro rata basis
(based on the number of securities requested to be included in such underwriting
by such Holders and such Other Stockholders); second, the securities of Parent
to be offered for its own account shall be reduced; and third, the securities of
the Other Stockholders who requested such registration or is entitled to
participate in such registration as a "demand" or "requested" registration shall
be reduced on a pro rata basis (based on the number of securities requested to
be included in such underwriting by such Other Stockholders). If any person who
has requested inclusion in such registration as provided above disapproves of
the terms of the underwriting, such person may elect to withdraw therefrom by
written notice to Parent and the underwriter prior to the effectiveness of the
related registration statement. The securities so withdrawn shall also be
withdrawn from registration.
(c) Number and Transferability. Each of the Holders shall be entitled to
have its securities included in an unlimited number of registrations pursuant to
this Section 12.2. The registration rights granted pursuant to this Section 12.2
shall be assignable, in whole or in part, to any permitted transferee of
Registrable Securities; provided such transferee agrees to be bound by all
provisions of this Article XII.
12.3 Expenses of Registration.
All Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to this Article XII shall be borne by
Parent, and all Selling Expenses shall be borne by the Holders of the securities
so registered pro rata on the basis of the number of their securities sold.
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12.4 Registration Procedures.
In the case of each registration effected by Parent pursuant to this
Article XII, Parent will keep the Holders, as applicable, reasonably advised in
writing as to the initiation of each registration and as to the completion
thereof. Parent agrees to promptly notify each Holder, as applicable, of the
happening of any event as a result of which the prospectus included in the
registration statement then in effect with respect to Registrable Securities
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances then existing, not misleading. Upon receiving
such notification, each Holder agrees to forthwith discontinue the disposition
of its Registrable Securities pursuant to such registration statement until such
Holder's receipt of copies of a supplemental or amended registration statement
or prospectus included therein. In addition, at its expense, Parent will:
(a) keep such registration effective for a period of one hundred twenty
(120) days (provided that if the sales are suspended pursuant to Section
12.1(d), such period shall be extended by the aggregate number of days of such
suspension) or until the Holders, as applicable, have completed the distribution
described in the registration statement relating thereto, whichever first
occurs; provided, however, that such 90-day period shall be extended for a
period of time equal to the period during which the Holders are precluded from
using a registration statement in the circumstances described above;
(b) furnish such number of prospectuses and other documents incident
thereto as each of the Holders, as applicable, from time to time may reasonably
request;
(c) as of the effective date of the registration statement, register or
qualify the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders covered by such registration statement; provided that
Parent shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such states or jurisdiction; and
(d) apply for listing and use reasonable efforts to as of the effective
date of the registration statement, list the Registrable Securities, if any,
being registered on any na-
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tional securities exchange on which a class of Parent's equity securities is
listed or, if Parent does not have a class of equity securities listed on a
national securities exchange, apply for qualification and use reasonable efforts
to qualify the Registrable Securities for inclusion on Nasdaq.
12.5 Indemnification.
(a) Parent will indemnify each of the Holders, as applicable, each of its
officers and directors, and each person controlling each of the Holders within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, with respect to each registration which has been effected pursuant to this
Article XII, and each underwriter, if any, and each person who controls any
underwriter, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus or registration
statement, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided that Parent will not be liable in any such case
to the extent that any such claim, loss, damage, liability or expense arises out
of or is based on any untrue statement or omission based upon written
information furnished to Parent by any Holder with respect to such Holder or any
underwriter with respect to such underwriter specifically for use therein.
(b) Each of the Holders will, if Registrable Securities held by it are
included in the securities as to which such registration is being effected,
indemnify Parent, each of its directors and officers and each underwriter, if
any, of Parent's securities covered by such a registration statement, each
person who controls Parent or such underwriter, each Other Stockholder, each
other Holder and each of their officers, directors, and partners, and each
person controlling such Other Stockholder or other Holder within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact with respect to such Holder contained in any such registration
statement or prospectus made by such Holder, or any omission (or alleged
omission) to state therein a material fact with respect to such Holder required
to be stated therein or necessary to make the statements by such Holder therein
not misleading, to the extent that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
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statement or prospectus in reliance upon and in conformity with written
information furnished to Parent by such Holder with respect to such Holder
specifically for use therein.
(c) Each party entitled to indemnification under this Section 12.5 (the
"Registration Indemnified Party") shall give notice to the party required to
provide indemnification (the "Registration Indemnifying Party") promptly after
such Registration Indemnified Party has actual knowledge of any claim as to
which indemnity may be sought, and shall permit the Registration Indemnifying
Party to assume the defense of any such claims or any litigation resulting
therefrom; provided that counsel for the Registration Indemnifying Party who
shall conduct the defense of such claim or any litigation resulting therefrom
shall be approved by the Registration Indemnified Party (whose approval shall
not be unreasonably withheld) and the Registration Indemnified Party may
participate in such defense at such party's expense (unless the Registration
Indemnified Party shall have reasonably concluded that there may be a conflict
of interest between the Registration Indemnifying Party and the Registration
Indemnified Party in such action, in which case the fees and expenses of counsel
shall be at the expense of the Registration Indemnifying Party); provided,
further, that the failure of any Registration Indemnified Party to give notice
as provided herein shall not relieve the Registration Indemnifying Party of its
obligations under this Section 12.5 unless the Registration Indemnifying Party
is materially prejudiced thereby. Each Registration Indemnified Party shall
furnish such information regarding itself or the claim in question as an
Registration Indemnifying Party may reasonably request in writing and as shall
be reasonably required in connection with the defense of such claim and
litigation resulting therefrom.
(d) To the extent that the indemnification provided for in this Section
12.5 is held by a court of competent jurisdiction to be unavailable to an
Registration Indemnified Party with respect to any loss, liability, claim,
damage or expense referred to herein, then the Registration Indemnifying Party,
in lieu of indemnifying such Registration Indemnified Party hereunder, shall
contribute to the amount paid or payable by such Registration Indemnified Party
as a result of such loss, liability, claim, damage or expense in such proportion
as is appropriate to reflect the relative fault of the Registration Indemnifying
Party on the one hand and of the Registration Indemnified Party on the other in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
con-
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siderations. The relative fault of the Registration Indemnifying Party and of
the Registration Indemnified Party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
Registration Indemnifying Party or by the Registration Indemnified Party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in connection with any underwritten public offering contemplated by this
Agreement are in conflict with the foregoing provisions, the provisions in such
underwriting agreement shall be controlling.
(f) The foregoing indemnity agreement of Parent and Holders is subject to
the condition that, insofar as they relate to any loss, claim, liability or
damage (or actions in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in a
preliminary prospectus or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading but that is eliminated or remedied in the
amended prospectus on file with the Commission at the time the registration
statement in question becomes effective or the amended prospectus filed with the
Commission pursuant to Rule 424(b) under the Securities Act (the "Final
Prospectus"), such indemnity agreement shall not inure to the benefit of any
underwriter or any person controlling such underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act if a copy of the Final
Prospectus was furnished to the underwriter and, if required by law to be so
furnished, was furnished to the person asserting the loss, liability, claim or
damage at or prior to the time such action is required by the Securities Act.
12.6 Preparation; Reasonable Investigation.
In connection with the preparation and filing of each registration
statement registering Registrable Securities under the Securities Act, Parent
shall give the holders of such Registrable Securities so registered, their
underwriters, if any, and their respective counsel and accountants access to its
books and records and an opportunity to discuss the business of Parent with its
officers and the independent public accountants
<PAGE>
-57-
who have certified its financial statements as shall be necessary, in the
opinion of such holders' or such underwriters' to conduct a reasonable
investigation within the meaning of Section 11(b)(3) of the Securities Act.
12.7 Information by the Holders.
Each of the Holders holding securities included in any registration shall
furnish to Parent such information regarding such Holder and the distribution
proposed by such Holder as Parent may reasonably request in writing and as shall
be reasonably required in connection with any registration, qualification or
compliance referred to in this Article XII. The Holder shall not be required, in
connection with any underwriting arrangements entered into in connection with
any registration, to provide any information, representations or warranties, or
covenants with respect to Parent, its business or its operations, and shall not
be required to provide any indemnification with respect to any registration
statement except as specifically provided for in Section 12.5(b).
12.8 Rule 144 Reporting and Sales.
With a view to making available the benefits of certain rules and
regulations of the Commission which may permit the sale of the Registrable
Securities to the public without registration, Parent agrees to:
(a) make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act;
(b) use its reasonable efforts to file with the Commission in a timely
manner all reports and other documents required of Parent under the Securities
Act and the Exchange Act at all times that it is subject to such reporting
requirements;
(c) so long as the Holder owns any Registrable Securities, furnish to the
Holder upon request a written statement by Parent as to its compliance with the
reporting requirements of Rule 144 under the Securities Act (at any time that it
is subject to such reporting requirements), a copy of the most recent annual
report of Parent, and such other reports and documents so filed as the Holder
may reasonably request in availing itself of any rule or regulation of the
Commission allowing the Holder to sell any such securities without registration;
and
<PAGE>
-58-
(d) if requested by the transfer agent for the Common Stock, provide an
opinion of counsel to Parent (which may be internal counsel) as to the
appropriateness of removing the securities law legend contained on the face of
such securities.
12.9 Holdback Agreements.
In the event and to the extent requested by the managing underwriter or, if
the Registrable Securities are not being disposed of in an underwritten public
offering, if requested by Parent, each Holder agrees not to sell, make any short
sale of, grant any option for the purchase of, or otherwise dispose of any
securities of Parent, other than those Registrable Securities included in such
registration pursuant to Section 12.1 or 12.2, for the thirty (30) days prior to
and the 120 days after the effectiveness of the registration statement pursuant
to which such public offering shall be made (or such shorter period of time as
is sufficient and appropriate, in the opinion of the managing underwriter or, as
the case may be, Parent in order to complete the sale and distribution of the
securities included in such public offering); provided, however, that all
executive officers and directors of Parent are required to enter into similar
agreements.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
13.1 Amendment and Modification.
This Agreement may be amended, modified and supplemented, in writing only,
by consent of the parties hereto.
13.2 Waiver of Compliance.
Any failure of a party to comply with any obligation, covenant, agreement
or condition herein contained may be expressly waived, in writing only, by the
other parties hereto and any waiver shall be effective only in the specific
instance and for the specific purpose for which made or given.
13.3 Notices.
All notices, requests, demands and other communications required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given when delivered by hand or, if sent by overnight delivery by a nationally
recognized courier, two Business Days after deposit with such courier or,
<PAGE>
-59-
if mailed, five Business Days after being mailed by certified or registered mail
with postage prepaid, return receipt requested, or, if sent by facsimile
transmission, when sent to the other party with receipt confirmed by telephone
as follows (or at such other address or fax number as shall be given in writing
by any party to the other parties):
(i) if to any of the Members and/or the Company,
to him or it at:
c/o Hales Capital Advisors, L.L.C.
Suite 425
1011 Lake Street
Oak Park, IL 60301
Attn: Jeffery B. Cappel
copy to: Orrick Herrington & Sutcliffe
400 Sansome Street
San Francisco, CA 94111
Fax: (415) 733-4283
Attn: Steven C. Malvey, Esq.
(ii) if to Parent or Buyer, to:
Arch Capital Group Ltd.
20 Horseneck Lane
Greenwich, CT 06830
Fax: (203) 861-7240
Attn: Peter A. Appel
copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, NY 10005
Fax: (212) 269-5420
Attn: Immanuel Kohn, Esq.
13.4 Assignment.
This Agreement may not be assigned (by operation of law or otherwise) by
any party hereto without the prior written consent of the other party hereto.
Notwithstanding the foregoing, in the event of a merger, consolidation or other
similar transaction in which the outstanding shares of Common Stock are
exchanged for common equity of another Person, such other Per-
<PAGE>
-60-
son shall assume the obligations of Parent hereunder, all references herein to
Parent shall be deemed to be references to such other Person and Parent shall be
released from its obligations hereunder. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective permitted assigns.
13.5 No Third Party Beneficiary Rights.
This Agreement is not intended to and shall not be construed to give any
person or entity other than the parties signatory hereto any interest or rights
(including any third party beneficiary rights) with respect to or in connection
with any agreement or provision contained herein or contemplated hereby.
13.6 Employment Arrangements.
Except as expressly set forth in this Agreement, none of Parent, Buyer nor
any of their Affiliates is assuming, nor shall Parent, Buyer or any of their
Affiliates be responsible for any liability or obligation whatsoever under, any
Plan or contract with respect to any present or former employee of the Company,
whether or not such present or former employee is hired by Parent, Buyer or any
of their Affiliates.
13.7 Press Releases.
No party shall make any public announcement or issue any press release in
connection with the transactions contemplated by this Agreement or the Related
Agreements, without the prior written consent of the Company or Parent, as the
case may be.
13.8 Confidentiality by Parent.
For and in consideration of the Company and the Members' entering into this
Agreement, prior to the Closing or at any time after this Agreement is
terminated in accordance with Section 9.1:
(a) Subject to Section 13.8(b), unless otherwise agreed to in writing by
the Company, each of Parent and Buyer agrees that (i) it will, and will cause
each of its Representatives to, keep all Pre-Closing Confidential Material
confidential and not to disclose or reveal any Pre-Closing Confidential Material
to any Person other than the Company, the Members and their Representatives and
(ii) it will not, and will not cause
<PAGE>
-61-
or permit any of its Representatives to, use Pre-Closing Confidential Material
for any purpose other than for the purpose of the transactions contemplated
hereby. "Pre-Closing Confidential Material" means information provided by the
Company, any Member or any of their Representatives, whether written or oral,
which relates to the Business; provided that "Pre-Closing Confidential Material"
shall exclude any such information that is or becomes generally available to the
public other than as a result of a disclosure by Parent, Buyer, any of their
respective Representatives, members or stockholders or any other person who is
bound under a legal, contractual or fiduciary obligation not to make sure
disclosure.
(b) Each of Parent and Buyer agrees that, in the event that it or any of
its Representatives is requested pursuant to, or required by, applicable law,
regulation, rule or by legal process to disclose any Pre-Closing Confidential
Material, it will provide the Company with prompt notice of such request or
requirement in order to enable the Company to seek an appropriate protective
order or other remedy, and will consult with the Company with respect to the
Company's taking steps to resist or narrow the scope of such request or
requirement, or to waive compliance, in whole or in part, with the terms of this
Agreement. In any such event, Parent or Buyer will disclose only that portion of
any Confidential Material which it is advised by counsel is legally required and
will use its reasonable best efforts to ensure that all Pre-Closing Confidential
Material and other information that is so disclosed will be accorded
confidential treatment.
13.9 Form W-2.
Buyer shall, at its sole option, have the right to use the "Alternative
Procedure" provided in the Section 5 of Revenue Procedure 96-60, 1996-2 C.B.
399, with respect to filing and furnishing Internal Revenue Service Forms W-2,
W-3, and 941 for the 2000 calendar year. Buyer shall also, at its sole option,
have the right to use any similar procedures and make any similar elections
under state or local tax laws, and the Company shall reasonably cooperate in the
making of such elections.
13.10 Governing Law.
This Agreement and the legal relations among the parties hereto shall be
governed by and construed in accordance with the laws of the State of New York,
without regard to principles of conflicts of laws.
<PAGE>
-62-
13.11 Submission to Jurisdiction.
Each of the parties to this Agreement agrees that any legal suit, action or
proceeding arising out of or relating to this Agreement or the Related
Agreements may be instituted in the United States District Court for the
Southern District of New York, United States of America or, if such court shall
not have jurisdiction, a court of The State of New York, located in the Borough
of Manhattan, City of New York; waives any objection which it may have now or
hereafter to the laying of the venue of any such suit, action or proceeding; and
irrevocably submits to the jurisdiction of such courts in any such suit, action
or proceeding.
13.12 Expenses.
All costs and expenses incurred in connection with this Agreement shall be
paid by the party incurring such cost or expense.
13.13 Counterparts.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
13.14 Headings.
The headings of the Sections, Articles and Schedules of this Agreement are
inserted for convenience only and shall not constitute a part hereof.
13.15 Entire Agreement.
This Agreement, including the Schedules hereto, together with the Related
Agreements, contains the entire understanding of the parties hereto in respect
of the subject matter contained herein.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be duly
executed as of the day and year first above written.
ARCH CAPITAL GROUP LTD.
By: /s/ Peter A. Appel
-----------------------------------
Name: Peter A. Appel
Title: President and Chief
Executive Officer
HALES & COMPANY INC.
By: /s/ Peter A. Appel
-----------------------------------
Name: Peter A. Appel
Title: Director
HALES CAPITAL ADVISORS, L.L.C.
By: /s/ Jeffery B. Cappel
----------------------------------
Name: Jeffery B. Cappel
Title: Chief Executive Officer
CLASS A MEMBERS:
---------------
/s/ William Weiland
-------------------------------------------
William Weiland, Individually and as
Trustee of the William S. Weiland Revocable
Trust dated November 4, 1996
/s/ Jeffery B. Cappel
-------------------------------------------
Jeffery B. Cappel
<PAGE>
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/s/ Vincent H. Trapani
-------------------------------------------
Vincent H. Trapani, Individually and
as Trustee of the Vincent H. Trapani Living
Revocable Trust dated January 7, 1998
/s/ Gordon G. Pratt
---------------------------------
Gordon G. Pratt
CLASS C MEMBER:
--------------
CONNING CORPORATION
By: /s/ Preston Kavanagh
----------------------------------
Name: Preston Kavanagh
Title: Senior Vice President and
Chief Financial Officer
<PAGE>
Exhibit A
Form of Opinion of Counsel for the Company
Capitalized terms have the meanings given to them in the Asset Purchase
Agreement dated as of October 31, 2000 (the "Asset Purchase Agreement") among
Hales Capital Advisors, L.L.C., an Illinois limited liability company, its
members, Arch Capital Group Ltd., a Delaware corporation, and Hales & Company
Inc., a Delaware corporation, of which this form of opinion constitutes an
exhibit.
1. Each of the Asset Purchase Agreement, the Escrow Agreement (in the form
attached as Exhibit D to the Asset Purchase Agreement) and the Bill of Sale (in
the form attached as Exhibit C to the Asset Purchase Agreement) (together, the
"Transaction Documents") to which the Company or any Member is a party
constitutes a legally valid and binding obligation of the Company or such
Member, as the case may be, and is enforceable against the Company or such
Member, as the case may be, in accordance with its terms.
2. The execution and delivery of the Transaction Documents to which the
Company or any Member is a party by the Company or such Member, as the case may
be, and the transfer by the Company to the Buyer and Parent of the Transferred
Assets, the Assumed Contracts and the Assumed Liabilities do not: (a) violate
any federal, New York or California statute, rule or regulation or (b) result in
the breach of or a default under the Fund Agreement or the Fund GP Agreement.
3. No consent, authorization or order of, or registration or filing with,
approval of or notice to any governmental or public authority is required to be
obtained or made by the Company or any Member pursuant to any presently existing
federal, New York or California statute, rule or regulation for the execution,
delivery and performance by the Company and the Members of any of the
Transaction Documents or the consummation of the transactions contemplated by
such agreements, including the transfer of the Transferred Assets, the Assumed
Contracts or the Assumed Liabilities.
4. To the best of our knowledge, there is no action, suit, proceeding or
investigation pending or threatened against or affecting the Company or any of
its properties or assets that seeks to restrain, enjoin, prevent the
consummation of or otherwise challenge any of the Transaction Documents.
<PAGE>
Exhibit B
HALES & COMPANY INC.
EXECUTIVE COMPENSATION PLAN
SECTION 1. Background; Purpose and Scope.
Pursuant to an Asset Purchase Agreement dated as of October 31, 2000 (the
"Asset Purchase Agreement") among Hales Capital Advisors, L.L.C., an Illinois
limited liability company ("Seller"), its members, Arch Capital Group Ltd., a
Delaware corporation ("Parent"), and Hales & Company Inc., a Delaware
corporation and a wholly owned subsidiary of Parent (the "Company"), the Company
acquired (the "Acquisition") the businesses of the Seller. In connection with
the Acquisition, employees of the Seller ceased to be employees of the Seller
and became employees of the Company. All such employees of the Company are
employees-at-will except Jeffery B. Cappel, who is party to an Employment
Agreement with the Company dated as of October 31, 2000 (the "Cappel Employment
Agreement").
The purpose of the Hales & Company Inc. Executive Compensation Plan is to
provide the Participants (as defined below) with performance-based compensation
as an incentive for their efforts to achieve the financial and strategic
objectives of the Company.
Section 2. Definitions.
(a) "Adjusted Annual EBT" means, with respect to any Plan Year, (i) an
amount equal to 80% of the total net revenues of the Company derived from its
primary businesses of providing investment advisory, valuation and shareholder
analysis services (excluding revenues derived from other sources including,
without limitation, any revenues derived from subleases and the Fund GP Interest
(as defined in the Asset Purchase Agreement)) for such Plan Year, plus 80% of
the total net revenues received by Seller from Distribution Partners Investment
Capital, L.P., a Delaware limited liability company (the "Fund"), or received by
Seller that are attributable to the Transferred Assets or the Business (as such
terms are defined in the Asset Purchase Agreement), in each case, as determined
in accordance with GAAP minus (ii) Chargeable Expenses, as defined on Annex I
hereto. Adjusted Annual EBT shall be calculated for purposes of the Plan without
regard to (x) extraordinary gains or losses (as defined by GAAP) and (y) the
cumulative effect of changes in accounting principles. For purposes of this
Section 2(a), net revenues shall mean gross revenues less commissions paid to
third parties, if applicable. The parties intend that the definition of Adjusted
<PAGE>
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Annual EBT reach the same economic result as if the Management Fee had been paid
directly to Company as part of its primary business described in Section 2(a)(i)
hereof.
(b) "Applicable Bonus Pool Availability Amount" means (i) with respect to
the Plan Year that begins with the Effective Date, $1,283,000, and (ii) with
respect to any other Plan Year, $1.1 million.
(c) "Board" means the Board of Directors of the Company.(1)
(d) "Committee" means the Compensation Committee of the Board.(2)
(e) "Effective Date" means November 1, 2000.
(f) "GAAP" means generally accepted accounting principles in the United
States as in effect from time to time and applied by Parent in the preparation
of its consolidated financial statements.
(g) "Participants" means W. Marston Becker, Jeffery B. Cappel, Gordon G.
Pratt, Vincent H. Trapani and William Weiland, subject to such changes as are
adopted pursuant to Section 11.
(h) "Plan" means this Hales & Company Inc. Executive Compensation Plan, as
amended from time to time in accordance with its terms.
(i) "Plan Year" means (x) the period from the Effective Date through
December 31, 2001 and (y) each calendar year thereafter until this Plan is
terminated in accordance with Section 10.
Section 3. Participation.
Subject to Section 6, each of the Participants shall participate in the
Plan for each Plan Year.
----------
1 Will include Mr. Cappel as a member.
2 Will include Mr. Cappel as a member.
<PAGE>
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Section 4. Salary Pool.
(a) Beginning with the Effective Date and so long as all Participants are
employed by the Company or one of its subsidiaries, the Participants will be
entitled to a total aggregate salary equal to $1,325,000 per annum (the "Salary
Pool"), payable in accordance with the prevailing salary payroll practices of
the Company.
(b) (b) The Salary Pool will be paid to the Participants based on the
division of the Salary Pool, as determined by the Chief Executive Officer of the
Company (initially Jeffery B. Cappel) and the Chief Executive Officer of Parent.
Section 5. Bonus Pool.
(a) For each Plan Year beginning with the Effective Date and so long as all
Participants are employed by the Company or one of its subsidiaries, the
Participants as a group will be entitled to an aggregate bonus pool (the "Bonus
Pool") equal to the lesser of (x) the Applicable Bonus Pool Availability Amount
and (y) 100% of Adjusted Annual EBT for such Plan Year.
(b) The Bonus Pool for a Plan Year will be paid to the Participants based
on the division of the Bonus Pool, as determined by the Chief Executive Officer
of the Company (initially Jeffery B. Cappel) and the Chief Executive Officer of
Parent.
Section 6. Termination of Employment.
If any Participant ceases to be employed by the Company or one of its
subsidiaries (such Participant, a "Former Participant") during the term of the
Plan, the Salary Pool for the remainder of the Plan Year in which the
termination occurs and any remaining Plan Years shall be reduced by the
percentage amount equal to the percentage of the Salary Pool paid to such Former
Participant in the Plan Year in which the termination occurs prior to the Former
Participant's termination of employment. In addition, the Bonus Pool for such
year and any remaining Plan Years shall be reduced by the percentage amount
equal to the percentage of the Bonus Pool paid to such Former Participant in the
year immediately preceding the Former Participant's termination of employment.
<PAGE>
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Section 7. Payment of Bonuses.
Bonuses for a given Plan Year shall be paid in two equal installments as
follows: (i) the first installment shall be paid as soon as practicable after
the Bonus Pool is determined, but not later than March 31 of the following Plan
Year, and (ii) the second installment shall be paid on or before June 30 of the
following Plan Year; provided that if any Participant ceases to be employed by
the Company or one of its subsidiaries prior to the payment of the second
installment, then such payment shall be forfeited by him and paid to Parent;
provided further, that the foregoing proviso shall not apply if such cessation
of employment is the result of termination by the Company other than for Cause
(as that term is defined in (x) in the case of Mr. Cappel, the Cappel Employment
Agreement and (y) in each other case, the Asset Purchase Agreement).
Section 8. Nonassignability.
No bonus payable to a Participant under the Plan shall be assignable or
transferable, except by will or by the laws of descent and distribution.
Section 9. Plan Administration.
(a) Administration by Committee. The Plan shall be administered by the
Committee.
(b) Interpretation of Plan Provisions. The Committee shall construe and
interpret the Plan and may adopt rules and regulations governing administration
of the Plan, including with respect to the calculation of Adjusted Annual EBT.
The Committee may consult with the management of the Company but shall retain
responsibility for administration of the Plan. The Committee's decisions,
actions and interpretations regarding the Plan shall be final and binding upon
all Participants.
Section 10. Effective Date and Term of Plan.
The Plan shall be effective as of the Effective Date. The Board may
terminate the Plan as of any time after December 31, 2001, except that any such
termination shall not relieve the Company of its obligation to pay benefits
under the Plan in respect of periods ending on or prior to such termination
date.
<PAGE>
-5-
Section 11. Amendment of the Plan.
The Board may amend or modify the Plan at any time and from time to time;
provided, that the Board may not amend or modify the Plan with respect to the
first Plan Year in a way which would materially adversely affect the rights of
the Participants hereunder without the consent of a majority of the
Participants. Notwithstanding the foregoing, no such amendment or modification
shall affect payments for a Plan Year already ended. The Company and the
Participants will review Section 5 and the definition of Adjusted Annual EBT as
it relates to any Plan Year beginning after December 31, 2001, both as to
structure and participation.
Section 12. General Provisions.
(a) Unfunded Plan. The Plan shall be an unfunded incentive compensation
arrangement for a select group of key management employees of the Company.
Nothing contained in the Plan, and no action taken pursuant to the Plan, shall
create or be construed to create a trust of any kind. A Participant's right to
receive a bonus shall be no greater than the right of an unsecured general
creditor of the Company. All bonuses shall be paid from the general funds of the
Company, and no segregation of assets shall be made to ensure payment of
bonuses.
(b) Governing Law. The Plan shall be interpreted, construed and
administered in accordance with the laws of the State of New York, without
giving effect to principles of conflict of laws.
(c) Section Headings. The section headings contained in the Plan are for
purposes of convenience only and are not intended to define or limit the
contents of the Plan's sections.
(d) Effect on Employment. Nothing contained in the Plan shall affect or be
construed as affecting the terms of employment of any employee except as
expressly provided in the Plan. Nothing in the Plan shall affect or be construed
as affecting the right of the Company to terminate the employment of an employee
at any time for any reason, with or without cause.
(e) Withholding of Taxes. The Company shall deduct from each payment the
amount of any taxes required to be withheld by any governmental authority
<PAGE>
-6-
(f) Quarterly Reports. Seller shall provide quarterly reports on March 31,
June 30, September 30 and December 31 to the Company setting forth (i) the net
revenues received by Seller from the Fund, or received by Seller, which
responses clearly identify those net revenues received by Seller, that are
attributable to the Transferred Assets or the Business, and (iii) the expenses
of Seller, which reports clearly identify such expenses, that are attributable
to the Fund, the Transferred Assets or the Business.
<PAGE>
Chargeable Expenses
1. All expenses incurred by the Company, Seller or any of their respective
subsidiaries, including, without limitation:
o salaries, commissions and bonuses
o employee benefits and payroll taxes
o rents
o telephone and utilities
o travel and entertainment
o Bloomberg
o postage, messenger and delivery
o printing and stationary
o supplies
o advertising
o equipment rental/maintenance
o dues and subscriptions
o franchise taxes and licenses
o general insurance
o premiums for key-man life insurance for Jeffery B. Cappel in an amount
equal to $8.0 million and disability insurance for Jeffery B. Cappel
on terms and in amount reasonably satisfactory to Parent
o bank charges
o depreciation
o interest expense
o legal and accounting
<PAGE>
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o any revenues of Seller to the extent in excess of Seller's expenses,
to the extent attributable to revenues received by Seller from the
Fund or received by Seller that are attributable to the Transferred
Assets or the Business (other than attributable to the Excluded
Assets).
2. Allocated portions of expenses incurred by Parent or any of its
subsidiaries (other than the Company or any of its subsidiaries) for expenses
related to the business or operations of the Company or any of its subsidiaries,
including, without limitation:
o depreciation
o interest expense
o legal and accounting
o insurance
o employee benefits
<PAGE>
Exhibit C
BILL OF SALE
BILL OF SALE dated as of December ________, 2000 by and among HALES CAPITAL
ADVISORS, L.L.C., an Illinois limited liability company (the "Seller"), ARCH
CAPITAL GROUP, LTD., a Delaware corporation, (the "Parent") and Hales & Company
Inc., a Delaware corporation (the "Buyer").
This Bill of Sale is being delivered pursuant to the Asset Purchase
Agreement dated as of October 31, 2000 (the "Purchase Agreement"), by and among
Seller, it members, Buyer and Arch Capital Group Ltd. Capitalized terms used but
not defined herein have the respective meanings ascribed to such terms in the
Purchase Agreement. It is expressly understood that this instrument is intended
solely to restate, and not in any manner to amend, modify, enlarge or limit any
warranties or agreements contained in, the Purchase Agreement. This Bill of Sale
is subject to the terms and conditions of the Purchase Agreement. To the extent
that any provision of this Bill of Sale is inconsistent with the Purchase
Agreement, the provisions of the Purchase Agreement shall control.
For good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, Seller and Buyer hereby agree as follows:
Transfer. Seller hereby sells, transfers, conveys, assigns and delivers to
Buyer all of Seller's right, title and interest in and to the Transferred Assets
set forth on the attached Schedule 1, free of any Liens, TO HAVE AND TO HOLD the
same unto Buyer, its successors and assigns forever. Seller hereby sells,
transfers, conveys, assigns and delivers to Parent all of Seller's right, title
and interest in and to the Transferred Assets set forth on the attached Schedule
2, free of any Liens, TO HAVE AND TO HOLD the same unto Buyer, its successors
and assigns forever. Seller warrants that its title to the Transferred Assets is
as set forth in the Purchase Agreement.
Power of Attorney. Seller hereby irrevocably constitutes and appoints
Buyer, its successors and assigns its true and lawful attorney, with full power
of substitution, in its name or otherwise, and on behalf of Seller, or for its
own use, to claim, demand, collect and receive at any time and from time to time
any and all assets, properties, claims, accounts and other rights, tangible or
intangible, hereby sold, transferred, conveyed, assigned or delivered, or
intended so to be sold, transferred, conveyed, assigned or delivered, and to
prosecute
<PAGE>
-2-
any claim relating to any thereof, whether at law or in equity and, upon
discharge thereof, to complete, execute and deliver any and all necessary
instruments of satisfaction and release.
Representations and Warranties. All of the representations and warranties
made in Article IV of the Purchase Agreement are incorporated in this Bill of
Sale by reference as if fully set forth in this Bill of Sale.
Governing Law. This Bill of Sale has been executed and delivered in the
State of New York and shall be governed by and construed in accordance with the
laws of the State of New York, without regard to principles of conflict of laws.
Counterparts. This Bill of Sale may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one instrument.
<PAGE>
-3-
IN WITNESS WHEREOF, Seller and Buyer have executed this Bill of Sale on the
date first above written.
HALES CAPITAL ADVISORS, L.L.C.
as Seller
By:
------------------------------------------
Name:
Title:
ARCH CAPITAL GROUP, LTD.
as Parent
By:
------------------------------------------
Name:
Title:
HALES & COMPANY INC.
as Buyer
By:
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Name:
Title:
<PAGE>
Exhibit D
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (including the attachments hereto, this "Agreement")
is made and entered into as of December , 2000, by and among Hales Capital
Advisors, L.L.C., an Illinois limited liability company ("Seller"), its members
listed on the signature pages hereof (the "Members"), Hales & Company Inc., a
Delaware corporation ("Buyer"), Arch Capital Group Ltd., a Delaware corporation
("Parent"), and State Street Bank and Trust Company, a Massachusetts trust
company, as escrow agent (in such capacity, the "Escrow Agent").
Seller, the Members, Buyer and Parent have entered into an Asset Purchase
Agreement dated as of October 31, 2000 (the "Purchase Agreement"), pursuant to
which Buyer is purchasing the businesses of Seller. Capitalized terms used
without definition herein have the meanings given to them in the Asset Purchase
Agreement.
This is the Escrow Agreement referred to in Section 3.1 of the Asset
Purchase Agreement. The execution and delivery by the parties hereto of, and
delivery into escrow of the items referred to below under, this Agreement is a
condition to closing under the Asset Purchase Agreement.
In consideration of the mutual promises and agreements set forth in this
Agreement, the parties agree as follows:
1. Defined Terms. The following terms have the meanings set forth below:
"Escrowed Assets" means (i) the Deposited Shares (together with any cash
exchanged for any portion of the Deposited Shares pursuant to Section 4 of this
Agreement) and related stock power, (ii) the Letters of Credit, (iii) any
interest, dividends or other distributions on or proceeds from any of the
foregoing or from any investment under this Agreement, and (iv) any securities
in which any item described in clause (iii) may be invested.
"Fair Market Value" means, (i) with respect to any security listed on a
national securities exchange or traded on Nasdaq, the average of the high and
low sale prices of such security on the last trading day prior to the date of
determination or release, as the case may be, (ii) with respect to any Letter of
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Credit, the face amount thereof and (iii) with respect to any other property or
asset, the fair market value thereof as determined in good faith by the board of
directors of Buyer.
"Permitted Investments" means investment grade securities issued, fully
guaranteed or fully insured by the United States, any state of the United States
or any political subdivision thereof (including "revenue" bonds) and money
market funds substantially all of whose assets consist of such securities.
2. Appointment of Escrow Agent. Each of Buyer, Seller and Members hereby
designates and appoints the Escrow Agent as escrow agent, and the Escrow Agent
hereby accepts such appointment, on the terms and subject to the conditions of
this Agreement.
3. Deliveries; Escrowed Assets; Escrow Account.
(a) Concurrently with the execution and delivery of this Agreement, the
following items are hereby delivered to the Escrow Agent:
(i) Certificate No. [____] for 300,000 shares of common stock of
Parent issued in the name of Hales Capital Advisors, L.L.C. (the "Deposited
Shares").
(ii) Stock power for above certificate, undated and executed in blank
by Hales Capital Advisors, L.L.C.
(iii) Letter of credit in the amount of $931,000 issued for the
benefit of Buyer as sole beneficiary, with Conning Corporation as
applicant, which letter of credit Conning Corporation certifies satisfies
the requirements set forth in Exhibit A hereto (such letter of credit,
including any replacements thereof in accordance with Section 6(f), the
"Conning Letter of Credit").
(iv) Letter of credit in the amount of $919,000 issued for the benefit
of Buyer as sole beneficiary, with William Weiland, Jeffrey Cappel, Vincent
Trapani and Gordon Pratt as applicants, which letter of credit the Members
(other than Conning Corporation) certifies satisfies the requirements set
forth in Exhibit A hereto (such letter of credit, including any
replacements thereof in accordance with Section 6(f), the "Individual
Members' Let-
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ter of Credit," and together with the Conning Letter of Credit, the
"Letters of Credit").
The Escrow Agent hereby acknowledges receipt of each of the foregoing.
(b) The Escrow Agent shall establish a segregated account (the "Escrow
Account") at its office at 2 Avenue de Lafayette, Boston, Massachusetts 02111 in
which to hold the Escrowed Assets. The Escrow Agent shall keep appropriate books
and records for the Escrow Account, including any dividends or other
distributions on or proceeds from any Escrowed Assets and any amounts released
from the Escrow Account in accordance with Section 6. At the written request of
Buyer or Seller from time to time, the Escrow Agent shall allow representatives
of such party to inspect and make copies of such books and records upon
reasonable notice during normal business hours. In any event, within 45 days
after the end of each calendar quarter, the Escrow Agent shall provide to Buyer
and Seller a statement of the list of the Escrowed Assets, the amount of any
interest, dividends or other distributions on or proceeds from any investment of
Escrowed Assets and any amounts released from the Escrow Account in accordance
with Section 6. Escrowed Assets shall not be available to, and shall not be used
by, the Escrow Agent to set off any obligations of either Buyer or Seller owing
to the Escrow Agent in any capacity except as provided in Section 7(d) hereof.
(c) Any interest, dividends or other distributions on or proceeds from any
Escrowed Assets or from any investment under this Agreement shall be deposited
into the Escrow Account and shall constitute Escrowed Assets.
4. Exchange of Deposited Shares for Cash.
(a) In the event of a Change of Control, Seller shall be permitted, subject
to applicable law, to exchange any or all of the Deposited Shares (or such
shares or equity into which the Deposited Shares, or a portion thereof, have
been converted or exchanged) for cash per Deposited Share (or such share or
equity into which a Deposited Share has been converted or exchanged) in the
amount of the average of the high and low sales prices of the Common Stock (or
such share or equity into which a Deposited Share has been converted or
exchanged) as reported on the Nasdaq National Market on the date of such
exchange as certified to Escrow Agent by Seller. To effect such exchange, Seller
shall deliver to the Escrow Agent an exchange
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instruction in the form of Exhibit B hereto (the "Exchange Instruction").
(b) The cash amount exchanged pursuant to this Section 4 shall be paid into
the Escrow Account by wire transfer of immediately available funds to the
account specified by the Escrow Agent. The Deposited Shares shall be delivered
pursuant to the delivery instructions in the Exchange Instruction.
5. Investment of Escrowed Assets.
(a) Except as provided in Section 5(d), all investments and reinvestments
of the Escrowed Assets (other than the Deposited Shares and the Letters of
Credit) shall be made exclusively in Permitted Investments that are mutually
selected by Buyer and Seller.
(b) From time to time, Buyer and Seller shall designate an entity with the
appropriate capacity to act as broker ("Broker") with respect to the securities
that constitute the Escrowed Assets (other than the Deposited Shares) and shall
notify Escrow Agent of the identity of such Broker. Broker will perform such
acts as requested by Buyer and Seller which are customarily performed by
securities brokers. The fees and expenses of Broker shall be borne one-half by
Seller and one-half by Buyer. If at any time or from time to time during the
term of this Agreement, Buyer or Seller determines that Broker should terminate
acting in such capacity, Buyer and Seller agree to cooperate with each other to
jointly select and appoint an entity which is capable of conducting the duties
performed by Broker to replace Broker. Upon any such replacement, all references
to Broker in this Agreement shall be deemed references to such entity. Broker
shall not be deemed the beneficial holder of any securities which may be in its
possession as a result of its activities pursuant to this Section 5(b), and
Broker shall hold any such securities as agent and may only act with respect to
such securities pursuant to the joint written instructions of Buyer and Seller.
(c) Promptly after the Escrow Agent receives written notice from the issuer
thereof (or any representative of such issuer) that any security that is a
component of the Escrowed Assets is to be redeemed or otherwise liquidated by
such issuer, the Escrow Agent shall deliver written notice thereof to Buyer and
Seller. Promptly after receipt of such notice, Buyer and Seller shall deliver to
the Escrow Agent joint written instructions as to whether the cash proceeds from
any such redemption, liquidation or maturation are (i) to be delivered to
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Broker for the purpose of promptly reinvesting such proceeds or (ii) to be held
in the Escrow Account in the form of cash (which cash may be invested pursuant
to the provisions of Section 5(d)). In the case of clause (i), the Escrow Agent
shall promptly deliver to Broker such proceeds in accordance with such written
instructions, and promptly upon consummation of such reinvestment, Broker shall
deliver to the Escrow Agent the security or securities that Buyer and Seller
have elected to so purchase. In the event that Buyer and Seller do not provide
the Escrow Agent with written instructions pursuant to the provisions of this
Section 5(c), the proceeds from any such maturation, redemption or liquidation
shall remain in the Escrow Account in the form of cash (which cash may be
invested pursuant to the provisions of Section 5(d)).
At any time that there is cash in the Escrow Account, the Escrow Agent is
hereby directed to invest such cash promptly in the designated money market fund
which is Goldman Sachs Financial Square Treasury Obligations. All references to
the term "cash" in this Agreement shall be deemed to refer to cash as well as
any portion of the Escrowed Assets that are invested in such fund.
(d) At any time and from time to time, Buyer and Seller may jointly
determine that any security that is a component of the Escrowed Assets is to be
liquidated or reinvested in a replacement security, or that any cash (whether
such cash constitutes investment income or otherwise) that is a component of the
Escrowed Assets is to be invested. Buyer and Seller shall provide the Escrow
Agent with joint written notice of such determination, which shall identify such
security or specify the dollar amount of such cash and direct the Escrow Agent
to deliver such security or dollar amount of such cash to Broker for the purpose
of the liquidation or reinvestment of such security or the investment of such
cash. Promptly upon the receipt of such notice, the Escrow Agent shall promptly
deliver such security or such cash to Broker and Broker shall promptly effect
such reinvestment or liquidation of such security or investment of such cash, as
the case may be. Promptly upon consummation of such reinvestment, investment or
liquidation, as the case may be, Broker shall deliver to the Escrow Agent the
security or securities that Buyer and Seller have elected to so purchase or cash
proceeds from such liquidation, as the case may be. Any cash produced by the
operation of this Section 5(e) may be invested pursuant to the provisions
hereof.
(e) In the event that the Escrow Agent receives written notice from the
issuer thereof (or any representative
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of the issuer) that a security that is a component of the Escrowed Assets is to
be exchanged for a new security, the Escrow Agent shall promptly notify Buyer
and Seller thereof in writing. Unless otherwise directed in writing by Buyer and
Seller (pursuant to the provisions of Section 5(d)), such new security shall
become a component of the Escrowed Assets upon consummation of such exchange.
(f) The Escrow Agent shall have no responsibility for any investment losses
resulting from the investment, reinvestment or liquidation of the Escrowed
Assets. Any interest or other income received on such investment and
reinvestment of the Escrowed Assets shall become part of the Escrowed Assets.
(g) During the period of time in which the Deposited Shares are held by the
Escrow Agent pursuant to this Agreement, Seller shall be the record owner of the
Deposited Shares. In the event that any decisions concerning voting, redemption
or other similar matters relating to the securities constituting the Escrowed
Assets are required to be made and notice thereof is given to the Escrow Agent,
the Escrow Agent shall promptly notify Seller thereof in writing. Upon receipt
of such notice, Seller shall instruct the Escrow Agent in writing with respect
to the making of such decision. If the Escrow Agent does not receive instruction
from Seller, the Escrow Agent may take no action or such action as it determines
to be appropriate, and shall in no event be liable therefor.
(h) Any securities that are delivered to any party pursuant to the terms of
this Agreement shall be accompanied by duly executed instruments of transfer or
assignment, or if such securities are held in book-entry form, other appropriate
action shall be taken by the entity delivering such securities to effect the
valid transfer of the title of such securities to the recipient of such
securities; provided that the Escrow Agent shall not be required to take such
action in delivering securities to the Broker.
6. Release of Escrowed Assets. Escrowed Assets shall be released from the
Escrow Account only in accordance with this Section 6.
(a) By Mutual Instruction. The Escrow Agent shall release Escrowed Assets
from the Escrow Account in accordance with any joint written instruction of both
Buyer and Seller.
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(b) Release to Exchange. The Escrow Agent shall release Deposited Shares
pursuant to an Exchange Instruction in exchange for cash in accordance with
Section 4.
(c) To Satisfy Indemnity Claim. In the event that Buyer wishes to have
Escrowed Assets released from the Escrow Account in order to satisfy an
indemnity claim of any Buyer Indemnified Party under Article X of the Purchase
Agreement, Buyer shall give instructions ("Release Instructions") to the Escrow
Agent, Seller and the Members. The Release Instructions shall include the amount
of the claim, the basis therefor and the type(s) of Escrow Assets requested to
be released from the Escrow Account, which shall be in any combination of
Deposited Shares, Letters of Credit and/or other Escrowed Assets as Buyer
elects, except that 14% of the Fair Market Value of the Escrowed Assets
requested to be released shall be in the form of the Conning Letter of Credit.
Unless the Escrow Agent receives contrary instructions from Seller ("Contrary
Instructions") within thirty (30) days of the date of the Release Instructions,
the Escrow Agent shall release to Buyer the Escrowed Assets requested to be
released in the Release Instructions. If Seller objects, in good faith, to the
Release Instructions, it shall deliver Contrary Instructions to the Escrow Agent
and Buyer. The Contrary Instructions shall state that Seller objects to the
Release Instructions, the basis for the objection, and the amount, if any, of
the Escrowed Assets the release of which Seller does not object (the "Undisputed
Portion"). The Escrow Agent shall promptly release to Buyer the Undisputed
Portion, but shall retain in the Escrow Account the rest of the Escrowed Assets
requested to be released until the Escrow Agent receives mutual instructions
pursuant to Section 6(a) or an order of a court of competent jurisdiction. Buyer
and Seller shall negotiate in good faith to promptly resolve their differences.
(d) Release of Deposited Shares. The Escrow Agent shall release all
Deposited Shares remaining in the Escrow Account to Seller on the second
anniversary of the Closing Date; provided that neither Buyer nor Seller has
notified the Escrow Agent in writing prior to such second anniversary of a
dispute under the Purchase Agreement. In the event of such a dispute, an amount
of the Deposited Shares which is reasonably necessary to satisfy such dispute
shall remain in the Escrow Account. Such amount shall be determined by Buyer and
Seller according to the Fair Market Value of the Deposited Shares on the date of
notice to the Escrow Agent. In the event that Buyer and Seller do not agree on
the amount to remain in the Escrow Account, Escrow Agent shall be entitled to
retain the greater amount in
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the Escrow Account. Upon the resolution of such dispute as notified to the
Escrow Agent by Buyer and Seller, the Escrow Agent shall release to Seller the
Deposited Shares then remaining in the Escrow Account (after Deposited Shares
required to be released to Buyer in accordance with Section 6(c), if any, have
been released to Buyer).
(e) Release of Letters of Credit. The Escrow Agent shall release (i) the
Conning Letter of Credit remaining in the Escrow Account to Conning on the
second anniversary of the Closing Date and (ii) the Individual Members' Letter
of Credit remaining in the Escrow Account to Seller on the fifth anniversary of
the Closing Date; provided that neither Buyer nor Seller has notified the Escrow
Agent in writing prior to such second or fifth anniversary, as the case may be,
of a dispute under the Purchase Agreement. In the event of such a dispute prior
to such second anniversary, Conning shall either: (a) cause the Conning Letter
of Credit to be extended in accordance with its terms or (b) cause a replacement
letter of credit, substantially in the form of the Conning Letter of Credit to
be deposited in the Escrow Account in an amount which is reasonably necessary to
satisfy Conning's pro rata portion of such dispute (as determined by Buyer and
Seller) (the "Post Two Year Retained Amount"), and (in the case of clause (b)
above) the Escrow Agent shall release the original Conning Letter of Credit from
the Escrow Account to Conning. In the event of such a dispute prior to such
fifth anniversary, the Members (other than Conning Corporation) shall either:
(a) cause the Individual Members' Letter of Credit to be extended in accordance
with its terms or (b) cause a replacement letter of credit, substantially in the
form of the Individual Members' Letter of Credit, in an amount which is
reasonably necessary to satisfy such dispute (as determined by Buyer and Seller)
(the "Post Five Year Retained Amount," and together with the Post Two Year
Retained Amount, the "Disputed Amounts") to be deposited in the Escrow Account,
and (in the case of clause (b) above) the Escrow Agent shall release the
original Individual Members' Letter of Credit from the Escrow Account to Seller.
The Escrow Agent shall retain in the Escrow Account any substitute (or extended)
letter of credit until the Escrow Agent receives mutual instructions pursuant to
Section 6(a) or an order of a court of competent jurisdiction. Buyer and Seller
shall negotiate in good faith to promptly resolve their differences.
If such replacement or extended letter of credit is not so deposited in the
Escrow Account, for whatever reason, at least 10 days prior to the expiration
date of either the Conning Letter of Credit or the Individual Members' Letter of
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Credit, as applicable, Escrow Agent shall release the Conning Letter of Credit
or the Individual Members' Letter of Credit, as applicable, from the Escrow
Account to Buyer in order to permit Buyer to make a drawdown on such letter of
credit for the applicable Disputed Amount. Immediately after such drawdown,
Buyer shall deposit such Disputed Amount in the Escrow Account, and the Escrow
Agent shall retain in the Escrow Account any such Disputed Amount until the
Escrow Agent receives mutual instructions pursuant to Section 6(a) or an order
of a court of competent jurisdiction.
(f) Partial Release.
(i) In the event that less than all of the Deposited Shares, or less
than all of any other securities constituting Escrowed Assets, is to be
released to Buyer from the Escrow Account in accordance with Sections 6(a),
(b), (c), or (d), Seller and Buyer shall cause to be issued, and deposited
into the Escrow Account, certificate(s) representing the rest of the
Deposited Shares and/or such other securities, and execute applicable stock
powers and/or assignments, in exchange for, and as a concurrent condition
to, the release of the certificate(s) being released to Buyer.
(ii) In the event that less than the full amount of a Letter of Credit
is to be paid to Buyer in accordance with Sections 6(a), (c) or (e), Seller
shall deposit into the Escrow Account the replacement letter of credit
substantially in the form of the Letters of Credit for the remaining amount
of such Letter of Credit issued to it by the issuing bank for the Letter of
Credit, in exchange for, and as a concurrent condition to the release of,
such Letter of Credit. Buyer shall only draw down on a Letter of Credit for
an amount which is determined in accordance with Section 6(a), (c) or (e),
and Buyer shall deliver to Seller a copy of its draw down notice to the
issuing bank as a concurrent condition to the release of such Letter of
Credit.
(g) Payments. All payments shall be made by wire transfer of immediately
available funds to the account specified by such payee; provided that the payee
receiving such immediately available funds may opt in writing to receive
securities from the Escrow Account rather than immediately available funds. If
securities are to be delivered to any payee, then appropriate delivery
instructions shall be delivered to the Escrow Agent by such payee not less than
three business days be-
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fore such payment is made. In the event that it is necessary for the Escrow
Agent to liquidate securities other than the Deposited Shares in the Escrow
Account in order to make a payment pursuant to this Section 6, the Escrow Agent
shall notify Buyer and Seller thereof in writing. Promptly upon receipt of such
written notice, Buyer and Seller shall mutually select the requisite amount of
securities to be liquidated and notify the Escrow Agent of the identity of such
securities in writing. Upon receipt of such notice, the Escrow Agent shall
deliver such security or securities to Broker, and Broker shall liquidate such
security or securities and promptly deliver the cash proceeds therefrom to the
Escrow Agent. Any cash resulting from such liquidation which exceeds the amount
of the payment to be made pursuant to this Section 6(g) may be invested pursuant
to the provisions of Section 5(d). All wire transfers of immediately available
funds shall be made to the accounts specified by Buyer and Seller in writing as
soon as practicable after Closing or to such other accounts specified by Buyer
or Seller, as the case may be, in accordance with Section 10. For the avoidance
of doubt, unless otherwise indicated in writing, all releases of Escrowed Assets
will be made in accordance with the wire instructions specified by Buyer and
Seller.
(h) In the event that any interest, dividend or other distribution in
respect of any Escrowed Assets is paid in cash or other property (but not in
additional securities of the same kind) (a "Taxable Distribution"), Seller shall
be entitled to receive such portion of such Taxable Distribution as is not
greater than the amount actually required by Seller for it or the Members to pay
income taxes in respect of such Taxable Distribution. In such case, Seller shall
give notice to the Escrow Agent of the amount so required and the Escrow Agent
shall release from the Escrow Account such amount (which shall in no event
exceed the amount of such Taxable Distribution).
(i) Neither Buyer nor Seller shall direct a release of the Escrowed Assets
in a manner inconsistent with the terms of this Agreement or the Purchase
Agreement.
(j) Any release of Deposited Shares shall be accompanied by a release of
the relevant stock power.
7. Responsibility of Escrow Agent.
(a) The duties and obligations of the Escrow Agent hereunder shall be
governed solely by the provisions of this Agreement, and the Escrow Agent shall
have no duties other than the duties expressly imposed herein and shall not be
required
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to take any action other than in accordance with the terms hereof. The Escrow
Agent shall not be required to expend or risk any of its own funds or otherwise
incur any financial or other liability in the performance of any of its duties
hereunder. The Escrow Agent shall not be charged with the knowledge of any
agreement, including the Purchase Agreement, other than this Escrow Agreement.
(b) The Escrow Agent shall not be liable for any action taken or omitted or
for any loss or injury resulting from its actions or its performance or lack of
performance of its duties hereunder in the absence of gross negligence or
willful misconduct on its part.
(c) The Escrow Agent does not have any interest in the Escrowed Assets
deposited hereunder but is serving as escrow holder only and having only
possession thereof. Buyer and Seller shall pay or reimburse the Escrow Agent
upon request for any transfer taxes. Seller shall pay all income taxes relating
to the Escrowed Assets incurred in connection herewith and shall indemnify and
hold harmless the Escrow Agent from any amounts that it is obligated to pay in
the way of such taxes. Any payments of taxable income from this Escrow Account
shall be subject to withholding regulations then in force with respect to United
States taxes. Seller will provide within ten (10) days of the date hereof the
Escrow Agent with appropriate W-9 forms for tax I.D. number certifications, or
W-8 forms for non-resident alien certifications. This paragraph shall survive
notwithstanding any termination of this Agreement or the resignation or removal
of the Escrow Agent.
(d) If any fees under Section 9 hereof or obligations under Section 8
hereof (which indemnification obligations are (i) determined by a final order,
judgment or decree of a court of competent jurisdiction, which order, judgment
or decree is not subject to appeal or (ii) settled by written agreement among
the parties) owed to Escrow Agent or its counsel hereunder are not promptly paid
when due, Escrow Agent may, upon 10 business days' written notice to both Buyer
and Seller, reimburse itself therefor from the Escrowed Assets and may sell,
convey or otherwise dispose of any Escrowed Assets for such purpose. The Escrow
Agent may in its sole discretion withhold from any distribution of Escrowed
Assets an amount of Escrowed Assets it believes would, upon sale or liquidation,
produce proceeds equal to any unpaid amounts to which Escrow Agent is entitled
hereunder.
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(e) The Escrow Agent may consult with legal counsel chosen by it with
reasonable care in performing its duties hereunder and shall be fully protected
in any action taken in accordance with the advice of such counsel.
(f) In no event shall the Escrow Agent be liable for consequential,
incidental or punitive damages.
8. Indemnification of Escrow Agent. Buyer, Seller and the Members shall be
liable for and shall reimburse and indemnify Escrow Agent (and any predecessor
Escrow Agent) and hold Escrow Agent harmless from and against any and all
claims, losses, actions, liabilities, costs, damages or expenses (including
reasonable attorneys' fees and expenses) (collectively "Losses") arising from or
in connection with its administration of this Agreement; provided, however, that
nothing contained herein shall require Escrow Agent to be indemnified for Losses
caused by its gross negligence or willful misconduct. This paragraph shall
survive the resignation or termination of this Escrow Agreement or the removal
of the Escrow Agent.
9. Fees of Escrow Agent. The Escrow Agent shall be paid a fee as shown on
Schedule I, payable upon execution of this Agreement and thereafter on each
anniversary date of this Agreement, and shall be reimbursed for all reasonable
expenses, disbursements and advances incurred or made by the Escrow Agent in
performance of its duties hereunder (including reasonable attorneys' fees and
expenses). The fees and expenses of the Escrow Agent and any indemnification
obligations under Section 8 (but excluding the cost of any taxes referred to in
Section 7(c)) shall be paid one-half by Buyer and one-half by Seller and the
Members (the liability of Seller and the Members for their one-half being joint
and several), such one-half to be billed to Seller.
10. Notices and Communications. All notices, demands and other
communications hereunder shall be in writing, and shall be deemed to have been
duly given (1) if delivered by hand to a party at the address specified below,
upon delivery to a person authorized to receive mail for such party at such
address, (2) if sent by overnight courier to the address specified below, on the
next business day, (3) if mailed to the address specified below by certified
mail, return receipt requested, postage prepaid, on the fifth business day
following deposit in the mails, or (4) if sent by facsimile, upon receipt of
telephonic confirmation of receipt of the facsimile:
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If to Seller or any of the Members, to:
Hales Capital Advisors, L.L.C.
1011 Lake Street
Suite 425
Oak Park, IL 60301
Telephone No: (708) 358-1100
Facsimile No.: (708) 358-1145
Attention: Jeffery B. Cappel
with a copy to:
Orrick Herrington & Sutcliffe, LLP
400 Sansome Street
San Francisco, CA 94111-3143
Telephone No.: (415) 392-1123
Facsimile No: (415) 773-4283
Attention: Steven C. Malvey, Esq.
If to Buyer, to:
Hales & Company Inc.
c/o Arch Capital Group Ltd.
20 Horseneck Lane
Greenwich, Connecticut 06830
Telephone No.: (203) 862-4300
Facsimile No.: (203) 861-7240
Attention: Peter A. Appel
with a copy sent contemporaneously to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Telephone No.: (212) 701-3000
Facsimile No.: (212) 269-5420
Attention: Immanuel Kohn
If to the Escrow Agent, to:
State Street Bank and Trust Company
225 Asylum Street
Hartford, CT 06103
Telephone No.: (860) 244-1827
Facsimile No.: 860-244-1881
Attention: D. Johnson/Corporate Trust/Arch-Hales
Escrow
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or to such other address as such party shall designate by written notice to the
other parties hereto.
11. Term; Amendment; Assignment. This Agreement shall continue in full
force and effect until all of the Escrowed Assets have been released from the
Escrow Account in accordance with Section 6. This Agreement may be amended only
by a written instrument signed by all of the parties hereto and shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Notwithstanding anything to the contrary in
the foregoing, Seller and the Members shall be permitted to assign its right to
receive any Escrowed Assets released in accordance with Section 6.
12. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same instrument.
13. Successor Escrow Agent.
(a) Buyer and Seller may remove Escrow Agent at any time by giving to
Escrow Agent thirty (30) calendar days' prior notice in writing signed by both
Buyer and Seller. Escrow Agent may resign at any time by giving Buyer and Seller
thirty (30) calendar days' prior written notice thereof. Such resignation shall
be effective upon appointment of a successor escrow agent pursuant to this
Section 13.
(b) Within thirty (30) calendar days after giving the foregoing notice of
removal to Escrow Agent or receiving the foregoing notice of resignation from
Escrow Agent, Buyer and Seller shall jointly agree on and appoint a successor
Escrow Agent, and provide written notice of such to the resigning Escrow Agent.
If a successor Escrow Agent has not accepted such appointment by the end of such
30-day period, Escrow Agent may apply to a court of competent jurisdiction for
the appointment of a successor Escrow Agent or for other appropriate relief. The
costs and expenses (including reasonable attorneys' fees and expenses) incurred
by Escrow Agent in connection with such proceeding shall be paid by, and be
deemed a joint and several obligation of, Buyer and Seller. In the event of any
such resignation or removal, the Escrow Agent shall have no further obligation
with respect to the Escrowed Assets.
14. Entire Agreement. This Agreement and, in the case of Buyer and Seller
but not the Escrow Agent, together
<PAGE>
-15-
with the Asset Purchase Agreement (including the attachments thereto), contains
the entire agreement and understanding of the parties with respect to the
transactions contemplated hereby. No prior agreement, either written or oral,
shall be construed to change, amend, alter, repeal or invalidate this Agreement.
15. Representations of Buyer and Seller. Each of Buyer and Seller hereby
represents and warrants (a) that this Agreement has been duly authorized,
executed and delivered on its behalf and constitutes its legal, valid and
binding obligation and (b) that the execution, delivery and performance of this
Agreement by it does not and will not violate any applicable law or regulation.
16.Governing Law. This Agreement shall be interpreted, construed, enforced
and administered in accordance with the internal substantive laws (and not the
choice of law rules of the State of New York).
<PAGE>
-16-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
BUYER:
HALES & COMPANY INC.
By:
------------------------------------------
Name:
Title:
SELLER:
HALES CAPITAL ADVISORS, L.L.C.
By:
------------------------------------------
Name:
Title:
ESCROW AGENT:
STATE STREET BANK AND TRUST
COMPANY
By:
------------------------------------------
Name:
Title:
MEMBERS:
---------------------------------
William Weiland, Individually and as Trustee of
the William S. Weiland Revocable Trust dated
November 4, 1996
---------------------------------
Jeffery B. Cappel
<PAGE>
-17-
---------------------------------
Vincent H. Trapani, Individually and as Trustee
of the Vincent H. Trapani Living
Revocable Trust dated January 7, 1998
---------------------------------
Gordon G. Pratt
CONNING CORPORATION
By: _________________________
Name:
Title:
<PAGE>
Exhibit A
REQUIREMENTS FOR LETTERS OF CREDIT
All Letters of Credit shall satisfy the following requirements:
o The Letters of Credit shall be clean, irrevocable and unconditional
standby letters of credit issued for the sole benefit of Buyer.
o The Letters of Credit shall continue to be in full force and effect
through the fifth anniversary of the Closing Date, in the case of the
Individual Members' Letter of Credit, and the second anniversary of
the Closing Date, in the case of the Conning Letter of Credit, in
either case, unless the full amounts thereof have been paid to Buyer
or the Letters of Credit are extended in accordance with their terms.
o The Members (other than Conning Corporation) agree to pay all fees and
expenses in connection with the Individual Members' Letter of Credit,
and to cause the Individual Members' Letter of Credit to comply with
the second paragraph of this exhibit.
o Conning Corporation agrees to pay all fees and expenses in connection
with the Conning Letter of Credit, and to cause the Conning Letter of
Credit to comply with the second paragraph of this exhibit.
<PAGE>
Exhibit B
FORM OF EXCHANGE INSTRUCTION
Hales Capital Advisors, L.L.C.
1011 Lake Street
Suite 425
Oak Park, IL 60301
Telephone No: (708) 358-1100
Facsimile No.: (708) 358-1145
[Date]
State Street Bank and Trust Company
225 Asylum Street
Hartford, CT 06103
Telephone No.: (860) 244-1827
Facsimile No.: 860-244-1881
Attention: D. Johnson/Corporate Trust/Arch-Hales Escrow
Hales & Company Inc.
c/o Arch Capital Group Ltd.
20 Horseneck Lane
Greenwich, Connecticut 06830
Telephone No.: (203) 862-4300
Facsimile No.: (203) 861-7240
Attention: Peter A. Appel
Re: Exchange Instruction Pursuant to Section 4
of the Arch/Hales Escrow Agreement dated as
of November ,2000 (the "Escrow Agreement")
Reference is hereby made to the Escrow Agreement and all capitalized terms
used herein but not defined shall have the meanings ascribed to such terms in
the Escrow Agreement.
Pursuant to the Change of Control which occurred on [date of Change of
Control], we hereby request that [number of exchanged shares] Deposited Shares
be exchanged for cash in accordance with the provisions of Section 4 of the
Escrow Agreement.
The effective date of this exchange shall be the date hereof. Each of the
above-specified number of Deposited Shares will be exchanged for $[ ] per share,
which we hereby certify to you as the average of the high and low sales prices
of the Common Stock as reported on the Nasdaq National Market on the effective
date of the exchange. The cash amount exchanged pursuant to this Exchange
Instruction and Section 4 of the Escrow Agreement will be paid into the Escrow
Account by
<PAGE>
-2-
wire transfer of immediately available funds to the account specified
by you in the attached acknowledgment of this Exchange Instruction on [ ].
Please deliver the certificate representing the above-specified number of
Deposited Shares along with the stock power for such certificate to us upon
receipt of such cash amount.
Sincerely,
Hales Capital Advisors, L.L.C.
By:
-------------------------------------
Name:
Title:
<PAGE>
-3-
Please acknowledge receipt hereof and indicate
the account to which the cash amount described
above should be delivered by signing below:
Specified Account Information:
Name on Account:
-----------------------------------
Account Number:
-----------------------------------
Acknowledge and Accepted by:
State Street Bank and Trust Company
By:
-------------------------------------
Name:
Title:
<PAGE>
Exhibit B
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (the "Agreement") is made and
entered into as of the 1st day of November, 2000 (the "Closing Date"), by and
among Arch Capital Group Ltd., a Delaware corporation ("Buyer"), and Hales
Capital Advisors, LLC, an Illinois limited liability company ("Seller").
W I T N E S S E T H :
WHEREAS, Seller owns a limited liability company interest (the "Interest")
in Distribution Investors, LLC, a Delaware limited liability company (the
"General Partner");
WHEREAS, Seller and Buyer are parties to an Asset Purchase Agreement, dated
as of the Closing Date (the "Asset Purchase Agreement"), pursuant to which,
among other things, Seller shall sell to Buyer, and Buyer shall purchase from
Seller, the Interest pursuant to the terms of this Agreement; and
WHEREAS, Seller desires to sell the Interest to Buyer and Buyer desires to
purchase the Interest on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein, the parties hereto agree as follows:
Section 1. Assignment. In consideration of the delivery by Buyer of the
Purchase Price (as defined in the Asset Purchase Agreement), the assumption by
Buyer of the obligations described in Section 2 hereof and certain other
consideration set forth in the Asset Purchase Agreement, Seller hereby assigns,
transfers, sells and conveys to Buyer all of Seller's rights, title and interest
in, to and under the Interest.
Section 2. Assumption. Buyer hereby assumes the performance of all of the
covenants and obligations of Seller in connection with the Interest under the
Limited Liability Company Agreement of the General Partner, dated as of May 8,
2000 (the "LLC Agreement"), and under the Subscription Agreement dated November
1, 2000 between Buyer and the General Partner (the "Subscription Agreement"),
including without limitation the obligation to make capital contributions
pursuant to the terms of such LLC Agreement, all with the same force and effect
as if the Buyer had signed such LLC Agreement and such
<PAGE>
-2-
Subscription Agreement originally instead of Seller with respect to the Interest
being acquired by Buyer hereby. Buyer hereby agrees that the covenants and
obligations herein assumed by Buyer shall inure jointly and severally to the
benefit of Seller and the General Partner.
Section 3. Representations and Warranties of Seller. Seller hereby
represents and warrants to Buyer as follows:
(a) Organization and Authorization; Binding Obligations. Seller is a
limited liability company duly and validly organized and existing in good
standing under the laws of the State of Illinois. Seller has all requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. This Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Seller, and this Agreement
constitutes the legal, valid and binding obligation of Seller enforceable
against Seller in accordance with its terms except to the extent that such
enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws of general application pertaining to
or affecting the rights and remedies of creditors, and (ii) general principles
of equity.
(b) Absence of Liens. Seller owns the Interest free and clear of all liens,
charges, restrictions, claims, or other encumbrances of any nature whatsoever
(except for restrictions imposed pursuant to the LLC Agreement), and the
execution, delivery and performance by Seller of this Agreement and the
consummation of the transactions contemplated hereby will not result in the
creation of any such lien, charge, restriction, claim, or other encumbrance upon
the Interest.
(c) No Violation of Law, etc. The execution, delivery and performance by
Seller of this Agreement and the consummation of the transactions contemplated
hereby (i) does not require any authorization or approval by, or filing with,
any governmental authority or regulatory body, (ii) does not violate any
existing provision of any law or any order, writ, injunction, decree, rule or
regulation of any court, administrative agency or other governmental authority
applicable to Seller, (iii) does not violate, conflict with or constitute a
default under any provision of Seller's Certificate of Formation or the LLC
Agreement and (iv) does not conflict with, will not result in a breach of or
constitute a default or require any approval, filing, authorization or consent
under the terms of any agreement, indenture, mortgage, deed of trust, lease,
<PAGE>
-3-
guaranty or any other instrument or agreement to which Seller is a party or by
which Seller or its assets may be bound or to which Seller or its assets may be
subject.
(d) Investment Intent. Seller is purchasing the Shares for its own account
for investment only and not with a view to resell or otherwise distribute such
Shares in contravention of the provisions of state or federal securities laws.
(e) Restricted Securities. Seller understands that the Shares, or any part
thereof, may not be sold, transferred or otherwise disposed of without
registration under the Securities Act of 1933, as amended (the "1933 Act"), or
an exemption therefrom, and that in the absence of an effective registration
statement covering such Shares or an available exemption from registration under
the 1933 Act, such Shares must be held indefinitely. Seller will not offer,
sell, transfer or otherwise dispose of any of the Shares except pursuant to an
available exemption from registration under the 1933 Act, the rules and
regulations of the Securities and Exchange Commission, and applicable state law.
(f) Experience. Seller has such knowledge and experience in financial, tax
and business matters and in making investments of this type that it is capable
of evaluating the merits and risks of purchasing the Shares. Seller is an
"accredited investor" as that term is defined in Rule 501(a) of Regulation D
promulgated under the 1933 Act. Seller is able to bear the economic risk of an
investment in the Shares and can afford complete loss of such investment.
(g) Exchanges. The transfer of the Interest will not be effected on or
through (A) a U.S. national, regional or local securities exchange, (B) a
foreign securities exchange or (C) an interdealer quotation system that
regularly disseminates firm buy or sell quotations by identified brokers or
dealers (including, without limitation, Nasdaq).
(h) Brokers. Seller is not, and the transfer of the Interest will not be
made by, through or on behalf of (A) any person, such as a broker or a dealer,
making a market in interests in the General Partner, or (B) any person who makes
available to the public bid or offer quotes with respect to interests in the
General Partner.
(i) No Distributions. Seller has not received any distributions of any kind
from the General Partner with respect to the Interest.
<PAGE>
-4-
Section 4. Covenants of Seller.
(a) Future Receipts. In the event that any amounts, whether in cash or in
kind, which relate to the Interest are received on or after the Closing Date by
Seller or on its behalf, Seller shall promptly transfer or cause such amounts to
be immediately transferred to Buyer.
(b) Taxes. Seller shall file all tax returns as it may be required to file
under applicable law, including any amended returns, consistent with there being
a transfer of the Interest to Buyer, in accordance with Section 1 hereof, on the
Closing Date.
(c) Delivery of Related Documents. After the Closing Date, Seller shall
promptly deliver to Buyer copies of all material documents relating to Seller's
ownership of the Interest to the extent Buyer reasonably so requests.
(d) Correspondence. After the Closing Date, Seller shall promptly forward
to Buyer any correspondence or notices received by Seller with respect to the
Interest.
(e) Further Assurances. Seller shall promptly execute and deliver all
documents, including partnership certificates, if any, and related transfer
documents, and take all actions reasonably requested by Buyer in order to effect
or evidence the assignment and assumption described in this Agreement, to
satisfy all of Seller's obligations under the LLC Agreement with respect to the
transfer of the Interest to Buyer, and to cause Buyer to be admitted as a
substituted member in the General Partner, pursuant to the LLC Agreement.
Section 5. Representations and Warranties of Buyer. Buyer hereby represents
and warrants to Seller as follows:
(a) Organization and Authorization; Binding Obligations. Buyer is a
corporation duly and validly organized and existing in good standing under the
laws of the State of Delaware and has all requisite power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. This Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary action on the
part of Buyer, and this Agreement constitutes the legal, valid and binding
obligation of Buyer enforceable against Buyer in accordance with its terms
except to the extent that such enforceability may be limited by
<PAGE>
-5-
(i) applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws of general application pertaining to or affecting the rights and remedies
of creditors, and (ii) general principles of equity.
(b) No Violation of Law, etc. The execution, delivery and performance by
Buyer of this Agreement and the consummation of the transactions contemplated
hereby, including, without limitation, the sale, issuance and delivery of the
Shares (i) does not require any authorization or approval by, or filing with,
any governmental authority or regulatory body, (ii) does not violate any
existing provision of any law or any order, writ, injunction, decree, rule or
regulation of any court, administrative agency or other governmental authority
applicable to Buyer, (iii) does not violate, conflict with or constitute a
default under any provision of Buyer's Certificate of Incorporation or By-laws
and (iv) does not conflict with, will not result in a breach of or constitute a
default or require any approval, filing, authorization or consent under the
terms of any agreement, indenture, mortgage, deed of trust, lease, guaranty or
any other instrument or agreement to which Seller is a party or by which Buyer
or its assets may be bound or to which Buyer or its assets may be subject.
(c) Investment Intent. Buyer is purchasing the Interest for its own account
for investment only and not with a view to resell or otherwise distribute such
Interest in contravention of the provisions of state or federal securities laws.
(d) Restricted Securities. Buyer understands that the Interest, or any part
thereof, may not be sold, transferred or otherwise disposed of without
registration under the 1933 Act or an exemption therefrom, and that in the
absence of an effective registration statement covering such Interest or an
available exemption from registration under the 1933 Act, such Interest must be
held indefinitely. Buyer will not offer, sell, transfer or otherwise dispose of
any part of the Interest except pursuant to an available exemption from
registration under the 1933 Act, the rules and regulations of the Securities and
Exchange Commission, and applicable state law.
(e) Experience. Buyer has such knowledge and experience in financial, tax
and business matters and in making investments of this type that it is capable
of evaluating the merits and risks of purchasing the Interest. Buyer is an
"accredited investor" as that term is defined in Rule 501(a) of Regulation D
promulgated under the 1933 Act. Buyer is able to bear the economic risk of an
investment in the Interest and can afford complete loss of such investment.
<PAGE>
-6-
(f) Exchanges. The transfer of the Interest will not be effected on or
through (A) a U.S. national, regional or local securities exchange, (B) a
foreign securities exchange or (C) an interdealer quotation system that
regularly disseminates firm buy or sell quotations by identified brokers or
dealers (including, without limitation, Nasdaq).
(g) Brokers. Buyer is not, and the transfer of the Interest will not be
made by, through or on behalf of (A) any person, such as a broker or a dealer,
making a market in interests in the General Partner, or (B) any person who makes
available to the public bid or offer quotes with respect to interests in the
General Partner.
Section 6. Covenants of Buyer.
(a) Subscription. Effective as of the Closing Date and as a condition to
the closing of this Agreement, Buyer shall execute and deliver to the Managing
Member of the General Partner a Subscription Agreement in form acceptable to the
Managing Member.
(b) Taxes. Buyer shall file all tax returns, including amended returns,
consistent with there being a transfer of the Interest to Buyer on the Closing
Date.
(c) Further Assurances. Buyer shall promptly execute and deliver all
documents and take all actions reasonably requested by Seller in order to effect
or evidence the assignment and assumption described in this Agreement.
Section 7. General Provisions.
(a) Acknowledgment, Undertakings and Waiver. Each of the parties hereto,
recognizing the intent of the parties to effect a transfer of the Interest, in
its entirety, from Seller to Buyer on the Closing Date, hereby agrees, after the
Closing Date, (i) to treat the Interests, and all underlying assets and
interests, as owned by Buyer, (ii) to take reasonable steps to cause the
transfer of the underlying assets and interests from Seller to Buyer and to
cause Buyer's assumption of the obligations relating thereto, (iii) to report,
for tax purposes and otherwise, all distributions and transfers of the Interests
and the underlying Interests and all dividends and similar payments with respect
thereto as belonging to Seller prior to the Closing Date and to Buyer
thereafter, and (iv) to make and/or
<PAGE>
-7-
transfer or deliver all payments received by it in accordance with the
foregoing.
(b) Amendment. This Agreement may be amended, modified or supplemented only
by an instrument in writing signed by the parties hereto.
(c) Waiver. Any term or provision of this Agreement may be waived in
writing at any time by the party entitled to the benefits thereof. No failure on
the part of any party hereto to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof, nor shall any singular or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right.
(d) Entire Agreement. This Agreement, together with any consent, transfer
agreement, assignment, assumption or similar document required by the General
Partner (collectively, the "Consents"), represents the entire understanding of
the parties with reference to the transactions set forth herein and supersedes
all prior negotiations, discussions, correspondence and communications between
the parties relating to the subject matter hereof. In the event of any conflict
between the terms of this Agreement and the terms of any Consent, the former
shall govern the rights and obligations of Buyer and Seller.
(e) Severability. If any provision of this Agreement is held to be
unenforceable for any reason, it shall be modified rather than voided in order
to achieve the intent of the parties to the fullest extent possible. In any
event, all other provisions of this Agreement shall be deemed valid and
enforceable to the fullest extent possible.
(f) Expenses. All costs and expenses incurred in connection with the
preparation, execution and delivery of this Agreement and the transactions
contemplated hereby shall be paid by the parties incurring such costs and
expenses.
(g) Governing Law. This Agreement shall be governed by and construed in
accordance with the law of the State of Delaware without regard to its conflicts
of law principles.
(h) Execution in Counterparts; Effectiveness of Agreement. This Agreement
may be executed in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
<PAGE>
-8-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized representatives as of the date
first written above.
ARCH CAPITAL GROUP LTD.:
By:
-------------------------------------
Name:
Title:
HALES CAPITAL ADVISORS, LLC:
By:
-------------------------------------
Name:
Title:
<PAGE>
-9-
CONSENT AND WAIVER OF GENERAL PARTNER:
The General Partner hereby consents to the transfer of the Interest by
Seller to Buyer as set forth in this Agreement and to the admission of Buyer as
a Substituted Member of the General Partner, succeeding to all of the rights and
liabilities of the Seller in respect of the Interest, effective as of the
Closing Date. The General Partner hereby waives any requirement for delivery of
a written opinion of legal counsel regarding such transfer.
The General Partner further hereby agrees to consent to the transfer of the
interest by Buyer to Arch Capital Group Ltd., a Bermuda company ("Arch
Bermuda"), or any of Arch Bermuda's subsidiaries, provided that such transfer
would not violate Section 11.2.3 or 11.2.4 of the LLC Agreement.
DISTRIBUTION INVESTORS, LLC:
By:
------------------------------------
Name:
Title:
<PAGE>
-10-
CONSENT OF MEMBERS OF GENERAL PARTNER:
Pursuant to Section 11.2.7.1 of the LLC Agreement, each of the undersigned,
as a member of the General Partner, hereby consent to the transfer of the
Interest by Seller to Buyer as set forth in this Agreement.
------------------------------------------------
Gordon G. Pratt
------------------------------------------------
Jeffrey B. Cappel
------------------------------------------------
Vincent H. Trapani
------------------------------------------------
William S. Weiland
Hales Capital Advisors, LLC
By:
-------------------------------------
Name:
Title:
Conning & Company
By:
-------------------------------------
Name:
Title:
DCHC, LLC
By:
-------------------------------------
Name:
Title:
<PAGE>
Exhibit F
Distribution Investors, LLC
Subscription Agreement
To: Distribution Investors, LLC (the "General Partner")
6 Crosswood Road
Farmington, CT 06032
Dear Sir or Madam:
Reference is made to the Confidential Offering Memorandum issued May 1999
regarding Distribution Partners Investment Capital, L.P. (the "Partnership")
(together with any supplements called the "Offer Memorandum"), the Limited
Partnership Agreement of the Partnership (the "Partnership Agreement") and the
Limited Liability Company Agreement of the General Partner (the "GPLLC
Agreement") heretofore furnished to the undersigned with respect to the offering
of Member Interests in the General Partner. Capitalized terms used but not
specifically defined herein shall have the respective meanings given them in the
Partnership Agreement.
The undersigned subscribing investor (the "Investor") hereby agrees as
follows:
14. Subscription for a Limited Partnership Interest.
(a) Purchase of Interests. Subject to the terms and conditions set forth in
this Subscription Agreement and in the GPLLC Agreement, the Investor agrees to:
(i) purchase from the General Partner the Member Interest (the "Interest") in
the General Partner set forth on the signature page below at a purchase price
equal to 100% of such amount, payable in the manner and at the times provided in
the GPLLC Agreement; (ii) to become a party to the GPLLC Agreement; and (iii) to
become a Member of the General Partner.
(b) Access to Information. It is understood that all materials pertaining
to this investment have been made available for inspection by the Investor and
representatives of the Investor and that the books and records of the
Partnership will be available, upon reasonable notice, for inspection by the
Investor during normal business hours at its principal office in accordance with
the Partnership Agreement.
(c) Acceptance or Rejection. This subscription for the Interest by the
Investor is and shall be irrevocable but is
<PAGE>
-2-
not binding upon the General Partner unless and until accepted in writing by the
General Partner in accordance with the terms set forth herein. The General
Partner in its sole discretion may accept or reject in its sole discretion all
or any portion of the Investor's Interest amount set forth on the signature page
hereto.
NOTE: Each Investor must provide complete information and sign each of Exhibit A
(Accredited Investor Status), Exhibit B (Qualified Purchaser Status) and
Exhibit C (NASD Status Matters).
15. Representations of the Investor. Each of the Subscription Agreement and
the GPLLC Agreement is valid, binding and enforceable against the undersigned in
accordance with its terms. If a natural person, the undersigned is 21 years of
age or over. If a corporation, limited liability company, partnership, trust or
other entity, the undersigned is authorized, empowered and qualified to execute
this Subscription Agreement and to make an investment in the General Partner as
herein qualified. The Investor learned of the opportunity to invest in the
General Partner through communications made by or on behalf of the General
Partner (or its authorized representative) and/or through the Investor's
existing relationship with the General Partner and its affiliates apart from the
Partnership. The Investor is making its investment decision with respect to the
General Partner based exclusively upon the Offer Memorandum, this Subscription
Agreement, the Limited Partnership Agreement and the GPLLC Agreement
(collectively, the "Offering Materials") and that the Investor is not relying or
making any investment decision based upon information from any other source
except from those persons authorized on behalf of the General Partner to give
information and make representations in respect of the Partnership, the General
Partner and the offering of the Interest.
The Investor hereby further represents and warrants to the Partnership and to
the General Partner as follows:
(a) Offer Materials; Suitability. THE INVESTOR HAS READ CAREFULLY AND
UNDERSTANDS THE OFFERING MATERIALS AND HAS CONSULTED ITS OWN ATTORNEY,
ACCOUNTANT OR INVESTMENT ADVISER WITH RESPECT TO THE INVESTMENT CONTEMPLATED
HEREBY AND ITS SUITABILITY FOR THE INVESTOR. THE INVESTOR FIRST LEARNED OF THE
OFFER OF THE INTEREST BY MEANS OF THE OFFER MATERIALS, AND IS NOT BASING ITS
DECISION OR RELYING UPON ANY OTHER INFORMATION IN ANY ARTICLE OR COMMUNICATION
IN ANY OTHER
<PAGE>
-3-
PUBLISHED OR BROADCAST FORM, EXCEPT FOR THE OFFERING MATERIALS. ANY SPECIFIC
ACKNOWLEDGMENT SET FORTH BELOW WITH RESPECT TO ANY STATEMENT CONTAINED IN THE
OFFERING MATERIALS SHALL NOT BE DEEMED TO LIMIT THE GENERALITY OF THIS
REPRESENTATION AND WARRANTY.
(b) Opportunity to Verify Information. The Investor acknowledges that
representatives of the General Partner have made available to the Investor,
during the course of this transaction and prior to the purchase of any
Interests, the opportunity to ask questions of and receive answers from them
concerning the terms and conditions of the offering described in the Offering
Materials, and to obtain any additional information necessary to verify the
information contained in the Offering Materials or otherwise relative to the
proposed activities of the Partnership and the General Partner.
(c) Purchase for Investment. The Investor agrees and acknowledges that: (i)
the Investor must bear the economic risk of its investment until the termination
of the General Partner; that the Interest has not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and, therefore,
cannot be resold or otherwise disposed of unless it is subsequently registered
under the Securities Act or unless an exemption from such registration is
available; (ii) the General Partner is not being registered as an "investment
company" as the term "investment company" is defined in Section 3(a) of the
United States Investment Company Act of 1940, as amended (the "Investment
Company Act"); (iii) the Investor is purchasing the Interest for its own account
and without a view towards distribution thereof; (iv) the Investor agrees not to
resell or otherwise dispose of all or any part of the Interest purchased by the
Investor, except as permitted by law, including, without limitation, any and all
applicable provisions of the GPLLC Agreement and any regulations under the
Securities Act; (v) the transfer of the Interest and the substitution of another
Member for the Investor are restricted by the terms of the GPLLC Agreement; (vi)
the Member does not have any intention of registering the General Partner as an
"investment company" under the Investment Company Act or of registering the
Interest under the Securities Act or of supplying the information which may be
necessary to enable the Investor to sell the Interest, except upon a request in
compliance with Rule 144A(d)(4)(i); and (vii) Rule 144 under the Securities Act
may not be available as a basis for exemption from registration of any Interest.
There is no public or other market for the Interest, and it is not anticipated
that such a market will ever develop. For the foregoing reasons, an Investor
will be required to retain ownership
<PAGE>
-4-
of the Interest and bear the economic risk of this investment for an indefinite
period.
(d) Full Contribution. The Investor understands that, except as otherwise
provided in the GPLLC Agreement, the Investor may not make less than the full
amount of any required capital contribution, and that default provisions with
respect thereto pursuant to which the Investor may lose a material portion of
its investment in the General Partner are contained in the GPLLC Agreement.
(e) Investment Objectives; No Liquidity. The purchase of the Interest by
the Investor is consistent with the general investment objectives of the
Investor. The Investor has no need for liquidity in connection with its purchase
of the Interest.
(f) Applicable Securities Laws. The Investor received the Offering
Materials and first learned of the Partnership and the General Partner in the
state listed as the address of the Investor set forth on the Investor's
signature page hereto, and intends that the state securities laws of that state
alone shall govern this transaction.
(g) Investment Purpose. If the Investor is a corporation, trust,
partnership or other organization, it was not organized for the specific purpose
of acquiring the Interest and has the requisite power and authority to execute
and deliver this Subscription Agreement and the GPLLC Agreement and such
execution and delivery does not violate, or conflict with, the terms of any
agreement or instrument to which the Investor is a party or by which it is
bound.
(h) Knowledge and Experience. The Investor and its purchaser representative
(if any) currently have, and (unless the Investor has a purchaser
representative) the Investor had immediately prior to receipt of any offer
regarding the General Partner, such knowledge and experience in financial and
business matters as to be able to evaluate the merits and risks of an investment
in the General Partner.
(i) Purchaser Representative. If the Investor has utilized a purchaser
representative, the Investor has previously given the General Partner notice in
writing of such fact, specifying that such representative would be acting as the
Investor's "purchaser representative" as defined in Rule 501(h) of Regulation D
under the Securities Act.
<PAGE>
-5-
(j) No View to Tax Benefits. The Investor is not acquiring the Interest
with a view to realizing any benefits under United States federal income tax
laws, and no representations have been made to the Investor that any such
benefits will be available as a result of the Investor's acquisition, ownership
or disposition of the Interest.
(k) No Borrowings. The Investor has not borrowed any portion of its
contribution to the General Partner, either directly or indirectly, from the
Partnership, the General Partner, or any affiliate of the foregoing.
(l) No Investment Company; No RIA. The undersigned Investor understands
that the General Partner will not be registered as an investment company under
the Investment Company Act and that neither the General Partner nor its managers
or members nor any other person or entity selected by the General Partner to act
as agent of the General Partner with respect to managing the affairs of the
General Partner will be registered as an investment adviser under the Investment
Advisers Act; and accordingly, the provisions of such regulations will not be
available to the Investor.
(m) No Prior Operations History. The undersigned Investor is aware that:
(i) the General Partner has no financial operating history; (ii) the General
Partner or another person or entity selected by the General Partner (which may
be a member or affiliate thereof) will receive substantial compensation in
connection with the management of the Partnership; (iii) no federal, state,
local or foreign agency has passed upon the Interest or made any finding or
determination as to the fairness of this investment; (iv) the undersigned is not
entitled to cancel, terminate or revoke this subscription or any of the powers
conferred herein; and (v) investment returns set forth in the Offer Memorandum
or in any supplemental letters or materials thereto are not necessarily
comparable to the returns, if any, which may be achieved on investments made by
the General Partner and the Partnership.
(n) Accredited Investor and Qualified Purchaser Status.
(1)One or more of the categories set forth in Exhibit A hereto correctly
and in all respects describes the Investor, and the Investor has so
indicated by signing on the blank line or lines following a category which
so describes it. [Accredited Investor status under Regulation D of the
Securities Act]
<PAGE>
-6-
(2)One or more of the categories set forth in Exhibit B hereto correctly
and in all respects describes the Investor, and the Investor has so
indicated by signing on the blank line or lines following a category which
so describes it. [Qualified Purchaser status under Investment Company Act]
(o) Investment Company Act Representations. The Investor acknowledges that
the General Partner is being formed so as not to constitute an "investment
company" required to be registered under the Investment Company Act, and that
such position is based in part upon the Investor's representations set forth in
this Agreement and including Exhibits A and B on which the General Partner shall
rely. Accordingly, the Investor makes the following representations:
If the Investor is a corporation, trust, partnership or other organization:
(1) The Investor was not, or will not be, formed or "recapitalized" (as
defined below) for the specific purpose of acquiring the Interest;
(2) The Investor's stockholders, partners or other beneficial owners have
no individual discretion as to their participation or
non-participation in the Interest and will have no individual
discretion as to their participation or nonparticipation in particular
investments made by the General Partner or the Partnership; and
(3) The Investor has not and will not invest more than forty percent (40%)
of its "committed capital" (as defined below) in the Partnership.
For purposes of this Section 2(o), the following definitions shall apply:
"committed capital" includes all amounts which have been contributed to the
Investor by its shareholders, partners or other equity holders plus all amounts
which such persons remain obligated to contribute to it. The term
"recapitalized" shall include new investments made in the Investor solely for
the purpose of financing its acquisition of the Interest and not made pursuant
to a prior financial commitment.
(p) ERISA. If the Investor represents or constitutes any employable benefit
plan within the meaning of the Employee Retirement Income Security Act of 1974
("ERISA"), then:
<PAGE>
-7-
(i) it has so notified the General Partner of its status as holding plan assets
subject to ERISA; (ii) it has received all necessary approvals and instructed
any agents or custodians with respect to such plan so as to perform under this
subscription; (iii) it confirms that, in respect of the investment decision made
by or on behalf of such ERISA Investor, none of the Partnership, the General
Partner, or their members, partners, employees or affiliates are or will be
deemed to be fiduciaries under ERISA with respect to Investor's Interest in the
Partnership; (iv) to the best of its knowledge and based upon the assumption
that neither the Partnership nor the General Partner will be treated as not
holding "plan assets" by virtue of the "venture capital operating company" or
other applicable exemption under the plan assets regulations of ERISA , the
Investor's purchase of the Interest and status as a Member in the General
Partner does not constitute a non-exempt prohibited transaction under ERISA and
related rules; and (v) the Investor has determined that the purchase of the
Interest is consistent with and does not conflict with the investment objectives
and policies of the Investor.
(q) Partnership Counsel. The Investor understands and acknowledges that
Testa, Hurwitz & Thibeault, LLP represents the Partnership and the General
Partner, and not the Investor, in connection with the formation of the
Partnership and the General Partner, and that the General Partner expects to
retain such legal counsel to represent the Partnership and the General Partner
in connection with the management, investment, operations and regulatory matters
of the Partnership and the General Partner going forward. Each Investor
acknowledges that it may select and retain, at its own expense, separate legal
counsel with respect to its investment in the Partnership.
16. Closing; Capital Contributions.
(a) Closing. The organizational closing of the General Partner will be held
at the offices of the General Partner or counsel to the General Partner (or such
other place as the General Partner may determine) at such date as is determined
by the General Partner and as to which the General Partner shall give the
Investor at least three (3) days' prior notice. At the closing, the General
Partner in its sole discretion shall accept or reject the Investor's
subscription for the Interest. Following acceptance of this subscription, the
General Partner will deliver to the Investor: (i) a counterpart of the GPLLC
Agreement, which shall be executed by the Investor and the General Partner and
(ii) a counterpart of this Agreement, executed by the Investor and the General
Partner.
<PAGE>
-8-
(b) Initial Capital Contribution. Subject to the terms and conditions of
the Partnership Agreement, the initial capital contribution for the purchase of
the Investor's Interest shall take place on such date and at such place, as
shall be selected by the General Partner upon three (3) business days' prior
written notice to the Investor. Such initial capital contribution will be in an
amount to be determined by the General Partner pursuant to the GPLLC Agreement.
(c) Additional Capital Contributions. The Investor will make additional
capital contributions to the General Partner in accordance with the terms set
forth in the GPLLC Agreement.
17. Agreements with Other Limited Partners. The General Partner represents
that each Limited Partner of the Partnership has or will execute and deliver a
subscription agreement substantially identical to this Subscription Agreement,
in which each such Limited Partner agrees to subscribe for and purchase an
interest from the Partnership and makes the same representations and warranties
as are made by the Investor in Section 2 hereof, only with changes that are
appropriate to reflect the legal form of such Limited Partner and the Investor's
purchase of a Member Interest in the General Partner rather than a Limited
Partner interest in the Partnership. This Subscription Agreement and such other
subscription agreements are sometimes collectively referred to herein as the
"Subscription Agreements."
18. Conditions to Closing. The Investor's obligation to purchase the
Interest at the closing is subject to the fulfillment prior to or at the
closing, of each of the following conditions:
18.1 Sale of Interests. The Investor shall have been duly admitted to the
General Partner as a Member.
18.2 Representations and Warranties. The General Partner shall represent
and warrant to the Investor that, at the time of the closing:
(a) Organization and Standing of the Partnership and the General Partner.
The Partnership is duly and validly organized and validly existing as a limited
partnership under the laws of the State of Delaware and has all requisite power
and authority under the Partnership Agreement, its Certificate of Limited
Partnership and such laws to conduct its activities as described in the
Partnership Agreement. The Gen-
<PAGE>
-9-
eral Partner is duly and validly organized and validly existing as a limited
liability company under the laws of the State of Delaware and has all requisite
power and authority under its limited liability company agreement, Certificate
of Formation and such laws to enter into and carry out the terms of this
Subscription Agreement, to conduct its activities as described in the GPLLC
Agreement, to admit members to the General Partner and to issue and sell the
Interests in the General Partner.
(b) Execution; Compliance. The execution and delivery of the GPLLC
Agreement and the Subscription Agreement do not result in the violation of,
constitute a default under, or conflict with, any mortgage, indenture, contract,
agreement, instrument, judgment, decree, order, statute, rule or regulation
applicable to the Partnership or the General Partner, or result in the creation
of any mortgage, lien, encumbrance or charge upon any of the properties or
assets of the Partnership or the General Partner. Neither the Partnership nor
the General Partner is in violation of any term of its partnership agreement or
limited liability company agreement, respectively, or other governing documents
or the Subscription Agreements.
(c) Governmental and Regulatory Approval. Neither the execution and
delivery of the Subscription Agreement, nor the offer or sale of the Interests,
requires any consent, approval or authorization from, or filing, registration or
qualification with, any federal, state or local governmental or regulatory
authority (including, without limitation, registration under the Securities
Act), on the part of the Partnership or the General Partner, except for (i) the
filing of the Certificate as provided in the Partnership Agreement, (ii) the
requisite organizational filings of the General Partner and (iii) compliance by
the Partnership and the General Partner with the requirements of any applicable
state securities ("Blue Sky") laws (as to which the General Partner covenants to
make or cause to be made the appropriate filings within the requisite time
periods following the date hereof so as to secure applicable exemptions or
otherwise comply with such Blue Sky laws).
(d) Litigation. There are no actions, proceedings or investigations pending
or threatened which have a substantial possibility of resulting in any material
adverse change in the business, prospects, condition, affairs or operations of
the Partnership or the General Partner or in any material liability on the part
of the Partnership or the General Partner.
<PAGE>
-10-
(e) Disclosure. Neither the Offer Memorandum, the Subscription Agreement,
the Partnership Agreement nor the GPLLC Agreement furnished to the Investor by
or on behalf of the General Partner or the Partnership in connection with the
transactions contemplated hereby contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained therein not misleading in light of the circumstances under which they
are or were made. The Investor understands and acknowledges that his or its
investment in the General Partner shall be subject to the terms and conditions
of this Subscription Agreement and the GPLLC Agreement in such final forms as
shall be executed by the parties thereto, and as the same may be amended from
time to time in accordance with their respective terms. The Investor further
understands and acknowledges that certain changes in the terms and conditions of
the offering originally set forth in the Offer Memorandum have been modified and
certain additional terms may have been accepted by the General Partner as may be
reflected in a supplement or supplements to the Offer Memorandum. The Investor
acknowledges and agrees that any such modifications to terms or additional terms
will be reflected in full in the final execution form of the Partnership
Agreement and the GPLLC Agreement, which reflect and state the definitive terms
of the Partnership and the General Partner and supersede in their entirety the
Offer Memorandum.
(f) Partnership Liabilities. Except as set forth in the Offering Materials
or as otherwise disclosed to the Investor, neither the Partnership nor the
General Partner has engaged in any material transactions or does not have any
material liabilities or obligations of any nature, whether accrued, absolute,
contingent or otherwise (including, without limitation, liabilities as guarantor
or otherwise with respect to obligations of others) and whether due or to become
due (other than liabilities and obligations arising out of the offering of the
Interests and the transactions referred to herein, including expenses of the
offering, legal and accounting fees, and travel and related expenses).
(g) Sale of the Interests. All action required to be taken by the General
Partner and the Partnership as a condition to the sale of the Interest purchased
by the Investor has been taken, such Interest will represent a duly and validly
created limited liability company interest in the General Partner and the
Investor will be a Member of the General Partner entitled to all the benefits,
and subject to all the obligations, of a Member under the GPLLC Agreement and
the Delaware Limited Liability Company Act.
<PAGE>
-11-
(h) Certificate of Formation. The Certificate of Formation for the General
Partner has been duly filed for record with the Secretary of State of the State
of Delaware.
(i) Investment Company Act Status. Based in part upon the representations
of the Investors contained in the Subscription Agreement, the General Partner is
not required to be registered as an Investment Company within the meaning of the
Investment Company Act, after giving effect to the transactions contemplated in
the Offer Memorandum.
18.3 Performance of the General Partner. The General Partner shall have
performed and complied with all agreements and conditions required by this
Subscription Agreement and the GPLLC Agreement to be performed or complied with
by them prior to or at the closing and there shall exist no condition or event
which constitutes a default under the GPLLC Agreement or which with notice or
lapse of time, or both, would constitute such a default.
18.4 Acceptance; Termination of Obligations. Acceptance will be given to
the undersigned either by delivery of this Subscription Agreement signed by the
General Partner or by notice of such execution. If so accepted, this
Subscription Agreement: (i) will be binding upon the undersigned's heirs,
successors, legal representatives and assigns; (ii) may not be canceled,
terminated or revoked by the undersigned; and (iii) will be governed by and
construed in accordance with the laws of the State of Delaware (without giving
effect to any choice of law or conflict of law rules or provisions that would
cause the application of the laws of any jurisdiction other than the State of
Delaware). If at the closing the General Partner fails to accept the Investor's
subscription or if the closing conditions set forth in this Section 5 are not
performed or satisfied (or waived by the Investor) then the Investor, at its
election, shall be relieved of any further obligation to subscribe for the
Interest.
19. Expenses. Each party hereto will pay its own expenses relating to this
Subscription Agreement and the purchase of the Investor's Interest in the
General Partner hereunder.
20. Amendments. Neither this Subscription Agreement nor any term hereof may
be changed, waived, discharged or terminated except with the written consent of
the Investor and the General Partner.
<PAGE>
-12-
21. Rejection of Subscription. The Investor acknowledges that the
subscription for the Interest contained herein may be reduced or rejected by the
General Partner in its sole discretion at any time prior to the closing.
22. Power of Attorney. The undersigned hereby constitutes, appoints and
grants the General Partner (acting through their authorized individual
representatives), with full power to act as its true and lawful representative
and attorney-in-fact, in its name, place and stead, to make, execute, sign,
acknowledge and deliver, record or file (so long as such person or entity
continues to be a general partner of the Partnership):
(i) any amendment, restatement or modification to or cancellation of
the Certificate of Formation;
(ii) all instruments, documents and certificates which may from time
to time be required by any law to effectuate, implement and continue the
valid and subsisting existence of the General Partner;
(iii) any bills of sale or other appropriate transfer documents
necessary to effectuate transfers of a Member's interest in the General
Partner pursuant to the GPLLC Agreement;
(iv) all instruments, documents and certificates which may be required
to effectuate the dissolution and termination of the General Partner; and
(v) such other documents or instruments as may be required to
effectuate or implement the provisions of the GPLLC Agreement under the
laws of any state, the United States, or any other jurisdiction.
The undersigned hereby empowers each attorney-in-fact acting pursuant hereto to
determine in its sole discretion the time when, purpose for and manner in which
any power herein conferred upon it shall be exercised, and the conditions,
provisions and covenants of any instruments or documents which may be executed
by it pursuant hereto; provided, however, that the powers of attorney granted
herein shall only be exercised in accordance with the GPLLC Agreement and for
the purposes referred to in clauses (i) through (v) above. The powers of
attorney granted herein will be deemed to be coupled with an interest, will be
irrevocable and will survive the death, incom-
<PAGE>
-13-
petency, disability or dissolution of the undersigned. The powers of attorney
granted herein shall not be deemed to constitute a written consent or waiver of
the undersigned for purposes of the GPLLC Agreement.
23. General. This Agreement shall be governed by the laws of the State of
Delaware. This Agreement: (i) shall be binding upon the Investor and the legal
representatives, successors and assigns of the Investor; (ii) shall survive the
admission of the Investor as a Member of the General Partner; and (iii) shall,
if the Investor consists of more than one person, be the joint and several
obligation of all such persons. Two or more duplicate originals of this
Agreement may be executed by the undersigned and accepted by the General
Partner, each of which shall be an original, but all of which together shall
constitute one and the same instrument.
<PAGE>
- General Partner Signature Page -
The foregoing Subscription Agreement is hereby accepted by the undersigned as of
the date set forth below:
DISTRIBUTION INVESTORS, LLC
By: ______________________________
Name: Gordon G. Pratt
Title: Manager Member
Date of Acceptance: November 1, 2000
<PAGE>
Signature Page
IN WITNESS WHEREOF, the undersigned has executed this Agreement for the
purchase of a member interest (the "Interest") in Distribution Investors, LLC
(the "General Partner").
<TABLE>
<CAPTION>
<S> <C>
Arch Capital Group Ltd.
Print or Type Name of Investor
SUBSCRIPTION [Sign Here]:
Amount of Interest Purchased
By: ___________________________________________________
$1,300,000.00 ($100,000 of which has already been
funded, for a remaining commitment of $1,200,000)
-------------------------------------------------------
(Title, if applicable)
Typed or printed name and address of Investor: Preferred address for receiving communications (Do
not complete if already listed in prior column):
_____________________________________________________ ________________________________________________________
_____________________________________________________ ________________________________________________________
_____________________________________________________ ________________________________________________________
Telecopier
No.: ________________________________________________
Social Security or Federal Tax Identification No.: Type of Entity (e.g., individual, corporation, estate,
trust, partnership, exempt organization, nominee,
custodian):
-----------------------------------------------------
________________________________________________________
Telephone Number Telecopy Number
_____________________________________________________ ________________________________________________________
Electronic Mail Address
________________________________________________________
</TABLE>
<PAGE>
EXHIBIT A
- Accredited Investor Status -
The Investor hereby represents and warrants, as an integral part of the attached
Subscription Agreement, that he, she or it is correctly and in all respects
described by the category or categories set forth below directly under which the
Investor has signed his, her or its name.
[SIGN OR MARK TO INDICATE THE CATEGORY WHICH DESCRIBES YOU]
A. United States Persons
____1. The Investor is a natural person whose net worth, either individually or
jointly with such person's spouse, at the time of his purchase, exceeds
$1,000,000.
____2. The Investor is a natural person who had individual income in excess of
$200,000, or joint income with that person's spouse in excess of $300,000, in
1998 and 1997 and reasonably expects to reach the same income level in 1999.
____3. The Investor is a corporation, partnership or other organization
described in Section 501(c)(3) of the Internal Revenue Code, or Massachusetts or
similar business trust, not formed for the specific purpose of acquiring the
securities offered, with total assets in excess of $5,000,000.
____4. The Investor is an entity which falls within one of the following
categories of accredited investors set forth in Rule 501(a) of Regulation D
under the Securities Act ("Regulation D"):
______(a) A bank as defined in Section 3(a)(2) of the Securities Act, or
any savings and loan association or other institution as defined in Section
3(a)(5)(A) of the Securities Act whether acting in its individual or a fiduciary
capacity.
______(b) A broker or dealer registered pursuant to Section 15 of the
Securities Exchange Act of 1934.
______(c) An insurance company as defined in Section 2(13) of the
Securities Act.
A-1
<PAGE>
______(d) An investment company registered under the Investment Company Act
of 1940 or as a business development company as defined in Section 2(a)(48) of
that Act.
______(e) A Small Business Investment Company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the Small Business
Investment Act of 1958.
______(f) Any plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, if such a plan has total assets
in excess of $5,000,000.
______(g) Any private business development company as defined in Section
202(a)(22) of the Investment Advisors Act of 1940.
______(h) An employee benefit plan within the meaning of Title I of the
Employee Retirement Income Security Act of 1974 ("ERISA"), if the investment
decision is made by a plan fiduciary, as defined in Section 3(21) of such act,
which is either a bank, savings and loan association, insurance company or
registered investment adviser acting as a plan fiduciary as defined in Section
3(21) of ERISA.
______(i) An employee benefit plan within the meaning of Title I of ERISA
with total assets in excess of $5,000,000, whether or not the investment
decision regarding this investment was made by a bank, savings and loan
association, insurance company or registered investment adviser acting as plan
fiduciary.
_____(j) A self-directed employee benefit plan within the meaning of Title
I of ERISA, if investment decisions are made solely by persons that are
accredited investors as defined in Rule 501 of Regulation D under the Securities
Act.
_____(k) A trust, with total assets in excess of $5,000,000 not formed for
the specific purpose of acquiring the securities offered, whose purpose is
directed by a sophisticated person as described in Rule 506(b)(2)(ii) of
Regulation D.
_____5. The Investor is an entity in which all of the equity owners are
accredited investors and described in one or more of the categories set forth in
paragraphs 1 through 4 above.
A-2
<PAGE>
B. Non-United States Persons
The Investor is a person who/which is not a "United States Person" as described
in Rule 902 of Regulation S under the Securities Act and the Investor does not
fall within any of the categories set out at items I through 5 of part A above.
Please provide a brief description of the non-U.S. Person:
______________________________________
______________________________________
______________________________________
If the Investor is a non-U.S. Person, the Investor represents, warrants and
agrees (for the benefit of the Partnership and of any person which participated
in the offer or sale of the Investor's Interest) that:
(i) it is not a U.S. Person and is not acting on behalf of a U.S.
Person;
(ii) it will not sell, assign or otherwise transfer its Interest to
any other person without the prior written consent of the General Partner
of the Partnership;
(iii) it will not sell, assign or otherwise transfer its Interest in
the United States or to a U.S. Person prior to the date twelve (12) months
after completion of the distribution of limited partnership interests in
the Partnership (as determined by the General Partner of the Partnership);
(iv) it will not sell, assign or otherwise transfer its Interest in
the United States or to a U.S. Person, notwithstanding the expiration of
the twelve-month period described in the preceding subparagraph, unless
such sale, assignment or transfer is registered under the Securities Act or
unless there is delivered to the General Partner of the Partnership an
opinion of counsel satisfactory to the General Partner of the Partnership
that such sale, assignment or transfer is exempt from such realstration
(the Investor recognizes that the availability of any such exemption would
depend upon facts and circumstances existing at the time of such sale,
assignment or transfer); and
(v) it will provide the information and forms requested by the General
Partner, including U.S. Tax Form
A-3
<PAGE>
Schedule W-8 (foreign status certificate) and Form 1001 (reduced
withholding rate certificate), and shall cooperate with the General Partner
upon its request in order to maintain appropriate records and provide for
withholding amounts, if any, relating to the Investor's Interest in the
Partnership, and, further, in the event that Investor fails to provide such
information regarding U.S. tax withholding, the General Partner, the
Partnership and the other Partners shall have no obligation or liability to
the Investor with respect to any U.S. tax matters or obligations which may
be assessed against the Investor.
*****
A-4
<PAGE>
- Qualified Purchaser Status -
The Investor hereby represents and warrants, as an integral part of the attached
Subscription Agreement, that he, she or it is correctly and in all respects
described by the category or categories set forth below directly under which the
Investor has signed his, her or its name.
[MARK BELOW THE CATEGORY OR CATEGORIES WHICH DESCRIBES YOU]
In order to complete the following information, Investors must read Annexes 1
and 2 to this Exhibit B for the definition of "investments" and for information
regarding the valuation of "investments," respectively.
Category 1:
The Investor hereby represents and warrants that the Investor is a "qualified
purchaser" within the meaning of Section 2(a)(51) of the Investment Company Act
and has checked the box or boxes below which are next to the categories under
which the Investor qualifies as a qualified purchaser. The Investor agrees to
provide such further information and execute and deliver such documents as the
General Partner may reasonably request to verify that the Investor qualifies as
a "qualified purchaser."
/_/ (A) A natural person (including any
person who holds a joint, community
property or other similar shared
ownership interest in the
Partnership with that person's
qualified purchaser spouse) who owns
not less than $5,000,000 in
"investments."
/_/ (B) A company, partnership or trust that
owns not less than $5,000,000 in
"investments" and that is owned
directly or indirectly by or for two
or more natural persons who are
related as siblings or spouse
(including former spouses), or
direct lineal descendants by birth
or adoption, spouses of such
persons, the estates of such
persons, or foundations, charitable
or-
B-1
<PAGE>
ganizations or trusts established
by or for the benefit of such
persons (a "Family Company").
/_/ (C) A person or entity, acting for its
own account or the accounts of other
qualified purchasers, who in the
aggregate owns and invests on a
discretionary basis not less than
$25,000,000 in "investments."
/_/ (D) A trust that is not covered by (A)
above as to which the trustee or
other person authorized to make
decisions with respect to the trust,
and each settlor or other person who
has contributed assets to the trust,
is a person described in clause (A),
(B), or (C) of this Section D.
/_/ (E) A "qualified institutional buyer"
(as defined in paragraph (a) of Rule
144A under the Securities Act),
acting for its own account, the
account of another qualified
institutional buyer, or the account
of a qualified purchaser, provided
that (i) a dealer described in
paragraph (a)(1)(ii) of Rule 144A
shall own and invest on a
discretionary basis at least $25
million in securities of issuers
that are not affiliated persons of
the dealer; and (ii) a plan referred
to in paragraph (a)(1)(D) or
(a)(1)(E) of Rule 144A, or a trust
fund referred to in paragraph
(a)(1)(F) of Rule 144A that holds
the assets of such a plan, will not
be deemed to be acting for its own
account if investment decisions with
respect to the plan are made by the
beneficiaries of the plan, except
with respect to investment decisions
made solely by the fiduciary,
trustee or sponsor of such plan.
/_/ (F) A company, partnership or trust,
each beneficial owner of the
securities of which is a
qualified purchaser.
B-2
<PAGE>
-----------------------
Category 2:
The Investor is not able to check any of the boxes set forth above in Category
1.
-----------------------
B-3
<PAGE>
Annex 1 to Exhibit B
DEFINITION OF "INVESTMENTS"
The term "investments" means:
(1) Securities, other than securities of an issuer that controls, is controlled
by, or is under common control with, the Investor that owns such
securities, unless the issuer of such securities is:
(i) an investment company or a company that would be an
investment company but for the exclusions or exemptions
provided by Sections 3(c)(1) through 3(c)(9) of the
Investment Company Act, or a commodity pool; or
(ii) a Public Company (as defined below);
(iii) a company with shareholders' equity of not less than
$50 million (determined in accordance with generally
accepted accounting principles) as reflected on the
company's most recent financial statements, provided
that such financial statements present the information
as of a date within 16 months preceding the date on
which the Investor acquires Interests;
(2) Real estate held for investment purposes;
(3) Commodity Interests (as defined below) held for investment purposes;
(4) Physical Commodities (as defined below) held for investment purposes;
(5) To the extent not securities, Financial Contracts (as defined below)
entered into for investment purposes;
B-4
<PAGE>
(6) In the case of an Investor that is a company that would be an investment
company for the exclusions provided by Section 3(c)(1) or 3(c)(7) of the
Investment Company Act, or a commodity pool, any amounts payable to such
Investor pursuant to a firm agreement or similar binding commitment
pursuant to which a person has agreed to acquire an interest in, or make
capital contributions to, the Investor upon the demand of the Investor; and
(7) Cash and cash equivalents held for investment purposes.
Real Estate that is used by the owner or a Related Person (as defined
below) of the owner for personal purposes, or as a place of business, or in
connection with the conduct of the trade or business of such owner or a Related
Person of the owner, will NOT be considered Real Estate held for investment
purposes, provided that real estate owned by an Investor who is engaged
primarily in the business of investing, trading or developing real estate in
connection with such business may be deemed to be held for investment purposes.
However, residential real estate will not be deemed to be used for personal
purposes if deductions with respect to such real estate are not disallowed by
section 280A of the Internal Revenue Code of 1986, as amended.
A Commodity Interest or Physical Commodity owned, or a Financial Contract
entered into, by the Investor who is engaged primarily in the business of
investing, reinvesting, or trading in Commodity Interests, Physical Commodities
or Financial Contracts in connection with such business may be deemed to be held
for investment purposes.
"Commodity Interests" means commodity futures contracts, options on
commodity futures contracts, and options on physical commodities traded on or
subject to the rules of:
(i) Any contract market designated for trading such
transactions under the Commodity Exchange Act and the
rules thereunder; or
(ii) Any board of trade or exchange outside the United
States, as contemplated in Part 30 of the rules under
the Commodity Exchange Act.
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"Public Company" means a company that:
(i) files reports pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended; or
(ii) has a class of securities that are listed on a
Designated Offshore Securities Market, as defined by
Regulation S of the Securities Act of 1933, as amended.
"Financial Contract" means any arrangement that:
(i) takes form of an individually negotiated contract,
agreement, or option to buy, sell, lend, swap, or
repurchase, or other similar individually negotiated
transaction commonly entered into by participants in
the financial markets;
(ii) is in respect of securities, commodities, currencies,
interest or other rates, other measures of value, or
any other financial or economic interest similar in
purpose or function to any of the foregoing; and
(iii) is entered into in response to a request from a
counterparty for a quotation, or is otherwise entered
into and structured to accommodate the objectives of
the counterparty to such arrangement.
"Physical Commodities" means any physical commodity with respect to which a
Commodity Interest is traded on a market specified in the definition of
Commodity Interests above.
"Related Person" means a person who is related to the Investor as a
sibling, spouse or former spouse, or is a direct lineal descendant or ancestor
by birth or adoption of the In-
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vestor, or is a spouse of such descendant of ancestor, provided that, in the
case of a Family Company, a Related Person includes any owner of the Family
Company and any person who is a Related Person of such an owner. "Family
Company" means a company that is owned directly or indirectly by or for two or
more natural persons who are related as siblings or spouse (including former
spouses), or direct lineal descendants by birth or adoption, spouses of such
persons, the estates of such persons, or foundations, charitable organizations
or trusts established for the benefit of such persons.
For purposes of determining the amount of investments owned by a company,
there may be included investments owned by majority-owned subsidiaries of the
company and investments owned by a company ("Parent Company") of which the
company is a majority-owned subsidiary, or by a majority-owned subsidiary of the
company and other majority-owned subsidiaries of the Parent Company.
In determining whether a natural person is a qualified purchaser, there may
be included in the amount of such person's investments any investment held
jointly with such person's spouse, or investments in which such person shares
with such person's spouse a community property or similar shared ownership
interest. In determining whether spouses who are making a joint investment in
the Fund are qualified purchasers, there may be included in the amount of each
spouse's investments any investments owned by the other spouse (whether or not
such investments are held jointly). There shall be deducted from the amount of
any such investments any amounts specified by paragraph 2(a) of Annex 2 incurred
by such spouse.
In determining whether a natural person is a qualified purchaser, there may
be included in the amount of such person's investments any investments held in
an individual retirement account or similar account the investments of which are
directed by and held for the benefit of such person.
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Annex 2 to Exhibit B
VALUATIONS OF INVESTMENTS
The general rule for determining the value of investments in order to
ascertain whether a person is a qualified purchaser is that the value of the
aggregate amount of investments owned and invested on a discretionary basis by
such person shall be their fair market value on the most recent practicable date
or their cost. This general rule is subject to the following provisos:
(1) In the case of Commodity Interests, the amount of investments shall be
the value of the initial margin or option premium deposited in connection with
such Commodity Interests; and
(2) In each case, there shall be deducted from the amount of investments
owned by such persons the following amounts:
(a) The amount of any outstanding indebtedness incurred to acquire the
investments owned by such person.
(b) A Family Company, in addition to the amounts specified in
paragraph (a) above, shall have deducted from the value of such Family
Company's investments any outstanding indebtedness incurred by an owner of
the Family Company to acquire such investments.
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EXHIBIT C
-NASD Status Matters-
A. The following information is needed in order to comply with rules of the
National Association of Securities Dealers (NASD) generally:
1. The Investor is a member, an affiliate of a member or a person
associated with a member of the NASD.* (*See the definitions below)
/ / YES / / NO
DEFINITIONS AND EXPLANATIONS
* Article I of the NASD's By-Laws defines the term "member" to mean any
broker or dealer admitted to membership in the NASD, and defines the term a
"person associated with a member" to mean (1) a natural person registered
under the NASD rules; or (2) a sole proprietor, partner, officer, director,
or branch manager of any member, or any natural person occupying a similar
status or performing similar functions, or any natural person engaged in
the investment banking or securities business who is directly or indirectly
controlling or controlled by such member (for example, any employee),
whether or not such person is registered or exempt from registration with
the NASD.
NASD Rule 2720 defines "affiliate" to mean a company which controls, is
controlled by or is under common control with a member. (For individuals, a
person who controls a member would be an affiliate.)
Rule 2720 further states that (i) a company will be presumed to control a
member if the company beneficially owns ten percent (10%) or more of the
outstanding voting securities of a member which is a corporation or
beneficially owns a partnership interest in ten percent (10%) or more of
the distributable profits or losses of a member which is a partnership;
(ii) a member will be presumed to control a company if the member and
persons associated with the member beneficially own ten percent (10%) or
more of the outstanding voting securities of a company which is a
corporation or beneficially own a partnership interest in ten percent (10%)
or more of the distributable profits or losses of a company which is a
partnership; and (iii) a member and a company will be presumed to be under
common control if (A) the same natural person or company controls both the
member and the company by beneficially owning ten
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percent (10%) or more of the outstanding voting securities of a member or
company which is a corporation or by owning a partnership interest in ten
percent (10%) or more of the distributable profits or losses of a member or
company which is a partnership; or (B) a person having the power to direct
or cause the direction of the management or policies of the member or the
company also has the power to direct or cause the direction of the
management or policies of the other entity in question. For purposes of the
foregoing presumptions, "beneficial ownership" is defined as the right to
the economic benefits of a security.
2. If you answer "yes" to item 1 above, please provide details regarding such
membership, affiliation or association (in completing this question, please
refer to the footnote information above and consult with your legal advisor
if necessary):
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B. The following information is required in connection with the NASD Free Riding
and Withholding Interpretation (IM-2110) of NASD Conduct Rules 2110 (the
"Interpretation").
Indicate whether the Investor (or spouse or any
co-investor) is any of the following:
______ (1) A member of the NASD or otherwise a domestic or foreign
securities broker or dealer;
______ (2) An officer, director, general partner, branch manager,
employee or agent of any member of the NASD or any
other securities broker or dealer; or any individual
associated with a broker or dealer who performs similar
functions or occupies similar status as any of those
persons; or any individual engaged in the investment
banking or securities business who directly or
indirectly controls or is controlled by a broker or
dealer;
______ (3) (a) A person who owns more than 10% of the
equity securities of or who has contributed more than
10% to the capital of a broker or dealer (other than a
broker or dealer engaged solely in the purchase or sale
of investment com-
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pany/variable contracts securities or direct
participation program securities); or a person who owns
10% or less of such a broker or dealer or has
contributed 10% or less to such a broker's or dealer's
capital, unless such ownership or capital interest is
passive, and that broker or dealer does not sell
securities to that person and is not in a position to
direct the allocation of securities to that person;
______ (b) A person or entity that owns, directly or
indirectly, any class of equity securities of, or who
has made a contribution of capital to, a member of the
NASD (other than a member engaged solely in the
purchase or sale of investment company/variable
contracts securities or direct participation program
securities), unless (i) such person's or entity's
ownership or capital interest is passive and amounts to
not more than 10% of the equity or capital of the
member, and (ii) either (a) the securities of the
member are traded on a national securities exchange or
the Nasdaq system, or (b) the member does not sell
securities to such person or entity and is not in a
position to direct the allocation of securities to such
person or entity;(3)
______ (4) A member of the immediate family(4) of any person
described in clause (2) or (3) above, who:
______ (a) supports you, directly or indirectly, to a
material extent;
----------
3 For purposes of clause (3)(b), any person or entity with an equity
ownership or capital interest in a second entity that maintains an
investment in a NASD member is deemed to have a percentage interest in
the member equal to the percentage interest of the second entity in the
member, multiplied by the percentage interest of such person or entity
in such second entity.
4 The "immediate family" of a person includes that person's spouse,
parents, brothers, sisters, children, mother-in-law, father-in-law,
brothers-in-law, sisters-in-law, daughters-in-law, and persons
supported, directly or indirectly, to a material extent by that person.
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______ (b) contributes, directly or indirectly, to your
support but does not support you to a material
extent. Please provide the name of the broker or
dealer with which that person is affiliated or
associated:
__________________________________;
______ (c) does not contribute, directly or indirectly,
to your support. Please provide the name of the
broker or dealer with which that person is
affiliate or associated:
___________________________________;
______ (5) An account in which a beneficial interest holder is
(a) a person or entity specified in clause (1), (2) or
(3) above, or (b) a member of the immediate family of a
person specified in clause (2) or (3) who is supported,
directly or indirectly, to a material extent by that
person;
______ (6) A domestic or foreign bank, bank branch, trust company
or other conduit for an undisclosed principal;
______ (7) A finder in respect of any public offering of
securities;
______ (8) A person, such as an attorney, accountant or financial
consultant, acting in a fiduciary capacity to any
managing underwriter of any public offering of
securities;
______ (9) A senior officer of any bank, savings and loan
institution, insurance company, investment company,
investment advisory firm or other institutional type
account (including, but not limited to, hedge funds,
investment partnerships, investment corporations or
investment clubs), domestic or foreign;
______ (10) A person in the securities department of, employed by,
having influence in, or engaged in activities directly
or indirectly involved or related to the function of
buying or selling securities for, any account of the
type specified in the preceding clause (9);
______ (11) A person who is supported directly or indirectly, to a
material extent, by any person specified in any of the
preceding clauses (7) through (10);
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______ (12) An account in which a beneficial interest holder is (a)
a person or entity specified in any of the preceding
clauses (7) through (11), or (b) a member of the
immediate family of a person specified in clause (2) or
(3) to whose support that person does not contribute,
directly or indirectly. Please provide the name of the
broker or dealer with which that person is affiliated
or associated: ______________________________________;
or
______ (13) An account in which a beneficial interest holder is a
member of the immediate family of a person specified in
clause (2) or (3) who is not supported to a material
extent by that person, but to whose support that person
contributes, directly or indirectly. Please provide the
name of the broker or dealer with which the person
specified in clause (2) or (3) is affiliated or
associated: _______________________________________.
______ Neither the Investor nor the Investor's spouse or co-investor (if an
investment is being made jointly) falls within any of the foregoing
categories.
If the Investor is a trust, please list all beneficiaries and their occupations.
Name of Beneficiary Occupation
_______________________________________ ____________________________________
______________________________________ ____________________________________
_______________________________________ ____________________________________
The Investor understands that if the foregoing representation is or ever becomes
untrue in any respect, the business of the General Partner or the Partnership
may be materially and adversely affected thereby, and you will be fully
responsible for the consequences thereof. The Investor agrees to notify the
General Partner forthwith in writing if this representation is or ever is about
to become or ever becomes untrue in any respect.
****
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