Exhibit 10.29
EXECUTION COPY
INTEREST PURCHASE AGREEMENT
AMONG
INSTINET GROUP INCORPORATED
AND
DAVID G. JAMAIL,
DAVID R. BURCH,
OVERUNDER, LLC,
JOHN A. MCENTIRE, IV,
JOHN BUNDA,
LAURA HORNE,
CURRIN VAN EMAN
AND
SHAYNE YOUNG
DATED AS OF JULY 23, 2001
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1 Definitions........................................................... 2
1.2 Interpretation........................................................ 14
ARTICLE II
THE CLOSING
2.1 Acquisition and Transfer of the ProTrader LP Units and the
ProTrader LLC Interest................................................ 15
2.2 Purchase Price........................................................ 16
2.3 Payment Priority...................................................... 16
2.4 Escrow Accounts....................................................... 17
2.5 Closing and Pre-Closing Deliveries.................................... 19
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
3.1 Due Organization, Good Standing and Power............................. 21
3.2 Authorization and Validity of Agreements.............................. 21
3.3 Absence of Conflicts.................................................. 21
3.4 Financial Statements; No Material Adverse Change...................... 22
3.5 Accounts Receivable................................................... 22
3.6 Title to Assets; Maintenance, Operation and Sufficiency of Assets..... 23
3.7 Insurance............................................................. 24
3.8 Contracts............................................................. 24
3.9 Proceedings........................................................... 25
3.10 Compliance with Legal Requirements and Permits........................ 26
3.11 Permits............................................................... 27
3.12 Intellectual Property................................................. 27
3.13 Employee Relations.................................................... 29
3.14 Employee Benefits..................................................... 30
3.15 Taxes................................................................. 32
-i-
TABLE OF CONTENTS
(CONTINUED)
PAGE
3.16 Capitalization; Investments........................................... 33
3.17 Environmental Matters................................................. 34
3.18 Finders and Brokers................................................... 34
3.19 Year 2000 Compliance.................................................. 35
3.20 Regulatory Registrations and Memberships.............................. 35
3.21 Customers............................................................. 36
3.22 Reports............................................................... 36
3.23 Consents.............................................................. 37
3.24 Certain Trading Volumes............................................... 37
ARTICLE IIIA
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF SELLERS
3A.1 Authorization and Validity of Agreements.............................. 37
3A.2 Absence of Conflicts.................................................. 37
3A.3 Ownership of Equity................................................... 38
3A.4 Sellers' Representative............................................... 38
3A.5 Investment Purpose.................................................... 38
3A.6 Finders and Brokers................................................... 39
3A.7 Consents.............................................................. 39
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Due Organization, Good Standing and Power............................. 39
4.2 Authorization and Validity of Agreements.............................. 39
4.3 Absence of Conflicts.................................................. 39
4.4 Investment Purpose.................................................... 40
4.5 Finders and Brokers................................................... 40
4.6 Valid Authorization and Issuance...................................... 40
4.7 Proceedings........................................................... 40
4.8 Consents.............................................................. 41
4.9 Prospectus; Financial Statements...................................... 41
-ii-
TABLE OF CONTENTS
(CONTINUED)
PAGE
4.10 Listing............................................................... 41
ARTICLE V
COVENANTS
5.1 Conduct of the Business Pending the Closing........................... 41
5.2 Further Actions....................................................... 44
5.3 Right of Access....................................................... 44
5.4 No Other Transactions................................................. 45
5.5 Filings............................................................... 45
5.6 Transfer of Proprietary Trading Business.............................. 45
5.7 Houston OSJ Joint Venture............................................. 46
5.8 Transfer Restrictions................................................. 47
5.9 Tampa Office.......................................................... 47
5.10 Certain Contingent Liabilities........................................ 47
5.11 Non-Competition; Non-Solicitation..................................... 48
5.12 Certain Options....................................................... 48
5.13 Amendment of or Waiver under ProTrader Constituent Documents.......... 48
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions Precedent to Obligations of Buyer.......................... 49
6.2 Conditions Precedent to Obligations of Sellers........................ 50
ARTICLE VII
TERMINATION
7.1 General............................................................... 52
7.2 No Liabilities in Event of Termination................................ 52
ARTICLE VIII
PERSONNEL, EMPLOYMENT ARRANGEMENTS AND EMPLOYEE BENEFITS
8.1 Stock Option.......................................................... 53
8.2 Employee Benefits..................................................... 53
-iii-
TABLE OF CONTENTS
(CONTINUED)
PAGE
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification by Buyer.............................................. 54
9.2 Indemnification by Sellers and Young.................................. 54
9.3 Additional Indemnification by Sellers................................. 55
9.4 Consequential Damages................................................. 55
9.5 Defense of Claims..................................................... 55
9.6 Coordination of Indemnification Rights................................ 56
9.7 Survival of Representations and Warranties; Subrogation............... 56
9.8 Limitation on Liability............................................... 57
9.9 Method of Satisfying Claims........................................... 58
9.10 Sole and Exclusive Remedy............................................. 58
ARTICLE X
TAX MATTERS
10.1 Section 754 Election.................................................. 58
10.2 Tax Filings........................................................... 59
10.3 Taxes................................................................. 59
ARTICLE XI
MISCELLANEOUS
11.1 Notices............................................................... 59
11.2 Press Releases........................................................ 60
11.3 Entire Agreement...................................................... 60
11.4 Third-Party Rights.................................................... 61
11.5 Assignability......................................................... 61
11.6 Waiver and Amendment.................................................. 61
11.7 Expenses.............................................................. 61
11.8 Counterparts.......................................................... 61
11.9 Governing Law; Submission to Jurisdiction; Appointment
of Agent for Service of Process....................................... 61
-iv-
TABLE OF CONTENTS
(CONTINUED)
PAGE
11.10 Spousal Consent....................................................... 62
11.11 Sellers' Representative............................................... 62
11.12 Modification of Schedules............................................. 62
11.13 No Third-Party Beneficiaries.......................................... 62
11.14 Additional Parties.................................................... 62
-v-
TABLE OF CONTENTS
EXHIBITS
A. Form of GR8TRADE License Agreements
B. Form of Development Agreement
C. Form of Execution Agreement
D. Form of Registration Rights Agreement
SCHEDULES
A Sellers' Expenses (to be delivered prior to Closing)
2.2 Allocation of Purchase Price (to be delivered prior to Closing)
3.1(b) ProTrader Constituent Documents
3.3 Absence of Conflicts
3.4(a) Undisclosed Liabilities
3.4(d) ProTrader Indebtedness
3.6(a) Liens on Personal Property
3.6(b) Real Property and Liens
3.7 Insurance
3.8 Material Contracts
3.8(e) Related Party Agreements
3.9 Proceedings
3.10 Compliance with Legal Requirements
3.11 Material Permits
3.12 Intellectual Property
3.13(c) Employee Relations - Compliance with Legal Requirements
3.13(d) Employee Relations - Claims
3.13(e) Employee Relations - Liabilities
3.14(a) Employee Benefits - Plans
3.14(b) Employee Benefits - Qualified Plans
3.14(c) Employee Benefits - Compliance with ProTrader Plans
3.14(e) Employee Benefits - Change of Control Payments
3.14(f) Employee Benefits - Severance
3.14(j) Employee Benefits - Certain Payments
3.14(l) Employee Benefits - Retiree Benefits
3.14(m) Employee Benefits - Audits
3.15 Taxes
3.16(a) Capitalization
3.16(b)(i) Options, Warrants, etc.
3.16(b)(ii) Other Investment Obligations
3.16(b)(iii) Stockholder Agreements
3.16(c) Investments
3.19(b) Year 2000 Compliance
3.20(a) Broker-Dealer Registration
3.20(b) Self-Regulatory Organization Memberships
3.20(d) Offices of Supervisory Jurisdiction
3.21 Customer Disputes
-vi-
TABLE OF CONTENTS
(CONTINUED)
3.22 Reports
3.23 ProTrader Consents
3A.2 Absence of Conflicts
3A.7 Sellers Consents
4.3 Absence of Conflicts
4.7 Proceedings
4.8 Consents
5.6(a) Proprietary Trading Business Assets
5.6(a)-1 Description of Transfer of Proprietary Trading Business
5.6(b) Proprietary Trading Business Liabilities
6.1(j) Key Management Employees
8.1 Compensation
-vii-
INTEREST PURCHASE AGREEMENT
INTEREST PURCHASE AGREEMENT dated as of July 23, 2001 among Instinet
Group Incorporated, a Delaware corporation ("Buyer"), Overunder, LLC, a Delaware
limited liability company ("Overunder"), David G. Jamail, an individual residing
in Austin, Texas ("Jamail"), David R. Burch, an individual residing in Austin,
Texas ("Burch"), John A. McEntire, an individual residing in Austin, Texas
("McEntire" and together with Overunder, Jamail and Burch, the "Class A Unit
Holders"), John Bunda, an individual residing in Austin, Texas ("Bunda"), Laura
Horne, an individual residing in Austin, Texas ("Horne"), Currin Van Eman, an
individual residing in Austin, Texas ("Van Eman" and together with Bunda and
Horne, the "Class C Unit Holders" and together with the Class A Unit Holders and
any Drag-Along Partners (as defined herein), the "Sellers") and Shayne Young, an
individual residing in Austin, Texas ("Young") (each Buyer and Seller, and
Young, a "Party" and, collectively, the "Parties").
RECITALS
WHEREAS, the Class A Unit Holders are the owners of one hundred
percent (100%) of the issued and outstanding voting class A units (the "Class A
Units") in PROTRADER Group Limited Partnership, a Delaware limited partnership
("ProTrader LP"), and one hundred percent (100%) of the issued and outstanding
membership interests (the "ProTrader LLC Membership Interests") of PROTRADER
Group Management LLC, a Delaware limited liability company and sole general
partner of ProTrader LP ("ProTrader LLC");
WHEREAS, in addition to Class A Units, McEntire is the owner of one
hundred percent (100%) of the issued and outstanding non-voting class D units
(the "Class D Units") of assignee interest in ProTrader LP;
WHEREAS, the Class C Unit Holders are the owners of one hundred
percent (100%) of the issued and outstanding non-voting class C units (the
"Class C Units") of assignee interest in ProTrader LP, which together with the
Class A Units and Class D Units (and any Class B Units (as defined herein)
outstanding as of the Closing) represent one hundred percent (100%) of the
issued and outstanding limited partnership interests or assignee interests of
ProTrader LP (collectively, the "ProTrader LP Units");
WHEREAS, as a result of the purchase by Buyer of the ProTrader LP
Units and ProTrader LLC Membership Interests contemplated by this Agreement,
ProTrader LP may have the obligation to cause Buyer to purchase from Houston
Trader Group, a Texas general partnership ("Trader Partnership"), and Houston
Trader Group, LLC, a Texas limited liability company ("Trader LLC" and with
Trader Partnership the "Trader Group"), Trader Group's equity interest in
ProTrader Houston OSJ, LP and ProTrader Houston OSJ Management, LLC (the
"Houston Interests");
WHEREAS, ProTrader LP and ProTrader LLC have an obligation to pay
Russell A. Grigsby ("Grigsby"), a former equityholder of ProTrader LP and
ProTrader LLC, certain consideration in accordance with the Redemption and
Termination Agreement by and among ProTrader, LLC, ProTrader LP, Cornerstone
Securities Partners, LP and Grigsby, dated May 1,
2000 (the "Grigsby Redemption Agreement") (such obligation defined as the
"Redemption Obligation" in the Grigsby Redemption Agreement);
WHEREAS, the Parties have agreed that if the Trader Group exercises
its right to have ProTrader cause Buyer to purchase the Houston Interests and
Buyer elects not to purchase the Houston Interests, Sellers will purchase the
Houston Interests on the terms and conditions set forth in Section 5.7;
WHEREAS, upon the terms and subject to the conditions hereinafter
set forth, (i) the Class A Unit Holders desire to sell to Buyer, and Buyer
desires to purchase from the Class A Unit Holders, the Class A Units and the
ProTrader LLC Membership Interests; (ii) the Class C Unit Holders desire to sell
to Buyer, and Buyer desires to purchase from the Class C Unit Holders, the Class
C Units and (iii) McEntire desires to sell to Buyer, and Buyer desires to
purchase from McEntire, the Class D Units.
NOW, THEREFORE, in consideration of the foregoing and the respective
premises, mutual covenants and agreements of the Parties hereto, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and subject to the terms and conditions hereof, the Parties hereto
agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1 Definitions. Unless the context shall otherwise require, terms
used and not defined herein shall have the following meanings:
"Acquisition Transaction" shall have the meaning specified in
Section 5.4.
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly Controlled by, Controlling or under common Control with,
such Person; provided that the term "Affiliate," when applied to the Sellers and
the ProTrader Group shall not include legal entities whose sole activities
consist of engaging in the Proprietary Trading Business and provided, further
that the term "Affiliate" when applied to Buyer, shall mean only those Persons
directly or indirectly Controlled by Buyer.
"Agreement" means this Interest Purchase Agreement.
"Authority" means any governmental, judicial, legislative,
executive, administrative or regulatory authority of the United States, or of
any state, local or foreign government, or any government of any possession or
territory of the United States, or any subdivision, agency, commission, office
or authority of any of the foregoing, or any Self-Regulatory Organization.
"Bunda" shall have the meaning specified in the preamble to this
Agreement.
"Burch" shall have the meaning specified in the preamble to this
Agreement.
2
"Business Day" means any day except a Saturday, Sunday or other day
on which commercial banks in New York City are authorized or required by law to
close.
"Buyer" shall have the meaning specified in the preamble to this
Agreement.
"Buyer Material Adverse Change" means any change giving rise to a
Buyer Material Adverse Effect.
"Buyer Material Adverse Effect" means (i) any one or more events,
circumstances, conditions or changes which result in, or which may reasonably be
expected to result in, individually or in the aggregate, a material adverse
impact on the operations, results of operations, or financial condition of Buyer
and its Subsidiaries, taken as a whole, or (ii) any effect that would,
individually or in the aggregate, materially impair, hinder or otherwise
materially and adversely affect the ability of Buyer to effect the Closing or of
Buyer to perform any of its material obligations under this Agreement or any of
the Related Agreements; provided that, any events, circumstances, conditions,
changes or effects resulting from, and consistent with, changes in the U.S.
securities markets generally shall not constitute a Buyer Material Adverse
Effect.
"Cash Consideration" shall have the meaning specified in Section
2.2.
"Class A Unit Holders" shall have the meaning specified in the
preamble to this Agreement.
"Class B Unit Holders" means any Person holding Class B Units.
"Class C Unit Holders" shall have the meaning specified in the
preamble to this Agreement.
"Class A Units" shall have the meaning specified in the recitals to
this Agreement.
"Class B Units" means the issued and outstanding voting Class B
units of limited partnership interest in ProTrader LP.
"Class C Units" shall have the meaning specified in the recitals to
this Agreement.
"Class D Units" shall have the meaning specified in the recitals to
this Agreement.
"Closing" and "Closing Date" shall have the meanings specified in
Article II of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, and the
Treasury Regulations promulgated thereunder.
"Commission" means the United States Securities and Exchange
Commission.
"Company Intellectual Property" means (i) the Company Owned
Intellectual Property and (ii) the Company Licensed Intellectual Property.
3
"Company Licensed Intellectual Property" means all Intellectual
Property other than Company Owned Intellectual Property that is used under
license or otherwise used by ProTrader LP, ProTrader LLC or their respective
Subsidiaries as of the Closing Date.
"Company Owned Intellectual Property" means Intellectual Property
owned by ProTrader LP, ProTrader LLC or their respective Subsidiaries as of the
Closing Date.
"Confidentiality Agreement" means the confidentiality agreement
dated February 21, 2001 between ProTrader LP and Buyer.
"Consent" means any consent, waiver, approval, authorization,
exemption, registration, license or declaration of or by any Person or any
Authority, or expiration or termination of any applicable waiting period under
any Legal Requirement, required with respect to any Party in connection with (i)
the execution and delivery of this Agreement or any of the Related Agreements or
(ii) the consummation of any of the transactions provided for hereby or thereby.
"Contingency Escrow Amount" shall have the meaning specified in
Section 2.4(c).
"Contracts" means any and all written executory contracts and
agreements, including those that are franchises, warranties, understandings,
arrangements, leases of personal property, licenses of personal property,
registrations, authorizations, mortgages, bonds, notes and other instruments.
"Control" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of an entity,
whether through the ownership of securities, by contract or otherwise.
"Customer" shall have the meaning specified in Section 3.21.
"Damages" means any and all obligations, liabilities, damages,
injuries, fines, liens, penalties, deficiencies, losses, Judgments, settlements,
costs and expenses (including costs and expenses incurred in connection with
performing obligations, bonding and appellate costs and reasonable attorneys',
accountants', engineers', health, safety, environmental and other consultants'
and investigators' fees and disbursements or other payments in respect of such
payments), regardless of whether any of the foregoing are foreseeable or
unforeseeable, matured or unmatured.
"Development Agreement" means the Development and Technical Services
Agreement among Burch, Jamail, Kershner and ProTrader LP, a form of which is
attached as Exhibit B.
"Dollars" and "$" mean United States dollars.
"Drag-Along Partners" means Persons who become holders of Units
after the date hereof and who are required to sell their Units to Buyer pursuant
to Section 9.8 of the ProTrader LP Partnership Agreement.
4
"Easements" means the easements and rights of way used or necessary
to the business or operations of ProTrader Group.
"EHS Laws" shall have the meaning specified in Section 3.17(a).
"EIN" means, with respect to Persons listed in Schedule 8.1(a), the
last 4 digits of such Person's social security number.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Escrow Agent" shall have the meaning specified in Section 2.4(a).
"Escrow Agreement" shall have the meaning specified in Section
2.4(a).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Execution Agreement" means the execution agreement among PROTRADER
SECURITIES CORPORATION, PROTRADER TRADING LLC, PTPHC, LP, Jamail, Burch and
Kershner, a form of which is attached as Exhibit C.
"Execution Escrow Amount" shall have the meaning specified in
Section 2.4(c).
"Filing" means any filing with any Person or Authority required by
any Party in connection with (i) the execution and delivery of this Agreement or
any of the Related Agreements or (ii) the consummation of any of the
transactions provided for hereby or thereby.
"Fully Diluted Units" means, as of the date of determination, the
number of outstanding Class A Units plus the number of outstanding Class B Units
plus the number of outstanding Class C Units plus the number of outstanding
Class D Units plus the additional number of Class B Units that would be
outstanding if all vested and outstanding Options had been exercised, on a net
exercise basis.
"GAAP" means United States generally accepted accounting principles.
"GR8TRADE License Agreements" means the license agreements between
PROTRADER Technologies LP and each of PROTRADER TRADING LLC, PTPHC, LP, Jamail,
Burch and Kershner, and certain of their Affiliates in each case in the form of
which is attached as Exhibit A.
"Grigsby" shall have the meaning specified in the recitals to this
Agreement.
"Grigsby Redemption Agreement" shall have the meaning specified in
the recitals to this Agreement.
"Hazardous Substance" shall have the meaning specified in Section
3.17(a).
"Historical Financial Statements" means (i) for ProTrader LP and its
Subsidiaries (including for these purposes, those legal entities whose sole
activities consist of engaging in the
5
Proprietary Trading Business), the audited consolidated and combined financial
statements, including balance sheets, statements of income, statement of changes
in stockholder's and partner's equity and cash flows and unaudited other
financial information for each of the years ended December 31, 2000 and December
31, 1999 (including the related notes thereto, and all auditors' reports
thereon), (ii) for PROTRADER SECURITIES CORPORATION (formerly Cornerstone
Securities Corp.), the audited financial statements, including statement of
financial condition, statement of income, statement of changes in stockholder's
equity and statement of cash flows, for each of the years ended December 31,
2000 and December 31, 1999 and December 31, 1998 (including the related notes
and schedules thereto, and all auditors' reports thereon), (iii) for PROTRADER
TRADING LLC and its predecessors, the audited financial statements, including
balance sheets, statements of income, statement of changes in member's equity
and cash flows for each of the years ended December 31, 2000 and December 31,
1999 (including, the related notes and schedules thereto, and all auditors'
reports thereon), and (iv) the Interim Financial Statements.
"Horne" shall have the meaning specified in the preamble to this
Agreement.
"Houston Interests" shall have the meaning specified in the recitals
to this Agreement.
"Houston Interests Escrow Amount" shall have the meaning specified
in Section 2.4(b).
"Houston Interests Notice" shall have the meaning specified in
Section 5.7(b).
"Houston Interests Purchase Price" shall have the meaning specified
in Section 5.7(b).
"Indebtedness" means, with respect to any Party, without duplication
(i) all indebtedness of such Party for borrowed money or for the deferred
purchase price of property or services (other than trade payables on ordinary
trade terms incurred in the ordinary course of business), (ii) all indebtedness
of such Party evidenced by a note, bond, debenture or similar instrument, (iii)
reimbursement obligations with respect to all letters of credit issued for the
account of such Party, (iv) all payment obligations of such Party under any
interest rate and currency protection agreement (including, without limitation,
any swaps, forward contracts, caps, floors, collars and similar agreements) and
commodity swaps, forward contracts and similar agreements and (v) all guarantees
issued by such Party in respect of the indebtedness or obligations described in
clauses (i)-(iv) above of any other Person.
"Indemnification Escrow Account" shall have the meaning specified in
Section 2.4(a).
"Indemnity Escrow Amount" shall have the meaning specified in
Section 2.4(a).
"Indemnity Escrow Value" shall have the meaning set forth in Section
9.8 (a)(ii).
"Indemnified Party" shall have the meaning specified in Section
9.5(a).
6
"Indemnifying Party" shall have the meaning specified in Section
9.5(a).
"Instinet Common Stock" shall have the meaning specified in Section
2.2.
"Instinet Daily Price" means, for any trading day, the volume
weighted average (rounded to the nearest 1/1,000) of the per share trading
prices of Instinet Common Stock on Nasdaq on such Nasdaq trading day.
"Instinet Share Price" means the average (rounded to the nearest
1/1,000) of the Instinet Daily Prices for the seven (7) Nasdaq trading days
ending on the trading day prior to the date of determination.
"Intellectual Property" means any intellectual property or
proprietary rights in any jurisdiction, whether owned or held for use under
license, whether registered or unregistered (excluding, however, licenses for
software that is commercially available for less than $1000 on a per user basis)
including, without limitation, such rights in and to: (i) trademarks and pending
trademark applications, trade dress, service marks, certification marks, logos,
trade names, brand names, corporate names, assumed names and business names (the
"Trademarks"); (ii) issued patents and pending patent applications, and any and
all divisions, continuations, continuations-in-part, reissues, continuing patent
applications, reexaminations, and extensions thereof, any counterparts claiming
priority therefrom, utility models, patents of importation/confirmation,
certificates of invention, certificates of registration and like statutory
rights (collectively, "Patents"); inventions, invention disclosures, discoveries
and improvements, whether patentable or not; (iii) works of authorship (the
"Copyrights"); (iv) trade secrets (including, but not limited to, those trade
secrets defined in the Uniform Trade Secrets Act and under corresponding foreign
statutory and common law), business, technical and know-how information,
non-public information, and confidential information and rights to limit the use
or disclosure thereof by any person (collectively, "Trade Secrets"); (v)
computer software, data files, source and object codes, user interfaces,
manuals, databases and other specifications and documentation (collectively,
"Software"); (vi) mask works; (vii) moral rights; (viii) claims, causes of
action or defenses relating to the enforcement of any of the foregoing; and (ix)
the goodwill associated with the foregoing.
"Interim Net Income Statement" shall have the meaning set forth in
Section 2.5(b).
"Interim Financial Statements" means for ProTrader LP and its
Subsidiaries (including, for these purposes, those legal entities whose sole
activities consist of engaging in the Proprietary Trading Business) and for each
of PROTRADER SECURITIES CORPORATION, PROTRADER.COM Limited Partnership and
PROTRADER TRADING LLC, the unaudited consolidated and combined financial
statements, including balance sheets, statements of income, statement of changes
in stockholder's and partners' equity and cash flows for the period beginning
January 1, 2001 and ending May 31, 2001 (including the related notes and
schedules thereto).
"IRS" means the United States Internal Revenue Service or any
successor authority.
7
"Jamail" shall have the meaning specified in the preamble to this
Agreement.
"Judgments" means any and all judgments, orders, writs, directives,
rulings, decisions, injunctions, decrees, assessments, settlement agreements or
awards of any Authority or arbitrator.
"Kershner" shall mean Andrew S. Kershner, an individual residing in
St. Croix, U.S. Virgin Islands.
"Leased Property" and "Leased Properties" shall have the meaning
specified in Section 3.6(b).
"Legal Requirements" means any and all applicable (i) federal,
territorial, state, local and foreign laws, ordinances, regulations, (ii) codes,
standards, rules, requirements, orders and criteria issued under any federal,
territorial, state, local or foreign laws, ordinances or regulations, (iii)
rules of any Self-Regulatory Organization and (iv) Judgments.
"Liabilities" means all liabilities or obligations and Damages
arising therefrom or relating thereto (whether known, unknown, absolute,
contingent or otherwise).
"Lien" means any mortgage, pledge, hypothecation, charge,
assignment, deposit arrangement, encumbrance, security interest, lien, and any
security or similar agreement of any kind or nature whatsoever.
"Material Contract" shall have the meaning specified in Section
3.8(b).
"Maximum Indemnification Amount" shall have the meaning specified in
Section 9.8(a)(ii).
"McEntire" shall have the meaning specified in the preamble to this
Agreement.
"Millennium Compliance" means, with respect to any Programmed
System, the attribute of being Millennium Compliant.
"Millennium Compliant" means, with respect to any Programmed System,
the ability, before, on and after January 1, 2000, to:
(i) consistently and correctly handle and process calendar dates
falling on or after January 1, 2000 in the same manner and with the same
functionality as with respect to calendar dates falling on or before
December 31, 1999, including but not limited to accepting date input,
providing date output, and performing calculations based on dates or
portions of dates;
(ii) function without any inaccuracies or interruptions caused by
the advent of the new century without requiring any change in operations;
(iii) where appropriate, respond to two-digit date input in a way
that resolves any ambiguity as to century in a disclosed, defined and
predetermined manner; and
8
(iv) store, process and provide output of date information in ways
that are unambiguous as to century.
"NASD" means the National Association of Securities Dealers, Inc.
"Nesmith Parties" shall have the meaning specified in Section 5.10.
"Net Capital" shall mean net capital as calculated in accordance
with Rule 15c3-1 of the Exchange Act.
"Options" shall have the meaning specified in Section 6.1(l).
"OSJ" means the franchise offices of ProTrader Group located in
Cleveland, Ohio; Denver, Colorado; Houston, Texas; Lexington, Kentucky; San
Antonio, Texas; and Scottsdale, Arizona.
"Overunder" shall have the meaning specified in the preamble to this
Agreement.
"Parties" shall have the meaning specified in the preamble to this
Agreement.
"Party" shall have the meaning specified in the preamble to this
Agreement.
"Permits" means any and all permits, authorizations, approvals,
registrations, certificates, orders, waivers, variances or other approvals and
licenses relating to compliance with any Legal Requirement.
"Permitted Encumbrances" means (i) Liens for taxes and assessments,
both general and special, not yet due and payable or which are being contested
in good faith and have been reserved against in the Interim Financials, (ii)
easements of record for electricity, water, gas and telephone lines serving the
Leased Properties and the business conducted thereon and other easements of
record which do not have, individually or in the aggregate, a Seller Material
Adverse Effect, (iii) any laws, regulations or ordinances (including, but not
limited to, those related to or affecting zoning, building and environmental
matters) adopted or imposed by any Authority which do not have , individually or
in the aggregate, a Seller Material Adverse Effect, (iv) workmen's, landlord's
or other similar liens imposed by law and arising or incurred in the ordinary
course of business which do not have, individually or in the aggregate, a Seller
Material Adverse Effect, (v) public or private rights, if any, in such portion
of the Leased Properties as may be presently used and recorded, for street,
roadway, and/or alley purposes, which do not, individually or in the aggregate,
have a Seller Material Adverse Effect and (vi) any interest or title of a lessor
or sublessor under any lease; (vii) pledges or deposits under workingmen's
compensation laws or similar legislation and deposits in connection with
licenses, franchises or leases to which ProTrader LP, ProTrader LLC or their
respective Subsidiaries are a party; and (viii) other minor Liens incurred in
the ordinary course of business that, individually or in the aggregate, do not
materially effect the assets to which such Liens relate.
"Person" means an individual or a corporation, partnership, trust,
limited liability company, unincorporated organization, joint stock company,
joint venture, association or other entity, or any government, or any agency or
political subdivision thereof.
9
"Plan" shall have the meaning specified in Section 3.14(a).
"Post-Closing Period" shall have the meaning specified in Section
10.2.
"Pre-Closing Period" shall have the meaning specified in Section
10.2.
"Proceeding" shall have the meaning specified in Section 3.9.
"Programmed Systems" means, collectively: (i) all computer hardware,
software, firmware, databases, peripherals, systems and other computer
equipment, (ii) all voice and data communications equipment and related software
and firmware, and (iii) all other equipment of any type, the operation of which
is controlled in some aspects by coded programs of instructions that are either
loaded into such equipment before operation or embedded in storage devices
(including, without limitation, read-only memory (ROM), electrically
programmable read-only memory (EPROM), flash memory and similar devices)
contained in such equipment.
"Property" means all assets and property owned by any one or more
members of the ProTrader Group, including cash, personal property and intangible
property.
"Proprietary Trading Business" means the business conducted by
Burch, Jamail or Kershner, directly or through PROTRADER TRADING LLC, PTPHC, LP,
ProTrader Equity Partners Management LLC or any other Person Controlled,
directly or indirectly and severally or jointly, by any one or more of them, and
any employees employed by any of such Persons, whereby such Persons or employees
engage in the trading of securities for the account of Burch, Jamail, Kershner,
PROTRADER TRADING LLC, PTPHC, LP, ProTrader Equity Partners Management LLC or
any Person Controlled, directly or indirectly and jointly or severally by any
one or more of them.
"Proprietary Trading Business Assets" means those assets of
ProTrader Group used exclusively or primarily in the Proprietary Trading
Business, including those assets set forth on Schedule 5.6(a).
"Proprietary Trading Business Liabilities" means those Liabilities
of ProTrader Group arising from the Proprietary Trading Business, whether fixed,
absolute, matured, unmatured, accrued or contingent, now existing or arising
after the date hereof, including those Liabilities identified in the Historical
Financial Statements for ProTrader Trading or set forth on Schedule 5.6(b).
"Pro-Rata Portion" means, with respect to any Seller, the percentage
set forth opposite such Seller's name on Schedule 2.2.
"Prospectus" means the Prospectus dated May 17, 2001, of Buyer
relating to the Instinet Common Stock that constitutes a part of Buyer's
Registration Statement No. 333-55190.
"ProTrader Broker-Dealer Subsidiaries" shall have the meaning
specified in Section 3.20(a).
10
"ProTrader Constituent Documents" means, with respect to any member
of ProTrader Group, the certificate of limited partnership, certificate of
incorporation, certificate of formation, by-laws, articles of incorporation,
partnership agreement, limited liability company agreement or other similar
constituent, organizational and governing documents.
"ProTrader Group" means ProTrader LP, ProTrader LLC, PROTRADER
SECURITIES CORPORATION (f/k/a Cornerstone Securities Corp.), ProTrader Houston
OSJ, LP, ProTrader Houston OSJ Management, LLC, PROTRADER Services LP, PROTRADER
Services Management LLC, PROTRADER Capital LP, ProTrader Capital Management LLC,
ProTrader Acquisitions LP, ProTrader Acquisitions Holdings LLC, PROTRADER
Technologies LP, PROTRADER Technologies Management LLC, PROTRADER.COM Limited
Partnership, PROTRADER.com Management LLC, PROTRADER Technologies Holdings LP,
PROTRADER Technologies Holdings Management LLC and any Subsidiaries of any of
the foregoing.
"ProTrader LLC" shall have the meaning specified in the recitals to
this Agreement.
"ProTrader LLC Limited Liability Company Agreement" means that
certain Amended and Restated Limited Liability Company Agreement, entered into
to be effective as of October 18, 2000, by and between Burch, Jamail and
Kershner.
"ProTrader LLC Membership Interests" shall have the meaning
specified in the recitals to this Agreement.
"ProTrader LP" shall have the meaning specified in the recitals to
the Agreement.
"ProTrader LP Partnership Agreement" means that certain Amended and
Restated Limited Partnership Agreement, entered into to be effective as of
October 18, 2000, by and among PROTRADER Group Management L.L.C., as the general
partner, and Burch, Jamail, Overunder, Van Eman, Horne, Thomas Dixon and Bunda,
as limited partners.
"ProTrader LP Units" shall have the meaning specified in the
recitals to this Agreement.
"Purchase Price" shall have the meaning specified in Section 2.2.
"Real Property Lease" shall have the meaning specified in Section
3.6(b).
"Real Property Lease Conveyances" means the assignments and
assumptions of leases required to be recorded in connection with the transfer of
the Leased Properties.
"Redemption Obligation" shall have the meaning specified in the
recitals of this Agreement.
"Redemption Obligation Amount" means an amount equal to $10,200,000
less any amounts paid to Grigsby prior to the Closing Date in respect of the
Grigsby Redemption Obligation.
11
"Registration Rights Agreement" means the registration rights
agreement among Jamail, Burch, Overunder, McEntire, Bunda, Horne, Van Eman,
Young and Buyer, a form of which is attached as Exhibit D.
"Regulations" means the U.S. Federal Income Tax Regulations, as
amended.
"Regulators" shall have the meaning specified in Section 3.19(b).
"Related Agreements" means the Development Agreement, the Escrow
Agreement, the Execution Agreement, the GR8TRADE License Agreements, the
Registration Rights Agreement and the Trading Agreements (as such term is
defined in the Execution Agreement).
"Reports" shall have the meaning specified in Section 3.22.
"Returns" means any and all returns, statements, forms and reports
for Taxes.
"SEC" means the United States Securities Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Self-Regulatory Organization" shall have the meaning specified in
Section 3(a)(26) of the Exchange Act.
"Seller Material Adverse Change" means any change giving rise to a
Seller Material Adverse Effect.
"Seller Material Adverse Effect" means (i) any one or more events,
circumstances, conditions or changes, which result in, or which may reasonably
be expected to result in, individually or in the aggregate, a material adverse
impact on the operations, results of operations, or financial condition of
ProTrader LP, ProTrader LLC or any of their respective Subsidiaries, taken as a
whole, or (ii) any effect that would, individually or in the aggregate,
materially impair, hinder or otherwise materially and adversely affect the
ability of Sellers, ProTrader LP, ProTrader LLC or any of their respective
Subsidiaries (including, for these purposes, those legal entities whose sole
activities consist of engaging in the Proprietary Trading Business) to effect
the Closing or to perform any of their material obligations under this Agreement
or any of the Related Agreements; provided that, any events, circumstances,
conditions, changes or efforts resulting from, and consistent with, changes in
the U.S. securities markets generally shall not constitute a Seller Material
Adverse Effect.
"Sellers" shall have the meaning specified in the preamble to this
Agreement.
"Sellers' Expenses" means all fees and expenses payable to Bear,
Stearns & Co. Inc. in connection with the transactions contemplated by this
Agreement, the UAR payments, the trader appreciation payments (not to exceed $5
million), the Grigsby Redemption Obligation Amount determined as of Closing,
Sellers' Section 8.1 Payments and other fees and expenses (including legal and
accounting) associated with the transaction, in each case in the amounts set
forth in Schedule A.
12
"Sellers' Representative" shall have the meaning set forth in
Section 11.11.
"Sellers' Section 8.1 Payments" shall have the meaning specified in
Section 8.1.
"Subsidiary" means, from time to time, (i) any corporation more than
50% of whose stock of any class or classes having by the terms thereof ordinary
or contingent voting power to elect directors of such corporation is at the time
owned by any Person directly or indirectly through Subsidiaries, and (ii) any
partnership, association, joint venture, limited liability company or other
entity in which any Person directly or indirectly through any Subsidiaries has
more than a 50% equity interest at any time; provided, that except as expressly
provided in this Agreement, the term Subsidiary, when applied to the ProTrader
Group, shall not include legal entities whose sole activities consist of
engaging in the Proprietary Trading Business.
"Tag-Along Agreement" shall have the meaning specified in Section
5.7(a).
"Tampa Sellers" shall have the meaning specified in Section 5.9.
"Tampa Stock Purchase Agreement" shall have the meaning specified in
Section 5.9.
"Tax Return" means a report, return or other information (including
any amendments) required to be supplied to a governmental entity with respect to
Taxes including, where permitted or required, combined or consolidated returns
for any group of entities that includes ProTrader LP, ProTrader LLC, any
successor to ProTrader LP or ProTrader LLC or any of their respective
Subsidiaries (including, for these purposes, legal entities whose sole
activities consist of engaging in the Proprietary Trading Business).
"Taxes" means all taxes, however denominated, including any interest
or penalties that may become payable in respect thereof, imposed by any federal,
state, local or foreign government or any agency or political subdivision of any
such government, which taxes shall include, without limiting the generality of
the foregoing, all income taxes (including, but not limited to, United States
federal income taxes and state income taxes), payroll and employee withholding
taxes, unemployment insurance, social security, sales and use taxes, excise
taxes, environmental, franchise taxes, gross receipts taxes, occupation taxes,
property taxes, stamp taxes, transfer taxes, withholding taxes, and other
obligations of the same or of a similar nature, whether arising before, on or
after the Closing Date.
"Third Party" means any Person not a signatory to this Agreement.
"Third Party Personnel" means any individual not employed by any
member of ProTrader Group, who provides, or who has provided since January 1,
1998, services to ProTrader Group pursuant to any Contract between ProTrader LP
or ProTrader LLC or any of their respective Affiliates and such individual or
any management, service, consulting or similar firm under which ProTrader Group,
or any entity comprising ProTrader Group, received services at a cost in excess
of fifty thousand dollars ($50,000) in any calendar year.
"Trader Group" shall have the meaning specified in the recitals to
this Agreement.
13
"Trader LLC" shall have the meaning specified in the recitals to
this Agreement.
"Trader Partnership" shall have the meaning specified in the
recitals to this Agreement.
"Unit" shall have the meaning specified in Section 6.1(l).
"Unit Option Plan" means the PROTRADER Group Limited Partnership
2000 Option Plan, effective as of May 1, 2000.
"Van Eman" shall have the meaning specified in the preamble to this
Agreement.
"Voluntary Bankruptcy" means, with respect to any Person, an
admission in writing by such Person of its inability to pay its debts generally
or a general assignment by such Person for the benefit of creditors; the filing
of any petition or answer by such Person seeking to adjudicate it bankrupt or
insolvent, or seeking for itself any liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of such Person or
its debts under any Legal Requirement relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking, consenting to, or acquiescing
in the entry of an order for relief or the appointment of a receiver, trustee,
custodian or other similar official for such Person or for any substantial part
of its property; or corporate action taken by such Person to authorize any of
the actions set forth above.
1.2 Interpretation. In this Agreement and in the Schedules and
Exhibits hereto:
(a) the Table of Contents and headings are for convenience only and
shall not affect the interpretation of this Agreement;
(b) unless otherwise specified, references to Articles, Sections,
clauses, Schedules and Exhibits are references to Articles, Sections and clauses
of, and Schedules and Exhibits to, this Agreement;
(c) references to any document or agreement, including this
Agreement, shall be deemed to include references to such document or agreement
as amended, supplemented or replaced from time to time in accordance with its
terms and (where applicable) subject to compliance with the requirements set
forth therein;
(d) references to any party to this Agreement or any other document
or agreement shall include its successors and permitted assigns;
(e) whenever in this Agreement, a Contract or instrument is referred
to as "enforceable," such statement shall be deemed to be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other similar
laws relating to the enforcement of creditors' rights generally and by general
principles of equity;
(f) the words "include", "includes" and "including" are not limiting
and are deemed to be followed by the words "without limitation;"
14
(g) neutral pronouns and variations thereof shall be deemed to
include the feminine and masculine and neuter form;
(h) all terms used in the singular shall be deemed to include the
plural and vice versa as the context may require; and
(i) unless the context requires otherwise, derivative forms of any
capitalized term defined herein shall have a comparable meaning to that of such
term.
ARTICLE II
THE CLOSING
On the fifth Business Day (or such other day as the Parties may agree)
after the last to be fulfilled or waived of the conditions set forth in Article
VI (other than those conditions that are specified as being satisfied on the
Closing Date or at the Closing, so long as it is reasonably apparent that such
conditions will be able to be satisfied at the Closing) shall be fulfilled or
waived, the closing of the transactions provided for in this Agreement (the
"Closing") shall be held (but only if all of the conditions set forth in Article
VI shall have been satisfied or waived prior to the Closing) at the offices of
Cleary, Gottlieb, Steen & Hamilton, One Liberty Plaza, New York, New York,
10006, (the "Closing Date"). Each of the Parties hereby agrees that the
following actions shall occur and be effective at and as of the Closing.
2.1 Acquisition and Transfer of the ProTrader LP Units and the
ProTrader LLC Interest. In reliance upon the representations, warranties,
covenants and agreements contained herein and upon the terms and subject to the
conditions hereinafter set forth, at the Closing:
(A) the Class A Unit Holders shall sell, assign, transfer, convey
and deliver to Buyer, and Buyer shall purchase, acquire and accept from Class A
Unit Holders, in each case free and clear of all Liens (other than Liens created
by the terms of the ProTrader LP Partnership Agreement or the ProTrader LLC
Limited Liability Company Agreement, as applicable, which, with respect to any
holders (other than Buyer) of Units or ProTrader LLC Membership Interests as of
or prior to Closing, shall be extinguished or irrevocably waived upon the
Closing) (i) all of the Class A Units and (ii) one hundred percent (100%) of the
ProTrader LLC Membership Interests;
(B) The Class B Unit Holders as of the Closing Date shall sell,
assign, transfer, convey and deliver to Buyer, and Buyer shall purchase, acquire
and accept such Class B Unit Holders, free and clear of Liens (other than Liens
created by the terms of the ProTrader LP Partnership Agreement or the ProTrader
LLC Limited Liability Company Agreement, as applicable, which, with respect to
any holders (other than Buyer) of Units or ProTrader LLC Membership Interests as
of or prior to Closing, shall be extinguished or irrevocably waived upon the
Closing) all of the Class B Units;
(C) the Class C Units Holders shall sell, assign, transfer, convey
and deliver to Buyer, and Buyer shall purchase, acquire and accept from the
Class C Unit Holders, free and clear of all Liens (other than Liens created by
the terms of the ProTrader LP Partnership
15
Agreement or the ProTrader LLC Limited Liability Company Agreement, as
applicable, which, with respect to any holders (other than Buyer) of Units or
ProTrader LLC Membership Interests as of or prior to Closing, shall be
extinguished or irrevocably waived upon the Closing), all of the Class C Units;
(D) McEntire shall sell, assign, transfer, convey and deliver to
Buyer, and Buyer shall purchase, acquire and accept from McEntire, free and
clear of all Liens (other than Liens created by the terms of the ProTrader LP
Partnership Agreement or the ProTrader LLC Limited Liability Company Agreement,
as applicable, which, with respect to any holders (other than Buyer) of Units or
ProTrader LLC Membership Interests as of or prior to Closing, shall be
extinguished or irrevocably waived upon the Closing), all of the Class D Units.
2.2 Purchase Price. The aggregate consideration (the "Purchase
Price") for the Class A Units, the Class B Units (if any), the Class C Units,
the Class D Units and the ProTrader LLC Membership Interests shall be (i)
$50,000,000 in cash or immediately available funds (the "Cash Consideration")
and (ii) an aggregate number of shares of common stock, $0.01 par value, of
Buyer ("Instinet Common Stock"), equal to the quotient of (x) $100,000,000 less
the Redemption Obligation Amount divided by (y) the Instinet Share Price
determined as of the Closing Date (the "Stock Consideration").
2.3 Payment Priority.
(a) At the Closing, the Purchase Price shall be paid in the
following manner: (i) Buyer shall deliver that portion of the Stock
Consideration equal to the Indemnity Escrow Amount to the Escrow Agent pursuant
to the terms of the Escrow Agreement in accordance with Section 2.4(a), (ii)
Buyer shall deliver that portion of the Stock Consideration equal to the Houston
Interests Escrow Amount to the Escrow Agent pursuant to the terms of the Escrow
Agreement in accordance with Section 2.4(b), (iii) Buyer shall deliver that
portion of the Stock Consideration equal to the Contingency Escrow Amount to the
Escrow Agent pursuant to the terms of the Escrow Agreement in accordance with
Section 2.4(c), (iv) Buyer shall deliver that portion of the Stock Consideration
equal to the Execution Escrow Amount pursuant to the terms of the Escrow
Agreement in accordance with Section 2.4(d), (v) Buyer shall pay on behalf of
PROTRADER LP the aggregate Sellers' Expenses and (vi) Buyer shall pay to
PROTRADER LP the aggregate amounts listed on Schedule 2.2 with respect to
holders of vested Options, which shall be distributed to each holder of vested
Options in accordance with Schedule 2.2 in full settlement and satisfaction of
such Option. Buyer shall pay the remaining Purchase Price to the Persons as
specified in Section 2.3(b).
(b) Buyer shall wire transfer the Cash Consideration (other than any
portion thereof paid to the Houston Trader Group at Closing or to any other
Persons in accordance with Section 2.3(a)) to the Persons in the amounts set
forth opposite each Person's name on Schedule 2.2 in immediately available funds
to a bank account or bank accounts designated by Sellers no later than five (5)
Business Days prior to the Closing. Buyer shall issue and deliver the Stock
Consideration (other than the Stock Consideration to be placed into escrow
pursuant to Section 2.4) to the Persons, in the amounts set forth opposite each
Person's name on Schedule 2.2.
16
2.4 Escrow Accounts.
(a) Buyer shall place an aggregate number of shares of Instinet
Common Stock equal to the quotient of $60,000,000 divided by the Instinet Share
Price determined as of the Closing Date (the "Indemnity Escrow Amount") into an
escrow account, such escrow account (the "Indemnification Escrow Account") to be
maintained, subject to Sections 2.4(b), 2.4(c) and 2.4(d), for a period of one
(1) year to provide for the payment by Sellers of any amounts that become due
under the indemnification provisions of this Agreement. Such escrow will be
established pursuant to an escrow agreement (the "Escrow Agreement") among
Buyer, Sellers and a bank to be agreed upon by Buyer and Sellers as escrow agent
(the "Escrow Agent") in a form agreed to by Buyer, Sellers and the Escrow Agent.
On the first anniversary of the Closing, any amounts in the Indemnification
Escrow Account that have not been released to Buyer for the payment of such
amounts as may be due under Section 9.2 and are not subject to pending
indemnification claims shall be released to Sellers. Any amounts in the
Indemnification Escrow Account that are not so released pending an
indemnification claim shall be released when the claim is resolved.
(b) Unless the purchase of the Houston Interests is consummated at
or prior to Closing, Buyer shall place in a subaccount of the Indemnification
Escrow Account (or in a separate escrow account) pursuant to the Escrow
Agreement an aggregate number of shares of Instinet Common Stock equal to the
quotient of $10,000,000 divided by the Instinet Share Price determined as of the
Closing Date (the "Houston Interests Escrow Amount"). The escrow referenced in
this Section 2.4(b) shall be used to indemnify Buyer for any loss arising from
the subject matter set forth in Section 5.7 and shall be maintained until the
closing of the purchase of Houston Interests pursuant to Section 5.7. Buyer,
Sellers and Young agree that the Houston Interests Escrow Amount (i) does not
represent an acknowledgement on the part of any Party on the amount of any
potential liability to the Trader Group and (ii) is substantially in excess of
any such potential liability. Notwithstanding the preceding sentence, Buyer,
Sellers and Young agree that Buyer shall be entitled to obtain up to the full
amount of the Houston Interests Escrow Amount in order to compensate Buyer for,
or to allow Buyer to pay on behalf of itself or the ProTrader Group, any
liability relating to the subject matter of Section 5.7. Any portion of the
Houston Interests Escrow Amount not subject to a pending indemnification claim
shall be released to Sellers and Young based on their respective Pro Rata
Portion of such Escrow Amount upon the earlier to occur of (i) the consummation
of the acquisition of the Houston Interests pursuant to the Tag-Along Agreement
or (ii) the lapse of all applicable statutes of limitations for any claim or
potential claim under Section 5.7.
(c) Buyer shall place in a subaccount of the Indemnification Escrow
Account (or in a separate escrow account) pursuant to the Escrow Agreement an
aggregate number of shares of Instinet Common Stock equal to the quotient of
$4,500,000 divided by the Instinet Share Price determined as of the Closing Date
(the "Contingency Escrow Amount"). The Contingency Escrow Amount shall be used
to indemnify Buyer for any loss arising from the subject matter set forth in
Section 5.10 of this Agreement. Buyer, Sellers and Young hereby agree and
acknowledge that nothing in this Section 2.4(b) is or shall be deemed an
admission or recognition by any Party of liability with respect to any claim or
potential claim that may be brought against such Party with respect to the
subject matter hereof. In addition, Buyer, Sellers and Young agree that the
Contingency Escrow Amount represents a substantial over-
17
collateralization for any foreseeable liability arising out of the subject
matter hereof. Notwithstanding the preceding sentence, Buyer, Sellers and Young
agree that Buyer shall be entitled to obtain up to the full amount of the
Contingency Escrow Amount in order to compensate Buyer for, or to allow Buyer to
pay on behalf of itself or the ProTrader Group, any liability relating to the
subject matter of Section 5.10. Any portion of the Contingency Escrow Amount not
subject to a pending indemnification claim shall be released to Sellers and
Young based on their respective Pro Rata Portion of such Escrow Amount upon the
earliest to occur of (i) settlement of all claims arising pursuant to Section
5.10 or (ii) the lapse of all applicable statutes of limitations for any claim
or potential claim under Section 5.10.
(d) Buyer shall place an aggregate number of shares of Instinet
Common Stock equal to the quotient of $15,000,000 divided by the Instinet Share
Price determined as of the Closing Date (the "Execution Escrow Amount") in
escrow, such escrow to be maintained until sixty (60) days after the third
anniversary of the Closing Date to provide for the payment of certain minimum
commission amounts that will be owed under the Execution Agreement. Such escrow
will be established pursuant to the Escrow Agreement. On a monthly basis (and
for each month, in no event later than the 15th calendar day of the succeeding
month), for every $1 million of Fees (as defined in the Execution Agreement)
accrued under the Execution Agreement, that number of shares of Instinet Common
Stock equal to the Execution Escrow Amount divided by thirty (30) shall be
released to Burch, Jamail and Overunder. If Buyer or any of its Affiliates have
not received the minimum commission payments due under the Execution Agreement
within 3 days of such amounts being due, Buyer shall be entitled to obtain
payment of all or a portion of such amount from the Execution Escrow Amount.
(e) On or after the Closing Date upon three Business Days' notice to
Buyer:
(i) any Seller may substitute an amount in cash for such
Seller's Pro-Rata Portion of the shares of Instinet Common Stock then held
in escrow pursuant to Section 2.4(a) (or any portion thereof) equal to
such Seller's Pro-Rata Portion of $50,000,000 less amounts previously paid
out pursuant to the indemnification provisions of this Agreement and the
Escrow Agreement;
(ii) any Seller or Young may substitute an amount in cash
for such Person's Pro-Rata Portion of the shares of Instinet Common Stock
then held in escrow pursuant to Section 2.4(b) (or any portion thereof) of
$10,000,000 less amounts previously paid out pursuant to the
indemnification provisions of this Agreement and the Escrow Agreement;
(iii) any Seller or Young may substitute an amount in cash
for such Person's Pro-Rata Portion of the shares of Instinet Common Stock
then held in escrow pursuant to Section 2.4(c) (or any portion thereof)
equal to such Person's Pro-Rata Portion of $4,500,000 less amounts
previously paid out pursuant to the indemnification provisions of this
Agreement and the Escrow Agreement; and
(iv) any of Burch, Jamail, Overunder and any other Person
with an equity interest in the Proprietary Trading Business who has
executed the Execution Agreement may substitute an amount in cash for such
Person's allocated share of the
18
shares of Instinet Common Stock then held in escrow pursuant to Section
2.4(d) (or any portion thereof) equal to such Person's allocated share of
$15,000,000 less amounts previously paid out pursuant to the provisions of
Section 2.4(d) and the Escrow Agreement; it being agreed that for the
purposes of this Section 2.4(e)(iv) the "allocated share" of each Burch,
Jamail and Overunder shall be as follows: Burch 17.6470%, Jamail 41.1765%
and Overunder 41.1765%, subject to adjustment to take account of any other
Person with an equity interest in the Proprietary Trading Business who has
executed the Execution Agreement.
If Burch, Jamail, Overunder or any other Person with an equity interest in
the Proprietary Trading Business who has executed the Execution Agreement make a
substitution as permitted by clause (iv) above, the amount released to Burch,
Jamail, Overunder or such other Person in accordance with Section 2.4(c) in
respect of each $1 million of Fees paid shall be such Person's allocated share,
as defined in clause (iii) above, of the amount equal to: (X) that number of
shares of Instinet Common Stock equal to the (1) Execution Escrow Amount less
any shares substituted for under clause (iii) above divided by (2) 30 plus (Y)
an amount in cash equal to $500,000 less (A) the number of shares released in
accordance with clause (X) multiplied by (B) the Instinet Share Price determined
as of the Closing Date.
2.5 Closing and Pre-Closing Deliveries.
(a) Sellers shall deliver to Buyer, no later than five Business Days
prior to the Closing Date, (i) Schedule 2.2 setting forth (A), for each Seller,
the number of Class A Units, Class B Units, Class C Units and Class D Units and
percentage of ProTrader LLC Membership Interests, as applicable, that such
Sellers shall convey to Buyer at Closing pursuant to Section 2.1, (B)
instructions for the payment, on behalf of ProTrader LP, of amounts in respect
of the vested and outstanding Options and (C) each of Sellers' and Young's Pro
Rata Portion, (ii) a certificate duly executed by the Class A Unit Holders
certifying the Redemption Obligation Amount as of the Closing Date and detailing
any amounts paid to Grigsby in connection with the Redemption Obligation since
May 31, 2001 and (iii) Schedule A setting forth the Sellers' Expenses.
(b) No later than five Business Days prior to the Closing Date,
Sellers shall deliver to Buyer a completed consolidated statement of income of
ProTrader LP from May 31, 2001 until the date of delivery, duly executed by the
Class A Unit Holders, setting forth the Class A Unit Holders's good faith
estimate of the consolidated net income of ProTrader LP (the "Interim Net Income
Statement").
(c) At the Closing, the Parties shall exchange the documents
referred to in Article VI, the Class A Unit Holders shall deliver to Buyer
assignments and other instruments in form and substance reasonably acceptable to
Buyer evidencing the sale, assignment, transfer and conveyance (including the
waiver of any preemptive rights, rights of first refusal, tag-along rights or
other similar rights pursuant to any ProTrader Constituent Document) to Buyer of
the Class A Units and the ProTrader LLC Membership Interests, the Class B Unit
Holders, if any, shall deliver to Buyer assignments and other instruments in
form and substance reasonably acceptable to Buyer evidencing the sale,
assignment, transfer and conveyance (including the waiver of any preemptive
rights, rights of first refusal, tag-along rights or other similar rights
19
pursuant to any ProTrader Constituent Document) to Buyer of the Class B Units,
the Class C Unit Holders shall deliver to Buyer assignments and other
instruments in form and substance reasonably acceptable to Buyer evidencing the
sale, assignment, transfer and conveyance (including the waiver of any
preemptive rights, rights of first refusal, tag-along rights or other similar
rights pursuant to any ProTrader Constituent Document) to Buyer of the Class C
Units and McEntire shall deliver to Buyer assignments and other instruments in
form and substance reasonably acceptable to Buyer evidencing the sale,
assignment, transfer and conveyance (including the waiver of any preemptive
rights, rights of first refusal, tag-along rights or other similar rights
pursuant to any ProTrader Constituent Document) to Buyer of the Class D Units.
(d) In the event that Buyer disputes the Interim Net Income
Statement, Buyer shall, no later than 30 days after the Closing Date, describe
to Sellers in reasonable written detail the basis for such dispute, and Buyer
and Sellers shall promptly negotiate in good faith to resolve such dispute. If
Buyer fails to deliver such a notice of dispute within such 30-day period, Buyer
shall be deemed to have accepted as final such Interim Net Income Statement. If
Buyer delivers to Seller a notice of dispute and if such dispute is not resolved
within 30 days after Buyer shall have notified Sellers of its basis for such
dispute, then the specific matters in dispute shall be submitted to a nationally
recognized independent accounting firm (other than PricewaterhouseCoopers LLP or
Ernst and Young) reasonably acceptable to Buyer and Sellers. Buyer shall have
the right to examine and make copies of any work papers, including the work
papers of Ernst & Young, used in connection with the preparation of the Interim
Net Income Statement.
Such accounting firm shall be requested to provide its resolution of
the matters in dispute within 30 days of submission thereof to such firm, and
the determination of such accounting firm in respect of each of the matters in
dispute shall be conclusive and binding on Buyer and Sellers save for manifest
error. The determination of such firm shall be final and determinative. Payment
of the amount of any adjustment shall be made by wire transfer of immediately
available funds to the prevailing Party within two Business Days of the final
determination thereof.
The fees and expenses of such accounting firm shall be (i) paid by
Sellers, if the excess (the "Interim Net Income Differential") of the
consolidated net income of ProTrader as set forth on the Interim Net Income
Statement over the consolidated net income of ProTrader as determined by such
accounting firm is greater than 5%, (ii) shared equally by Sellers (in the
aggregate) and Buyer if the Interim Net Income Differential is equal to or less
than 5% and equal to or greater than 1%, and (iii) paid by Buyer if the Interim
Net Income Differential is less than 1%.
20
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers, represent and warrant, jointly and severally, to Buyer as
follows:
3.1 Due Organization, Good Standing and Power.
(a) Each member of ProTrader Group, PROTRADER TRADING LLC and PTPHC,
LP is a corporation or other entity duly organized, validly existing and in good
standing under the laws of its jurisdiction of formation and has the requisite
power and authority under the applicable corporate, limited partnership or
limited liability company law and its ProTrader Constituent Documents to own,
lease and operate its assets and to conduct the business now being conducted by
it and, on the Closing Date, will have the requisite power and authority to own,
lease and operate its assets and to conduct the business being conducted by it
on the Closing Date.
(b) Schedule 3.1(b) lists all of the ProTrader Constituent
Documents, as amended to the date of this Agreement, true, correct and complete
copies of which have been delivered to Buyer.
3.2 Authorization and Validity of Agreements.
(a) Each member of ProTrader Group, PROTRADER TRADING LLC and PTPHC,
LP has all requisite corporate, limited partnership or limited liability company
power and authority to execute and deliver each of the Related Agreements to
which it is a party and to perform its obligations thereunder.
(b) The execution, delivery and performance by each member of
ProTrader Group, PROTRADER TRADING LLC and PTPHC, LP of each Related Agreement
to which it is a party and the consummation by each member of ProTrader Group,
PROTRADER TRADING LLC and PTPHC, LP of the transactions contemplated thereby
have been duly authorized by all necessary corporate, limited partnership or
limited liability company action.
3.3 Absence of Conflicts. The execution, delivery and performance by
each member of the ProTrader Group, PROTRADER TRADING LLC and PTPHC, LP of each
Related Agreement to which it is a party and the consummation by it of the
transactions contemplated thereby, does not and will not: (i) violate any
material Legal Requirement applicable to any such Person (ii) conflict with, or
result in the breach of any provision of any such Person's constituent
documents, (iii) result in the creation of any Lien upon any of such Person's
assets, or (iv) except as set forth on Schedule 3.3, violate, conflict with or
result in the breach or termination of, or otherwise give any other Person the
right to terminate, or constitute a default, event of default or an event which,
with notice, lapse of time or both, would constitute a default or event of
default under the terms of any Contract or Permit to which such Person is a
party or by which its properties or businesses are bound.
21
3.4 Financial Statements; No Material Adverse Change.
(a) The Historical Financial Statements have been prepared in
accordance with GAAP, consistently applied. The Historical Financial Statements
fairly present in all material respects (i) the financial position of ProTrader
LP and its Subsidiaries (including, for these purposes, those legal entities
whose sole activities consist of engaging in the Proprietary Trading Business)
as of the date of the Interim Financial Statements, December 31, 2000 and
December 31, 1999, and (ii) the financial position of PROTRADER SECURITIES
CORPORATION as of December 31, 2000 and December 31, 1999, and contain and
reflect all necessary adjustments (other than normal year-end adjustments in the
case of the Interim Financial Statements), for a fair presentation of the
financial condition and results of operation of ProTrader LP, ProTrader LLC,
PROTRADER SECURITIES CORPORATION and their respective Subsidiaries (including,
for these purposes, those legal entities whose sole activities consist of
engaging in the Proprietary Trading Business), as applicable, for the periods
covered by such financial statements in accordance with GAAP. Except as set
forth and adequately reserved for in the Interim Financial Statements, or as set
forth on Schedule 3.4(a), none of ProTrader LP, ProTrader LLC, PROTRADER
SECURITIES CORPORATION or any of their respective Subsidiaries has any
outstanding claims, liabilities or indebtedness, absolute or contingent, or
obligations of any nature, whether accrued, absolute, contingent, threatened or
otherwise, whether due or to become due, other than liabilities incurred in the
ordinary course and conduct of its business since the date of the Interim
Financial Statements which do not involve borrowings and are not in excess of
fifty thousand dollars ($50,000) in the aggregate or are of a type not required
to be disclosed in financial statements, or notes thereto, in accordance with
GAAP.
(b) Since the date of the Interim Financial Statements, there has
been no Seller Material Adverse Change, other than as a result of the
transactions expressly contemplated by this Agreement (including the disposition
of the Proprietary Trading Business).
(c) Since the date of the Interim Financial Statements until the
date hereof, other than as expressly contemplated by this Agreement (including
the disposition of the Proprietary Trading Business), each of ProTrader LP,
ProTrader LLC and their respective Subsidiaries has conducted its business in
the usual and ordinary course, consistent with past practice.
(d) Except as set forth on Schedule 3.4(d) or in the Interim
Financial Statements, none of ProTrader LP, ProTrader LLC or their respective
Subsidiaries has any Indebtedness.
(e) As of the date of the Interim Financial Statements, PROTRADER
SECURITIES CORPORATION's Net Capital was $1,498,361. As of the date of the
Interim Financial Statements, ProTrader.com's Net Capital was $769,754.
(f) As of the date hereof, the maximum amount payable to Grigsby in
respect of the Redemption Obligation is $7,225,000. All amounts due and payable
to Grigsby in accordance with the Redemption Obligation have been paid.
3.5 Accounts Receivable. The accounts receivable included in the
Interim Financial Statements constitute all of the accounts receivable of
ProTrader LP, ProTrader LLC
22
and their respective Subsidiaries, as of the date thereof. Other than those
reserved for in the allowance for doubtful accounts on the statements of
financial condition contained within the Interim Financial Statements, all of
such accounts receivable are, and those existing on the Closing Date will be,
valid and existing accounts receivable arising in the ordinary course of
business.
3.6 Title to Assets; Maintenance, Operation and Sufficiency of
Assets.
(a) Each of ProTrader LP, ProTrader LLC and their respective
Subsidiaries has good and valid title to all personal property owned by it, free
and clear of all Liens, subject to Permitted Encumbrances and except as
specified in Schedule 3.6(a).
(b) None of ProTrader LP, ProTrader LLC or their respective
Subsidiaries is the fee owner of any real property. Schedule 3.6(b) sets forth a
complete list of all real property and interests in real property which is
leased, directly or indirectly, by ProTrader LP, ProTrader LLC or their
respective Subsidiaries or in respect of which ProTrader LP, ProTrader LLC or
their respective Subsidiaries has an option to enter a lease (individually, a
"Real Property Lease") and (ii) identifies, for each Real Property Lease, the
parties thereto and the address of the property subject thereto. ProTrader LP,
ProTrader LLC or their respective Subsidiaries, as applicable, owns the lessee's
interest in each Real Property Lease and has a lessee's interest in all Real
Property Leases (any real property of which ProTrader LP, ProTrader LLC or their
Subsidiaries, as applicable, has a leasehold interest in and is specified in a
Real Property Lease being sometimes referred to herein individually as a "Leased
Property" and, collectively, as the "Leased Properties"), in each case free and
clear of all Liens of any nature whatsoever except Liens set forth on Schedule
3.6(b) and Permitted Encumbrances.
(c) Except as set forth on Schedule 3.6(b) hereto and except for
Permitted Encumbrances, none of the Leased Properties is subject to any lease,
sublease, license or other agreement granting to any Person other than ProTrader
LP, ProTrader LLC or their respective Subsidiaries any right to the use,
occupancy or enjoyment of the Leased Properties or any part thereof.
(d) Each Real Property Lease is in full force and effect and is
valid and enforceable in accordance with its terms, and there is no default
under any Real Property Lease either by ProTrader LP, ProTrader LLC or their
respective Subsidiaries and Sellers and ProTrader Group have no knowledge of a
default by any other party thereto, and no event has occurred that, with the
lapse of time or the giving of notice or both, would constitute a default by or
against ProTrader LP, ProTrader LLC or any Subsidiary, as applicable,
thereunder. Sellers have delivered, or caused to be delivered to Buyer a true,
correct and complete copy of each Real Property Lease, including all amendments,
supplements, side letters and consents affecting the current or future
obligations of any party thereunder. No previous or current party to any such
Real Property Lease has given notice of or made a claim with respect to any
breach or default thereunder which has not been remedied, waived or otherwise
cured.
(e) Each of ProTrader LP, ProTrader LLC and their respective
Subsidiaries has maintained and operated its assets in accordance with normal
operating practices and such assets are in good operating condition, repair and
maintenance, subject only to ordinary wear and tear.
23
(f) Since the date of the Interim Financial Statements, there has
not occurred:
(i) any material revaluation by ProTrader LP, ProTrader LLC
or any of their respective Subsidiaries of any of their assets; or
(ii) any sale or transfer of a material amount of assets of
ProTrader LP, ProTrader LLC or any of their respective Subsidiaries other
than as expressly contemplated or permitted under this Agreement.
(g) The assets owned, used or operated by each of ProTrader LP,
ProTrader LLC and their Subsidiaries are and, upon the consummation of the
transactions contemplated by this Agreement and the Related Agreements, will be
sufficient for the continued conduct of ProTrader LP's, ProTrader LLC's and each
of their Subsidiaries' respective businesses after the Closing in substantially
the same manner as such businesses were conducted prior to the Closing.
3.7 Insurance. Schedule 3.7 sets forth: (i) each insurance policy
under which ProTrader LP, ProTrader LLC or any of their respective Subsidiaries
is a beneficiary; (ii) the name of the insurer with which such policy is or was
carried; (iii) the annual premium payable thereunder; (iv) the Liabilities
covered thereunder; (v) the amount of coverage (including the amount of any
deductible) thereunder; and (vi) the period of coverage thereunder. All premiums
payable under each such policy have been duly paid to date and each such
insurance policy is in full force and effect up to the full amount of coverage
indicated on Schedule 3.7 and is not voidable on account of any act, omission or
nondisclosure on the part of ProTrader LP, ProTrader LLC or any of their
respective Subsidiaries. None of ProTrader LP, ProTrader LLC or any of their
respective Subsidiaries is in default with respect to any provision of any of
such insurance policies. Except as set forth in Schedule 3.7, ProTrader LP,
ProTrader LLC and each of their respective Subsidiaries have not been refused
any insurance coverage by any insurance carrier to which they have applied for
insurance during the past three years. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby will not
result in any violation of or default or loss of any benefit (including the
right to receive payment of any claim) under, or permit the termination of, any
of the insurance policies listed on Schedule 3.7.
3.8 Contracts.
(a) Schedule 3.8 lists all Material Contracts.
(b) Except as set forth on Schedule 3.8, none of ProTrader LP,
ProTrader LLC or any of their respective Subsidiaries is bound by (i) any
Contract which was entered into other than in the ordinary course of business,
(ii) any Contract which contains restrictions with respect to payment of
dividends or any other distribution in respect of its capital stock, partnership
interests or membership interests, (iii) any Contract relating to capital
expenditures in excess of $50,000 (either individually or in the aggregate),
(iv) any Contract relating to Indebtedness, (v) any loan or advance to, or
investment in, any Person (other than a Subsidiary), any agreement, contract or
commitment relating to the making of any such loan, advance or investment or any
agreement, contract or commitment involving a sharing of profits, (vi) any
guarantee or other contingent liability in respect of any obligation of any
Person, (vii) any management, service,
24
consulting or any other similar type Contract requiring payment of fees in
excess of $50,000 per year, (viii) other than the ProTrader Constituent
Documents, any Contract limiting the ability of ProTrader LP, ProTrader LLC or
any of their respective Subsidiaries to engage in any line of business or to
compete with any Person, (ix) any warranty, guaranty or the similar undertaking
with respect to contractual performance extended by ProTrader LP, ProTrader LLC
or any of their respective Subsidiaries other than in the ordinary course of
business, (x) any Contract which in the event of a default would have a Seller
Material Adverse Effect, (xi) any Contract that cannot be terminated by
ProTrader LP, ProTrader LLC and each of their respective Subsidiaries which is a
party to such Contract without liability upon less than one year's notice, (xii)
any collective bargaining agreement with any labor union or other representative
of employees, (xiii) any Contract that governs any joint venture, partnership or
other cooperative arrangement or any other relationship involving a sharing of
profits, (xiv) any Contract that would result in the merger with or into or
consolidation into another Person, (xv) any Contract that provides for the
provision of material services to ProTrader LP, ProTrader LLC or any of their
respective Subsidiaries by Third Party Personnel, (xvi) any Contract with any
Authority, (xvii) any Contract for the sale of brokerage or research services or
any Contract with any customer of ProTrader LP, ProTrader LLC or any of their
respective Subsidiaries, or (xviii) any material amendment, modification or
supplement in respect of any of the foregoing (each of (i)-(xviii), a "Material
Contract"). Except as otherwise set forth on Schedule 3.8, each Material
Contract to which ProTrader LP, ProTrader LLC or any of their respective
Subsidiaries is a party is in full force and effect and there exists no material
default by ProTrader LP, ProTrader LLC or their respective Subsidiaries or any
event, occurrence, condition or act which, with the giving of notice, the lapse
of time or the happening of any further event or condition, would become a
material default by ProTrader LP, ProTrader LLC or their respective Subsidiaries
thereunder.
(c) Prior to the date hereof, Sellers have delivered, or caused to
be delivered, to Buyer and its representatives correct and complete copies of
all Material Contracts.
(d) None of ProTrader LP, ProTrader LLC or any of their respective
Subsidiaries is a party to, nor are they otherwise obligated to perform under,
any oral arrangement involving commitments in the aggregate by ProTrader LP,
ProTrader LLC or any of their respective Subsidiaries in excess of $50,000,
except as provided on Schedule 3.8.
(e) Except as set forth in Schedule 3.8(e) or, as of Closing, the
Related Agreements, none of ProTrader LP, ProTrader LLC nor any of their
Subsidiaries is party to, nor is otherwise obligated to perform under, any
Contract or oral arrangement with any of the Sellers or any Affiliate of any
Seller that is not on an arms-length basis and that will survive the Closing of
the transactions contemplated by this Agreement and the Related Agreements.
3.9 Proceedings. Except as set forth in Schedule 3.9, there is no
suit, action or legal, administrative or arbitration proceeding (including any
citations, complaints, consent orders, compliance schedules or other similar
enforcement orders) or any governmental investigation (each, a "Proceeding" and
collectively, "Proceedings"), pending or, to the best of the Sellers' and
ProTrader Group's knowledge, threatened, before any Authority or arbitrator
against ProTrader LP, ProTrader LLC or their respective Subsidiaries (i) seeking
to restrain or prohibit the execution of this Agreement or the Related
Agreements or the consummation of the transactions contemplated hereby or
thereby, (ii) which bears a reasonable likelihood of being
25
determined in favor of the party adverse to ProTrader LP, ProTrader LLC or their
Subsidiaries or, to the best of the Sellers' or ProTrader Group's knowledge, any
OSJ and, if so determined, bears a reasonable likelihood of (x) resulting in
damages in excess of $50,000 payable by ProTrader LP, ProTrader LLC or their
respective Subsidiaries or (y) having a Seller Material Adverse Effect or (iii)
seeking to modify, suspend, revoke, withdraw, terminate or otherwise limit any
material Permit or Easement used or held by ProTrader LP, ProTrader LLC or their
Subsidiaries or, to the best of the Sellers' or ProTrader Group's knowledge, any
OSJ. There are no Judgments singly, or in the aggregate, for an amount in excess
of $50,000 outstanding against ProTrader LP, ProTrader LLC, any of their
Subsidiaries, or, to the best of the Seller's or ProTrader Group's knowledge,
any OSJ.
3.10 Compliance with Legal Requirements and Permits. ProTrader LP,
ProTrader LLC and their Subsidiaries hold all Permits necessary for the lawful
conduct of their business. Except as specified in Schedule 3.10, each of
ProTrader LP, ProTrader LLC and their Subsidiaries and each OSJ is in compliance
in all material respects with all applicable Legal Requirements and Permits. In
addition, except as set forth on Schedule 3.10, to the best of the Sellers' and
ProTrader Group's knowledge, none of ProTrader LP, ProTrader LLC, their
Subsidiaries, any OSJ nor their respective officers:
(a) has received any written notification or communication from any
Authority (i) asserting that any such Person is not in compliance in all
material respects with any Legal Requirement, or has otherwise engaged in any
unlawful business practice, (ii) threatening to revoke any such Person's Permit,
franchise, seat or membership in any securities or commodities exchange, or
governmental authorization, (iii) requiring any such Person to enter into a
cease and desist order, agreement or memorandum of understanding (or requiring
the managers thereof to adopt any resolution or policy), or (iv) restricting or
disqualifying such Person's activities (except for restrictions generally
imposed by rule, regulation or administrative policy on brokers or dealers
generally or by a Self-Regulatory Organization);
(b) is aware of any pending or threatened investigation, review or
disciplinary Proceedings by any Authority against ProTrader LP, ProTrader LLC,
any of their Subsidiaries, any OSJ or any manager, officer, director or employee
thereof;
(c) is, nor is any Affiliate thereof, subject to a "statutory
disqualification" as defined in Section 3(a)(39) of the Exchange Act or a
disqualification that would be a basis for censure, limitations on the
activities, functions or operations of, or suspension or revocation of the
registration of any broker-dealer as a broker-dealer, municipal securities
dealer, government securities broker or government securities dealer under
Section 15, Section 15B or Section 15C of the Exchange Act, and there is no
reasonable basis for a Proceeding or investigation, whether formal or informal,
preliminary or otherwise, that is reasonably likely to result in, any such
censure, limitation, suspension or revocation; or
(d) is required to be registered as a broker-dealer investment
company, securities exchange, alternative trading system, commodity trading
advisor, commodity pool operator, futures commission merchant or transfer agent
under any Legal Requirement.
26
3.11 Permits. Schedule 3.11 sets forth an accurate and complete list
of all material Permits currently used or held by ProTrader LP, ProTrader LLC,
any of their Subsidiaries, or any OSJ. Except as specified in Schedule 3.11, (i)
all such Permits are in full force and effect and (ii) ProTrader LP, ProTrader
LLC and their Subsidiaries have, to the extent required, made all Filings
necessary to request the timely renewal or issuance of all material Permits
necessary prior to the Closing for it to own, operate, use and maintain its
assets and to conduct its business as it is currently being conducted.
3.12 Intellectual Property.
(a) Schedule 3.12 sets forth a complete and correct list of the
following categories of Company Owned Intellectual Property: (A) registered and
unregistered Trademarks; (B) Patents (including issued and applications
therefor); (C) registered Copyrights; (D) Software other than commercial "shrink
wrap" software (it being understood that with respect to internally-created
software, the software listed on Schedule 3.12 is limited to software that is
material to the functioning of GR8TRADE(R)); and in each case listing, as
applicable, the registration number, and in the case of a registration, the
registered owner, and the jurisdiction of registration. Schedule 3.12 also sets
forth (A) all agreements under which ProTrader LP, ProTrader LLC or any of their
Subsidiaries use Company Licensed Intellectual Property (other than commercial
"shrink wrap" software) and (B) all agreements under which each of ProTrader LP,
ProTrader LLC or any of their Subsidiaries has licensed to others the right to
use Company Intellectual Property, in each case, specifying the parties to the
agreement, the Intellectual Property that is licensed, and whether the license
is exclusive or non-exclusive.
(b) The Company Intellectual Property constitutes all of the
Intellectual Property that is material or necessary to the businesses of
ProTrader LP, ProTrader LLC or any of their Subsidiaries, in each case, as such
businesses are currently conducted by ProTrader LP, ProTrader LLC or their
Subsidiaries and ProTrader LP, ProTrader LLC and their Subsidiaries own, or
license or otherwise possess full, legally enforceable rights, free and clear of
conditions, adverse claims or other restrictions or any requirement of any past,
present or future royalty payments, to use the Company Intellectual Property.
(c) ProTrader LP, ProTrader LLC and their Subsidiaries have taken
reasonable and appropriate steps to register all registrable Company Owned
Intellectual Property with the applicable authorities in all jurisdictions in
which each of ProTrader LP, ProTrader LLC or their Subsidiaries does business,
and all registrations for Company Owned Intellectual Property, including for
Patents, Trademarks, and Copyrights, are registered in the name of ProTrader LP,
ProTrader LLC or their Subsidiaries, as the case may be, and are valid and
subsisting.
(d) Each of ProTrader LP, ProTrader LLC and their Subsidiaries has
secured valid written assignments from all consultants and employees who
contribute or have contributed to the creation or development of Company Owned
Intellectual Property of the rights to such contributions that each of ProTrader
LP, ProTrader LLC or their Subsidiaries do not already own by operation of law.
(e) ProTrader LP, ProTrader LLC and their Subsidiaries have taken
all reasonable and appropriate steps to protect and preserve the confidentiality
of all of the Trade Secrets that
27
comprise any part of the Company Intellectual Property, and to the best of the
Sellers' and ProTrader Group's knowledge, there are no unauthorized uses,
disclosures or infringements of any such Trade Secrets; all disclosure of any
material Trade Secret that comprises part of the Company Intellectual Property
to, and, to the best of the Sellers' and ProTrader Group's knowledge, all use of
Trade Secrets that comprise any part of the Company Intellectual Property by,
any Person has been pursuant to the terms of a written agreement with such
Person; and all use by the Company of Trade Secrets owned by another Person has
been pursuant to the terms of a written agreement with such Person or is
otherwise lawful.
(f) There is no pending (or, to the best of the Sellers' or
ProTrader Group's knowledge, threatened) written assertion or claim and there
has been no such written assertion or claim in the last six years: (i)
challenging the validity or enforceability of, or contesting ProTrader LP's,
ProTrader LLC's or their Subsidiaries' rights with respect to, any of the
Company Owned Intellectual Property, (ii) challenging ProTrader LP's, ProTrader
LLC's or their Subsidiaries' rights to use the Company Licensed Intellectual
Property or the validity or enforceability of the agreement relating thereto,
(iii) or asserting that ProTrader LP's, ProTrader LLC's or their Subsidiaries'
use or exploitation of any Company Intellectual Property or their provision of
goods and services in their respective businesses as currently conducted,
infringes upon, misappropriates, violates or conflicts in any way with the
rights of any third party (including rights in Intellectual Property); and, in
each case, to the best of the Sellers' and ProTrader Group's knowledge, there
are no grounds for any such assertion or claim; none of ProTrader LP, ProTrader
LLC and their Subsidiaries is a party to any suit, action or Proceeding which
involves a claim of infringement or misappropriation of any Intellectual
Property of any third party.
(g) Neither ProTrader LP nor ProTrader LLC nor their Subsidiaries
has or have given or received any notice of default or any event which with the
lapse of time would constitute a default under any agreement relating to Company
Intellectual Property; neither ProTrader LP nor ProTrader LLC nor their
Subsidiaries, nor, to the best of the Sellers' and ProTrader Group's knowledge,
any other party, currently is in default in any material respect with regard to
any agreement relating to such Company Intellectual Property, and there exists
no condition or event (including, without limitation, the execution, delivery
and performance of this Agreement) which, with the giving of notice or the lapse
of time or both, would constitute such a default by ProTrader LP, ProTrader LLC
or any of their Subsidiaries under any agreement relating to the Company
Intellectual Property, or would give any Person any rights of termination,
cancellation or acceleration of any performance under any such agreement or
result in the creation or imposition of any Lien, in each case.
(h) To the best of the Sellers' and ProTrader Group's knowledge,
there are no unauthorized uses, disclosures, infringements, or misappropriations
by any third party of any Company Owned Intellectual Property or any breaches by
any third party of any licenses or agreements involving such Company Owned
Intellectual Property.
(i) To the best of the Sellers' and ProTrader Group's knowledge, all
use, disclosure or appropriation of confidential and/or proprietary information
not owned by ProTrader LP, ProTrader LLC or their Subsidiaries in the course of
conducting their respective businesses has been pursuant to the terms of a
written agreement between ProTrader LP,
28
ProTrader LLC or their Subsidiaries and the owner of such confidential and/or
proprietary information, or is otherwise lawful.
(j) No parties other than each of ProTrader LP, ProTrader LLC or
their Subsidiaries possess any current or contingent rights to or otherwise use
any source code that is part of the Company Owned Intellectual Property
(including, without limitation, through any escrow account).
(k) Each of ProTrader LP, ProTrader LLC and their Subsidiaries has
obtained any and all necessary consents from customers with regard to each of
ProTrader LP's, ProTrader LLC's and their Subsidiaries', as the case may be,
collection and dissemination of personal customer information in accordance with
any applicable privacy policy published or otherwise communicated in writing by
ProTrader LP, ProTrader LLC or their Subsidiaries and any applicable Legal
Requirements. Each of ProTrader LP's, ProTrader LLC's and their Subsidiaries'
practices regarding the collection and use of customer personal information are
and have been in accordance with such privacy policies and with all applicable
Legal Requirements.
3.13 Employee Relations.
(a) (i) The employees employed by ProTrader LP, ProTrader LLC or any
of their Subsidiaries are not represented by any labor union or other labor
representative, (ii) there are no collective bargaining agreements or other
similar arrangements in effect with respect to such employees and (iii) to the
best of the Sellers' and ProTrader Group's knowledge, there are no other Persons
attempting to represent or organize or purporting to represent for bargaining
purposes any employees employed by ProTrader LP, ProTrader LLC or any of their
Subsidiaries.
(b) (i) Since January 1, 1996 there has not occurred or been
threatened any strikes, slow downs, picketing, work stoppages, concerted
refusals to work or other similar labor activities with respect to employees
employed by ProTrader LP, ProTrader LLC or any of their Subsidiaries and (ii) no
material grievance or arbitration or other Proceeding arising out of or under
any collective bargaining agreement relating to ProTrader LP, ProTrader LLC or
any of their Subsidiaries is pending or threatened.
(c) Except as set forth on Schedule 3.13(c), ProTrader LP, ProTrader
LLC and their Subsidiaries are in compliance with all Legal Requirements
relating to the employment or termination of employment of all former, current,
and prospective employees, independent contractors and "leased employees"
(within the meaning of Section 414(n) of the Code) of ProTrader LP, ProTrader
LLC or any of their Subsidiaries.
(d) Except as set forth in Schedule 3.13(d), no individual has been
treated by ProTrader LP, ProTrader LLC or any of their Subsidiaries, as a
"leased employee" (within the meaning of Section 414(n) of the Code). Except as
set forth in Schedule 3.13(d), there are no complaints, charges or claims
against ProTrader LP, ProTrader LLC or any of their Subsidiaries pending or, to
the knowledge of such Person, threatened to be brought by or filed with any
Authority based on, arising out of, in connection with or otherwise relating to
the employment or termination of employment by ProTrader LP, ProTrader LLC or
any of their Subsidiaries
29
of any individual involved in the business of ProTrader LP, ProTrader LLC or any
of their Subsidiaries including individuals classified by ProTrader LP,
ProTrader LLC or any of their Subsidiaries as independent contractors or "leased
employees" (within the meaning of Section 414(n) of the Code), or the failure to
employ any individual, including, without limitation, any claim relating to
employment discrimination, equal pay, employee safety and health, immigration,
wages and hours or workers' compensation.
(e) There are no Liabilities, whether absolute or contingent, to any
employees employed by ProTrader LP, ProTrader LLC or any of their Subsidiaries
relating to workers compensation benefits that are not fully insured against by
a bona fide third-party insurance carrier. Except as set forth on Schedule
3.13(e), with respect to each workers' compensation arrangement that is funded
wholly or partially through an insurance policy or public or private fund, all
premiums required to have been paid to date under the insurance policy or fund
have been paid, all premiums required to be paid under the insurance policy or
fund through the Closing will have been paid on or before the Closing.
3.14 Employee Benefits.
(a) Schedule 3.14(a) sets forth a complete and correct list of each
plan, program, arrangement or agreement which is an employment, consulting,
termination or deferred compensation agreement, or an executive compensation,
incentive bonus or other bonus, employee pension, profit-sharing, savings,
retirement, stock option, stock purchase, severance pay, life, health,
disability or accident insurance plan, or vacation, or other employee benefit
plan, program, arrangement or agreement, including any "employee benefit plan,"
within the meaning of Section 3(3) of ERISA covering any employee or consultant
of ProTrader LP, ProTrader LLC or any of their Subsidiaries, or to which
ProTrader LP, ProTrader LLC or any of their Subsidiaries has any obligation to
contribute, or with respect to which Sellers, ProTrader LP, ProTrader LLC or any
of their Subsidiaries has any Liability as a result of its being an employer
(including any Liability arising out of an indemnification, guarantee, hold
harmless or similar agreement) (each a "Plan" and, collectively, the "Plans").
With respect to each Plan, a true and complete copy of the document embodying
the Plan, as amended, and related trust agreements and/or insurance contracts or
other funding arrangements, if any, and all summary plan descriptions related
thereto as amended as of the date hereof, and the two most recent Forms 5500,
including financial statements and actuarial valuations, required to be filed
with the IRS with respect to each of the Plans have been delivered to Buyer.
(b) Except as set forth on Schedule 3.14(b), each Plan intended to
be qualified under Section 401(a) of the Code has received a favorable
determination letter from the IRS that the Plan is qualified and that its
related trust has been determined to be exempt from taxation under Section
501(a) of the Code, or the remedial amendment period applicable to such Plan has
not expired and will not, prior to the Closing, expire and nothing has occurred
since the date of such letter that could reasonably be expected to cause any
such Plan or trust to cease to be so qualified or tax-exempt.
(c) Except as set forth in Schedule 3.14(c), (i) ProTrader LP,
ProTrader LLC, their Subsidiaries and their respective Affiliates have complied
with and performed all material obligations required to be performed under each
Plan and each Plan has been maintained and administered in all material respects
in accordance with its terms and all applicable Legal
30
Requirements and (ii) no event has occurred or is reasonably expected to occur
in connection with which ProTrader LP, ProTrader LLC, any of their Subsidiaries
or any Plan, directly or indirectly, could be subject to any Liability under
Title I or IV of ERISA, the Code or any other Legal Requirement applicable to
any Plan.
(d) No Plan is an "employee pension benefit plan" (within the
meaning of section 3(2) of ERISA) as to which ProTrader LP, ProTrader LLC or any
of their Subsidiaries may incur any liability under Title IV of ERISA or Section
412 of the Code. No Plan is a Multiemployer Plan (within the meaning of Section
3(37) of ERISA) or a Multiple Employer Plan (within the meaning of Section
413(c) of the Code).
(e) Except as disclosed in Schedule 3.14(e), the consummation of the
transactions contemplated hereby, either alone or in combination with another
event, will not (i) entitle any employee or former employee of ProTrader LP,
ProTrader LLC or any of their Subsidiaries or any group of such employees to any
payment, (ii) increase the amount of compensation due to any such employee or
(iii) accelerate the time of vesting of any compensation, stock incentive or
other benefit. Except as set forth in Schedule 3.14(e), the consummation of the
transactions contemplated hereby, either alone or in combination with any other
event, will not result in any "parachute payment" within the meaning of section
280G of the Code, whether or not such payment could be considered to be
reasonable compensation for services rendered that is not exempt from the
provisions of Section 280G and 4999 of the Code pursuant to Section
280G(b)(5)(A)(i) of the Code.
(f) Except as set forth in Schedule 3.14(f), none of ProTrader LP,
ProTrader LLC or any of their Subsidiaries maintains any Plan, agreement or
arrangement that provides benefits in the nature of severance and it does not
have outstanding any liabilities with respect to any severance benefits
available under any Plan, agreement or arrangement.
(g) Neither ProTrader LP, ProTrader LLC nor any of their Affiliates
has any announced plan or commitment to create any additional employee benefit
plan, program or arrangement or to amend, modify or terminate any existing Plan.
(h) Neither ProTrader LP, ProTrader LLC or any of their
Subsidiaries, could incur, directly or indirectly, any material Liability
(including a material Liability arising out of an indemnification, guarantee,
hold harmless or similar agreement) with respect to any employees or former
employees of ProTrader LP, ProTrader LLC or any of their Subsidiaries arising
out of any previous divestiture by ProTrader LP, ProTrader LLC or any of their
Affiliates of any business or assets.
(i) None of ProTrader LP, ProTrader LLC or any of their Subsidiaries
has any material Liability (including a material Liability arising out of an
indemnification, guarantee, hold harmless or similar agreement) relating to any
insurance contract held under or purchased to fund a Plan, the issuer of which
is or was insolvent or in reorganization or the payments under which were
suspended.
(j) Except as set forth on Schedule 3.14(j), none of ProTrader LP,
ProTrader LLC or any of their Subsidiaries maintains any plan, program or
arrangement or is a party to any
31
Contract that provides any benefits or provides for payments to any Person in,
based on or measured by the value of, any equity security of, or interest in,
ProTrader LP, ProTrader LLC, any of their Subsidiaries or Affiliates.
(k) With respect to each Plan, (i) all material payments due from
ProTrader LP, ProTrader LLC or any of their respective Subsidiaries to the date
hereof have been made and (ii) there are no pending or, to the best of the
Sellers' and ProTrader Group's knowledge, threatened Proceedings (other than
routine claims for benefits) with respect to such Plan or against the assets of
such Plan.
(l) Except as disclosed on Schedule 3.14(l), none of ProTrader LP,
ProTrader LLC or their Subsidiaries has any obligation to provide health, life
insurance, death or other benefits (under a plan described in Section 3(1) of
ERISA to retirees or other former employees under any Plan), other than benefits
mandated by Section 4980B of the Code. To the best of the Sellers' and ProTrader
Group's knowledge, there has been no communication to any employee of ProTrader
LP, ProTrader LLC or their Subsidiaries that would reasonably be expected to
promise or guarantee any such employee retiree health or life insurance or other
retiree death benefits on a permanent basis.
(m) Except as disclosed on Schedule 3.14(m), none of Sellers,
ProTrader LP, ProTrader LLC or their Subsidiaries nor any Plan, is under audit
or is the subject of an audit or investigation by the IRS, the U.S. Department
of Labor, the Pension Benefit Guarantee Corporation or any other federal or
state governmental agency, nor is any such audit or investigation pending or, to
the best of the Class A Unit Holder's and ProTrader Group's knowledge,
threatened.
(n) For the purposes of Section 3.14(e) the term "Subsidiaries"
shall include legal entities whose sole activities consist of engaging in the
Proprietary Trading Business.
3.15 Taxes. Except as set forth on Schedule 3.15:
(a) Other than PROTRADER SECURITIES CORPORATION, each of ProTrader
LP, ProTrader LLC, and their Subsidiaries is, and since its formation has
continuously been, either a partnership or an entity disregarded as separate
from its owner for U.S. federal income tax purposes.
(b) Sellers have caused to be timely filed, or will cause to be
timely filed, with the appropriate taxing authorities all Tax Returns that are
required to be filed by, or with respect to, ProTrader LP, ProTrader LLC or
their Subsidiaries, and their respective businesses on or prior to the Closing
Date. Such Tax Returns have accurately reflected in all material respects and,
in the case of Returns to be filed, will accurately reflect in all material
respects all liability for Taxes with respect to ProTrader LP, ProTrader LLC or
their Subsidiaries and their respective businesses for the periods and Taxes
covered thereby.
(c) All Taxes relating to ProTrader LP, ProTrader LLC, their
Subsidiaries and their respective businesses for all taxable years or other
taxable periods (including portions thereof) prior to the Closing have been or
will be timely paid by the ProTrader LP, ProTrader LLC or their Subsidiaries,
or, in the case of those Taxes set forth on Schedule 3.15, are being
32
contested in good faith by ProTrader LP, ProTrader LLC or their Subsidiaries and
have been reserved against in the Interim Financial Statements.
(d) There are no Liens (other than Permitted Encumbrances)
with respect to any Taxes upon ProTrader LP, ProTrader LLC, any of their
Subsidiaries or any of their respective assets.
(e) (i) There are no pending or, to the best of the Sellers'
and the ProTrader Group's knowledge, threatened, audits or investigations
relating to any Taxes for which ProTrader LP, ProTrader LLC or any of
their Subsidiaries may become directly or indirectly liable;
(ii) no deficiencies for any Taxes have been proposed,
asserted or assessed against ProTrader LP, ProTrader LLC or any of
their Subsidiaries; and
(iii) there are no agreements in effect to extend the
period of limitations for the assessment or collection of any Taxes
for which ProTrader LP, ProTrader LLC or any of their respective
Subsidiaries may become liable and no requests for any such
agreements are pending.
(f) ProTrader LP, ProTrader LLC and their respective Subsidiaries
have withheld from their employees and timely paid to the appropriate authority,
in compliance with all Tax withholding provisions of all applicable Legal
Requirements, amounts for all periods through the date hereof that are correct
in all material respects.
(g) Sellers have furnished or made available to Buyer complete and
accurate copies of all Tax Returns filed by ProTrader LP, ProTrader LLC and
their Subsidiaries on or prior to the date hereof.
(h) For the purposes of this Section 3.15, the term "Subsidiaries"
shall include legal entities whose sole activities consist of engaging in the
Proprietary Trading Business.
3.16 Capitalization; Investments.
(a) ProTrader LP's, ProTrader LLC's and their respective
Subsidiaries' authorized and outstanding capital is as set forth on Schedule
3.16(a). Each of ProTrader LP's, ProTrader LLC's and their respective
Subsidiaries' issued and outstanding capital stock or partnership or membership
interests, as the case may be, are validly issued, fully paid and nonassessable.
Except as set forth on Schedule 3.16(a), ProTrader LLC and ProTrader LP have
good and valid title to all of the issued and outstanding stock of their
Subsidiaries, in each case free and clear of all Liens. The ProTrader LP Units
and ProTrader LLC Membership Interests constitute all of the issued and
outstanding equity capital of ProTrader LP and ProTrader LLC, respectively.
(b) Except as set forth on Schedule 3.16(b)(i) there are no
outstanding obligations, options, warrants, convertible securities or other
rights, agreements, arrangements or commitments of any kind relating to the
partnership interests, capital stock or membership units, as the case may be, of
ProTrader LP, ProTrader LLC or any of their Subsidiaries or obligating
33
ProTrader LP, ProTrader LLC or any of their Subsidiaries to issue or sell any
shares of capital stock of, or any other interest in, ProTrader LP, ProTrader
LLC or any of their Subsidiaries. Except as set forth in Schedule 3.16(b)(ii),
there are no outstanding contractual obligations of ProTrader LP, ProTrader LLC
or any of their Subsidiaries to repurchase, redeem or otherwise acquire any
shares of capital stock or partnership or membership interests or to provide
funds to, or make any investment (in the form of a loan, capital contribution or
otherwise) in, any other Person. Other than as set forth on Schedule
3.16(b)(iii), there are no voting trusts, stockholder agreements, proxies or
other agreements or understandings in effect with respect to the voting or
transfer of any of the ProTrader LP Units or ProTrader LLC Membership Interests
or the capital stock, partnership interest or membership interest, as the case
may be, of any Subsidiary of ProTrader LP or ProTrader LLC.
(c) Except as set forth on Schedule 3.16(c), none of ProTrader LP,
ProTrader LLC or any of their Subsidiaries directly or indirectly (i) owns, of
record or beneficially, any outstanding voting securities or other equity
interests in any Person or (ii) Controls any other Person.
(d) Schedule 8.1(a) reflects all of the unvested options related to
the partnership interests of ProTrader LP. There are no options outstanding
related to the membership interests of ProTrader LLC other than those held by
McEntire.
3.17 Environmental Matters.
(a) ProTrader LP, ProTrader LLC and their Subsidiaries have been and
are in compliance with all applicable laws, statutes, ordinances, codes, orders,
decisions, Judgments, permits, approvals, rules, regulations or requirements,
including without limitation common law, relating to: (i) protection,
preservation or cleanup of the environment or natural resources; (ii) the
manufacture, use, handling, storage, treatment, disposal or release of or
exposure to any chemical substance or toxic, hazardous or deleterious material,
waste or agent (hereinafter "Hazardous Substance"), including without limitation
petroleum or any fraction thereof, asbestos, and polychlorinated biphenyls; or
(iii) health and safety (hereinafter "EHS Laws").
(b) There has been no Proceeding, claim, notice or complaint pending
or, to the knowledge of Sellers, ProTrader LP, ProTrader LLC, or of their
respective Subsidiaries, threatened against ProTrader LP, ProTrader LLC or any
of their respective Subsidiaries relating to noncompliance with, or Liabilities
or obligations pursuant to, EHS Laws.
(c) To the best of the Sellers' or ProTrader Group's knowledge no
Hazardous Substances or underground storage tanks are present at, in, on or
under the property of ProTrader LP, ProTrader LLC or any of their Subsidiaries,
except as limited to those types and amounts typical of office environments.
(d) There are no conditions or circumstances, including the presence
or release of any Hazardous Substance, reasonably anticipated to result in
liabilities or obligations to ProTrader LP, ProTrader LLC or any of their
Subsidiaries pursuant to EHS Laws.
3.18 Finders and Brokers. Sellers shall pay and discharge any claims
due by any of them, ProTrader LP, ProTrader LLC or any of their Subsidiaries to
Bear Stearns for any
34
commission or expense reimbursement in connection with the transactions
contemplated by this Agreement or otherwise due under the letter agreement dated
December 22, 2000 between Bear, Stearns & Co. Inc. and ProTrader LP. Neither
ProTrader LP, ProTrader LLC or any of their Subsidiaries has entered into any
other contract, arrangement or understanding with any Person or firm, nor are
Sellers or ProTrader Group aware of any claim or basis for any claim based upon
any act or omission of ProTrader LP, ProTrader LLC or any of their Subsidiaries,
which may result in the obligation of Buyer, ProTrader LP, ProTrader LLC or any
of their Subsidiaries to pay to any Person other than Bear Stearns any finder's
fees, brokerage or agent's commissions or other like payments in connection with
the negotiations leading to this Agreement and the Related Agreements or the
consummation of the transactions contemplated hereby and thereby.
3.19 Year 2000 Compliance.
(a) All Programmed Systems owned by ProTrader Group which are
material to the businesses and operations of ProTrader Group are Millennium
Compliant.
(b) ProTrader LP, ProTrader LLC, each of their respective
Subsidiaries and each OSJ are in compliance with all applicable requirements of
any governmental or regulatory authority, any Self-Regulatory Organization or
any other entity with regulatory jurisdiction over ProTrader LP, ProTrader LLC,
each of their respective Subsidiaries and each OSJ (collectively, the
"Regulators") relating to Millennium Compliance (including any Year 2000
compliance reporting requirements imposed by their respective Regulators).
Except as set forth on Schedule 3.19(b), none of ProTrader LP, ProTrader, any of
their respective Subsidiaries or any OSJ has received nor reasonably expects to
receive any written notice or, to the best of the Sellers' and ProTrader Group's
knowledge, any oral notice from any of the Regulators, which indicates that such
Regulator considers or may consider ProTrader LP, ProTrader LLC, any of their
respective Subsidiaries or any OSJ deficient in any manner or to any degree with
respect to the Millennium Compliance of its Programmed Systems.
(c) ProTrader LP, ProTrader LLC, each of their respective
Subsidiaries and each OSJ have performed due diligence, testing and repairs
reasonably believed by them to be necessary to ensure the accuracy of the
representations and warranties set forth in subsections (a) and (b) immediately
above.
(d) ProTrader LP, ProTrader LLC, each of their Subsidiaries and each
OSJ have made reasonable inquiries of third parties for the purpose of
determining the Millennium Compliance of all third-party Programmed Systems used
by ProTrader LP, ProTrader LLC, any of their respective Subsidiaries or any OSJ
and, based solely on the responses of third parties to such inquiries, none of
ProTrader LP, ProTrader LLC or any of their respective Subsidiaries has reason
to believe that any of such third parties' Programming Systems is not Millennium
Compliant.
3.20 Regulatory Registrations and Memberships.
(a) PROTRADER SECURITIES CORPORATION, PROTRADER.COM LP and PROTRADER
TRADING LLC (the "ProTrader Broker-Dealer Subsidiaries") are registered with the
Commission as broker-dealers under Section 15(b) of the Exchange Act, and are
35
members in good standing of the NASD. Schedule 3.20(a) sets forth (i) the
jurisdictions in which each ProTrader Broker-Dealer Subsidiary is registered as
a broker-dealer, (ii) the jurisdictions of the United States of America in which
each ProTrader Broker-Dealer Subsidiary does business but is not registered as a
broker-dealer, and (iii) for each jurisdiction referenced in clause (ii), the
exception from registration of which each ProTrader Broker-Dealer Subsidiary is
availing itself. Other than the ProTrader Broker-Dealer Subsidiaries, no other
member of ProTrader Group is required to be registered with the Commission as a
broker-dealer under Section 15(b) of the Exchange Act.
(b) Schedule 3.20(b) lists all of the Self-Regulatory Organizations
to which any of ProTrader Group is a member.
(c) ProTrader LP, ProTrader LLC, each of their Subsidiaries, and to
the best of the Sellers' and ProTrader Group's knowledge, each of the managers,
officers and employees of ProTrader LP, ProTrader LLC and each of their
respective Subsidiaries who is required to be registered as a broker-dealer, an
investment adviser, a registered representative, a registered principal or in a
similar capacity with any Authority is duly registered as such and all such
registrations are in full force and effect. All Legal Requirements in respect of
such registrations have been complied with and, as currently filed, all such
registrations and all periodic reports required to be filed with respect thereto
are accurate and complete in all material respects. Each of the ProTrader
Broker-Dealer Subsidiaries is in compliance with SEC Rule 15c3-1 and any net
capital requirements imposed by any Self-Regulating Organization of which it is
a member.
(d) Schedule 3.20(d) lists all of the offices of supervisory
jurisdiction (within the meaning of NASD Rule 3010(g)(1)) of ProTrader Group.
3.21 Customers.
(a) For purposes of this Agreement, "Customer" means any Person to
whom ProTrader LP, ProTrader LLC or any Subsidiary provides services under any
Contract. Except as set forth on Schedule 3.21, there are no material disputes
pending or threatened with any Customer or with any former Customer, and no
Customer or former Customer has made or threatened to make a significant
complaint.
(b) Each of the ProTrader Broker-Dealer Subsidiaries is in
compliance with Regulation T of the Board of Governors of the Federal Reserve
System, NASD 2520 and the margin rules or similar rules of any Self-Regulatory
Organization of which it is a member, including rules governing the extension or
arrangement of credit to Customers. Other than the ProTrader Broker-Dealer
Subsidiaries, none of ProTrader LP, ProTrader LLC or their respective
Subsidiaries has or does extend or arrange credit for any Customer within the
meaning of Regulation U or Regulation X of the Board of Governors of the Federal
Reserve System.
3.22 Reports. Except as set forth on Schedule 3.22, to the best of
the Sellers' and the ProTrader Group's knowledge, each of ProTrader LP,
ProTrader LLC and their Subsidiaries has timely filed all reports,
registrations, statements and other filings, together with any amendments
required to be made with respect thereto, that were required to be filed with or
pursuant to the rules of any Authority (all such reports and statements,
including the financial
36
statements, exhibits, annexes and schedules thereto, being collectively referred
to herein as the "Reports"). Each of the Reports, when filed, complied in all
material respects as to form with, and the requirements of, the applicable
Authorities.
3.23 Consents. Except as set forth on Schedule 3.23, neither
ProTrader LP, ProTrader LLC or any of their Subsidiaries nor Affiliates
(including, for these purposes, legal entities whose sole activities consist of
engaging in the Proprietary Trading Business) is required to submit any notice,
report or other Filing with any Authority in connection with the execution,
delivery or performance of this Agreement or the Related Agreements. Except as
set forth on Schedule 3.23, no waiver, consent, approval or authorization of any
Authority is required to be obtained by ProTrader LP, ProTrader LLC or any of
their Subsidiaries (including, for these purposes, legal entities whose sole
activities consist of engaging in the Proprietary Trading Business) in
connection with its execution, delivery or performance of this Agreement or the
Related Agreements.
3.24 Certain Trading Volumes. Trading (x) in shares in individual
retirement accounts, (y) by employees other than those employees who are part of
the Proprietary Trading Business or (z) by other Persons registered under a
member of ProTrader Group, taken as a whole, represented less than 10% of
ProTrader Group's trading volume, by shares, in the period from January 1, 2001
to July 17, 2001.
ARTICLE IIIA
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF SELLERS
Each Seller, severally and not jointly, hereby represents and
warrants to Buyer as follows:
3A.1 Authorization and Validity of Agreements.
(a) Such Seller has the requisite legal capacity, power and
authority to execute and deliver this Agreement and any Related Agreement to
which it is a party and to perform its obligations hereunder and thereunder. If
such Seller is not a natural person, such Seller is duly organized, validly
existing and in good standing under the laws of its jurisdiction of formation.
(b) The execution, delivery and performance by such Seller of this
Agreement and each Related Agreement to which such Seller is a party and the
consummation by such Seller of the transactions contemplated hereby and thereby
have been duly authorized and approved by all necessary action on the part of
such Seller. This Agreement has been duly executed and delivered by such Seller
and is a legal, valid and binding obligation of such Seller, enforceable against
it in accordance with its terms. Each of the Related Agreements to which such
Seller is a party will, upon its execution and delivery, be the legal, valid and
binding obligation of such Seller, enforceable against it in accordance with its
terms.
3A.2 Absence of Conflicts. The execution, delivery and performance
by such Seller of this Agreement and any Related Agreement to which such Seller
is a party and the consummation by it of the transactions contemplated hereby
and thereby, does not and will not:
37
(i) violate any material Legal Requirement applicable to such Seller, (ii)
conflict with, or result in the breach of any provision of any ProTrader
Constituent Document or any constituent document of such Seller, (iii) result in
the creation of any Lien upon any ProTrader LP Unit or ProTrader LLC Membership
Interest held by such Seller or any of the assets of ProTrader LP, ProTrader
LLC, any of their respective Subsidiaries or upon any assets of such Seller, or
(iv) except as set forth on Schedule 3A.2, violate, conflict with or result in
the breach or termination of, or otherwise give any other Person the right to
terminate, or constitute a default, event of default or an event which, with
notice, lapse of time or both, would constitute a default or event of default
under the terms of any Contract or Permit to which such Seller, ProTrader LP,
ProTrader LLC or any of their respective Subsidiaries is a party or by which its
properties or businesses are bound.
3A.3 Ownership of Equity. Such Seller has good and valid title to
all of the issued and outstanding ProTrader LP Units and ProTrader LLC
Membership Interests held by it, free and clear of all Liens (other than Liens
created by the terms of the ProTrader LP Partnership Agreement or the ProTrader
LLC Limited Liability Company Agreement, as applicable, which, with respect to
any holders (other than Buyer) of Units or ProTrader LLC Membership Interests as
of or prior to Closing, shall be extinguished or irrevocably waived upon the
Closing).
3A.4 Sellers' Representative. The Sellers' Representative is the
duly appointed attorney-in-fact for such Seller and has full power and authority
to act for and bind such Seller in all respects in connection with this
Agreement.
3A.5 Investment Purpose. Such Seller is acquiring the Instinet
Common Stock under this Agreement for its, his or her own account, for
investment only and not with a view to its distribution within the meaning of
Section 2(11) of the Securities Act, it being understood that such Seller shall
have the right to sell or dispose of any of the Instinet Common Stock pursuant
to an effective registration statement or exemption therefrom under the
Securities Act and in compliance with any state securities laws. Such Seller
understands that such Seller must bear the economic risk of this investment for
an indefinite period of time because the Instinet Stock is not registered under
the Securities Act or any state securities laws. Such Seller has been advised
that the shares are not being registered under the Securities Act upon the basis
that the transaction contemplated hereby is exempt from such registration
requirements pursuant to regulations promulgated by the Commission, and that
reliance by Buyer on such exemptions are predicated in part on such Seller's
representations set forth herein. Such Seller is an accredited investor as
defined in Rule 501(a) of Regulation D promulgated by the Commission. Such
Seller, to the extent it, he or she has deemed necessary, has consulted with
such Seller's attorney, financial advisors and others regarding all financial,
securities and tax aspects of the proposed investment, and said advisors have
reviewed this Agreement and the Related Agreements to which it is a party on
such Seller's behalf. Such Seller and such Seller's advisors have sufficient
knowledge and experience in business and financial matters to evaluate the risk
of an investment in Buyer. Such Seller and such Seller's advisors have had an
opportunity to ask questions of and to receive answers from the officers of
Buyer and to obtain additional information in writing to the extent that Buyer
possess such information or could acquire it without unreasonable effort or
expenses: (i) relative to Buyer and its Subsidiaries; and (ii) necessary to
verify the accuracy of any information, documents, projections, books and
records furnished.
38
3A.6 Finders and Brokers. Such Seller has not entered into any
contract, arrangement or understanding with any Person or firm, nor is such
Seller aware of any claim or basis for any claim based on any act or omission of
such Seller, which may result in the obligation of Buyer, ProTrader LP,
ProTrader LLC or any of their Subsidiaries to pay any finder's fees, brokerage
or agents' commission or other like payments in connection with the negotiation
leading to this Agreement and the Related Agreements or the consummation of the
transactions contemplated hereby and thereby.
3A.7 Consents. Except as set forth in Schedule 3A.7, (i) Seller is
not required to submit any notice, report or other Filing with any Authority in
connection with the execution, delivery or performance of this Agreement or the
Related Agreements and (ii) no waiver, consent, approval or authorization of any
Authority is required to be obtained by such Seller in connection with its
execution, delivery or performance of this Agreement or the Related Agreements.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Sellers as follows:
4.1 Due Organization, Good Standing and Power. Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware and has the requisite power and authority to own, lease and operate
its assets and to conduct the business being conducted by it. Buyer has
delivered true, correct and complete copies of its Certificate of Incorporation
and By-laws to ProTrader LP.
4.2 Authorization and Validity of Agreements.
(a) Buyer has all requisite corporate power and authority to execute
and deliver this Agreement and each of the Related Agreements to which it is a
party and to perform its obligations hereunder and thereunder.
(b) The execution, delivery and performance by Buyer of this
Agreement and any Related Agreement to which it will be a party and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized and approved by all necessary corporate action. This Agreement
has been executed and delivered by Buyer and (assuming the due authorization,
execution and delivery by the other Parties hereto) is a legal, valid and
binding obligation of Buyer, enforceable against it in accordance with its
terms. Each of the Related Agreements to which Buyer will be a party will, upon
its execution and delivery, be the legal, valid and binding obligation of Buyer,
enforceable against it in accordance with its terms.
4.3 Absence of Conflicts. The execution, delivery and performance by
Buyer of this Agreement and the Related Agreements to which it will be a party,
and the consummation by it of the transactions contemplated hereby and thereby,
does not and will not (i) violate any Legal Requirement applicable to Buyer,
(ii) conflict with, or result in the breach of any provision of, the charter or
by-laws or similar governing or organizational documents of Buyer, or (iii)
except as set forth on Schedule 4.3, violate, conflict with or result in the
breach or
39
termination of, or otherwise give any other Person the right to terminate, or
constitute a default, event of default or an event which, with notice, lapse of
time or both, would constitute a default or event of default under the terms of
any Contract or Permit to which Buyer or any of its Subsidiaries is a party or
by which its properties or businesses are bound, in each case that would have a
Buyer Material Adverse Effect.
4.4 Investment Purpose. Buyer is acquiring the ProTrader LP Units
and ProTrader LLC Membership Interests pursuant to this Agreement for its own
account, for investment only and not with a view to their distribution within
the meaning of Section 2(11) of the Securities Act, it being understood that
Buyer shall have the right to sell or dispose of any of ProTrader LP Units and
ProTrader LLC Interest pursuant to an effective registration statement or
exemption therefrom under the Securities Act and in compliance with any state
securities laws. Buyer understands that it must bear the economic risk of this
investment for an indefinite period of time because the ProTrader LP Units and
ProTrader LLC Membership Interests are not registered under the Securities Act
or any state securities laws. Buyer has been advised that the ProTrader LP Units
and ProTrader LLC Membership Interests are not being registered under the
Securities Act upon the basis that the transaction contemplated hereby is exempt
from such registration requirements pursuant to regulations promulgated by the
Commission, and that reliance by Sellers on such exemptions are predicated in
part on Buyer's representations set forth herein. Buyer is an accredited
investor as defined in Rule 501(a) of Regulation D promulgated by the
Commission. Buyer, to the extent it has deemed necessary, has consulted with its
attorney, financial advisors and others regarding all financial, securities and
tax aspects of the proposed investment, and said advisors have reviewed this
Agreement and the Related Agreements on the Buyer's behalf. Buyer and Buyer's
advisors have sufficient knowledge and experience in business and financial
matters to evaluate the risk of an investment in ProTrader LP and ProTrader LLC.
Buyer and Buyer's advisors have had an opportunity to ask questions of and to
receive answers from the officers of ProTrader LP and ProTrader LLC and to
obtain additional information in writing to the extent that Sellers possess such
information or could acquire it without unreasonable effort or expenses: (i)
relative to Sellers, ProTrader LP, ProTrader LLC and their Subsidiaries; and
(ii) necessary to verify the accuracy of any information, documents,
projections, books and records furnished.
4.5 Finders and Brokers. Buyer has not entered into any contract,
arrangement or understanding with any Person or firm, nor is Buyer aware of any
claim or basis for any claim based on any act or omission of Buyer, which may
result in the obligation of Sellers to pay any finder's fees, brokerage or
agents' commission or other like payments in connection with the negotiation
leading to this Agreement and the Related Agreements or the consummation of the
transactions contemplated hereby and thereby.
4.6 Valid Authorization and Issuance. All shares of Instinet Common
Stock to be issued by Buyer to Sellers on the Closing Date, when issued, shall
be duly authorized and validly issued, and shall be fully paid and
nonassessable.
4.7 Proceedings. Except as set forth in Schedule 4.7, there is no
Proceeding pending or, to the best of Buyer's knowledge, threatened against
Buyer or any of its Subsidiaries, before any Authority or arbitrator seeking to
restrain or prohibit the execution of this Agreement
40
or the Related Agreements or the consummation of the transactions contemplated
hereby or thereby.
4.8 Consents. Except as set forth in Schedule 4.8, (i) neither Buyer
nor any of its Subsidiaries is required to submit any notice, report or other
Filing with any Authority in connection with the execution, delivery or
performance of this Agreement or the Related Agreements and (ii) no waiver,
consent, approval or authorization of any Authority is required to be obtained
by Buyer or any of its Subsidiaries in connection with its execution, delivery
or performance of this Agreement or the Related Agreements.
4.9 Prospectus; Financial Statements. As of its date, the Prospectus
did not contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Since the date of the
Prospectus, Buyer has filed with the SEC all forms, reports and documents
required to be filed by it pursuant to applicable law, all of which have
complied as of the respective filing dates with all applicable requirements of
the Exchange Act and the rules under the Exchange Act. There has been no Buyer
Material Adverse Change since the date of the Prospectus. The financial
statements of Buyer included in the Prospectus, and any reports filed
subsequently, fairly present in conformity in all material respects with GAAP
applied on a consistent basis (except as may be indicated in the notes thereto)
and Regulation S-X of the SEC the consolidated financial position of Buyer and
its consolidated subsidiaries as of the dates thereof and their consolidated
results of operations and changes in financial position for the periods then
ended (subject, in the case of unaudited statements, to normal, recurring year
end adjustments and the absence of notes thereto).
4.10 Listing. The Instinet Common Stock included in the Purchase
Price will, as of the Closing, be approved for listing on the Nasdaq Stock
Market's National Market, subject to notice of issuance.
ARTICLE V
COVENANTS
5.1 Conduct of the Business Pending the Closing.
(a) The Class A Unit Holders covenant and agree that, during the
period commencing on the date hereof and ending at the Closing, except with the
prior written consent of Buyer, or as explicitly contemplated by this Agreement
(including the transfer of the Proprietary Trading Business in accordance with
Section 5.6), they shall not permit ProTrader LP, ProTrader LLC or any of their
respective Subsidiaries to take any of the following actions:
(i) amend its constituent documents;
(ii) take any action that constitutes a Voluntary Bankruptcy
or dissolve or liquidate;
(iii) make any material change in its lines of business;
41
(iv) sell, lease or dispose of fixed assets for an amount,
individually or in the aggregate, in excess of $50,000;
(v) enter into, amend, modify or terminate any Material
Contract;
(vi) create any subsidiary or enter into any joint venture
or partnership with any other Person;
(vii) merge with or into, or consolidate with or convert
into, another Person;
(viii) terminate, or amend or modify in any material
respect, any material Permit, government approval or other similar right,
other than (A) as required by any applicable Authority or (B) in
connection with the transactions contemplated by this Agreement or any
Related Agreement;
(ix) make any capital expenditures that will create or
result in aggregate commitments on the part of ProTrader LP, ProTrader LLC
or any of their Subsidiaries in excess of $50,000;
(x) commence any litigation, arbitration or administrative
proceeding which bears a reasonable likelihood of being determined in
favor of the party adverse to ProTrader LP, ProTrader LLC or their
respective Subsidiaries or settle any litigation, arbitration or
administrative proceeding at a cost to ProTrader LP, ProTrader LLC or
their respective Subsidiaries in excess of $50,000;
(xi) enter into, amend, modify in a material way or
terminate any collective bargaining agreement;
(xii) enter into any transaction or series of transactions
with any Affiliate, including without limitation, any loan, advance or
capital contribution to or investments in any Affiliate except payments or
distributions referred to in the following clause (xiii);
(xiii) make or agree to make any payment of cash or
distribution of assets to any of the Sellers or their Affiliates, by way
of dividend or otherwise, except, at or immediately prior to Closing, in
such aggregate amounts as would not cause all such payments or
distributions from May 31, 2001 until the Closing Date to exceed (A)
$1,500,000 plus (B) any net income of ProTrader LP from May 31, 2001 until
the Closing Date as reflected on the Interim Net Income Statement less (C)
any amounts paid to the Nesmith Parties in settlement of their claims less
(D) any amounts paid to option holders to extinguish options held by them
or purchase the equity interests issued upon the exercise of such options
plus (E) to the extent not included in the net income of ProTrader LP, any
amounts received from option holders exercising their options after May
31, 2001; provided that, after giving effect to any such distributions,
PROTRADER SECURITIES CORPORATION and ProTrader.com have Net Capital of no
less than two times the minimum net capital requirement imposed by the SEC
under Rule 15c3-1 or any Self-Regulatory Organization of which PROTRADER
SECURITIES
42
CORPORATION or ProTrader.com is a member and the aggregate liabilities of
ProTrader LP and its Subsidiaries, on a consolidated basis, do not exceed
the aggregate assets of ProTrader LP and its Subsidiaries, on a
consolidated basis.
(xiv) except for the issuance of partnership interests in
ProTrader LP in connection with the exercise of options under the Unit
Option Plan to holders of options who agree in writing to be bound by the
provisions of the ProTrader LP Partnership Agreement, issue or sell any
shares of capital stock, partnership interests, membership interests or
other equity in ProTrader LP, ProTrader LLC or any of their Subsidiaries,
or issue or sell any securities convertible into, or options with respect
to, or warrants to purchase or rights to subscribe for any such shares of
capital stock, membership interests, partnership interests or equity;
(xv) directly or indirectly redeem, purchase or otherwise
acquire any ProTrader LP Units or ProTrader LLC Membership Interests; or
(xvi) unless in the ordinary course of business in
accordance with its existing policies or as may be required by applicable
law, (A) grant any increases in wages, salaries or benefits of any of its
employees, consultants, independent contractors or directors, (B) enter
into, commit to, or amend any employment, severance, consulting,
retention, change in control, termination, deferred compensation or
incentive pay agreement with or for any current or former employee,
consultant or director, (C) pay or agree to pay any pension, retirement
allowance or other employee benefit not required by any existing Plan,
agreement or arrangement to any officer, employee, consultant, independent
contractor or director, whether past or present, or accelerate the
vesting, funding of payments of any compensation payment or benefit to any
such person or group of persons, or (D) commit itself to any additional
pension, profit sharing, bonus, group insurance, severance pay, retirement
or other employee benefit plan, agreement or arrangement, with or for the
benefit of any of ProTrader LP's, ProTrader LLC's or any of their
Subsidiaries' current or former employees.
(b) Each Seller covenants and agrees that, during the period
commencing on the date hereof and ending at the Closing, except with the prior
written consent of Buyer, such Seller shall not encumber such Seller's Class A
Units, Class C Units, Class D Units or ProTrader LLC Membership Interests, as
applicable.
(c) Sellers covenant and agree that, during the period commencing on
the date hereof and ending at the Closing, except with the prior written consent
of Buyer, or as explicitly contemplated by this Agreement (including the
transfer of the Proprietary Trading Business in accordance with Section 5.6),
they shall cause ProTrader LP, ProTrader LLC and their respective Subsidiaries
to take the following actions:
(i) conduct their operations in the usual and ordinary
course of business, consistent with past practice, use reasonable efforts
to keep available the services of their present employees and contract
service providers; preserve intact the present business organization of
ProTrader LP, ProTrader LLC and their Subsidiaries, maintain the operating
assets and equipment of the ProTrader LP, ProTrader LLC and
43
their Subsidiaries, including Intellectual Property owned or held under
license by ProTrader LP, ProTrader LLC and their Subsidiaries, in normal
operating condition and repair (subject to normal wear and tear) in
accordance with past practice and maintain and renew all registrations of
Intellectual Property currently registered to ProTrader LP, ProTrader LLC
and their Subsidiaries; and
(ii) promptly after obtaining knowledge thereof, give notice
to Buyer of any claim (threatened or instituted) or any other event or
occurrence which could reasonably be expected to have a Seller Material
Adverse Effect.
5.2 Further Actions. Each of the Parties covenants and agrees (and
the Class A Unit Holders shall cause ProTrader LP, ProTrader LLC and their
Subsidiaries) to act in good faith and to use its reasonable best efforts:
(a) to cause all conditions to the obligations of the Parties to
consummate the Closing specified in Article VI to be satisfied at or prior to
the Closing Date, but only to the extent that such conditions relate to such
Party's obligations, covenants, representations or warranties hereunder and
under the Related Agreements to be entered into by such Party;
(b) to obtain and effect prior to the Closing all Permits, Consents
and Filings required for such Party to consummate the transactions contemplated
hereby and by the Related Agreements to be entered into by such Party; and
(c) to cooperate to obtain promptly all necessary waivers, consents
and approvals from other parties to Material Contracts.
5.3 Right of Access.
(a) Each of Buyer and each of Sellers shall afford, and Sellers
shall cause ProTrader Group to afford and to cause its officers, directors,
employees, auditors, counsel and agents to afford, the officers, employees,
auditors, counsel and agents of Buyer and Sellers reasonable access during
regular business hours to Buyer's, Sellers' and ProTrader Group's officers,
employees, auditors, counsel, agents, properties, offices and other facilities
and to all of their respective books and records, and shall furnish the other
with all financial, operating and other data and information as Buyer and
Sellers may reasonably request. Notwithstanding the foregoing, neither Buyer,
any Seller nor any member of ProTrader Group shall be required to provide any
information which it reasonably believes it may not provide pursuant to this
Section 5.3(a) by reason of any applicable Legal Requirement, which constitutes
information protected by attorney/client privilege, or which it or any of its
Subsidiaries is required to keep confidential by reason of contract, agreement
or understanding with third parties.
(b) Each of Buyer and Sellers agrees that all non-public,
confidential information so received from the other Party shall be deemed
received pursuant to the Confidentiality Agreement and shall cause its
Subsidiaries, with respect to Sellers, ProTrader Group, and each of its and
their respective officers, directors, employees, financial advisors, attorneys,
accountants, consultants and agents to comply with the provisions of the
Confidentiality Agreement with respect to such information, and the provisions
of the Confidentiality Agreement are hereby incorporated by reference with the
same effect as if fully set forth herein.
44
5.4 No Other Transactions. Sellers shall not, and shall cause
ProTrader LP, ProTrader LLC and their respective Subsidiaries not to, nor permit
any of their respective directors, officers, employees, agents and
representatives to and, with respect to clause (iii) below, no Seller shall, (i)
solicit or encourage, directly or indirectly, any inquiries, discussions or
proposals for, (ii) continue, propose or enter into negotiations looking toward,
or (iii) enter into any agreement or understanding providing for, any
acquisition of the capital stock, partnership interest, membership interests or
any of the material assets of ProTrader LP, ProTrader LLC or any of their
respective Subsidiaries (other than this Agreement or the transactions
contemplated hereby) or any transaction similar to the arrangement described
herein that would have the effect of precluding the consummation of the
transactions contemplated hereby (an "Acquisition Transaction"); nor shall any
of such Persons provide any information to any Person (other than Buyer and its
representatives) for the purpose of evaluating or determining whether to make or
pursue any inquiries or proposals with respect to any such transaction, unless
any such Person is advised by counsel that it should provide such information as
part of its fiduciary obligations. Sellers covenant and agree to inform Buyer in
writing by facsimile within forty-eight (48) hours following the receipt by any
of them or by ProTrader LP, ProTrader LLC or any of their respective
Subsidiaries of any inquiry, proposal, offer or bid (including the terms thereof
and the identity of the Person making such inquiry, proposal, offer or bid) in
respect of any Acquisition Transaction.
5.5 Filings. As promptly as practicable following the execution and
delivery of this Agreement, Sellers and Buyer shall each prepare and file any
required notifications and reports with any Authority in connection with the
transactions contemplated hereby, including without limitation the filings
required by NASD or under the Hart Scott Rodino Act. Sellers and Buyer will
promptly furnish to the other such necessary information and reasonable
assistance as the other may request in connection with its preparation of any
filings referenced in the previous sentence.
5.6 Transfer of Proprietary Trading Business.
(a) Prior to the Closing, the Class A Unit Holders shall cause
ProTrader LP, ProTrader LLC and their Subsidiaries to assign, transfer, convey
and deliver to PROTRADER TRADING LLC and PTPHC, LP, and PROTRADER TRADING LLC
and PTPHC, LP shall acquire, all of ProTrader Group's right, title and interest
to the Proprietary Trading Business Assets as set forth on Schedule 5.6(a) to
this Agreement. The Class A Unit Holders shall cause ProTrader LP and ProTrader
LLC to transfer all of the membership interests of PROTRADER TRADING LLC and
PTPHC, LP to the Class A Unit Holders other than McEntire (and any other Party
that may be entitled to and that chooses to participate in such distribution) in
accordance with the description contained on Schedule 5.6(a)-1.
(b) On or prior to Closing, PROTRADER TRADING LLC and/or PTPHC, LP
shall assume and shall agree unconditionally to pay, perform and discharge when
due, all Proprietary Trading Business Liabilities, including those set forth on
Schedule 5.6(b) to this Agreement.
(c) The Proprietary Trading Business Assets shall be conveyed,
transferred, assigned and delivered, and the Proprietary Trading Business
Liabilities shall be assumed,
45
pursuant to a transfer and assumption agreement or other instruments in such
form as is necessary or appropriate to effect the conveyance of the Proprietary
Trading Business Assets and an assumption of the Proprietary Trading Business
Liabilities in the jurisdictions in which such transfers are to be made, and
which other instruments shall be reasonably satisfactory to Buyer.
(d) On or prior to Closing, the Class A Unit Holders shall cause
ProTrader LP to change the names of PROTRADER TRADING LLC and PTPHC, LP to new
names not including "ProTrader" and the Class A Unit Holders shall thereafter
not use and shall cause PROTRADER TRADING LLC and PTPHC, LP not to use or
include "ProTrader" as, or in, its corporate, popular or trade names.
(e) Prior to Closing, the Class A Unit Holders and ProTrader LP will
endeavor to locate for PROTRADER TRADING LLC and PTPHC, LP such management and
office personnel as are necessary for independent operation of PROTRADER TRADING
LLC and PTPHC, LP. To extent that, as of the Closing, PROTRADER TRADING LLC and
PTPHC, LP do not have the infrastructure in place necessary to operate prudently
and in compliance with applicable Legal Requirements, they may enter into an
interim management contract with ProTrader LP on terms and conditions reasonably
agreeable to the Class A Unit Holders (other than McEntire) and Buyer. ProTrader
LP and the Class A Unit Holders agree to negotiate the terms of any such interim
management contract in good faith.
5.7 Houston OSJ Joint Venture.
(a) The Class A Unit Holders acknowledge that the transactions
contemplated in this Agreement may give rise to an obligation on the part of
ProTrader LP to purchase, or cause Buyer to purchase, the Houston Interests from
the Trader Group pursuant to a Tag-Along Agreement, dated as of August 31, 2000
by and between ProTrader LP, PROTRADER SECURITIES CORPORATION, ProTrader Group
Management, LLC, and the Trader Group (the "Tag-Along Agreement"). The Class A
Unit Holders shall use their reasonable best efforts to reach an agreement with
the Trader Group (x) establishing, in accordance with the Tag-Along Agreement or
by agreement with the Trader Group, the fair market value of the Houston
Interests and (y) providing that the purchase of the Houston Interests by either
ProTrader LP or the Class A Unit Holders, at Buyer's election, shall satisfy
ProTrader LP's obligations to cause Buyer to purchase the Houston Interests
pursuant to the Tag-Along Agreement. To assist the Class A Unit Holders in their
obligations hereunder, no later than 15 Business Days following delivery to
Buyer of all of the historical financial, trade accounts and other information
in the possession of the Class A Unit Holders with respect to the Houston OSJ,
Buyer shall provide the Class A Unit Holders in writing the price at which Buyer
would be willing to either (i) purchase the Houston Interests or (ii) sell
ProTrader LP's interest in the Houston OSJ to the Trader Group or Sellers.
(b) Upon the delivery by the Class A Unit Holders to Buyer of a
notice (the "Houston Interests Notice") consisting of evidence satisfactory to
Buyer (either in the form of a document signed by the Trader Group or a final
determination in accordance with Section 2 of the Tag-Along Agreement) of the
fair market value of the Houston Interests (the "Houston Interests Purchase
Price") and agreement by each member of the Trader Group that the purchase of
the Houston Interests by either the Class A Unit Holders or ProTrader LP, at
Buyer's election,
46
will satisfy all of ProTrader LP's and Buyer's obligations under Section 1 of
the Tag-Along Agreement, Buyer will, within seven (7) Business Days of receiving
the Houston Interests Notice, notify the Class A Unit Holders of whether it
elects to purchase, or have ProTrader LP purchase, the Houston Interests or to
have the Class A Unit Holders purchase the Houston Interests. If Buyer elects
not to exercise its right to purchase, or have ProTrader LP purchase, the
Houston Interests, the Houston Interests Purchase Price shall be paid by
Sellers.
(c) If Buyer elects to purchase, or to have ProTrader LP purchase,
the Houston Interests, Buyer shall use its reasonable best efforts to close such
purchase as promptly as practicable after such election but in no event earlier
than the Closing Date.
5.8 Transfer Restrictions. During the period of seven (7) Nasdaq
trading days ending on the trading day prior to the Closing Date, each Seller
agrees not to transfer, sell, pledge, assign, encumber, hypothecate, assign or
otherwise dispose of (including by short sale) any shares of Instinet Common
Stock or any security convertible into or exchange for Instinet Common Stock or
the value of which is derived from the value of Instinet Common Stock. Without
limiting the foregoing, each Seller agrees not to take any action during the
period referred to in the immediately prior sentence with the intent of
effecting the Instinet Share Price.
5.9 Tampa Office. The Class A Unit Holders acknowledge that the
transactions contemplated in this Agreement may give rise to an obligation on
the part of PROTRADER Capital LP to establish an irrevocable letter of credit in
support of PROTRADER Capital LP's obligation to make a payment of $1,250,000 to
Matthew W. Ryan, Gale Kirkpatrick, Francis Hoar, Peter Hoar, Kevin McGinnis and
Brian Groh (the "Tampa Sellers") pursuant to Section 1.2(a)(ii) of the Stock
Purchase Agreement dated May 11, 2001 by and among PROTRADER Capital LP,
ProTrader LP, PROTRADER SECURITIES CORPORATION and the Tampa Sellers (the "Tampa
Stock Purchase Agreement"). The Class A Unit Holders shall use reasonable
efforts to cause the Tampa Sellers to agree to accept in lieu of such letter of
credit the express assumption by ProTrader LP of PROTRADER Capital LP's
obligations in connection with PROTRADER Capital LP's obligation to make such
$1,250,000 payment. If the Tampa Sellers elect to cause PROTRADER Capital LP to
provide the Tampa Sellers with an irrevocable letter of credit, the Class A Unit
Holders agree that the Class A Unit Holders shall pay PROTRADER Capital LP's
share, as set forth in the Tampa Stock Purchase Agreement, of any costs,
expenses and fees incurred in connection with the preparation and maintenance of
such letter of credit.
5.10 Certain Contingent Liabilities. The Class A Unit Holders shall
use their reasonable best efforts to reach an agreement with Kevin Nesmith and
Daring Technologies, LLC (the "Nesmith Parties") to obtain a general release
duly executed by the Nesmith Parties releasing ProTrader LP, ProTrader LLC and
each of their respective Subsidiaries and Affiliates from any claims the Nesmith
Parties may have against ProTrader LP, ProTrader LLC and any of their respective
Subsidiaries or Affiliates; provided that Buyer's consent shall be required for
any settlement that involves the payment or other delivery or grant of
consideration to the Nesmith Parties.
47
5.11 Non-Competition; Non-Solicitation.
(a) Each of Burch, Jamail and Overunder agrees that from and after
the Closing, for a period of three years, and each of the Sellers other than
Burch, Jamail and Overunder agrees that from and after the Closing, for a period
of two years, neither it nor its Affiliates shall, directly or indirectly
(including, without limitation, by the ownership of equity, interests in another
Person), in any manner or capacity, participate, engage or invest in any
business which, as part of its operations, competes in any manner with the
business of ProTrader LP Group as currently conducted; provided that nothing in
this Agreement shall prohibit Sellers from owning, directly or indirectly,
securities of any Person traded on a national securities exchange or listed on
the Nasdaq National Stock Market not to exceed 5% of the total amount
outstanding of such securities.
(b) For a period of two years after the Closing, Sellers shall not,
and shall cause each of their Affiliates not to, directly or indirectly, (i)
employ or attempt to employ or solicit for employment any employee of ProTrader
LP or any of its Subsidiaries or (ii) induce or attempt to influence any
employee of ProTrader LP or any of its Subsidiaries to terminate such employee's
employment with ProTrader LP or its Subsidiary. The foregoing shall not be
violated if the employee in question has been terminated by ProTrader LP or any
of its Subsidiaries. In addition, nothing in this Agreement shall prohibit the
solicitation or hiring by any of Sellers or their respective Affiliates of any
Persons who are to be employees of ProTrader Trading LLC or ProTrader Equity
Partners Limited Partnership immediately after the Closing.
(c) Because the remedy at law for any breach of the provisions of
this Section 5.11 may be inadequate, Sellers consent to the seeking from an
appropriate court of an injunction or other equitable relief, without the
necessity of actual monetary loss being proved, in order that any breach or
threatened breach of this Section 5.11 may be effectively restrained.
(d) Effective as of the Closing, (i) Section 16.1 and Article 12 of
the ProTrader LP Partnership Agreement and Section 16.1 of the ProTrader LLC
Limited Liability Company Agreement, (ii) any other restrictions on competition
applicable to Sellers contained in any ProTrader Constituent Documents and (iii)
any other non competition agreement in effect immediately prior to Closing by
and between any of Burch, Jamail, Kershner and Overunder, on the one hand, and
any member of ProTrader Group, on the other hand, shall terminate and have no
force and effect as to Sellers.
(e) Anything in this Section 5.11 to the contrary notwithstanding,
nothing in this Agreement or any of the other documents executed in connection
with this Agreement or the transactions contemplated hereby shall prohibit
Burch, Jamail, Kershner or any of their respective Affiliates, or any one or
more of them, from directly or indirectly conducting the Proprietary Trading
Business.
5.12 Certain Options. McEntire agrees not to exercise any options
held by him to purchase any membership interests in ProTrader LLC or partnership
interests in ProTrader LP.
5.13 Amendment of or Waiver under ProTrader Constituent Documents.
Effective as of the Closing, Article 12 of the ProTrader LP Partnership
Agreement and Article 14
48
of the ProTrader LLC Limited Liability Company Agreement shall terminate and
have no force and effect and Sellers shall irrevocably waive any rights to
indemnification pursuant to such Articles (except with respect to liabilities
arising prior to the Closing that are duly recorded on the Interim Financial
Statements).
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions Precedent to Obligations of Buyer. The obligation of
Buyer to consummate the Closing is subject to the satisfaction at or prior to
the Closing of each of the conditions set forth below; provided, however, that,
notwithstanding the failure of any one or more of such conditions, Buyer may
nevertheless proceed with the Closing without satisfaction, in whole or in part,
of any one or more of such conditions, but only if a written waiver thereof is
executed by Buyer:
(a) Each of the representations and warranties of Sellers contained
herein shall be true and correct in all material respects (other than such
representations and warranties that are qualified by a materiality standard,
which representations and warranties shall be true and correct in all respects)
on and as of the Closing Date with the same force and effect as though the same
had been made on and as of the Closing Date (except that representations and
warranties that are made as of a specific date need be true only as of such
date).
(b) All of the covenants and agreements required by this Agreement
to have been performed and complied with by Sellers prior to or on the Closing
Date shall have been performed and complied with prior to or on the Closing
Date.
(c) Since the date of this Agreement, there shall not have occurred
a Seller Material Adverse Change.
(d) No preliminary or permanent injunction or other Judgment of any
court restraining or prohibiting the consummation of the transactions
contemplated hereby shall be in effect. No Proceedings shall have been
instituted or threatened by any Person (including any Authority) (i) seeking to
prohibit, restrict or delay, declare illegal or to enjoin or obtain Damages from
Buyer in respect of, the consummation of the transactions contemplated hereby or
by the Related Agreements or (ii) which, if adversely determined, would, in
Buyer's good faith judgment, cause a Seller Material Adverse Effect.
(e) All consents, approvals or orders of any Authority or other
third party the granting of which is required for the consummation of the
transactions contemplated herein or for the ProTrader Group to conduct its
business after the Closing Date in substantially the same manner as currently
conducted shall have been obtained and all waiting periods the expiration of
which is required under applicable Legal Requirements, including under the Hart
Scott Rodino Act, shall have expired or been terminated.
(f) Buyer shall receive (1) a certificate, dated the Closing Date,
from each of the Sellers as to their respective compliance with the conditions
set forth in Sections 6.1(a) and (b), as such conditions relate to
representations and warranties made by, and covenants to be
49
performed by, such Seller and (2) a certificate, dated the Closing Date, from
the Class A Unit Holders as to the satisfaction of the conditions set forth in
Section 6.1(a)-(e).
(g) The Class A Unit Holders shall have caused the transfer of the
Proprietary Trading Business in accordance with Section 5.6.
(h) The Related Agreements shall have been executed and delivered by
the parties thereto (other than Buyer), and shall constitute the legal, valid
and binding obligations of such parties, enforceable against such parties in
accordance with their terms. The parties to the Related Agreements (other than
Buyer) shall have performed all acts, made all payments and executed and
delivered all documents that are to be performed, made or executed by them or on
their behalf at or prior to the Closing pursuant to such agreements. Each of the
representations and warranties of the parties thereto contained therein shall be
true and correct on and as of the Closing Date with the same force and effect as
though the same had been made on and as of the Closing Date and all of the
covenants and agreements required by the Related Agreements to have been
performed and complied with by the parties thereto (other than Buyer) by the
Closing Date shall have been performed and complied with prior to or on the
Closing Date.
(i) No action shall have been taken by any Authority that would
prohibit, restrict, delay, render illegal or enjoin the consummation of the
transactions contemplated hereby or by the Related Agreements.
(j) Management employees identified on Schedule 6.1(j) shall have
signed employment agreements satisfactory to Buyer and such agreements shall be
in full force and effect.
(k) Each of (1) the Securities Brokerage Commission Agreements, each
dated January 1, 2000, by and between Burch, Jamail, and Kershner, on the one
hand, and PROTRADER SECURITIES CORPORATION, on the other, (2) the Software
License Agreement dated as of April 29, 2000 by and among ProTrader LP and
PROTRADER TRADING LLC and (3) the Trademark License Agreement dated April 30,
2000, by and between ProTrader LP and PROTRADER TRADING LLC shall have been
terminated and evidence of such termination, reasonably satisfactory to Buyer,
shall have been delivered to Buyer.
(l) Each option to purchase any partnership, membership or other
equity interest of ProTrader LP (a "Unit") granted pursuant to the Unit Option
Plan (the "Options") which is outstanding and vested immediately prior to the
Closing shall have been settled and cancelled in full settlement and
satisfaction of the rights of the holder thereunder.
(m) With respect to any individual who has been issued partnership
interests in ProTrader LP in accordance with Section 5.1(a)(xiv), either
ProTrader LP shall have purchased such individual's partnership interests or
such individual shall have become a Seller (including, without limitation, as a
Drag-Along Partner) under this Agreement.
6.2 Conditions Precedent to Obligations of Sellers. The obligation
of Sellers to consummate the Closing is subject to the satisfaction at or prior
to the Closing of each of the conditions set forth below; provided, however,
that, notwithstanding the failure of any one or
50
more of such conditions, Sellers may nevertheless proceed with the Closing
without satisfaction, in whole or in part, of any one or more of such
conditions, but only if a written waiver thereof is executed by Sellers:
(a) Each of the representations and warranties of Buyer contained
herein shall be true and correct in all material respects (other than such
representations and warranties that are qualified by a materiality standard,
which representations and warranties shall be true and correct in all respects)
on and as of the Closing Date with the same force and effect as though the same
had been made on and as of the Closing Date (except that representations and
warranties that are made as of a specific date need to be true only as of such
date).
(b) All of the covenants and agreements required by this Agreement
to have been performed and complied with by Buyer prior to or on the Closing
Date shall have been performed and complied with prior to or on the Closing
Date.
(c) No preliminary or permanent injunction or other Judgment of any
court restraining or prohibiting the consummation of the transactions
contemplated hereby shall be in effect. No action, suit or proceeding shall have
been instituted or threatened by any Person (i) seeking to prohibit, restrict or
delay, or to enjoin or obtain Damages from any of the Sellers in respect of, the
consummation of the transactions contemplated hereby or by the Related
Agreements or (ii) which, if adversely determined would, in the good faith
judgment of Class A Unit Holders, cause a Buyer Material Adverse Effect.
(d) Sellers shall have received a certificate from Buyer as to the
satisfaction of the conditions set forth in Sections 6.2(a)-(c), (e) and (h)
dated the Closing Date, executed by a duly authorized officer of Buyer.
(e) All consents, approvals or orders of any Authority,
Self-Regulatory Organization or other third party the granting of which is
required for the consummation of the transactions contemplated herein shall have
been obtained and all waiting periods the expiration of which is required under
applicable Legal Requirements, including under the Hart Scott Rodino Act, shall
have expired or been terminated.
(f) The Related Agreements shall have been executed and delivered by
Buyer, and shall constitute the legal, valid and binding obligations of Buyer,
enforceable against Buyer in accordance with their terms. Buyer shall have
performed all acts, made all payments and executed and delivered all documents
that are to be performed, made or executed by it or on its behalf at or prior to
the Closing pursuant to such agreements. Each of the representations and
warranties of Buyer contained therein shall be true and correct on and as of the
Closing Date with the same force and effect as though the same had been made on
and as of the Closing Date and all of the covenants and agreements required by
the Related Agreements to have been performed and complied with by the parties
thereto by the Closing Date shall have been performed and complied with prior to
or on the Closing Date.
(g) No action shall have been taken by any Authority that would
prohibit, restrict, delay, render illegal or enjoin the consummation of the
transactions contemplated hereby or by the Related Agreements.
51
(h) Since the date of this Agreement, a Buyer Material Adverse
Change shall not have occurred.
(i) The condition set forth in Section 6.1(j) shall have been
satisfied.
(j) The Escrow Agreement and the Registration Rights Agreement shall
each contain provisions, to the reasonable satisfaction of each Seller,
permitting each Seller to enter into transactions for the transfer, pledge or
disposition of the Instinet Common Stock of such Sellers held in escrow pursuant
to this Agreement for the purpose of hedging against fluctuations in the price
of Instinet Common Stock or to protect against a loss.
ARTICLE VII
TERMINATION
7.1 General. This Agreement may be terminated by written notice
prior to the Closing as follows:
(a) by the mutual written consent of Seller and Buyer at any time
prior to the Closing;
(b) by any Party hereto after December 31, 2001, if the Closing has
not occurred by that date; provided, however, that, if the Closing has not
occurred by such date due to a breach of this Agreement by one of such Parties,
then the breaching Party may not terminate this Agreement pursuant to this
Section;
(c) by Sellers, in the event of any material breach of this
Agreement by Buyer, which such breach has not been cured within thirty (30) days
after notice thereof has been given to the breaching Party;
(d) by Buyer in the event of any material breach of this Agreement
by any Seller which such breach has not been cured within thirty (30) days after
notice thereof has been given to the breaching Party; or
(e) an injunction or other Judgment of any court restraining or
prohibiting the consummation of the transactions contemplated in this Agreement
shall be issued and not discharged within sixty (60) days of the entry thereof.
7.2 No Liabilities in Event of Termination. In the event of any
termination of this Agreement as provided in this Article VII, this Agreement
(other than Article IX, Section 11.1 and Section 11.12) shall become void and of
no further force and effect and there shall be no liability on the part of any
Party as a result of any such termination; provided, however, that,
notwithstanding any such termination, each Party shall be liable to the other
Parties for any Damages arising from any breach of this Agreement.
52
ARTICLE VIII
PERSONNEL, EMPLOYMENT ARRANGEMENTS AND EMPLOYEE BENEFITS
8.1 Stock Option.
(a) Each Option which is (x) unvested and outstanding as of the
Closing and (y) held by a Person who is listed on Schedule 8.1 shall be settled
and converted into the right to receive from Sellers or Buyer (on behalf of
ProTrader LP), at the time and subject to the conditions set forth in Schedule
8.1 the cash payments set forth on Schedule 8.1 opposite such Person's EIN in
full settlement and satisfaction of the rights of the Option holder under such
Option. Sellers should pay at Closing to such Persons those amounts the
("Sellers' Section 8.1 Payments") indicated in the column "Less: PTG Proposed
Contribution" on Schedule 8.1 opposite such Persons' EIN. Buyer shall pay, or
cause to be paid, those amounts indicated in the columns "Proposed Inet
Contribution" on Schedule 8.1 opposite such Persons' EIN.
(b) The Parties agree that Schedule 8.1(a) reflects the methodology
for determining the amounts in cash, property or other consideration to be paid
by Sellers and Buyer (on behalf of ProTrader LP or otherwise) pursuant to
Sections 8.1(a) and 8.1(b). The Parties agree that Schedule 8.1(a) shall be
updated no later than five Business Days prior to Closing to reflect any revised
assumptions regarding the per Unit value.
8.2 Employee Benefits.
(a) Effective as of the Closing, those individuals who are employed
by any member of the ProTrader Group on the Closing Date (collectively the
"ProTrader Employees") shall be eligible to participate in those employee
benefit plans of Buyer and its Subsidiaries (other than any such plans providing
for benefits in the nature of equity or equity-based compensation) (collectively
the "Buyer Plans") in which similarly-situated employees of Buyer are then
eligible to participate and the participation of the ProTrader Employees under
each Plan shall cease, effective as of the Closing. For purposes of vesting and
eligibility to participate (but not benefit accrual) under the Buyer Plans,
Buyer shall cause the Buyer Plans to recognize the service of each ProTrader
Employee with the ProTrader Group completed prior to the Closing Date to the
same extent as such service was recognized, immediately prior to the Closing,
under any similar Plan in which such ProTrader Employee was a participant
immediately prior to the Closing; provided that the foregoing shall not apply to
the extent that its application would result in a duplication of benefits or for
newly established plans and programs for which prior service of employees of
Buyer and its Subsidiaries is not taken into account. With respect to each Buyer
Plan providing medical, dental, pharmaceutical and/or vision benefits to any
ProTrader Employee, Buyer shall cause the pre-existing condition exclusions of
such Buyer Plans to be waived for such employee and his or her eligible
dependents for those pre-existing conditions of such employee or dependant that
would have been covered under the comparable Plan in which such employee was a
participant immediately prior to the Closing and Buyer shall cause any eligible
expenses incurred by such employee and his or her eligible dependents during the
portion of the plan year of the Plan ending on the date such employee's
participation in the corresponding Buyer Plans commences to be taken into
account under such Buyer Plan for purposes of satisfying all deductible,
coinsurance and maximum out-of-pocket requirements
53
applicable to such employee and his or her eligible dependents for the
applicable plan year as if such amounts had been paid in accordance with such
Buyer Plan.
(b) Nothing in this Agreement shall be interpreted as limiting the
power of Buyer to amend or terminate any particular Plan or Buyer Plan or any
other particular employee benefit plan, program, agreement or policy or as
requiring the Buyer to offer to continue the employment of any employee.
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification by Buyer. From and after the Closing, subject to
the further provisions of this Article IX, Buyer shall indemnify, hold harmless
and defend Sellers, their Affiliates and their respective directors, officers,
employees, consultants, shareholders, members, partners, agents and
representatives of each of them, and all successors and assigns of the
foregoing, against and from any Damages (including any Damages resulting from a
claim asserted by a third party) arising (i) out of the breach of any
representation, warranty, covenant or agreement by Buyer contained in this
Agreement (including any Exhibit, Schedule or certificate delivered hereunder)
and (ii) any claim by any Person listed on Schedule 8.1 that the consideration
to be paid to such Person in accordance with Schedule 8.1 is insufficient to
satisfy ProTrader LP's obligations to such Person under the Unit Option Plan
with respect to such Person's unvested Options listed on Schedule 8.1.
9.2 Indemnification by Sellers and Young. From and after the
Closing, subject to the further provisions of this Article IX, Sellers and,
solely with respect to clause (iii) of this Section 9.2, Young shall, jointly
and severally, indemnify, hold harmless and defend Buyer, its Affiliates and
their respective directors, officers, employees, consultants, shareholders,
members, partners, agents and representatives of each of them, and all
successors and assigns of the foregoing, against and from (i) any Damages
(including any Damages resulting from a claim asserted by a third party) arising
out of the breach of any representation, warranty, covenant or agreement by
Sellers contained in this Agreement (including any Exhibit, Schedule or
certificate delivered hereunder but excluding any representation, warranty,
covenant or agreement contained in Article IIIA), (ii) any Proprietary Trading
Business Liabilities, (iii) any Damages resulting from any claims by any members
of the Trader Group in connection with the Tag-Along Agreement, including any
Damages related to the Closing's occurring before the closing under the
Tag-Along Agreement, (iv) any Damages resulting from any claims asserted by any
equity holders or option holders of ProTrader LP or ProTrader LLC (other than
Jamail, Burch and Overunder) in connection with the transfer of the Proprietary
Trading Business, (v) any damages arising out of a breach of any ProTrader
Constituent Document on or prior to the Closing and (vi) any Damages arising out
of any claims by holders of vested Options that such Options were not settled
and cancelled in accordance with the Unit Option Plan. The Parties expressly
agree that Buyer's right to indemnification under Sections 9.2 and 9.3 shall not
be limited by any knowledge obtained pursuant to any due diligence investigation
conducted by or on behalf of Buyer.
54
9.3 Additional Indemnification by Sellers. From and after the
Closing, subject to the further provisions of this Article IX, each Seller shall
severally, and not jointly, indemnify, hold harmless and defend Buyer, its
Affiliates and their respective directors, officers, employees, consultants,
shareholders, members, partners, agents and representatives of each of them, and
all successors and assigns of the foregoing, against and from any Damages
(including any Damages resulting from a claim asserted by a third party) arising
out of the breach of any representation, warranty, covenant or agreement by such
Seller contained in Article IIIA of this Agreement.
9.4 Consequential Damages. Except as provided in the following
sentence and the last sentence of Section 9.10, in no event shall any Party be
responsible for (whether pursuant to Section 9.1 or Section 9.2 or otherwise)
any incidental, consequential, indirect, special or punitive damages. However,
any indemnity pursuant to Section 9.1, Section 9.2 or Section 9.3 shall include
any such incidental, consequential, indirect, special or punitive damages
recovered by any third party pursuant to a claim against an Indemnified Party
(as defined below).
9.5 Defense of Claims. All rights of a Party to indemnification
under this Article IX shall be asserted and resolved as follows:
(a) Promptly after receipt by a Party entitled to indemnification
under Section 9.1 or Section 9.2 (an "Indemnified Party") of notice of any
pending or threatened claim, such Indemnified Party shall give notice to the
Party or Parties to whom the Indemnified Party is entitled to look for
indemnification (the "Indemnifying Party") of the commencement thereof; provided
that the failure so to notify the Indemnifying Party shall not relieve it of any
liability that it may have to the Indemnified Party hereunder, except to the
extent that the Indemnifying Party demonstrates that it is actually prejudiced
thereby.
(b) In case any claim shall be brought against an Indemnified Party
and it shall give notice to the Indemnifying Party of the commencement thereof,
the Indemnifying Party shall be entitled to participate therein and, if it so
desires, to assume the defense thereof with counsel reasonably satisfactory to
the Indemnified Party and, after notice from the Indemnifying Party to the
Indemnified Party of its election to assume the defense thereof, except as
provided below the Indemnifying Party shall not be liable to such Indemnified
Party under this Article IX for any fees of other counsel or any other expenses,
in each case subsequently incurred by such Indemnified Party in connection with
the defense thereof, other than reasonable costs of investigation.
Notwithstanding an Indemnifying Party's election to assume the defense of a
claim, the Indemnified Party shall have the right to employ separate counsel and
to participate in the defense of such claim, and the Indemnifying Party shall
bear the reasonable fees, costs and expenses of such separate counsel if: (i)
the use of counsel chosen by the Indemnifying Party to represent the Indemnified
Party would present such counsel with a conflict of interest, (ii) the actual or
potential defendants in, or targets of, any such claim include both the
Indemnifying Party and the Indemnified Party, and the Indemnified Party shall
have reasonably concluded that there may be legal defenses available to it which
are different from or additional to those available to the Indemnifying Party
(in which case the Indemnifying Party shall not have the right to assume the
defense of such claim on the Indemnified Party's behalf), (iii) the Indemnifying
Party shall not have employed counsel reasonably satisfactory to the Indemnified
Party to represent the Indemnified Party within a reasonable time after notice
of the institution of such claim, or (iv) the Indemnifying Party shall authorize
the Indemnified Party to employ
55
separate counsel at the Indemnifying Party's expense. If an Indemnifying Party
assumes the defense of a claim, no compromise or settlement thereof may be
effected by the Indemnifying Party without the Indemnified Party's written
consent unless (a) there is no finding or admission of any violation of law and
no effect on any other claims that may be made against the Indemnified Party and
(b) the sole relief provided is monetary damages that are to be paid in full by
the Indemnifying Party.
(c) In the event any Indemnified Party should have a claim against
any Indemnifying Party hereunder which does not involve a claim being asserted
by a third party, the Indemnified Party shall as promptly as is practical notify
the Indemnifying Party of such claim, describing such claim, the amount thereof
(if known) and the method of computation of the amount of the claim, all with
reasonable particularity. The failure to give any such notice shall not relieve
the Indemnifying Party of its obligations hereunder except to the extent that
such failure results in actual prejudice to the Indemnifying Party. Upon the
giving of such written notice as aforesaid, the Indemnified Party shall have the
right to commence legal proceedings for the enforcement of their rights under
Section 9.1, Section 9.2 or Section 9.3.
9.6 Coordination of Indemnification Rights. In the event a claim is
brought by a third party in which the Liability as between the Parties is
alleged to be joint or in which the entitlement to indemnification under this
Article IX has not been determined, the Parties shall cooperate in the joint
defense of such claim and shall offer to each other such assistance as may
reasonably be requested in order to ensure the proper and adequate defense of
such claim. Such joint defense shall be under the general management and
supervision of the Party which is expected to ultimately bear the greater share
of the Liability, unless otherwise agreed; provided, however, that no Party
shall settle or compromise any such claim without the written consent of the
other Party. Any uninsured costs of such joint defense shall be borne as the
Parties may agree; provided that in the absence of such agreement, defense costs
shall be borne by the Party incurring such costs, subject to any rights to
indemnification of such Party under this Article IX.
9.7 Survival of Representations and Warranties; Subrogation.
(a) Notwithstanding any investigation conducted or notice or
knowledge obtained by or on behalf of a Party, each representation, warranty,
agreement and covenant in this Agreement or any of the Related Agreements or in
the Exhibits, Schedules or certificates delivered pursuant to this Agreement or
any of the Related Agreements which is not by its terms required to be fully
performed, or does not by its terms expire, at or prior to the Closing shall
survive the Closing and the consummation of the transactions provided for herein
for the applicable period set forth in this Section 9.7. All of the
representations and warranties of Sellers and Buyer contained in this Agreement
and all unasserted claims and causes of action with respect thereto shall
terminate upon the first anniversary of the Closing Date, except that the
representations and warranties in Section 3.3(ii) (Absence of Conflicts with
constituent documents), Sections 3.10 and 3.20 (Regulatory), Section 3.15
(Taxes) and Section 3.17 (Environmental Matters) shall terminate upon the
expiration of the applicable statute of limitations.
(b) In the event that an Indemnified Party has a right against a
third party with respect to any Damages paid to such Indemnified Party by an
Indemnifying Party, then such
56
Indemnifying Party shall, to the extent of such payment, be subrogated to such
rights of such Indemnified Party.
9.8 Limitation on Liability.
(a) (i) Notwithstanding any other provision of this Agreement (other
than the last sentence of Section 9.10), neither Buyer nor Sellers shall
have any liability for Damages under Sections 9.1, 9.2 or 9.3,
respectively, or otherwise with respect to any breach of any
representation or warranty except to the extent that the aggregate amount
of such Damages exceeds, on a cumulative basis, $1,500,000; provided that
neither Buyer nor Sellers shall be allocated liability for claims that do
not exceed $10,000 for each independent claim or series of related claims
(including, to the extent applicable, any claims brought by one Party
against another after the $1,500,000 has be reached); provided further
that (A) with respect to any breach of any representation or warranty
contained in Section 3.4(e) (Net Capital) or Section 3.4(f) (Redemption
Obligation Amount) or with respect to any payment owed under Section
2.5(d), no such thresholds shall apply, (B) any claims by Buyer with
respect to items for which portions of the Purchase Price have been
escrowed pursuant to Sections 2.4(b), 2.4(c) and 2.4(d) shall not be
considered in determining the thresholds in this Section 9.8(a) and no
such threshold shall apply to such claims and (C) the limitations set
forth in this Section 9.8(a)(i) shall not apply to any breach of any
covenant or other agreement contained in this Agreement. In the event that
a Party brings a claim for an amount in excess of $1,500,000 (subject to
the first proviso of the first sentence of this Section 9.8(a)(i)), such
Party shall be entitled to indemnification for the full amount of all
indemnified Damages (and, for avoidance of doubt, Buyer and Sellers shall
be allocated liability for any independent or series of related claims
exceeding $10,000).
(ii) Notwithstanding anything in this Agreement to the
contrary (other than the last sentence of Section 9.10), Sellers, on the
one hand, and Buyer, on the other, shall not have any liability to the
other for Damages (on a cumulative basis), whether pursuant to the
indemnification provisions hereof or otherwise, for any breach of any
representations or warranties in excess of the Maximum Indemnification
Amount; provided that amounts paid to Buyer from the escrow accounts
maintained pursuant to Section 2.4(b), Section 2.4(c) and Section 2.4(d)
shall not be subject to, nor count towards, such $50,000,000 limit and
such limit shall not apply to any breach of any covenant or other
agreement contained in this Agreement. The Maximum Indemnification Amount
shall be $50,000,000 (fifty million dollars); provided that, if the
Indemnity Escrow Value is less than $50,000,000 (fifty million dollars),
the Maximum Indemnification Amount shall be an amount equal to the sum of
(A) one-half of the difference between $50,000,000 and the Indemnity
Escrow Value and (B) the Indemnity Escrow Value. The Indemnity Escrow
Value shall equal the sum of the number of shares of Instinet Common Stock
placed in the Indemnification Escrow Account at the Closing multiplied by
the Instinet Share Price determined as of the day immediately following
the seventh Nasdaq trading day of January 2002.
(iii) Buyer shall have no indemnification obligation for any
breach of a representation or warranty at any time that the price per
share of Instinet Common Stock,
57
as determined by the closing price on NASDAQ (or, if the Instinet Common
Stock is then listed on the New York Stock Exchange, the closing price on
the New York Stock Exchange) on the date on which a Seller makes a claim
pursuant to Section 9.5, is greater than the Instinet Share Price as
determined as of the Closing Date.
(b) The amount of any Damages for which indemnification is provided
under this Article IX shall be net of any amounts recovered by the Indemnified
Party under any insurance policies or other sources of reimbursement received as
an offset against such Damages (and no right of subrogation shall accrue to any
insurer or third party indemnitor hereunder). If the amount to be netted
hereunder from any payment required under this Article IX is determined after
payment by the Indemnifying Party of any amount otherwise required to be paid to
an Indemnified Party pursuant to this Article IX, the Indemnified Party shall
repay the Indemnifying Party, promptly after such determination, any amount that
the Indemnifying Party would not have had to pay pursuant to this Article IX had
such determination been made at the time of such payment.
9.9 Method of Satisfying Claims. In addition to any other right or
means Buyer may have to enforce the indemnification provided for in Section 9.2,
Buyer shall be entitled to make a claim against the funds held in the escrow
pursuant to the Escrow Agreement for any amount payable to it pursuant to this
Article IX, provided that Sellers' indemnification obligation with respect to
Damages arising out of the subject matter of Section 5.10 shall be limited to
the Contingency Escrow Amount. Each Seller may, at its option, satisfy any claim
for indemnification for breach of representation and warranty against such
Seller arising under this Article IX in (i) cash or (ii) property then held in
escrow pursuant to the Escrow Agreement (or any combination of (i) and (ii)).
Upon satisfaction by an Seller of a claim for breach of representation and
warranty other than by a release of cash or Instinet Common Stock from the
Escrow Account, an equivalent amount of the cash or Instinet Common Stock of
such Seller shall be released from escrow under the Escrow Agreement in
accordance with Section 2.4.
9.10 Sole and Exclusive Remedy. After the Closing Date, each Party
hereto acknowledges and agrees that such Party's sole and exclusive remedy with
respect to Damages and any and all other claims relating to the subject matter
of this Agreement and the transactions contemplated hereby shall be in
accordance with, and limited by, the indemnification provision set forth in this
Article IX. Notwithstanding the foregoing, none of the provisions set forth in
this Agreement shall be deemed a waiver by any party to this Agreement of any
right or remedy which such party may have at law or equity based on the other
party's fraudulent acts or omissions, nor shall any such provision limit, or be
deemed to limit, the recourse which any such party may seek with respect to a
claim for fraud.
ARTICLE X
TAX MATTERS
10.1 Section 754 Election. Each member of ProTrader Group that is a
partnership for U.S. federal income tax purposes shall have made the election
pursuant to Code section 754, which election shall remain in effect for the
taxable year that includes the Closing Date. If the election pursuant to Code
section 754 is not in effect as of the date hereof in respect
58
of any member of ProTrader Group that is a partnership for U.S. federal income
tax purposes, Sellers hereby agree to cause that member to make such election,
effective for the taxable year that includes the Closing Date. Sellers also
agree to make, or refrain from making, any other applicable Tax election in
respect of ProTrader LP, ProTrader LLC or any of their Subsidiaries, as
requested by Buyer, for the taxable year that includes the Closing Date.
10.2 Tax Filings. Sellers shall be responsible for the timely filing
of all Tax Returns required by law to be filed by ProTrader LP, ProTrader LLC or
their Subsidiaries for taxable periods (including any portion thereof) ending on
or before the Closing Date ("Pre-Closing Period"), which Tax Returns shall be
prepared on the basis of the same principles, methods and elections utilized in
preparing prior years' Returns. No Tax Return for ProTrader LP, ProTrader LLC or
any of their Subsidiaries for any taxable period that includes the Closing Date
shall be filed without the written consent of Buyer. For this purpose, Sellers
shall cause ProTrader LP, ProTrader LLC or any of their Subsidiaries, as the
case may be, to deliver a draft of any such Tax Return to Buyer at least 45 days
before the due date for such Tax Return. Buyer shall then have 30 days after the
date of receipt of such Tax Return to provide its written consent, which consent
shall not be unreasonably withheld. Buyer shall provide Sellers with, or shall
cause ProTrader LP, ProTrader LLC or their Subsidiaries, as the case may be, to
provide copies of any books or records necessary for the preparation of any such
Tax Returns. Buyer shall be responsible for filing all Tax Returns for taxable
periods (including any portion thereof) commencing after the Closing Date
("Post-Closing Period").
10.3 Taxes. Sellers shall be responsible for all Taxes in respect of
ProTrader LP, ProTrader LLC or their Subsidiaries, and their respective
businesses, for Pre-Closing Periods, and Buyer shall be responsible for all such
Taxes for Post-Closing Periods, it being understood that Sellers shall be
responsible for any Taxes imposed in respect of the transfers contemplated by
this Agreement. For purposes of the foregoing, income and expenses, determined
on an accrual basis, shall be allocated between the Pre-Closing Period and the
Post-Closing Period based on a closing-of-the-books method, it being understood
that non-income Taxes shall be allocated between the Pre-Closing Period and the
Post-Closing Period based on the relative number of days in such taxable period
that falls within the Pre-Closing Period or the Post-Closing Period, as the case
may be.
ARTICLE XI
MISCELLANEOUS
11.1 Notices. All notices, demands, instructions, waivers, consents
or other communications to be provided pursuant to this Agreement shall be in
writing, shall be effective upon receipt, and shall be sent by hand, facsimile,
air courier or certified or registered mail, return receipt requested, as
follows:
(a) if to Buyer, to:
59
Instinet Group Incorporated
3 Times Square
New York, New York 10036
Attention: Paul A. Merolla
Telephone: (212) 310-7548
Facsimile: (212) 593-8040
with a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, NY 10006
Attention: Yvette Teofan
Telephone: (212) 225-2636
Facsimile: (212) 225-3999
(b) if to Sellers, to:
David R. Burch (Sellers' Representative)
900 River Hills Rd.
Austin, Texas 78733
Telephone: (512) 328-5705
with a copy to:
Vinson & Elkins, LLP
1455 Pennsylvania Ave. N.W., Ste 600
Washington, DC 20004-1008
Attention: Jay H. Hebert
Telephone: (202) 639-6521
Facsimile: (202) 639-6604
or to such other address as a Party may specify by notice from time to time in
writing to the other Parties in the manner specified in this Section.
11.2 Press Releases. Neither Buyer nor any Seller shall make any
disclosure of this Agreement or the transactions contemplated hereby, by press
release, public statement or other means, prior to obtaining the other Parties'
written approval, unless required by law or any applicable rules of any national
stock exchange in which event, the Party issuing such press release or causing
such announcement or disclosure will use reasonable efforts to allow the other
party to review, in advance of such issuance, announcement or disclosure, the
proposed language thereof.
11.3 Entire Agreement. This Agreement (including the Exhibits and
Schedules, which are hereby incorporated in the terms of this Agreement) sets
forth the entire understanding and agreement among the Parties as to matters
covered herein and supersedes any prior understanding, agreement or statement
(written or oral) of intent among the Parties with respect to the subject matter
hereof.
60
11.4 Third-Party Rights. Except as otherwise expressly provided
herein, this Agreement is not intended to confer benefits upon, or create any
rights in favor of, any Person or entity other than the Parties.
11.5 Assignability. This Agreement shall be binding upon and inure
to the benefit of the Parties and their respective successors and permitted
assigns. This Agreement shall not be assignable by any Party without the prior
written consent of the other Party; provided, however, that Buyer may assign all
or a part of its rights hereunder to any of its Affiliates; provided, further
that such assignment could not reasonably be expected to materially delay the
Closing and that no such assignment shall relieve Buyer of any obligation
hereunder.
11.6 Waiver and Amendment. No waiver shall be deemed to have been
made by any Party of any of its rights under this Agreement unless the same is
in writing and is signed on its behalf by an authorized signatory. Any such
waiver shall constitute a waiver only with respect to the specific matter
described in such writing and shall in no way impair the rights of the Party
granting such waiver in any other respect or at any other time. To be binding,
any amendment of this Agreement must be effected by an instrument in writing
signed by the Parties.
11.7 Expenses. Each of the Parties shall bear its own expenses in
connection with this Agreement and the transactions contemplated hereby whether
or not the Closing occurs, including, with respect to Buyer, all filing fees
required in connection with the filing of the pre-merger notifications under the
Hart Scott Rodino Act except that (a) any other filing fees with any Authority
and (b) fees of the Escrow Agent payable pursuant to the Escrow Agreement shall
be shared equally by Buyer and Sellers.
11.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
11.9 Governing Law; Submission to Jurisdiction; Appointment of Agent
for Service of Process.
(a) THE AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK. Each Party hereby irrevocably agrees
that any legal action or proceeding against it arising out of this Agreement or
the transactions contemplated hereby shall be brought only in the Supreme Court
of the State of New York in and for the County of New York or the U.S. District
Court for the Southern District of New York, preserving, however, all rights of
removal to a federal court under 28 U.S.C. Section 1441. Each Party hereby
irrevocably designates, appoints and empowers CT Corporation System, with
offices currently at 1633 Broadway, New York, New York 10019 as its lawful agent
to receive for and on its behalf service of process in the State of New York in
any such action or proceeding and irrevocably consents to the service of process
outside the territorial jurisdiction of said courts in any such action or
proceeding by mailing copies thereof by registered United States mail, postage
prepaid, to its address as specified in or pursuant to Section 11.1. Any service
made on such agent or its successor shall be effective when delivered regardless
of whether notice thereof is given to affected Party. If any Person or firm
designated as agent hereunder shall no longer serve as agent of such Party to
receive service of process in
61
the State of New York, the Party so affected shall be obligated promptly to
appoint a successor to so serve; and, unless and until such successor is
appointed and the other Parties notified of the same in writing, service upon
the last designated agent shall be good and effective. Each Party hereby agrees
to at all times maintain an agent to receive service of process in the State of
New York pursuant to this Section 11.9. The foregoing provisions of this Section
11.9 shall not affect, limit or prevent any Party from serving process in any
other manner permitted by law.
(b) Each Party irrevocably waives any objection to the venue of the
courts designated in Section 11.11 (whether on the basis of forum non conveniens
or otherwise), and accepts and submits to the jurisdiction of such courts in
connection with any legal action or proceeding against it arising out of or
concerning this Agreement.
11.10 Spousal Consent.
Each of Phyllis Burch, Sharon Jamail, Lisa McEntire, Aaron Horne,
Lynn Van Eman, Leona Slepetis and Amy Young executes this Agreement granting
consent for the transfer of the ProTrader LP Units and the ProTrader LLC
Membership Interests in the manner contemplated hereby.
11.11 Sellers' Representative.
Sellers and their spouses authorize and appoint David R. Burch as
their sole representative and attorney-in-fact (the "Sellers' Representative")
for all purposes related to this Agreement, with power to sign, on their behalf,
all consents, notices, waivers, and documents necessary or convenient for the
implementation of the transactions provided herein or related hereto including,
without limitation (but only as from after the Closing Date), all amendments
hereto. Sellers and their spouses further agree that should such Representative
resign or become unable to fulfill its role hereunder they shall exercise their
best efforts to appoint another Seller's Representative in his or her stead.
Sellers and their spouses may at any time remove such Representative and appoint
a replacement by providing written notice to Buyer; provided that, the removal
of such Representative or appointment of such Replacement may be effected with
the approval of any three of the Class A Unit Holders.
11.12 Modification of Schedules.
The Parties agree that Sellers shall be permitted to modify any
Schedule relating to Article III to this Agreement between the date hereof and
the Closing Date; provided, however that any such modification shall not be
considered for the purposes of determining whether: (a) Buyer is entitled to
indemnification for breach of representation or warranty pursuant to Section 9.2
or 9.3 or (b) a Seller Material Adverse Change has occurred.
11.13 No Third-Party Beneficiaries. This Agreement (other than
Article IX) is for the sole benefit of the Parties and nothing herein expressed
or implied shall give or be construed to give any Person other than the Parties
any legal or equitable rights hereunder.
11.14 Additional Parties. Any Person other than Burch, Jamail or
Kershner who becomes an equity owner in any Trading Party (as defined in the
Execution Agreement), whether pursuant to the provisions of Section 5.6(a) or
otherwise shall sign a counterpart and become a
62
party to the Execution Agreement for the purposes of agreeing to be responsible
for its pro-rata portion of any Minimum Fees (as defined in the Execution
Agreement) owed by such Trading Party under the Execution Agreement.
63
IN WITNESS WHEREOF, the Parties hereto have executed and delivered
this Agreement as of the date first above written.
INSTINET GROUP INCORPORATED
By:
----------------------------------
Name:
Title:
OVERUNDER, LLC
By:
----------------------------------
Name:
Title:
----------------------------------
David G. Jamail
----------------------------------
David R. Burch
----------------------------------
John A. McEntire, IV
----------------------------------
John Bunda
----------------------------------
Laura Horne
----------------------------------
Currin Van Eman
----------------------------------
Shayne Young
64