Execution Copy
SHARE AND MEMBERSHIP INTEREST PURCHASE AGREEMENT
AMONG
BRIAN P. FRIEDMAN
2055 PARTNERS L.P.
JAMES L. LUIKART
AND
JEFFERIES GROUP, INC.
DATED AS OF JULY 18, 2005
TABLE OF CONTENTS
PAGE
ARTICLE I PURCHASE AND SALE OF PURCHASED INTERESTS.................................................. 4
1.1. Assignment of Manager Purchased Interests..................................................... 4
1.2. Assignment of GP Purchased Interests.......................................................... 4
1.3. Assignment of Institutional Fund Purchased Interests.......................................... 5
1.4. Jefferies Shares.............................................................................. 5
1.5. Earnout Shares................................................................................ 6
1.6. Payment of Previously Funded Capital Contributions............................................ 6
ARTICLE II MANAGEMENT FEE............................................................................ 7
2.1. Interim Management Fee........................................................................ 7
ARTICLE III CLOSING................................................................................... 7
3.1. Closing....................................................................................... 7
3.2. Closing Deliveries............................................................................ 8
ARTICLE IV RESTRICTIONS ON TRANSFER OF JEFFERIES SHARES.............................................. 9
4.1. Restrictions on Transfer of Jefferies Shares.................................................. 9
4.2. Permitted Disposition......................................................................... 10
ARTICLE V SUBSEQUENT FUNDS; OTHER COVENANTS......................................................... 11
5.1. Commitment to Future Funds.................................................................... 11
5.2. Jefferies Forfeiture of Rights................................................................ 13
5.3. Managing Members Failure to Organize Future Fund.............................................. 13
5.4. Restriction on Participation in Other Funds................................................... 14
5.5. Services and Expenses relating to Funds I-IV and to Future Funds.............................. 15
ARTICLE VI EARNOUT SHARES............................................................................ 15
6.1. Forfeiture of Earnout Shares.................................................................. 15
6.2. Deemed Earning of Earnout Shares in Certain Cases............................................. 16
6.3. Tax Treatment................................................................................. 17
ARTICLE VII REPRESENTATIONS AND WARRANTIES OF THE SELLING MEMBERS, THE MANAGER AND THE GP............ 17
7.1. Organization, Good Standing and Qualification................................................. 18
7.2. Capitalization and Voting Rights.............................................................. 18
7.3. Subsidiaries.................................................................................. 19
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TABLE OF CONTENTS
(continued)
PAGE
7.4. Authorization................................................................................. 19
7.5. Valid Issuance of Interests................................................................... 20
7.6. Governmental Consents......................................................................... 20
7.7. Offering...................................................................................... 20
7.8. Litigation.................................................................................... 20
7.9. No Violation.................................................................................. 21
7.10. Agreements; Action............................................................................ 22
7.11. Related-Party Transactions.................................................................... 22
ARTICLE VIII ADDITIONAL REPRESENTATIONS OF MANAGING MEMBERS............................................ 23
8.1. Purchase Entirely for Own Account............................................................. 23
8.2. Investigation................................................................................. 24
8.3. Investment Experience......................................................................... 24
8.4. Accredited Investor........................................................................... 24
8.5. Restricted Securities......................................................................... 24
8.6. Further Limitations on Disposition............................................................ 25
8.7. Legends....................................................................................... 25
ARTICLE IX REPRESENTATIONS AND WARRANTIES OF JEFFERIES............................................... 27
9.1. Organization.................................................................................. 27
9.2. Authorization................................................................................. 28
9.3. Purchase Entirely for Own Account............................................................. 28
9.4. Investigation................................................................................. 29
9.5. Investment Experience......................................................................... 29
9.6. Accredited Investor........................................................................... 29
9.7. Restricted Securities......................................................................... 29
9.8. Capitalization; Title......................................................................... 30
9.9. SEC Documents................................................................................. 30
9.10. Governmental Consents......................................................................... 32
9.11. Offering...................................................................................... 32
9.12. Litigation.................................................................................... 32
9.13. No Violation.................................................................................. 33
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TABLE OF CONTENTS
(continued)
PAGE
9.14. Changes....................................................................................... 34
ARTICLE X COVENANTS OF THE PARTIES.................................................................. 34
10.1. Inspection; Audited Financial Statements...................................................... 34
10.2. Business of Companies......................................................................... 34
10.3. Section 754 Election.......................................................................... 35
10.4. Removal of Legends............................................................................ 35
ARTICLE XI CONDITIONS OF JEFFERIES' OBLIGATIONS AT CLOSING........................................... 36
11.1. Representations and Warranties................................................................ 36
11.2. Performance................................................................................... 36
11.3. Closing Documents............................................................................. 36
ARTICLE XII CONDITIONS OF THE SELLING MEMBERS' OBLIGATIONS AT CLOSING................................. 37
12.1. Representations and Warranties................................................................ 37
12.2. Performance................................................................................... 37
12.3. Closing Documents............................................................................. 38
12.4. Qualifications; Listing....................................................................... 39
12.5. Delivery of Consideration..................................................................... 39
ARTICLE XIII MISCELLANEOUS............................................................................. 39
13.1. Survival...................................................................................... 39
13.2. Successors and Assigns........................................................................ 40
13.3. Governing Law................................................................................. 40
13.4. Titles and Subtitles: Knowledge Definition.................................................... 40
13.5. Notices....................................................................................... 41
13.6. Finder's Fee.................................................................................. 41
13.7. Expenses...................................................................................... 41
13.8. Amendments and Waivers........................................................................ 42
13.9. Severability.................................................................................. 42
13.10. Entire Agreement.............................................................................. 42
13.11. Indemnification............................................................................... 43
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TABLE OF CONTENTS
(continued)
PAGE
13.12. Counterparts.................................................................................. 45
13.13. Arbitration................................................................................... 45
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TABLE OF CONTENTS
(continued)
LIST OF SCHEDULES AND EXHIBITS
Schedule A - Schedule of Exceptions
Schedule B - Jefferies Schedule of Exceptions
Schedule C - Institutional Fund Purchased Interests
Schedule 1.4 - Jefferies Shares
Schedule 1.5 - Earnout Shares Percentage
Schedule 2.1 - Interim Management Fee
Schedule 5.1 Future Funds
Schedule 6.1 Forfeiture of Earnout Shares
Exhibit A - Manager Operating Agreement
Exhibit A-1 - Pre-Closing Schedule A to Manager Operating Agreement
Exhibit A-2 - Pro Forma Schedule A to Manager Operating Agreement
Exhibit B - GP Operating Agreement
Exhibit B-1 - Pre-Closing Schedule A to GP Operating Agreement
Exhibit B-2 - Pro Forma Schedule A to GP Operating Agreement
Exhibit C - Assignment and Assumption Agreement
[Note: The schedules and exhibits omitted from this document will be furnished
supplementally to the Commission upon request.]
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SHARE AND MEMBERSHIP INTEREST PURCHASE AGREEMENT
THIS SHARE AND MEMBERSHIP INTEREST PURCHASE AGREEMENT (this "Agreement")
is made as of the 18th day of July, 2005, by and among Brian P. Friedman, an
individual, James L. Luikart, an individual (Messrs. Friedman and Luikart are
each a "Managing Member" and together are the "Managing Members"), 2055 Partners
L.P., a Delaware limited partnership ("2055 Partners" and, together with the
Managing Members, the "Selling Members"), Jefferies Capital Partners IV LLC (the
"Manager"), a Delaware limited liability company, JCP IV LLC (the "GP" and,
together with the Manager, the "Companies"), a Delaware limited liability
company, and Jefferies Group Inc. ("Jefferies"), a Delaware corporation.
Capitalized terms used but not otherwise defined herein shall have the
respective meanings set forth in the Limited Liability Company Agreement of
Jefferies Capital Partners IV LLC, dated as of May 9, 2005, a copy of which is
attached as Exhibit A (the "Manager Operating Agreement").
WHEREAS, the GP is the general partner of Jefferies Capital Partners IV
L.P. (the "Institutional Fund" and, together with related parallel funds, "Fund
IV"); a copy of the Limited Liability Company Agreement of the GP (the "GP
Operating Agreement") dated as of May 9, 2005, is attached as Exhibit B hereto;
WHEREAS, the Manager is the managing member of the GP and is the manager
of the Institutional Fund and related parallel funds;
WHEREAS, Fund IV presently has an aggregate of approximately $385 million
in committed capital (including leverage) from various investors;
WHEREAS, as of the date hereof, the Managing Members are members of the
Manager and, pursuant to the terms of the Manager Operating Agreement, are (i)
entitled to the "Income Percentage" and (ii) have the "Working Capital
Commitment" as set forth on Schedule A to the Manager Operating Agreement, which
Schedule A is attached hereto as Exhibit A-1;
WHEREAS, as of the date hereof, the Selling Members are members of the GP
and, pursuant to the terms of the GP Manager Operating Agreement, are (i)
entitled to the "Incentive Percentage" and (ii) have the "Capital Commitment" as
set forth on Schedule A to the GP Operating Agreement, which Schedule A is
attached hereto as Exhibit B-1;
WHEREAS, at the Closing referred to below, the Managing Members desire to
assign to Jefferies, and Jefferies desires to accept and assume from the
Managing Members, a portion of the Managing Members' respective interests in the
Manager (such portion, the "Manager Purchased Interests");
WHEREAS, at the Closing referred to below, the Selling Members desire to
assign to Jefferies, and Jefferies desires to accept and assume from the Selling
Members, a portion of the Selling Members' respective interests in the GP (such
portion, the "GP Purchased Interests" and together with the Manager Purchased
Interests, the "Purchased Interests");
WHEREAS, after giving effect to the assignment and assumption of such
Purchased Interests, (x) the Income Percentage, the Working Capital Commitment
and the Investment Capital Commitment of the Managing Members and of Jefferies
shall be as set forth on Exhibit A-2 hereto and (y) the Capital Commitment and
the Incentive Percentage of the Selling
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Members and of Jefferies shall be as set forth on Exhibit B-2 hereto; and upon
such assignment and assumption of such Purchased Interests, Jefferies will
assume and perform all of the liabilities and obligations of the Managing
Members with respect to the Manager Purchased Interests under the Manager
Operating Agreement and with respect to the GP Purchased Interests under the GP
Operating Agreement.
WHEREAS, in order to reflect the assignment and assumption of the
Purchased Interests, Jefferies and the Managing Members will, at the Closing
referred to below, execute counterparts of the Manager Operating Agreement and
the GP Operating Agreement, together with Member Registers with respect to
Jefferies and the Managing Members for the Manager, and with respect to
Jefferies and the Selling Members for the GP, in the form of Exhibit A-2 and
Exhibit B-2 hereto, respectively (together, the "Member Registers"), thereby
admitting Jefferies as a Non-Managing Member of each of the Manager and the GP,
with the rights, preferences, privileges and obligations set forth therein;
WHEREAS, Jefferies & Company, Inc. ("Jefco") is a wholly-owned subsidiary
of Jefferies;
WHEREAS, Jefferies is a limited partner in the Institutional Fund, with a
capital commitment to the Institutional Fund in the amount of $30 million;
WHEREAS, at the Closing referred to below, Jefferies will transfer to the
Selling Members and the Selling Members will assume and accept a portion of
Jefferies' limited partnership interest in the Institutional Fund, including a
portion of Jefferies' capital commitment
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thereto, in the respective amounts set forth on Schedule C hereto (each, an
"Institutional Fund Purchased Interest"); and
WHEREAS, Jefferies will issue to the Managing Members up to a specified
number of shares of the common stock, par value .0001 per share, of Jefferies
(the "Group Shares"), as set forth herein.
NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
ARTICLE I
PURCHASE AND SALE OF PURCHASED INTERESTS
1.1. Assignment of Manager Purchased Interests. At the Closing referred to
in Article III below, the Managing Members shall assign and transfer to
Jefferies and Jefferies shall accept and assume all of the Managing Members'
rights, title and interest to and in the Manager Purchased Interests and, to
reflect such purchase, the parties shall execute and deliver the Manager
Operating Agreement, together with the Member Register applicable thereto in the
form attached to this Agreement as Exhibit A-2. The Managing Members' execution
of a counterpart of the Manager Operating Agreement shall indicate their consent
to Jefferies becoming a Non-Managing Member of Manager pursuant to Section 10.1
of the Manager Operating Agreement.
1.2. Assignment of GP Purchased Interests. At the Closing referred to in
Article III below, the Selling Members shall assign and transfer to Jefferies
and Jefferies shall accept and
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assume all of the Selling Members' rights, title and interest to and in the GP
Purchased Interests and, to reflect such purchase, the parties shall execute and
deliver the GP Operating Agreement, together with the Member Register applicable
thereto in the form attached to this Agreement as Exhibit B-2. The Managing
Members' execution of a counterpart of the GP Operating Agreement shall indicate
their consent to Jefferies becoming a Non-Managing Member of the GP pursuant to
Section 10.1 of the GP Operating Agreement.
1.3. Assignment of Institutional Fund Purchased Interests. At the Closing
referred to in Article III below, Jefferies shall assign and transfer to each
Selling Member, and each Selling Member shall accept and assume, all of
Jefferies' rights, title and interest to and in the Institutional Fund Purchased
Interests and, at the Closing, the GP shall admit each of the Selling Members as
limited partners to the Institutional Fund, with capital commitments equal to
the capital commitments assumed from Jefferies pursuant hereto.
1.4. Jefferies Shares. At the Closing referred to in Article III below,
Jefferies shall issue and deliver to each Managing Member the number of Group
Shares (such number, the "Jefferies Shares") set forth on Schedule 1.4 hereto
opposite the name of such Managing Member (it being understood that the number
of Jefferies Shares will depend on the aggregate amount of capital (including
leverage) committed to Fund IV at the time of its final closing (the "Fund IV
Final Closing") (the total of such committed capital, including leverage, being
referred to as "Committed Capital")).
In the event of any stock-split, dividend or similar transaction with
respect to Group Shares after June 30, 2005 (excluding normal quarterly cash
dividends in the ordinary course of
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business of up to $.20 per share per quarter which are payable prior to the
Closing Date), the number of Jefferies Shares shall be proportionately adjusted
and references herein to the Jefferies Shares shall mean such adjusted number of
Group Shares. In the event the Committed Capital of Fund IV at the time of the
Fund IV Final Closing is less than the minimum amount set forth on Schedule 1.4
hereto, this Agreement shall terminate and be of no further force or effect. In
the event the Closing hereunder occurs before the Fund IV Final Closing, the
number of Group Shares issued at the Closing shall be based on the amount of
Committed Capital of Fund IV at the time of the Closing hereunder, and promptly
after the Fund IV Final Closing, Jefferies shall issue to the Managing Members
(in the same ratio as originally issued) the excess, if any, of the number of
Jefferies Shares that would have been issued had the Fund IV Final Closing
occurred before the Closing hereunder over the number of Jefferies Shares
actually issued at the Closing hereunder.
1.5. Earnout Shares. A portion of the Jefferies Shares issued to each
Managing Member (such portion being set forth on Schedule 1.5 hereto and such
shares being the "Earnout Shares") shall be subject to forfeiture under the
circumstances described in Section 6.1 below.
1.6. Payment of Previously Funded Capital Contributions. If, prior to the
Closing Date, the Managing Members have funded any of their respective Working
Capital Commitments to the Manager, or the Selling Members have funded any of
their respective Capital Commitments to the GP, Jefferies shall at the Closing
pay to each Managing Member or Selling Member the amount of such funded Working
Capital Commitment or Capital Commitment, as the case may be, multiplied by the
percentage of such Working Capital
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Commitment and Capital Commitment, as applicable, assumed by Jefferies pursuant
hereto. If prior to the Closing Date, Jefferies has funded any of its capital
commitment to the Institutional Fund, each Selling Member shall at the Closing
pay to Jefferies the amount of such funded capital commitment, multiplied by the
percentage of such capital commitment assumed by such Selling Member pursuant
hereto. Each of the Selling Members and Jefferies agree that, as a matter of
convenience only, the amounts to be paid at Closing by Jefferies to the Selling
Members pursuant to this section may be setoff off against the amounts to be
paid at Closing by the Selling Members to Jefferies pursuant to this section.
ARTICLE II
MANAGEMENT FEE
2.1. Interim Management Fee. In consideration for certain services to be
rendered by Jefferies and/or Jefco to the Manager from the date hereof until the
Closing Date, the Manager shall pay Jefferies a management fee equal to the per
annum amount set forth on Schedule 2.1 hereto, payable quarterly in arrears at
the end of each calendar quarter between the date hereof and Closing, and on the
Closing Date. For periods of less than a full calendar quarter, such quarterly
fee shall be pro rated based on the number of days in such period.
ARTICLE III
CLOSING
3.1. Closing. The closing of the purchase and sale of the Purchased
Interests and the Institutional Fund Purchased Interests (the "Closing") shall
take place at the offices of Jefferies & Company, Inc., 520 Madison Avenue, New
York, New York, 10022, on the first business day
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after the date that is eighteen (18) months after the Fund IV Final Closing, or
such earlier date as is specified in writing by Mr. Friedman on at least ten
(10) days' prior written notice to Jefferies, or at such other time and place as
the Managing Members and Jefferies mutually agree upon in writing (the "Closing
Date").
3.2. Closing Deliveries. At the Closing:
(a) Jefferies and the Managing Members shall execute and deliver the
Manager Operating Agreement and the GP Operating Agreement; Jefferies and the
Managing Members shall execute and deliver the Member Register in the form of
Exhibit A-2 hereto; and Jefferies and the Selling Members shall execute and
deliver the Member Register in the form of Exhibit B-2 attached hereto;
(b) Jefferies shall deliver to the Managing Members certificates
representing the Jefferies Shares, which Shares shall be duly authorized, fully
paid and non-assessable, shall be listed for trading on the New York Stock
Exchange and shall be free and clear of all liens, claims, restrictions and
encumbrances (except for the restrictions on transfer and sale contained in
Sections 4.1, 6.1, 6.2, 8.5 and 8.6 hereof); and
(c) Jefferies and the Selling Members shall execute and deliver an
instrument of assignment and assumption with respect to the Institutional Fund
Purchased Interests in the form of Exhibit C hereto (the "Assignment and
Assumption Agreement"), the Selling Members shall execute the limited
partnership agreement of the Institutional Fund and the GP shall execute
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and deliver to Jefferies and the Selling Members its consent to such assignment
and assumption, and its admission of the Selling Members as limited partners to
the Institutional Fund.
ARTICLE IV
RESTRICTIONS ON TRANSFER OF JEFFERIES SHARES
4.1. Restrictions on Transfer of Jefferies Shares. The Managing Members
agree that notwithstanding any other rights that they may have, until the fifth
(5th) anniversary of the initial closing of Fund IV (i.e., until May 9, 2010),
the Managing Members shall not, directly or indirectly, offer, sell, contract to
sell, grant any option or interest with respect to, transfer, assign, pledge, or
otherwise dispose of the Jefferies Shares or engage in any hedging or other
similar transaction, including without limitation any short sale or purchase,
sale or grant of any put or call option with respect to the Jefferies Shares
(each, a "Transfer") (either pursuant to Rule 144 ("Rule 144") promulgated under
the Securities Act of 1933, as amended (the "Securities Act"), or otherwise),
(such restrictions, the "Lock-Up"); provided, however, that notwithstanding the
foregoing, either Managing Member may transfer the Jefferies Shares at any time
in a Permitted Disposition, and such permitted transferee of the Jefferies
Shares may in turn Transfer the Jefferies Shares in a Permitted Disposition,
provided that, except in connection with a Change of Control, the transferee
agrees in writing to be bound by Article IV and Sections 6.1, 8.6 and 8.7
hereof; and provided further that a Transfer of Earnout Shares described in
paragraphs (a) and (d) of Section 4.2 hereof shall not be a Permitted
Disposition so long as such Earnout Shares remain subject to forfeiture
hereunder.
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4.2. Permitted Disposition. As used herein, a "Permitted Disposition"
shall mean:
(a) A Transfer by any holder who is an individual to one or more of
his or her Family Members. As used herein the term "Family Member" shall mean a
spouse, parent, children (adopted or natural) or other lineal descendants,
spouses of the holder's lineal descendants, or a trust solely for the benefit
one or more of the holder's spouse, the holder's minor or adult children
(adopted or natural) or other lineal descendants or a charitable institution or
foundation;
(b) A Transfer to Jefferies or Jefco or an affiliate thereof;
(c) A Transfer, in the event of death of any holder who is an
individual, to his or her (i) executor or personal representative (in their
capacities as such), (ii) estate and/or (iii) named beneficiaries;
(d) A Transfer to a trust, limited partnership, corporation or
limited liability company, all the beneficiaries, partners, shareholders or
members of which consist of one or more of such holder or his or her Family
Members or trusts for their benefit;
(e) A Transfer by one Managing Member or his Family Members to the
other Managing Member or his Family Members;
(f) A Transfer in connection with any transaction which if
consummated results in a "Change of Control." For purposes of this Agreement, a
"Change of Control" shall mean any of the following events: (i) a "person" (as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), or "group" (as
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that term is used in Rule 13d-5 under the Exchange Act) of persons is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of Jefferies representing more than 50% of
the combined voting power of Jefferies' then outstanding securities; or (ii)
Jefferies merges or consolidates with any other corporation or entity and as a
result of such transaction the stockholders of Jefferies immediately prior to
such transaction own less than 50% of the combined voting power of the voting
securities of the surviving entity outstanding immediately after such
transaction; or (iii) the stockholders of Jefferies approve a plan of complete
liquidation or dissolution of Jefferies; or (iv) Jefferies sells or otherwise
disposes of all or substantially all of Jefferies' assets on a consolidated
basis.
ARTICLE V
SUBSEQUENT FUNDS; OTHER COVENANTS
5.1. Commitment to Future Funds. In the future, the Manager and GP may
organize additional private equity investment funds (individually a "Fund" and
collectively the "Funds," and in each case including all parallel funds) with
substantially similar investment objectives as Fund IV. Each Fund will be
comprised of one or more limited partnerships (the "Institutional Funds") open
for commitment by institutional and other qualified investors, and one or more
additional entities (the "Employee Funds") designed specifically for employees
of Jefferies or its affiliates. The organizing agreements and other aspects of
each Fund (including with respect to the provision of leverage to Jefferies'
employees and investment objectives) will be substantially similar to those of
Fund IV, including a 20% carried interest (the "Carried Interest") in favor of
the General Partner, which will act as the general partner or managing member of
the entities comprising such Fund. Each entity comprising a Fund will be managed
by the Manager on the
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same terms and conditions as the Manager serves as the manager of the various
Fund IV entities. The Managing Members of the Manager will continue to be Brian
P. Friedman and any other person he designates also as a Managing Member. The
Managing Member of the General Partner will continue to be the Manager. Any
commitment of Jefferies, its employees and affiliates (other than employees who
are members of the Manager) to such Funds shall be subject to the same carried
interest and management fees as the commitment of institutional investors in
such Funds. Subject to the other provisions of this Article V, with respect to
each successive Fund, (a) if (i) Jefferies, its employees and affiliates (other
than employees who are members of the Manager of such Fund) commit to invest at
least seventeen and one-half percent (17.5%) of the initially targeted
investment capitalization (including leverage) of such Fund prior to the time
marketing commences for such Fund (it being understood that Jefferies will be
offered the opportunity to make such commitments and that such investment
capitalization commitment will not exceed seventeen and one-half percent (17.5%)
of the final capitalization (including leverage) of such Fund if the final
capitalization is less than the targeted capitalization) and (ii) Jefferies and
Group have complied with their obligations hereunder and (b) if Mr. Friedman
commits to invest an amount equal to (i) two and one-half percent (2.5%) of the
initially targeted investment capitalization (including leverage) of such Fund
less (ii) the aggregate amount committed to such Fund by all other members of
the Manager other than Jefferies, then Jefferies and Mr. Friedman will be
entitled to share (as between themselves) (in the ratio set forth in paragraph 1
of Schedule 5.1 hereto) in the profits and distributions derived from the net
income attributable to fees and the carried interest of such Fund; provided,
however, that so long as Jefferies has made the commitment described in clause
(a) of this paragraph, Jefferies' interest in
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the carried interest of such Fund (whether such carried interest is held by the
manager or the general partner of such Fund) shall not be less than the
percentage set forth in paragraph 2 of Schedule 5.1 hereto and, provided
further, that such net income attributable to fees shall be determined after
payment of all salaries, expenses and bonuses (other than bonuses payable to Mr.
Friedman) payable by the Manager of such Fund, and provided that any interest in
net income attributable to fees thereafter granted shall not reduce Jefferies'
share of such net income. In the event of the formation of a Fund in which
Jefferies participates as set forth in clause (a) of Section 5.1 (a "Successor
Fund"), a separate schedule to the Member Register with respect to such
Successor Fund shall be appropriately completed and signed by the appropriate
parties.
5.2. Jefferies Forfeiture of Rights. If, having been offered the
opportunity to do so, Jefferies fails to make the commitment described in clause
(a) of Section 5.1 above with respect to any Fund or, having made such
commitment, fails to fully satisfy such commitment, Mr. Friedman's obligations
under Sections 5.1 and 5.4 shall not apply to such Fund or any future Funds and
Jefferies shall have no right to any portion of the carried interest of such
Fund or any future Funds or the fee income attributable thereto.
5.3. Managing Members Failure to Organize Future Fund. If Jefferies makes
the commitment described in clause (a) of Section 5.1 above with respect to any
potential Fund, but Mr. Friedman declines to make the commitment described in
clause (b) of Section 5.1 and such Fund is therefore not organized, for a period
of five (5) years after Mr. Friedman declines to make such commitment, Mr.
Friedman will not directly or indirectly organize, work for, support, become a
lead investor in or sponsor another private investment fund with substantially
similar
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investment objectives as Fund IV, and Sections 5.1 and 5.4 shall cease to apply
to such Fund and any future Funds.
5.4. Restriction on Participation in Other Funds. With respect to each
Fund with respect to which Jefferies shares in any carried interest (including
the Incentive Percentage of Fund IV), until the earlier of (a) such Fund being
seventy-five percent (75%) invested or (b) five (5) years from the commencement
of the investment period of such Fund, none of Jefferies, Jefco, the manager of
such Fund, any entity controlled by Jefferies, Jefco or such manager, or, to the
knowledge of the relevant party, any person employed by Jefferies, Jefco or such
manager, will organize, sponsor or become a lead investor in another private
investment fund with substantially similar objectives to such Fund, and none of
Jefferies, Jefco, Mr. Friedman or any entity controlled by them will invest in
any transaction meeting such Fund's investment objectives unless the transaction
has been turned down by such manager; provided, however, that notwithstanding
the foregoing, this provision shall not apply to (i) any private investment fund
or transaction that is entered into or created by an entity at a time when such
entity is not owned or controlled by Jefferies or Jefco but which subsequently
becomes owned or controlled by Jefferies or Jefco during the periods referred to
(a) and (b) above, (ii) any direct or indirect acquisition by Jefferies of a
business ancillary to its then existing business, other than a private equity
acquisition or (iii) any direct or indirect investment in a transaction made by
Jefferies in connection with the execution of an investment banking engagement
by Jefferies, provided that Jefferies is not the lead investor in such
transaction.
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5.5. Services and Expenses relating to Funds I-IV and to Future Funds.
Jefferies will or will cause Jefco to provide FS Private Investments LLC ("FS
I"), FS Private Investments II LLC ("FS II"), FS Private Investments III LLC
("FS III"), the Manager and the manager of any future Funds, with reasonable
space, phone and other services to the extent reasonably requested by such
management entities. Such management entities will reimburse Jefferies annually
in arrears for the reasonable cost of such space and services, as well as any
salary and benefits provided by Jefferies to their respective employees,
consistent with past practices between Jefferies and the Managing Members and
their controlled companies. Expenses incurred on behalf of more than one of such
management entities will be allocated by such management entities between or
among the relevant entities in an equitable and reasonable manner, which, in the
absence of another agreed basis, shall be based on the relevant entities' fee
revenue received during the relevant period.
ARTICLE VI
EARNOUT SHARES
6.1. Forfeiture of Earnout Shares.
(a) It is contemplated that after Fund IV is sufficiently invested,
Manager will organize a new Fund ("Fund V").
(b) If Fund V is not formed (i.e., have its initial closing) within
five (5) years after the Final Closing of Fund IV (the "Fund V Formation
Deadline"), or if Fund V is formed on or prior to the Fund V Formation Deadline
but, within one year after the initial closing of Fund V, Fund V does not have
an aggregate in committed capital (including leverage) of at least
- 15 -
the amount set forth on Schedule 6.1 hereto (the "Low Amount"), all the Earnout
Shares will be forfeited.
(c) If Fund V is formed on or prior to the Fund V Formation Deadline
and, within one year after the initial closing of Fund V, Fund V has committed
capital (including leverage) in excess of the amount set forth on Schedule 6.1
hereto (the "High Amount") , then all of the Earnout Shares shall be deemed
fully earned and none of the Earnout Shares shall be forfeited or subject to
forfeiture.
(d) If Fund V is formed on or prior to the Fund V Formation Deadline
and, within one year after the initial closing of Fund V, Fund V has an
aggregate of more than the Low Amount but less than the High Amount in committed
capital (including leverage), the portion of Earnout Shares forfeited shall be
pro rated between 100% and 0% on a straight line basis between the Low Amount
and the High Amount in such committed capital (including leverage), and the
balance of the Earnout Shares shall be deemed fully earned and no longer
forfeitable.
(e) The forfeiture of Earnout Shares pursuant to this Section 6.1
shall be allocated on a pro rata basis between the Managing Members based upon
the number of Jefferies Shares that each Managing Member has previously received
under this Agreement prior to the forfeiture.
6.2. Deemed Earning of Earnout Shares in Certain Cases. Notwithstanding
the provisions of Section 6.1, all of the Earnout Shares shall be deemed fully
earned and no longer
- 16 -
forfeitable (i) if Jefferies is offered the opportunity to make the commitment
with respect to Fund V described in clause (a) of Section 5.1 but fails to do so
or having made such commitment, fails to satisfy such commitment, or (ii) if
there is a Change of Control of Group and, within 60 days after such Change of
Control, the entity controlling Group has not confirmed in writing to Mr.
Friedman that such entity is committed to make the investment in Fund V
described in clause (a) of Section 5.1 above, subject only to Mr. Friedman's
commitment in clause (b) of Section 5.1 above.
6.3. Tax Treatment. The parties shall treat the assignment of the Manager
Purchased Interests and GP Purchased Interests in exchange for Institutional
Fund Purchased Interests and Jefferies Shares as an exchange under section 1001
of the Internal Revenue Code for U.S. federal income tax purposes (and under
comparable provisions of applicable state or local income tax law). Any
forfeiture of Earnout Shares under this Article VI shall be treated as an
adjustment to the consideration in such exchange for income tax purposes.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF THE
SELLING MEMBERS, THE MANAGER AND THE GP
As a material inducement to Jefferies to enter into this Agreement, each
of the Selling Members, the Manager and the GP hereby represents and warrants to
Jefferies that, as of the date of this Agreement, except as set forth on a
Schedule of Exceptions (the "Schedule of Exceptions") specifically identifying
the relevant subparagraph hereof, furnished to Jefferies prior to execution
hereof and attached hereto as Schedule A which exceptions shall be deemed to
- 17 -
be part of the representations and warranties as if made hereunder, and except
for such matters as do not adversely affect the value of the Purchased
Interests, the following representations and warranties are true and correct in
all material respects:
7.1. Organization, Good Standing and Qualification. Each of the Manager,
the GP and 2055 Partners is a limited liability company or limited partnership
duly formed, existing and in good standing under the laws of the State of
Delaware. Each of the Manager, the GP and 2055 Partners is duly qualified to
transact business and is in good standing in each jurisdiction in which such
qualification is required. Each of the Manager, the GP and 2055 Partners has all
required power and authority necessary to own and operate its property, to carry
on its business as now conducted and presently proposed to be conducted and to
carry out the transactions contemplated by this Agreement.
7.2. Capitalization and Voting Rights.
(a) The rights and obligations of the Members of the Manager and the
GP are as set forth in the Manager Operating Agreement and the GP Operating
Agreement respectively.
(b) The outstanding interests of the Members in the Manager and the
GP are all duly and validly authorized and issued and were issued in compliance
with all applicable state and federal laws concerning the issuance of
securities.
(c) There are not outstanding any options, warrants, rights
(including conversion rights) or agreements for the purchase or acquisition from
either of the Manager or the GP of any of their capital interests (other than
pursuant to this Agreement, the Manager
- 18 -
Operating Agreement and the GP Operating Agreement). Other than the Manager
Operating Agreement and the GP Operating Agreement, respectively, neither of the
Manager nor the GP is a party or subject to any agreement or understanding, and,
to the best knowledge of each of the Manager Members, there is no agreement or
understanding between any persons and/or entities, which affects or relates to
the voting or giving of written consents with respect to any interests in the
Manager and the GP.
7.3. Subsidiaries. Other than as disclosed in the Schedule of Exceptions
and other than Fund IV, neither of the Manager nor the GP presently owns or
controls, directly or indirectly, or holds any rights to acquire, any interest
in any corporation, association or other business entity. Except in connection
with Fund IV, neither of the Manager nor the GP is a participant in any joint
venture, partnership or similar arrangement.
7.4. Authorization. Any corporate action on the part of each of the
Manager and the GP and their respective officers, directors and members
necessary for the authorization, execution and delivery of this Agreement, the
Manager Operating Agreement, the GP Operating Agreement and all other agreements
contemplated hereby to which each of the Manager and the GP is a party, and the
performance of all obligations of the Manager and the GP hereunder, has been
taken or will be taken prior to the Closing. The Manager Operating Agreement,
the GP Operating Agreement and all other agreements contemplated hereby to which
any of the Manager and the GP is a party constitute or when executed, will
constitute, valid and legally binding obligations of the Manager and the GP, as
applicable, enforceable against the Manager and the GP in accordance with their
respective terms, except (i) as limited by applicable
- 19 -
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies.
7.5. Valid Issuance of Interests. The Purchased Interests that are being
purchased by Jefferies hereunder, when sold in accordance with the terms of this
Agreement for the consideration expressed herein, will be duly and validly
issued and will be free of restrictions on transfer, other than restrictions on
transfer under this Agreement, the Manager Operating Agreement, the GP Operating
Agreement, applicable state and federal securities laws and under applicable
laws of the state of Delaware.
7.6. Governmental Consents. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of either of the
Manager or the GP is required in connection with the consummation of the
transactions contemplated by this Agreement.
7.7. Offering. Assuming the truth and accuracy of Jefferies'
representations set forth in Article IX of this Agreement, the offer and sale of
the Purchased Interests as contemplated by this Agreement are exempt from the
registration requirements of the Securities Act, and the qualification or
registration requirements of applicable blue sky laws. Neither the Manager, the
GP, the Managing Members nor any authorized agent acting on their behalf will
take any action hereafter that would cause the loss of such exemptions.
- 20 -
7.8. Litigation. There is no action, suit, proceeding or investigation
pending or currently threatened against either of the Manager or the GP (or, to
the knowledge of each of the Managing Members, threatened against or affecting
any of the officers, directors, members or employees of either of the Manager or
the GP with respect to their businesses or proposed business activities) that
questions the validity of this Agreement or the right of either of the Manager
or the GP to enter into such agreement or to consummate the transactions
contemplated hereby, or that might result, either individually or in the
aggregate, in any material adverse changes in the business, assets or condition
of either of the Manager or the GP, financially or otherwise, or any change in
the current equity ownership of either of the Manager or the GP, nor is either
of the Managing Members aware that there is any reasonable basis for the
foregoing. Neither of the Manager nor the GP is a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality.
7.9. No Violation. Neither of the Manager nor the GP is in violation of or
default under any provision of the Manager Operating Agreement or the GP
Operating Agreement respectively or of any instrument, judgment, order, writ,
decree or contract to which it is a party or by which it is bound, or of any
provision of any federal or state statute, rule or regulation applicable to
either of the Manager or the GP, except where such failure or violation would
not have a material adverse effect on such Manager or GP. The execution,
delivery and performance of the agreements contemplated herein to which each of
the Manager or the GP is a party and the consummation of the transactions
contemplated hereby will not result in any such violation, or be in conflict
with or constitute, with or without the passage of time and giving of notice,
either a default under any such provision, instrument, judgment, order, writ,
decree or contract or an
- 21 -
event that results in the creation of any lien, charge or encumbrance upon any
assets of either of the Manager or the GP or the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit, license, authorization or
approval applicable to either of the Manager or the GP, its business or
operations or any of their assets or properties.
7.10. Agreements; Action. Except for agreements and transactions entered
into in the ordinary course in connection with its investment and management
activities related to Fund IV:
(a) Except for agreements explicitly contemplated hereby or by the
Manager Operating Agreement or the GP Operating Agreement, as applicable, there
are no agreements, understandings or proposed transactions between either of the
Manager or the GP and any of its respective officers, members, officers,
affiliates or any affiliate thereof.
(b) Neither of the Manager nor the GP has (i) declared or paid any
dividends or authorized or made any distribution on account of any of the
Purchased Interests, or (ii) sold, exchanged or otherwise disposed of any of its
material assets or rights.
7.11. Related-Party Transactions. Except as provided in the Manager
Operating Agreement and the GP Operating Agreement and except for loans made
from time to time to Employee Non-Managing Members of the GP to assist in
funding capital commitments, no employee, member, officer or director of either
of the Manager or the GP or member of his or her immediate family is indebted to
either of the Manager or the GP, nor is either of the Manager or the GP indebted
(or committed to make loans or extend or guarantee credit) to any of them. To
the knowledge of each of the Managing Members, none of such persons has any
direct or
- 22 -
indirect material ownership interest in any firm or corporation with which
either of the Manager or the GP has a material business relationship, or any
firm or corporation that competes with either of the Manager or the GP, except
that employees, stockholders, officers or directors of the Manager or the GP and
members of their immediate families may own stock in publicly traded companies
that may compete with the Manager or the GP and except that such persons may
make investments and engage in activities not prohibited by the agreements
governing Fund IV. No member of the immediate family of any officer or director
of either of the Manager or the GP is directly or indirectly interested in any
material contract with either of the Manager or the GP except as provided herein
or in the Manager Operating Agreement, the GP Operating Agreement and the other
agreements contemplated hereby.
ARTICLE VIII
ADDITIONAL REPRESENTATIONS OF MANAGING MEMBERS
Each Managing Member severally and not jointly hereby represents and
warrants to Jefferies as follows:
8.1. Purchase Entirely for Own Account. The Jefferies Shares to be
received by such Managing Member will be acquired for investment by him for his
own account, not as a nominee or agent, or with a view to the resale or
distribution of any part thereof in violation of the Securities Act, and such
Managing Member does not have any present intention of selling, granting any
participation in or otherwise distributing the same in violation of the
Securities Act. Such Managing Member does not have any contract, undertaking,
agreement or arrangement
- 23 -
with any person to sell, transfer or grant participations to such person or to
any third person, with respect to any of the Jefferies Shares.
8.2. Investigation. Such Managing Member has had an opportunity to ask
questions and receive answers from Jefferies regarding the terms and conditions
of the offering of the Jefferies Shares and the business, properties, prospects
and financial condition of Jefferies. The foregoing, however, does not limit or
modify the representations and warranties of Jefferies in Article IX of this
Agreement or the right of the Managing Members to rely thereon.
8.3. Investment Experience. Such Managing Member can bear the economic
risk of his investment in the Jefferies Shares, and has such knowledge and
experience in financial or business matters that he is capable of evaluating the
merits and risks of the investment in the Jefferies Shares.
8.4. Accredited Investor. Such Managing Member is an "accredited investor"
within the meaning of SEC Rule 501 of Regulation D, as presently in effect.
8.5. Restricted Securities. Such Managing Member understands that the
Jefferies Shares he is purchasing are characterized as "restricted securities"
under the federal securities laws inasmuch as they are being acquired from
Jefferies in a transaction not involving a public offering and that under such
laws and applicable regulations such securities may be resold without
registration under the Securities Act only in certain limited circumstances. In
the absence of an effective registration statement covering the Jefferies Shares
or an available exemption from registration under the Securities Act, the
Jefferies Shares must be held
- 24 -
indefinitely. Such Managing Member is familiar with Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the
Securities Act.
8.6. Further Limitations on Disposition. Without in any way limiting the
representations set forth above or the Lock-Up, such Managing Member agrees not
to make any disposition (except for a Permitted Disposition) of all or any
portion of the Jefferies Shares unless:
(a) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(b) If requested by Jefferies, such Managing Member shall have
furnished Jefferies with an opinion of counsel, reasonably satisfactory to
Jefferies, that such disposition does not require registration of such shares
under the Securities Act.
The provisions of this Section 8.6 shall terminate at such time as the
restrictive legends referred to in Section 8.7(a)(i) are required to be removed
from the certificates evidencing the Jefferies Shares pursuant to Section 10.4.
8.7. Legends.
(a) Subject to the provisions of Section 10.4, it is understood that
the certificates evidencing the Jefferies Shares shall bear the following
legends:
- 25 -
(i) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE
SECURITIES LAWS, AND MAY BE OFFERED AND SOLD ONLY IF SO REGISTERED OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE. THE HOLDER OF THESE SHARES MAY BE
REQUIRED TO DELIVER TO JEFFERIES GROUP, INC, IF IT SO REQUESTS, AN OPINION OF
COUNSEL (REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO JEFFERIES GROUP, INC)
TO THE EFFECT THAT AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT (OR
QUALIFICATION UNDER STATE SECURITIES LAWS) IS AVAILABLE WITH RESPECT TO ANY
TRANSFER OF THESE SHARES THAT HAS NOT BEEN SO REGISTERED (OR QUALIFIED)."
(ii) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ISSUED BY THE COMPANY UNDER A SHARE AND MEMBERSHIP INTEREST PURCHASE AGREEMENT
DATED JULY 18, 2005 (THE "AGREEMENT"), BETWEEN THE REGISTERED OWNER NAMED HEREON
AND JEFFERIES GROUP, INC. UNDER THE AGREEMENT, A COPY OF WHICH MAY BE EXAMINED
AT THE OFFICE OF THE SECRETARY OF THE COMPANY, UNTIL MAY 9, 2010, HOLDER SHALL
NOT SELL, TRANSFER, ASSIGN OR OTHERWISE DISPOSE OF SUCH SHARES EXCEPT IN
ACCORDANCE WITH THE AGREEMENT.
- 26 -
(b) Subject to the provisions of Section 10.4, the certificates
representing the Earnout Shares shall also bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED BY THE
COMPANY UNDER A SHARE AND MEMBERSHIP INTEREST PURCHASE AGREEMENT DATED JULY 18,
2005 (THE "AGREEMENT") BETWEEN THE REGISTERED OWNER NAMED HEREIN AND JEFFERIES
GROUP INC. UNDER THE AGREEMENT, A COPY OF WHICH MAY BE EXAMINED AT THE OFFICE OF
THE SECRETARY OF THE COMPANY, THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO FORFEITURE UNDER CERTAIN CIRCUMSTANCES.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES OF JEFFERIES
As a material inducement to the Selling Members to enter into this
Agreement and acquire the Jefferies Shares and Institutional Fund Purchased
Interests hereunder, Jefferies hereby represents and warrants to the Selling
Members that, as of the date of this Agreement, except as set forth on Jefferies
Schedule of Exceptions specifically identifying the relevant subparagraph hereof
(the "Jefferies Schedule of Exceptions") furnished to the Selling Members, to
the Manager and to the GP prior to the execution hereof and attached hereto as
Schedule B, which exceptions shall be deemed to be part of the representations
and warranties as if made hereunder, and except for such matters as do not
adversely affect the value of the Jefferies Shares or the Institutional Fund
Purchased Interests, the following representations and warranties are true and
correct in all material respects:
- 27 -
9.1. Organization. Good Standing and Qualification. Jefferies is a
corporation validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all requisite power and authority
necessary to own and operate its property, to carry on its business as now
conducted and presently proposed to be conducted and to carry out the
transactions contemplated by this Agreement.
9.2. Authorization. All corporate actions on the part of Jefferies and its
respective officers, directors and shareholders, necessary for the
authorization, execution, delivery and performance of this Agreement, the
Manager Operating Agreement, the GP Operating Agreement and the Assignment and
Assumption Agreement, have been duly taken. Jefferies has full power and
authority to enter into this Agreement, the Manager Operating Agreement, the GP
Operating Agreement, the Assignment and Assumption Agreement and any other
documents contemplated thereby. Jefferies has duly executed and delivered this
Agreement, and this Agreement constitutes and, when executed and delivered at
the Closing, each of the Manager Operating Agreement, the GP Operating Agreement
and the Assignment and Assumption Agreement will constitute, the valid and
legally binding obligation of Jefferies, enforceable in accordance with its
terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.
9.3. Purchase Entirely for Own Account. The Purchased Interests to be
received by Jefferies will be acquired for investment for Jefferies' own
account, not as a nominee or agent or
- 28 -
with a view to the resale or distribution of any part thereof, and Jefferies has
no present intention of selling, granting any participation in or otherwise
distributing the same. Jefferies does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to the
Purchased Interests.
9.4. Investigation. Jefferies has had an opportunity to ask questions and
receive answers from the Manager, the GP and the Managing Members regarding the
terms and conditions of the offering of the Purchased Interests and the
business, properties, prospects and financial condition of the Manager and the
GP. The foregoing, however, does not limit or modify the representations and
warranties of the Managing Members and the Manager and the GP in Articles VII
and VIII of this Agreement or the right of Jefferies to rely thereon.
9.5. Investment Experience. Jefferies is an investor in securities of
companies in the development stage and is able to fend for itself, can bear the
economic risk of its investment, and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Purchased Interests. Jefferies has not been
organized for the purpose of acquiring the Purchased Interests.
9.6. Accredited Investor. Jefferies is an "accredited investor" within the
meaning of SEC Rule 501 of Regulation D, as presently in effect.
9.7. Restricted Securities. Jefferies understands that the Purchased
Interests it is purchasing are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the
Managing Members in a transaction not involving a public
- 29 -
offering and that under such laws and applicable regulations such Purchased
Interests may be resold without registration under the Securities Act only in
certain limited circumstances. In the absence of an effective registration
statement covering the Purchased Interests or an available exemption from
registration under the Securities Act, the Purchased Interests must be held
indefinitely. Jefferies has carefully reviewed the terms of the Manager
Operating Agreement and the GP Operating Agreement including the restrictions on
transfer contained therein.
9.8. Capitalization; Title. As of June 30, 2005, the authorized capital
stock of Jefferies consists of 500,000,000 shares of common stock, $.0001 par
value per share, of which 57,758,713 shares are issued and outstanding, and
10,000,000 shares of preferred stock, $.0001 par value per share, none of which
are issued and outstanding. Other than as described in the financial statements
and the notes thereto included in Jefferies' Quarterly Report on Form 10-Q for
the quarter ended March 30, 2005, as filed with the SEC, and except for employee
stock options, restricted stock, restricted stock units, deferred shares and any
other employee related stock incentives granted since March 30, 2005 in the
ordinary course of business, there are no outstanding warrants, options or other
rights to purchase or acquire any of the authorized capital stock of Jefferies.
The Jefferies Shares to be issued at the Closing as contemplated hereby will,
upon such issuance, be duly authorized, validly issued, fully paid and
non-assessable, shall be free and clear of all liens, claims, restrictions and
encumbrances (except for the restrictions on transfer and sale contained in
Sections 4.1, 6.1, 6.2, 8.5 and 8.6 hereof), and shall be listed for trading on
the New York Stock Exchange. Jefferies has, and at the Closing will transfer to
the Managing Members, good title to the Institutional Fund Purchased Interests,
free and clear of all
- 30 -
liens, claims, restrictions and encumbrances (except for restrictions on
transfer under the Institutional Fund limited partnership agreement and
applicable state and federal securities laws).
9.9. SEC Documents. Jefferies has timely filed each statement, report,
registration statement and other filing (each of which includes all Exhibits
required to be filed) required to be filed by Jefferies with the SEC since
January 1, 2004 (collectively, the "Group SEC Documents"). As of their
respective filing times, the Group SEC Documents complied in all material
respects with the requirements of the Exchange Act (as hereinafter defined) and
the Securities Act. None of the Group SEC Documents contained, as of their
respective filing times, any untrue statement of a material fact or any omission
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading. Except to the extent that information contained in
any Group SEC Document has been revised or superseded by a later-filed Group SEC
Document filed and publicly available prior to the date hereof, none of the
Group SEC Documents contains any untrue statement of a material fact or omits to
state any material facts required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of Jefferies, including the notes
related thereto, included in the Group SEC Documents (the "Group Financial
Statements") were prepared in accordance with generally accepted accounting
principles and with the published applicable SEC rules and regulations, in each
case as of their respective dates, and were prepared on a basis applied
consistently throughout the periods indicated and consistent with each other
(except as may be indicated in the notes or, in the case of unaudited statements
included in Jefferies' Quarterly Reports on Form 10-Q, as permitted by such
form). The Group Financial
- 31 -
Statements fairly present the consolidated financial condition, operating
results and cash flows of Group and its subsidiaries as of the indicated dates
and during the indicated periods (subject, in the case of unaudited statements,
to normal, recurring year-end adjustments). Except as and to the extent set
forth in the Group SEC Documents and Jefferies Schedule of Exceptions, to the
knowledge of Jefferies, Group and its subsidiaries do not have any liabilities
(whether accrued, absolute, unliquidated, contingent or otherwise, whether or
not known to Group or its subsidiaries, whether due or to become due and
regardless of when asserted) other than liabilities and obligations reflected on
the balance sheet included in the Group Financial Statements, liabilities
incurred in the ordinary course of business since the date of the latest balance
sheet included in the Group Financial Statements and liabilities that will not
have a material adverse affect on the Group and its subsidiaries taken as a
whole.
9.10. Governmental Consents. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of Jefferies is
required in connection with the execution, delivery or performance of this
Agreement and the consummation of the transactions contemplated by this
Agreement.
9.11. Offering. Assuming the truth and accuracy of the Managing Members'
representations set forth in Article VIII of this Agreement, the offer, sale and
issuance of the Jefferies Shares as contemplated by this Agreement are exempt
from the registration requirements of the Securities Act, and the qualification
or registration requirements of
- 32 -
applicable blue sky laws. Neither Jefferies nor any authorized agent acting on
behalf of either of them will take any action hereafter that would cause the
loss of such exemptions.
9.12. Litigation. Except as set forth on Jefferies Schedule of Exceptions,
there is no action, suit, proceeding or investigation pending or currently
threatened against Jefferies or its subsidiaries (or, to the best of Jefferies'
knowledge, threatened against or affecting any of their respective officers,
directors or employees with respect to their businesses or proposed business
activities) that questions the validity of this Agreement or the right of
Jefferies to enter into such agreement or to consummate the transactions
contemplated hereby, or that might result, either individually or in the
aggregate, in any material adverse changes in the business, assets or condition
of Jefferies and its subsidiaries considered as a whole, financially or
otherwise, or any change in the current equity ownership of Jefferies nor is
Jefferies aware that there is any reasonable basis for the foregoing. Except as
disclosed in the Group SEC Documents, neither Jefferies nor any of its
subsidiaries is a party or subject to the provisions of any material order,
writ, injunction, judgment or decree of any court or governmental agency or
instrumentality.
9.13. No Violation. Neither Jefferies nor any of its subsidiaries
incorporated or organized in a jurisdiction in the United States (the "U.S.
Subsidiaries") is in violation of or default under any provision of its
certificate of incorporation or bylaws or of any instrument, judgment, order,
writ, decree or contract to which it is a party or by which it is bound, or of
any provision of any federal or state statute, rule or regulation applicable to
any of them, except where such failure or violation would not have a material
adverse effect on Jefferies and its U.S. Subsidiaries, considered as a whole.
The execution, delivery and performance of this Agreement
- 33 -
and all other agreements contemplated hereby to which Jefferies is a party and
the consummation of the transactions contemplated hereby will not result in any
such violation, or be in conflict with or constitute, with or without the
passage of time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event that results
in the creation of any lien, charge or encumbrance upon any assets of Jefferies,
or any of Jefferies' U.S. Subsidiaries or the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit, license, authorization or
approval applicable to Jefferies, or any of Jefferies' U.S. Subsidiaries, the
business or operations of any of them or any of their respective assets or
properties.
9.14. Changes. To the best of Jefferies' knowledge, since March 31, 2005,
there has not been any change in the assets, liabilities, financial condition or
operating results of Group and its subsidiaries on a consolidated basis from
that reflected in the Group Financial Statements, except changes in the ordinary
course of business that will not have a material adverse effect on Jefferies.
ARTICLE X
COVENANTS OF THE PARTIES
10.1. Inspection; Audited Financial Statements. The Managing Members shall
permit Jefferies, at Jefferies' expense, to visit and inspect the properties of
the Manager and the GP, to examine their respective books of account and records
and to discuss the affairs, finances and accounts of the Manager and of the GP
with its officers, all at such reasonable times as may be requested by
Jefferies, in each case insofar as is relevant to the Purchased Interests. The
- 34 -
Manager and GP will use commercially reasonable efforts to deliver to Jefferies
as promptly after the end of each fiscal year as is practicable, audited
financial statements of the Manager and GP for such fiscal year.
10.2. Business of Companies. Each of the Managing Members covenants and
agrees that, without the approval of Jefferies, which approval shall not be
unreasonably withheld or delayed, as long as the Purchased Interests are
outstanding and held by Jefferies or a transferee of Jefferies who has acquired
the Purchased Interests in a Transfer permitted by the Manager Operating
Agreement or the GP Operating Agreement as applicable, the business of the
Manager and the GP as conducted, and as contemplated to be conducted, on the
date of this Agreement shall be performed by the Manager and the GP or any
subsidiary of the Manager and the GP and not by any other entity.
10.3. Section 754 Election. Jefferies acknowledges and agrees that the
Manager and the GP will have no obligation to file an election under Section 754
of the Internal Revenue Code with respect to the purchase of the Purchased
Interests.
10.4. Removal of Legends.
(a) Jefferies agrees to cause the legend referred to in Section
8.7(a)(i) to be removed from the certificates representing the Jefferies Shares
on the third anniversary of the Closing Date for any Managing Member (or other
person(s) pursuant to a Permitted Disposition) who provides Jefferies a
representation letter reasonably satisfactory to Jefferies that contains
representations that (i) such Managing Member (or other person(s) pursuant to a
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Permitted Disposition) is not an "affiliate" (as defined in Rule 144(a)(1) under
the Securities Act) of Jefferies and has not been an "affiliate" of Jefferies
for the preceding three months and (ii) a period of at least two years has
elapsed since the later of the date the Jefferies Shares were acquired from
Jefferies or an "affiliate" of Jefferies (as calculated pursuant to Rule
144(d)).
(b) Jefferies agrees to cause the legend referred to in Section
8.7(a)(ii) to be removed from the certificates representing the Jefferies Shares
on May 9, 2010.
(c) Jefferies agrees to cause the legend referred to in Section
8.7(b) to be removed from the certificates representing the Earnout Shares at
such time as such Earnout Shares are no longer subject to forfeiture under
Article VI.
ARTICLE XI
CONDITIONS OF JEFFERIES' OBLIGATIONS AT CLOSING
The obligations of Jefferies under this Agreement to purchase the
Purchased Interests and sell the Institutional Fund Purchased Interests at the
Closing are subject to the fulfillment on or before the Closing of each of the
following conditions.
11.1. Representations and Warranties. The representations and warranties
of each of the Selling Members and the Companies contained in Article VII and
VIII shall be true in all material respects as of the date of this Agreement.
11.2. Performance. Each of the Selling Members, the Manager and the GP
shall have performed and complied in all material respects with all agreements,
obligations and conditions
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contained in this Agreement that are required to be performed or complied with
by them on or before the Closing.
11.3. Closing Documents. Each of the Selling Members shall have delivered
to Jefferies all of the following documents:
(a) A Compliance Certificate, dated the date of the Closing, stating
that the conditions specified in Sections 11.1 and 11.2 have been fulfilled.
(b) Executed counterparts to each of the Manager Operating Agreement
and the GP Operating Agreement, together with executed Member Registers in the
form attached as Exhibit A-2 and Exhibit B-2 hereto.
(c) An executed Assignment and Assumption Agreement;
(d) Certificates of good standing issued by the secretary of state
for each state where each of the Manager and the GP is authorized to do
business; and
(e) Copies of any third party and governmental consents, approvals
and filings required in connection with the consummation of the transactions
hereunder (including, without limitation, all blue sky law filings and waivers
of or evidence of compliance with all preemptive rights and rights of first
refusal).
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ARTICLE XII
CONDITIONS OF THE SELLING MEMBERS' OBLIGATIONS AT CLOSING
The obligations of the Selling Members under this Agreement to sell the
Purchased Interests and acquire the Institutional Fund Purchased Interests at
the Closing are subject to the fulfillment on or before the Closing of each of
the following conditions by Jefferies:
12.1. Representations and Warranties. The representations and warranties
of Jefferies contained in Article IX shall be true in all material respects as
of the date of this Agreement.
12.2. Performance. Jefferies shall have performed and complied in all
material respects with all agreements, obligations and conditions contained in
this Agreement that are required to be performed or complied with by it on or
before the Closing.
12.3. Closing Documents. Jefferies shall have delivered to the Companies
and the Selling Members all of the following documents:
(a) A Compliance Certificate, dated the date of the Closing, stating
that the conditions specified in Sections 12.1 and 12.2 have been fulfilled.
(b) Executed counterparts to each of the Manager Operating Agreement
and the GP Operating Agreement, together with executed Member Registers in the
form attached as Exhibit A-2 and Exhibit B-2 hereto.
(c) An executed Assignment and Assumption Agreement;
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(d) Certified copies of the resolutions duly adopted by Jefferies'
Board of Directors authorizing the execution, delivery and performance of this
Agreement, the Manager Operating Agreement and the GP Operating Agreement and
the issuance and sale of the Jefferies Shares;
(e) Certified copies of the Certificate of Incorporation and Bylaws
of Jefferies as in effect immediately prior to the Closing;
(f) Certificates of good standing of Jefferies issued by the
secretary of state of Delaware; and
(g) Copies of all third party and governmental consents, approvals
and filings required in connection with the consummation of the transactions
hereunder (including, without limitation, all blue sky law filings and waivers
of or evidence of compliance with all preemptive rights and rights of first
refusal).
12.4. Qualifications; Listing. All authorizations, approvals or permits,
if any, of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful issuance and sale
of the Jefferies Shares pursuant to this Agreement shall be duly obtained and
effective as of the Closing, and the Jefferies Shares shall have been listed for
trading on the New York Stock Exchange.
12.5. Delivery of Consideration. Jefferies shall have delivered the
certificates representing the Jefferies Shares to the Managing Members and the
other consideration specified in Article II.
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ARTICLE XIII
MISCELLANEOUS
13.1. Survival. The warranties, representations and covenants of each of
the parties contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing; provided that the
representations and warranties of the parties contained herein shall terminate
one year after the Closing Date. Such representations and warranties shall in no
way be affected by any investigation of the subject matter thereof made by or on
behalf of the parties hereto. The obligations to indemnify and hold harmless any
Jefferies Indemnitees or Companies Indemnities under Section 13.11 with respect
to a breach of a representation or warranty shall terminate when the applicable
representation or warranty terminates; provided that such indemnification
obligation shall not so terminate as to any indemnification claim for breach of
a representation or warranty made in writing prior to the termination of such
representation or warranty.
13.2. Successors and Assigns. Except as otherwise provided herein or in
the Manager Operating Agreement or the GP Operating Agreement, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties (including transferees of
any Purchased Interests in accordance with the Manager Operating Agreement or
the GP Operating Agreement). Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto or their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
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13.3. Governing Law. This Agreement shall be governed by and construed
under the laws of the State of New York as applied to agreements among New York
residents entered into and to be performed entirely within New York.
13.4. Titles and Subtitles: Knowledge Definition. The titles and subtitles
used in this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement. For purposes of this
Agreement, the phase "to the knowledge of' means with respect to (a) the Selling
Members or the Companies, the actual current knowledge of Brian P. Friedman and
James L. Luikart and (b) Jefferies, the actual current knowledge of the members
of the Executive Committee of Jefferies.
13.5. Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified, (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, and if not so sent, then on the
next business day; (iii) five days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or (iv) one day after
deposit with a nationally recognized overnight courier, specifying next day
delivery, with written verification of receipt. All communications shall be sent
to the relevant party at the address as set forth on the signature page hereof
or at such other address as such party may designate by ten (10) days advance
written notice to the other parties hereto.
13.6. Finder's Fee. Each party represents that it neither is nor will be
obligated for any finders' fee or commission in connection with this
transaction. Each party agrees to indemnify and to hold harmless the others from
any liability for any commission or compensation in the
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nature of a finders' fee (and the costs and expenses of defending against such
liability or asserted liability) for which such party or any of its officers,
partners, employees or representatives is responsible.
13.7. Expenses. Irrespective of whether the Closing is effected, each of
the Selling Members, the Manager, the GP and Jefferies shall pay its own costs
and expenses incurred with respect to the negotiation, execution, delivery and
performance of this Agreement. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorney's fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
13.8. Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively) only with
the written consent of each of the parties hereto. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each of the
parties.
13.9. Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
13.10. Entire Agreement. This Agreement, the Manager Operating Agreement,
the GP Operating Agreement and the documents referred to herein constitute the
entire agreement
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among the parties with respect to the subject matter hereof and supersedes all
prior and contemporaneous agreements and understandings with respect to the
subject matter hereof. No party shall be liable or bound to any other party in
any manner by any warranties, representations or covenants except as
specifically set forth herein or in the Manager Operating Agreement or the GP
Operating Agreement, as applicable. Each party acknowledges that there are no,
and it is not relying upon any, representations or warranties by or on behalf of
any other party hereto other than those expressly set forth herein.
13.11. Indemnification.
(a) Subject to Section 13.1, each of the Selling Members, jointly
and severally, agrees to indemnify and hold harmless, Jefferies and Jefferies'
employees, officers, directors and affiliates (collectively, the "Jefferies
Indemnitees"), against any investigations, proceedings, claims or actions and
for any expenses, damages, liabilities or losses (joint or several) incurred by
such Jefferies Indemnitees arising out of such investigations, proceedings,
claims or actions, to which Jefferies Indemnitees may become subject under the
Securities Act, and any rules or regulations promulgated thereunder, the
Exchange Act, and any rules or regulations promulgated thereunder, or any state
law or regulation, or common law, arising out of, related to or in any way
attributable to any breach of any representation, warranty, agreement or
covenant of the Selling Members contained herein then surviving under Section
13.1.
(b) Jefferies agrees to indemnify and hold harmless the Selling
Members and the Companies and their respective employees, members, officers,
directors and affiliates (collectively, the "Companies Indemnitees"), against
any investigations, proceedings, claims or
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actions and for any expenses, damages, liabilities or losses (joint or several)
incurred by such Companies Indemnitees arising out of such investigations,
proceedings, claims or actions, to which the Companies Indemnitees may become
subject under the Securities Act and any rules or regulations promulgated
thereunder, the Exchange Act, and any rules or regulations promulgated
thereunder, or any state law or regulation, or common law, arising out of,
related to or in any way attributable to any breach of any representation,
warranty, agreement or covenant of Jefferies contained herein then surviving
under Section 13.1.
(c) If any suit or action is filed against an indemnified party for
which it may seek indemnification hereunder, prompt written notice thereof shall
be given by the indemnified party to the indemnifying party. The indemnifying
party shall have the right to participate in and, to the extent the indemnifying
party so desires, assume the defense of any investigations, proceedings, claims
or actions referred to in subsections (a) or (b) with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to a conflict of interest under
applicable standards of professional conduct. The indemnified party shall
cooperate in all reasonable respects with the indemnifying party in the
investigation and defense of any such suit or action.
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(d) The provisions of this Section 13.11 shall not apply to any
settlement of any expense, damage, liability or loss if such settlement is
effected without the consent of the indemnifying party (which consent shall not
be unreasonably withheld).
(e) This indemnity shall extend upon the same terms and conditions
to, and shall inure to the benefit of, each person, if any, who controls any
indemnified party within the meaning of the Securities Act or the Exchange Act.
13.12. Counterparts.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
13.13. Arbitration.
The parties agree that any dispute, claim or controversy directly or
indirectly relating to or arising out of this Agreement, the termination or
validity hereof, or any alleged breach of any representation, warranty or
covenant of this Agreement (a "Claim") shall be submitted to JAMS/ENDISPUTE, or
its successor, in New York, New York, for mediation; and if the matter is not
resolved through mediation, then it shall be submitted for final and binding
arbitration in front of a panel of three arbitrators with JAMS/ENDISPUTE in New
York, New York under the JAMS/ENDISPUTE Comprehensive Arbitration Rules and
Procedures (with each of Jefferies on the one hand, and the other parties to the
dispute, on the other hand, choosing one arbitrator, and the chosen arbitrators
choosing the third arbitrator). The arbitrators shall, in their award, allocate
all of the costs of the arbitration (and the mediation, if applicable),
including the fees of the
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arbitrators and the reasonable attorneys' fees of the prevailing party, against
the party who did not prevail, as determined by the arbitrators. The award in
the arbitration shall be final and binding. The arbitration shall be governed by
the Federal Arbitration Act, and judgment upon the award rendered by the
arbitrators may be entered by any court having jurisdiction thereof. Each party
hereto agrees and consents to personal jurisdiction, service of process and
venue in any federal or state court within the State of New York in connection
with any action brought to enforce an award in arbitration.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
JEFFERIES GROUP, INC.
By: /s/ Joseph A. Schenk
--------------------------------
Name: Joseph A. Schenk
Title: Chief Financial Officer
JEFFERIES CAPITAL PARTNERS IV LLC
By: /s/ Brian P. Friedman
--------------------------------
Name: Brian P. Friedman
Title: Managing Member
JCP IV LLC
By: JEFFERIES CAPITAL PARTNERS IV LLC,
its Managing Member
By: /s/ Brian P. Friedman
--------------------------------
Name: Brian P. Friedman
Title: Managing Member
/s/ Brian P. Friedman
--------------------------------
Brian P. Friedman
/s/ James L. Luikart
--------------------------------
James L. Luikart
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2055 PARTNERS, L.P.
/s/ Brian P. Friedman
-------------------------------------
By: Brian P. Friedman,
its general partner
Address for notices to Address for notices to Manager, GP,
Jefferies Group, Inc.: Brian P. Friedman, James L. Luikart
520 Madison Avenue, 12th Floor and 2055 Partners, L.P.:
New York, New York 10022 520 Madison Avenue
12th Floor
New York, NY 10022
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