\n7.06 Survival of Obligations…………………………………………………………………..47
\n7.07 Agreed Tax Treatment……………………………………………………………………..47<\/p>\n ARTICLE VIII<\/p>\n
Conditions to Consummation of the Merger<\/p>\n
8.01 Conditions to Each Party’s Obligation to Effect the Merger……………………………………47
\n8.02 Conditions to Obligations of the Company……………………………………………………48
\n8.03 Conditions to Obligations of Acquiror and NewCo……………………………………………..48<\/p>\n
ARTICLE IX<\/p>\n
Indemnification<\/p>\n
9.01 Indemnification………………………………………………………………………….50
\n9.02 Notice and Defense of Claims………………………………………………………………52
\n9.03 Survival of Representations and Warranties………………………………………………….53<\/p>\n
ARTICLE X<\/p>\n
Termination<\/p>\n
10.01 Termination……………………………………………………………………………..53
\n10.02 Effect of Termination and Abandonment………………………………………………………54<\/p>\n
ARTICLE XI<\/p>\n
Miscellaneous<\/p>\n
11.01 Entire Understanding; No Third-Party Beneficiaries…………………………………………..55
\n11.02 Waiver; Amendment………………………………………………………………………..55
\n11.03 Expenses………………………………………………………………………………..55
\n11.04 Notices…………………………………………………………………………………55
\n11.05 Additional Provisions…………………………………………………………………….56
\n11.06 Counterparts…………………………………………………………………………….56
\n11.07 Governing Law; Enforcement; Waiver of Jury Trial…………………………………………….57
\n<\/c><\/s><\/caption>\n<\/table>\n
-iii-
\n 5<\/p>\n
Annex 1 Members
\nAnnex 2 Partners
\nAnnex 3 Form of Member Agreement
\nAnnex 4 Form of Custody Agreement
\nAnnex 5 Intentionally Omitted
\nAnnex 6 Retention RSUs
\nAnnex 7 SLK RSUs
\nAnnex 8 Acquiror Subordinated Note<\/p>\n
Note: Certain of these annexes have been omitted from this Exhibit 2.1 pursuant
\nto Item 601(b)(2) of Regulation S-K. The Registrant hereby agrees to furnish
\nsupplementally a copy of any omitted annex to the SEC upon request.<\/p>\n
-iv-
\n 6<\/p>\n
AGREEMENT AND PLAN OF MERGER, dated as of September 10, 2000,
\nby and between The Goldman Sachs Group, Inc. (“Acquiror”) and SLK LLC (the
\n“Company”).<\/p>\n
RECITALS<\/p>\n
A. The Company. The Company is a New York limited
\nliability company having its principal place of business in New York, New York.
\nAnnex 1 lists the names and profit and loss allocations of all the members of
\nthe Company (each, a “Member”, and collectively, the “Members”).<\/p>\n
B. The Partnership. Spear, Leeds & Kellogg, L.P. (the
\n“Partnership”) is a New York limited partnership having its principal place of
\nbusiness in New York, New York. The Company is the sole general partner of the
\nPartnership. Annex 2 lists the names and profit and loss allocations of all
\npartners of the Partnership (each, a “Partner” and collectively, the
\n“Partners”).<\/p>\n
C . Acquiror. Acquiror is a Delaware corporation, having
\nits principal place of business in New York, New York.<\/p>\n
D. The Merger. Subject to the terms and conditions
\ncontained in this Agreement, the Company and Acquiror intend to effect the
\nmerger (the “Merger”) of a direct or indirect wholly owned subsidiary of
\nAcquiror that will be organized as a New York limited liability company
\n(“NewCo”) with and into the Company, with the Company being the limited
\nliability company surviving such merger.<\/p>\n
E. Supplemental Agreements. Each of the Members
\nidentified as such in Annex 1 will, prior to Closing, enter into an instrument
\nsubstantially in the appropriate form of Annex 3, in which each Member will have
\nadopted and consented to this Agreement and the transactions contemplated hereby
\n(each, a “Member Agreement”) and to the Supplemental Members Agreement which is
\nattached as an Annex to the Member Agreement (the “Supplemental Members
\nAgreement”). (The Member Agreements and the Supplemental Members Agreement
\nreferred to in this Recital E, together with the Custody Agreements and the
\ncounterparts to the Acquiror Shareholders Agreement to be executed by the
\nMembers pursuant to Section 2(e) of the Member Agreement, are referred to
\ncollectively as the “Supplemental Agreements”.)<\/p>\n
F. SLK Investing Co. The Members directly or indirectly
\nholding all of the partnership interests in SLK Investing Co. will agree
\nsimultaneously herewith to cause SLK Investing Co. to transfer all of the Class
\nA limited partnership interest it owns in the Partnership to Acquiror or its
\ndesignee at the Effective Time.<\/p>\n
NOW, THEREFORE, in consideration of the premises, and of the
\nmutual covenants, representations, warranties and agreements contained herein
\nand in the Supplemental Agreements, the parties agree as follows:<\/p>\n
7<\/p>\n
ARTICLE I<\/p>\n
CERTAIN DEFINITIONS; INTERPRETATION<\/p>\n
1.01 Certain Definitions. The following terms are used in
\nthis Agreement and the Supplemental Agreements with the meanings set forth
\nbelow:<\/p>\n
“Acquiror” has the meaning assigned in the preamble to this
\n Agreement.<\/p>\n
“Acquiror Common Stock” means the Common Stock, par value
\n $0.01 per share, of Acquiror.<\/p>\n
“Acquiror Financial Statements” shall have the meaning
\n assigned in Section 5.05(d).<\/p>\n
“Acquiror Party” means each of Acquiror, its respective
\n directors, officers, employees, agents and controlling persons, and
\n each of the heirs, executors, successors and assigns of any of the
\n foregoing and, without duplication, the Surviving LLC (effective at the
\n Effective Time).<\/p>\n
“Acquiror Shareholders Agreement” means the Shareholders’
\n Agreement, dated May 7, 1999, among Acquiror and the other parties
\n named therein.<\/p>\n
“Acquiror Subordinated Notes” has the meaning assigned in
\n Section 3.03.<\/p>\n
“Affiliate” means, with respect to any specified person, any
\n other person directly or indirectly controlling or controlled by or
\n under direct or indirect common control with such specified person. For
\n the purposes of this definition, (a) “control” when used with respect
\n to any specified person means the power to direct the management and
\n policies of such person, directly or indirectly, whether through the
\n ownership of voting securities, by contract or otherwise; and (b) the
\n terms “controlling” and “controlled” have meanings correlative to the
\n foregoing.<\/p>\n
“Agreement” means this agreement, as amended or modified from
\n time to time in accordance with Section 11.02.<\/p>\n
“business day” means any day other than a Saturday, a Sunday
\n or a day on which banks in New York City are authorized or obligated by
\n law or executive order to close.<\/p>\n
“Cash Consideration” has the meaning assigned in Section
\n 3.01(a).<\/p>\n
“Cash Pool Amount” means $2.1 billion reduced by the sum of
\n (A) any amount of the Withdrawn Member Amount that is exchanged for
\n cash or Acquiror Subordinated Notes pursuant to Section 3.03 and (B)
\n any amount paid by Acquiror pursuant to Section 8.03(g) to acquire all
\n of the outstanding Class A limited partnership interests of the
\n Partnership and<\/p>\n
-2-
\n 8<\/p>\n
(C) any charitable contribution, but in no event in excess of
\n $100,000,000, the Members may cause the Company or the Partnership to
\n make after the date hereof.<\/p>\n
“CBOE” means the Chicago Board Options Exchange, Incorporated.<\/p>\n
“CFTC” means the United States Commodity Futures Trading
\n Commission.<\/p>\n
“Chosen Courts” has the meaning set forth in Section 11.07(a).<\/p>\n
“Clearing Agreement” has the meaning assigned in Section
\n 5.03(h).<\/p>\n
“Closing” and “Closing Date” have the meanings assigned in
\n Section 2.02.<\/p>\n
“Closing Stock Price” has the meaning assigned in Section
\n 3.06.<\/p>\n
“Code” means the Internal Revenue Code of 1986, as amended,
\n and the rules and regulation thereunder.<\/p>\n
“Company” has the meaning assigned in the preamble to this
\n Agreement.<\/p>\n
“Company Membership Interests” means the membership interests
\n in the Company.<\/p>\n
“Compensation Plans” has the meaning assigned in Section
\n 5.03(o).<\/p>\n
“Confidentiality Agreement” means the letter agreement, dated
\n March 6, 2000, between the Partnership and the Acquiror.<\/p>\n
“Consideration Percentage” means, with respect to any Member,
\n a percentage on a schedule previously agreed to by the Company and
\n Acquiror. The Company may deliver to Acquiror a revised schedule
\n changing the Consideration Percentage of any Member or Members if
\n necessary to reflect any changes in capital at least five (5) days
\n prior to the Closing.<\/p>\n
“Constitutive Documents” means, with respect to any person,
\n such person’s articles or certificate of incorporation and by-laws,
\n limited liability company agreement or operating agreement, partnership
\n agreement or other constitutive documents.<\/p>\n
“Contract” means, with respect to any person, any agreement,
\n indenture, undertaking, debt instrument, contract, lease,
\n understanding, arrangement, or commitment to which such person or any
\n of its Subsidiaries is a party or by which any of them may be bound or
\n to which any of their properties may be subject.<\/p>\n
“Custodian” has the meaning assigned in the form of Custody
\n Agreement.<\/p>\n
-3-
\n 9<\/p>\n
“Custody Agreements” means, collectively, a Custody Agreement
\n to be entered into by each of the Members and each other person who
\n will receive Acquiror Common Stock in the Merger or by election
\n pursuant to Section 3.03, in substantially the form of Annex 4.<\/p>\n
“Disclosure Schedule” has the meaning assigned in Section
\n 5.01.<\/p>\n
“Effective Time” has the meaning assigned in Section 2.01(e).<\/p>\n
“Election Deadline” has the meaning assigned in Section 3.04.<\/p>\n
“Employees” has the meaning set forth in Section 5.03(o).<\/p>\n
“ERISA” means the Employee Retirement Income Security Act of
\n 1974, as amended.<\/p>\n
“ERISA Affiliate” has, with respect to any person, the meaning
\n assigned in Section 5.03(o).<\/p>\n
“ERISA Plans” has the meaning assigned in Section 5.03(k).<\/p>\n
“Excess Shares” shall mean , initially, that number of shares
\nof Acquiror Common Stock equal to the quotient derived by dividing (I)the
\nproduct of (A) the amount by which the Closing Stock Price exceeds $128.025,
\ntimes (B) the Stock Pool Amount, times (C) 0.27 by (II) the Closing Stock Price,
\nprovided, that, if the sale price of shares of Acquiror Common Stock sold
\npursuant to Section 3.05 is different from the Closing Stock Price, such number
\nshall be adjusted so as to enable the Members to receive net proceeds (without
\nregard to income taxes payable in respect of such sales) not less than the
\nproduct described in clause (I) above (it being understood that if, at the time
\nof any sales of shares of Acquiror Common Stock during the same tax year as the
\nClosing, the sale price(s) of the shares is less than the Closing Stock Price,
\nthen the number of Excess Shares shall be adjusted appropriately to reflect the
\nreduction in the capital gains tax payable as a result of the Merger after
\ntaking into account any capital loss on any sale of shares of Acquiror Common
\nStock (whether usable or not) at a price below the Closing Stock Price, in each
\ncase assuming a 27% effective tax rate.<\/p>\n
“Exchange Act” means the Securities Exchange Act of 1934, as
\namended, and the rules and regulations thereunder.<\/p>\n
“Financial Statements” has the meaning assigned in Section
\n 5.03(g).<\/p>\n
“Focus Report” has the meaning assigned in Section 5.03(g).<\/p>\n
“Foreign Plans” has the meaning assigned in Section 5.03(o).<\/p>\n
“Governmental Authority” means any court, administrative
\n agency or commission or other federal, state, local or foreign
\n governmental authority or instrumentality.<\/p>\n
-4-
\n 10<\/p>\n
“Indemnified Party” has the meaning assigned in Section
\n 9.02(a).<\/p>\n
“Indemnifying Party” has the meaning assigned in Section
\n 9.02(a).<\/p>\n
“Intellectual Property” has the meaning assigned in Section
\n 5.03(h).<\/p>\n
“Investment Advisers Act” means the Investment Advisers Act of
\n 1940, as amended, and the rules and regulations thereunder.<\/p>\n
“Investment Company Act” means the Investment Company Act of
\n 1940, as amended, and the rules and regulations thereunder.<\/p>\n
“IRS” means the United States Internal Revenue Service.<\/p>\n
“Lien” means a charge, mortgage, pledge, security interest,
\n restriction (other than a restriction on transfer arising under
\n Securities Laws), claim, lien, or encumbrance of any nature whatsoever,
\n except for liens incurred in the ordinary course of business in respect
\n of Taxes for which adequate reserves have been established.<\/p>\n
“Limited Partnership Interest” means an ownership interest in
\n the Partnership held by the limited partners of the Partnership.<\/p>\n
“Litigation” has the meaning assigned in Section 5.03(j).<\/p>\n
“Losses” has the meaning assigned in Section 9.01(a).<\/p>\n
“Managing Director Subordinated Note” means the subordinated
\n and secured demand notes substantially all of which are held by
\n current\/retired Managing Directors (as such term is used in the
\n Offering Memorandum), or related entities, and are included within the
\n caption “Junior Subordinated Debt” set forth in the Capitalization
\n section of the Offering Memorandum, having a principal amount not in
\n excess of $210 million as of the date hereof.<\/p>\n
“Material Adverse Effect” means, with respect to Acquiror, the
\n Company or the Surviving LLC, respectively, an effect or change that,
\n individually or in the aggregate with other such effects or changes, is
\n both material and adverse with respect to the respective financial
\n condition, results of operations, assets, business or management of
\n Acquiror and its Subsidiaries, the Company and its Subsidiaries, or the
\n Surviving LLC and its Subsidiaries, as applicable, and in each case
\n taken as a whole.<\/p>\n
“Material Contract” has the meaning assigned in Section
\n 5.03(h).<\/p>\n
“Member” and “Members” have the meaning assigned in the
\n Recitals.<\/p>\n
“Member Agreement” has the meaning assigned in the Recitals.<\/p>\n
-5-
\n 11<\/p>\n
“Merger” has the meaning assigned in the Recitals.<\/p>\n
“Merger Certificate” has the meaning assigned in Section
\n 2.01(e).<\/p>\n
“Merger Consideration” has the meaning assigned in Section
\n 3.01(a).<\/p>\n
“NewCo” has the meaning assigned in the Recitals.<\/p>\n
“NYSE” means the New York Stock Exchange, Inc.<\/p>\n
“Offering Memorandum” has the meaning assigned in Section
\n 5.03(y).<\/p>\n
“Operating Agreement” means the Amended and Restated Operating
\n Agreement of SLK LLC, dated as of August 1, 2000, as amended from time
\n to time.<\/p>\n
“Order” has the meaning assigned in Section 8.01(b).<\/p>\n
“Owner” means a Member or Partner, as applicable, and “Owners”
\n means the Members and Partners collectively.<\/p>\n
“Partner” and “Partners” have the meaning assigned in the
\n Recitals.<\/p>\n
“Partnership” has the meaning assigned in the Recitals.<\/p>\n
“Partnership Agreement” means the Spear, Leeds & Kellogg
\nAmended and Restated Articles of Partnership, dated as of January 1, 2000.<\/p>\n
“Partnership Interest” means an ownership interest in the
\n Partnership.<\/p>\n
“Pension Plan” has, with respect to any person, the meaning
\n assigned in Section 5.03(o).<\/p>\n
“person” means any individual, bank, corporation, limited
\n liability company, partnership, joint venture, association, joint-stock
\n company, business trust, governmental entity, or unincorporated
\n organization.<\/p>\n
“Plans” has the meaning assigned in Section 5.03(o).<\/p>\n
“Pre-Closing Period” has the meaning assigned in Section
\n 7.02(b).<\/p>\n
“Pre-Closing Taxes” has the meaning assigned in Section
\n 7.02(b).<\/p>\n
“Previously Disclosed” has the meaning assigned in Section
\n 5.01.<\/p>\n
-6-
\n 12<\/p>\n
“Regulatory Orders” has the meaning assigned in Section
\n 5.03(j).<\/p>\n
“Reports” has the meaning assigned in Section 5.03(f).<\/p>\n
“Retention RSUs” has the meaning assigned in Section 3.05.<\/p>\n
“Rights” means, with respect to any person, any Contracts,
\n securities or obligations convertible into or exercisable or
\n exchangeable for, or giving any person any right to subscribe for or
\n acquire, or any options, calls or commitments relating to, or any
\n equity interest in or equity appreciation right or other instrument the
\n value of which is determined in whole or in part by reference to the
\n market price or value of, shares of capital stock or other equity
\n interest in such person.<\/p>\n
“SEC” means the United States Securities and Exchange
\n Commission.<\/p>\n
“SEC Documents” has the meaning assigned in Section 5.05(d).<\/p>\n
“Securities Act” means the Securities Act of 1933, as amended,
\n and the rules and regulations thereunder.<\/p>\n
“Securities Laws” means, collectively, the Securities Act, the
\n Exchange Act, the Investment Advisers Act, the Investment Company Act,
\n the Commodity Exchange Act, as amended, and any other federal, state,
\n local or foreign securities, derivatives or commodity laws.<\/p>\n
“Self-Regulatory Organization” means the National Association
\n of Securities Dealers, Inc., the American Stock Exchange, the National
\n Futures Association, the CBOE, the Chicago Board of Trade, the NYSE,
\n any Self-Regulatory Organization Previously Disclosed with respect to
\n Section 5.03(f) and any other similar federal, state or foreign
\n self-regulatory body or organization having jurisdiction over the
\n Company or Acquiror (as the case may be), any of their respective
\n Subsidiaries or Affiliates or any of their respective business
\n operations.<\/p>\n
“Share Premium” is the sum of (i) the difference between the
\n principal amount of the Managing Director Subordinated Notes exchanged
\n for Acquiror Common Stock and the aggregate value of any Acquiror
\n Common Stock received in exchange therefor and (ii) the difference
\n between the Withdrawn Member Amount exchanged for Acquiror Common Stock
\n and the aggregate value of any Acquiror Common Stock received in
\n exchange therefor, in each case, using $128.025 as the value of each
\n share of Acquiror Common Stock.<\/p>\n
“SLK Representative” means any person designated by the
\n Company in writing by notice to Acquiror prior to the Effective Time.<\/p>\n
“SLK RSUs” has the meaning assigned in Section 3.05.<\/p>\n
-7-
\n 13<\/p>\n
“Stock Consideration” has the meaning assigned in Section
\n 3.01(a).<\/p>\n
“Stock Pool Amount” means 34,368,287 shares of Acquiror Common
\n Stock reduced by the number of shares of Acquiror Common Stock elected
\n to be issued in respect of any Managing Director Subordinated Notes or
\n the Withdrawn Member Amount; provided, however, that the first 390,549
\n shares of Acquiror Common Stock that represent any Share Premium paid
\n on Managing Director Subordinated Notes or in respect of the Withdrawn
\n Member Amount shall not reduce the Stock Pool Amount.<\/p>\n
“Subsidiary” has the meaning assigned in Rule 1-02 of
\n Regulation S-X of the SEC.<\/p>\n
“Supplemental Members Agreement” has the meaning assigned in
\n the Recitals.<\/p>\n
“Supplemental Agreements” has the meaning assigned in the
\n Recitals.<\/p>\n
“Surviving LLC” has the meaning assigned in Section 2.01(a).<\/p>\n
“Tax Returns” means any return (including, without limitation,
\n information returns, annual reports or other returns in respect of any
\n Compensation Plan), declaration, report, claim for refund, information
\n return or statement relating to any Tax, together with all schedules or
\n attachments thereto, and including any amendments of any of the
\n foregoing.<\/p>\n
“Tax” or “Taxes” means all taxes, charges, fees, levies or
\n other assessments, however denominated and whether imposed by a taxing
\n authority within or without the United States, including, without
\n limitation, all net income, gross income, gross receipts, sales, use,
\n ad valorem, goods and services, capital, transfer, franchise, profits,
\n license, withholding, payroll, employment, employer health, excise,
\n estimated, severance, stamp, occupation, property or other taxes,
\n custom duties, fees, assessments or charges of any kind whatsoever,
\n together with any interest and any penalties, additions to tax or
\n additional amounts imposed by any taxing authority.<\/p>\n
“Third Party Claim” has the meaning assigned in Section
\n 9.02(a).<\/p>\n
“Third-Party Intellectual Property Rights” has the meaning
\n assigned in Section 5.03(s).<\/p>\n
“Withdrawn Member” shall have the meaning ascribed to such
\n term in the Operating Agreement.<\/p>\n
“Withdrawn Member Amount” means the sum of the Shares (as such
\n term is defined in the Operating Agreement) of all Withdrawn Members
\n determined in accordance with the Operating Agreement and all
\n predecessor agreements, which shall not exceed $165,000,000.<\/p>\n
“Withdrawn Member Interest” has the meaning assigned in
\n Section 3.03.<\/p>\n
-8-
\n 14<\/p>\n
1.02 General Rules of Interpretation. When a reference
\nis made in this Agreement to “Recitals”, “Sections”, “Annexes” or “Schedules”,
\nsuch reference shall be to a Recital of, or Annex or Schedule to, this
\nAgreement unless otherwise indicated. The table of contents and headings
\ncontained in this Agreement are for reference purposes only and are not part of
\nthis Agreement. Whenever the words “include”, “includes” or “including” are
\nused in this Agreement, they shall be deemed followed by the words “without
\nlimitation”. References herein to “transactions contemplated by this Agreement”
\nshall be deemed to include a reference to each transaction contemplated by or
\nprovided for in this Agreement and any documents or agreements, including the
\nSupplemental Agreements, entered into in connection herewith. No rule of
\nconstruction against the draftsperson shall be applied in connection with the
\ninterpretation or enforcement of this Agreement. Whenever this Agreement shall
\nrequire a party to take an action, such requirement shall be deemed to include
\nan undertaking by such party to cause its Subsidiaries, and to use its
\nreasonable best efforts to cause its other Affiliates, to take all necessary
\nand appropriate action in connection therewith.<\/p>\n
ARTICLE II<\/p>\n
THE MERGER<\/p>\n
2.01 The Merger. At the Effective Time, the Merger shall
\noccur and in furtherance thereof:<\/p>\n
(a) Structure and Effects of the Merger. NewCo shall
\n merge with and into the Company, and the separate legal existence of
\n NewCo shall thereupon cease. The Company shall be the surviving limited
\n liability company in the Merger (sometimes hereinafter referred to as
\n the “Surviving LLC”) and shall continue to be governed by the laws of
\n the State of New York, and the separate legal existence of the Company
\n with all its rights, privileges, immunities, powers and franchises
\n shall continue unaffected by the Merger. The Merger shall have the
\n effects specified in Section 1004 of the New York Limited Liability
\n Company Law.<\/p>\n
(b) Certificate of Limited Liability Company. The
\n Certificate of Limited Liability Company of the Surviving LLC shall be
\n the Certificate of Limited Liability Company of the Company as in
\n effect immediately prior to the Effective Time, until duly amended in
\n accordance with the terms thereof and applicable law.<\/p>\n
(c) Operating Agreement. The operating agreement of the
\n Surviving LLC shall be the operating agreement of the Company as in
\n effect immediately prior to the Effective Time, until duly amended in
\n accordance with the terms thereof and applicable law.<\/p>\n
(d) Manager. The initial manager of the Surviving LLC
\n shall be the manager of NewCo immediately prior to the Effective Time.<\/p>\n
-9-
\n 15<\/p>\n
(e) Effective Time. The Merger shall become effective
\n upon the filing, by the offices of the Secretary of State of the State
\n of New York, of a certificate of merger (the “Merger Certificate”) in
\n accordance with applicable law and the issuance of a certificate of
\n merger by the Secretary of State of New York, or at such later date and
\n time as may be set forth in such Merger Certificate (the “Effective
\n Time”). The parties shall use their reasonable best efforts to cause
\n the Merger to become effective as soon as is reasonably practicable,
\n but in any event on a date that is not later than three business days
\n after the last of the conditions set forth in Article VIII shall have
\n been satisfied or waived in accordance with the terms of this Agreement
\n (other than those conditions that by their nature are to be satisfied
\n at the Closing, but subject to the satisfaction or waiver of those
\n conditions).<\/p>\n
2.02 Closing. The closing of the Merger (the “Closing”)
\nshall take place at 9:00 a.m. at the offices of Sullivan & Cromwell, 125 Broad
\nStreet, New York, New York, or at such other place as the parties shall agree,
\non the date on which the Effective Time shall occur (the “Closing Date”).<\/p>\n
2.03 Tax Treatment of the Merger. The parties intend that
\nfor U.S. federal income tax purposes the Merger be treated as a taxable purchase
\nby Acquiror of the Company Membership Interests owned by the Members including
\nWithdrawn Member Interests (and subordinated debt owned by former Managing
\nDirectors of the Company) in exchange for cash and Acquiror Common Stock. For
\nthese purposes, and all other U.S. federal income tax purposes, the parties
\nagree that the Acquiror Common Stock subject to the Transfer Restrictions (as
\ndefined in the Member Agreements) and received by the Members in the Merger
\nshall be valued for all U.S. federal income tax purposes at 100% of the mean of
\nthe high and low of the trading price of the Acquiror Common Stock on the
\nClosing Date.<\/p>\n
2.04 Organization of NewCo. Before the Effective Time,
\nAcquiror will (a) organize NewCo as a New York limited liability company solely
\nfor the purpose of this transaction that will have no material assets and
\nliabilities and will be treated, for federal income tax purposes, as a
\ndisregarded entity or partnership and (b) cause NewCo to become a party to this
\nAgreement, to be evidenced by the execution by it of a supplement to this
\nAgreement and delivery thereof to Acquiror and the Company.<\/p>\n
ARTICLE III<\/p>\n
CONSIDERATION; EXCHANGE; EMPLOYEE INCENTIVES<\/p>\n
3.01 Merger Consideration. At the Effective Time,
\nautomatically and without any action on the part of any party, Member or other
\nperson:<\/p>\n
(a) Outstanding Company Membership Interests. Subject to
\n the terms and conditions set forth in this Agreement, all Company
\n Membership Interests that are outstanding and owned by a Member
\n immediately prior to the Effective Time shall become<\/p>\n
-10-
\n 16<\/p>\n
and be converted into the right to receive (i) an amount in cash equal
\n to the Consideration Percentage of such Member multiplied by the Cash
\n Pool Amount (the “Cash Consideration”), and (ii) a number of shares of
\n Acquiror Common Stock equal to the Consideration Percentage of such
\n Member multiplied by the Stock Pool Amount (the “Stock Consideration”
\n and, collectively with the Cash Consideration, the “Merger
\n Consideration”), subject to adjustment as provided in paragraph (c) of
\n this Section 3.01.<\/p>\n
(b) Outstanding NewCo Membership Interests. The
\n membership interests of NewCo outstanding immediately prior to the
\n Effective Time shall be converted into an identical number of
\n Membership Interests in the Surviving LLC.<\/p>\n
(c) Fractional Shares. Notwithstanding any other
\n provision in this Agreement, no fractional shares of Acquiror Common
\n Stock and no certificates or scrip therefor, or other evidence of
\n ownership thereof, will be issued in the Merger or otherwise hereunder;
\n instead, Acquiror shall pay to each holder of Company Membership
\n Interests who otherwise would be entitled to a fractional share of
\n Acquiror Common Stock an amount in cash (without interest) determined
\n by multiplying such fraction by $128.025.<\/p>\n
(d) Rights as Members. At the Effective Time, holders of
\n Company Membership Interests shall have no rights as members of the
\n Company or otherwise with respect to their ownership therein other than
\n the right to receive their allocated share of the Merger Consideration
\n provided for in this Article III.<\/p>\n
(e) Merger Consideration Payment. The Stock Consideration
\n shall be paid to the Members as provided for herein and held in custody
\n pursuant to the Custody Agreements. It is a condition to any Member
\n receiving the Member’s allocated share of the Merger Consideration that
\n the Member execute and deliver a Member Agreement and a Custody
\n Agreement.<\/p>\n
3.02 Exchange Procedures.<\/p>\n
(a) Delivery of Merger Consideration. Acquiror will:<\/p>\n
(1) prior to the Effective Time, cause to be delivered to
\n each Member any necessary or appropriate transmittal materials for use
\n in paying the Merger Consideration to such Member on the Closing Date.<\/p>\n
(2) promptly thereafter cause to be delivered to the
\n Custodian on behalf of each Member certificates representing the Stock
\n Consideration into which such Member’s Company Membership Interests
\n have been converted and shall on the Closing Date deliver by wire
\n transfer to each Member the cash that such Member is entitled to
\n receive pursuant to the provisions of this Article III in respect of
\n the Cash Consideration, fractional shares and dividends or
\n distributions; provided that certificates representing Acquiror Common
\n Stock will not be issued to or on behalf of, and such wire transfer
\n will not be made to, any Member<\/p>\n
-11-
\n 17<\/p>\n
until the Member has properly completed and returned any transmittal
\n materials delivered by Acquiror pursuant to Section 3.02(a)(1) and has
\n executed and delivered to Acquiror a Custody Agreement.<\/p>\n
(b) Registration of Acquiror Stock. All Acquiror Common
\nStock to be delivered on behalf of a Member will be registered in the name of
\nthe Custodian or its nominee and all checks to be issued to a Member will be
\nmade out in the name of such Member.<\/p>\n
(c) No Interest. No interest will be paid on any
\nconsideration provided for in this Article III, including the Merger
\nConsideration, cash in lieu of fractional shares or dividends or distributions
\non any of the preceding.<\/p>\n
(d) No Rights Until Surrender. No dividends or other
\ndistributions on Acquiror Common Stock will be paid in respect of any Acquiror
\nCommon Stock deliverable on behalf of a Member as a result of the Merger until
\nthe Custodian is properly entitled to receive certificates representing such
\nAcquiror Common Stock in accordance with this Section 3.02, and no Member will
\nbe eligible to vote such Acquiror Common Stock until the Custodian becomes so
\nentitled. After the Custodian becomes entitled to receive certificates in
\naccordance with this Section 3.02, the Member will also be entitled to receive
\ndividends or distributions with a record date after the Effective Time that have
\nbecome payable on the Acquiror Common Stock represented thereby, without
\ninterest.<\/p>\n
3.03 Withdrawn Member and Managing Director Subordinated
\nDebt Election. Each Withdrawn Member with a Share (as such term is defined in
\nthe Operating Agreement) (a “Withdrawn Member Interest”) and\/or any person that
\nholds a Managing Director Subordinated Note may make an election to exchange
\nsuch Withdrawn Member Interest and\/or Managing Director Subordinated Note for:<\/p>\n
(a) a subordinated note, substantially in the form set
\n forth in Annex 8 (an “Acquiror Subordinated Note”),
\n of like principal amount plus cash in an amount equal
\n to all accrued and unpaid interest as of the date of
\n the exchange;<\/p>\n
(b) (A) that number of shares of Acquiror Common Stock
\n equal to the quotient of (i) the product of 1.5
\n multiplied by the sum of the dollar amount of such
\n Withdrawn Member Interest and\/or of the principal
\n amount of the Managing Director Subordinated Note, as
\n applicable, being exchanged for Acquiror Common Stock
\n divided by (ii) $128.025 and (B) cash in an amount
\n equal to all accrued and unpaid interest as of the
\n date of the exchange; or<\/p>\n
(c) cash in an amount equal to the dollar amount of such
\n Withdrawn Member Interest and\/or the principal amount
\n of the Managing Director Subordinated Note, plus cash
\n in an amount equal to all accrued and unpaid interest
\n thereon as of the date of the exchange.<\/p>\n
-12-
\n 18<\/p>\n
In the event that a person entitled to make the foregoing
\nelection fails to do so prior to the Election Deadline, such person shall only
\nbe entitled to receive in exchange for such Withdrawn Member Interest and\/or
\nManaging Director Subordinated Note, cash in an amount equal to the dollar
\namount of such Withdrawn Member Interest and\/or the principal amount, of the
\nManaging Director Subordinated Note, plus cash in an amount equal to all accrued
\nand unpaid interest thereon as of the date of the exchange.<\/p>\n
3.04 Election Procedures. Each person entitled to make the
\nelection referred to in Section 3.03 above shall (i) make the election by
\nwritten notice delivered to Acquiror not earlier than the twentieth business day
\nafter the date hereof and no later than the twenty-fifth business day after the
\ndate hereof, subject to the Company’s ability to extend for an additional 10
\nbusiness days (the “Election Deadline”) and (ii) at the time of such election,
\nexecute and deliver to Acquiror a retired member agreement (to the extent such
\nperson does not sign a Member Agreement) which shall contain terms substantially
\nidentical to the terms contained in the Member Agreement, except that such
\nretired member agreement shall not contain the terms set forth in Sections 1
\n(except with respect to termination), 2(a), 2(e), 3(i), 5 through 13 and 22 of
\nthe Member Agreement. Any election may be revoked until the Election Deadline by
\nwritten notice to the Acquiror received prior to such Election Deadline, at
\nwhich time such election shall be irrevocable. In the event that either a
\nWithdrawn Member or a holder of a Managing Director Subordinated Note fails to
\nmake the election referred to in Section 3.03 by the Election Deadline with
\nrespect to a Withdrawn Member Interest or a Managing Director Subordinated Note,
\nthen the Company shall (i) in the case of a Withdrawn Member Interest, redeem
\nsuch amount in accordance with the terms of the Operating Agreement, and (ii) in
\nthe case of a Managing Director Subordinated Note, have such note redeemed by
\nthe Company, in each case, effective as of the Effective Time. In connection
\ntherewith, the Company agrees to take, or cause to be taken, all necessary steps
\nto redeem pursuant to the terms thereof, as of the Effective Time, all
\noutstanding Withdrawn Member Interests or Managing Director Subordinated Notes
\nnot subject to an effective election (it being understood that Section 3.03 and
\n3.04 will not result in a duplication of amounts owed to Withdrawn Members or
\nholders of Managing Director Subordinated Notes). Shares of Acquiror Common
\nStock and Acquiror Subordinated Notes issued pursuant to this Article III shall
\nbe issued at or promptly after the Effective Time consistent with the payment of
\nthe Merger Consideration pursuant to Section 3.02.<\/p>\n
3.05 Restricted Stock Units Awards. Effective as of the
\nEffective Time, Acquiror shall grant to certain employees (which may include
\nMembers who may or may not be employees) of the Company or its Subsidiaries who
\nremain employed by the Company or its Subsidiaries through the Effective Time in
\nsubstantially the same capacity as on the date of this Agreement and become
\nemployees of Acquiror or one of its Subsidiaries an aggregate of 5,467,682
\nAcquiror restricted stock units, as such may be equitably adjusted pursuant to
\nthe terms of Section 3.07, having the terms set forth in Annex 6 (the “Retention
\nRSUs”). In addition, effective as of the Effective Time, Acquiror shall grant to
\nemployees of the Company or any of its Subsidiaries who remain employed by the
\nCompany or such Subsidiary through the Effective Time and become employees of
\nAcquiror or one of its Subsidiaries an aggregate of 1,562,195 Acquiror
\nrestricted stock units, as such may be equitably adjusted pursuant to the terms
\nof Section 3.07, having the terms set forth in Annex 7 (the<\/p>\n
-13-
\n 19<\/p>\n
“SLK RSUs”). Acquiror and the Company shall mutually agree prior to the
\nEffective Time on which employees shall be granted SLK RSUs and the number of
\nSLK RSUs to be granted to each such employee. The Company shall consult with
\nAcquiror regarding which employees should be granted Retention RSUs and the
\nnumber of Retention RSUs that should be granted to each such employee, and after
\nsuch consultation the Company shall determine, with Acquiror’s written consent
\n(which shall not be unreasonably withheld), which employees shall receive the
\nRetention RSUs and how many Retention RSUs are allocated to each such employee.
\nMoreover, Acquiror shall have no obligation to issue Retention RSUs or SLK RSUs
\nto any employee who has not executed and delivered to Acquiror an agreement in
\nform and substance approved by Acquiror imposing on such employee
\nconfidentiality, noncompetition and nonsolicitation obligations comparable to
\nthose contained in Annex 3. The issuance and delivery of Retention RSUs and SLK
\nRSUs shall be conditioned upon the recipient’s executing and delivering to
\nAcquiror a custody agreement in the form customarily used by Acquiror for
\nrecipients of restricted stock units. All Retention RSUs and SLK RSUs shall be
\ngranted pursuant to the Acquiror 1999 Stock Incentive Plan. All material
\ncommunications by the Company in respect of the grant of Retention RSUs and SLK
\nRSUs shall be approved in advance by Acquiror.<\/p>\n
3.06 Incremental Liquidity Gain. In the event that the
\nclosing per share price of Acquiror Common Stock on the trading day immediately
\npreceding the Closing Date (the “Closing Stock Price”) exceeds $128.025,
\nAcquiror shall as promptly as reasonably practicable following the Closing Date,
\nfile a registration statement on an appropriate form under the Securities Act of
\n1933 to register the resale of the Excess Shares. Acquiror will use reasonable
\nbest efforts to cause such registration statement to become effective as soon as
\nreasonably practicable. The Excess Shares shall be sold through Goldman, Sachs & Co. in such manner as Goldman, Sachs & Co. shall determine in its sole
\ndiscretion. The Members whose Excess Shares are included in the registration
\nstatement shall pay all of their and Acquiror’s out-of-pocket expenses incurred
\nin connection with the preparation and filing of the registration statement and
\nthe resale of the Excess Shares. Acquiror may delay any such filing,
\neffectiveness or offering if Acquiror in good faith believes that such filing,
\neffectiveness or offering would interfere with a proposed corporate transaction
\n(including an acquisition or disposition) or offering of securities by Acquiror
\nor any stockholder or require Acquiror to disclose material, nonpublic
\ninformation and will use reasonable best efforts to effect such filing,
\neffectiveness or offering once such transaction or offering is completed or
\nabandoned or such information is disclosed.<\/p>\n
3.07 Adjustments to Prevent Dilution. In the event that
\nAcquiror changes the number of shares of Acquiror Common Stock, or securities
\nconvertible or exchangeable into or exercisable for shares of Acquiror Common
\nStock, issued and outstanding prior to the Effective Time as a result of a
\nreclassification, stock split (including a reverse split), stock dividend or
\nextraordinary distribution or other similar transaction, the Stock
\nConsideration, the number of Retention RSUs, the number of SLK RSUs, and
\nreferences to $128.025 where used as a calculation element or reference price
\nshall be equitably adjusted so as to give effect to the intended purpose of this
\nAgreement.<\/p>\n
-14-
\n 20<\/p>\n
ARTICLE IV<\/p>\n
ACTIONS PENDING THE EFFECTIVE TIME<\/p>\n
4.01 Forbearances of the Company. Until the Effective
\nTime, except as Previously Disclosed or as expressly contemplated by this
\nAgreement or any Supplemental Agreement, without the prior written consent of
\nAcquiror, the Company will, and the Company will cause its Subsidiaries to,
\nconduct the business of the Company and its Subsidiaries in the ordinary and
\nusual course and, to the extent consistent therewith, shall use reasonable best
\nefforts to preserve intact their business organizations and assets and maintain
\ntheir rights, franchises and existing relations with clients, customers,
\nsuppliers, employees and business associates. In addition, without Acquiror’s
\nwritten consent (which shall not be unreasonably withheld) the Company will not,
\nand will cause its Subsidiaries and its Subsidiaries’ employees, members,
\npartners, agents and other representatives not to:<\/p>\n
(a) Ordinary Course. Engage in any new activities or
\n lines of business or take any action reasonably likely to have an
\n adverse effect upon the ability of the Company to perform any of its
\n obligations under this Agreement.<\/p>\n
(b) Equity Interests. Issue, sell or otherwise permit to
\n become outstanding, or authorize the creation of, any additional equity
\n interests of the Company or any of its Subsidiaries or any Rights in
\n respect thereof or permit any transfers or dispositions of any equity
\n interests in the Company, or any of its Subsidiaries from and after the
\n date of this Agreement; provided, that (i) the Partnership shall be
\n permitted to issue additional Class C limited partnership interests and
\n (ii) First Options of Chicago Inc. shall be permitted to issue
\n additional shares of Class A Preferred Stock, in each case, in the
\n ordinary and usual course of business consistent with past practice.<\/p>\n
(c) Distributions, Etc. Make, declare, pay or set aside
\n for payment any dividend on or in respect of, or declare or make any
\n distribution on, any shares of capital stock or equity interests of the
\n Company or any of its Subsidiaries, other than distributions from
\n Subsidiaries to the Company or a wholly owned Subsidiary of the
\n Company, or directly or indirectly adjust, split, combine, redeem,
\n reclassify, purchase or otherwise acquire, any shares of its capital
\n stock or equity interests; provided, that the Company shall be
\n permitted to make distributions to its Members (i) in an amount not to
\n exceed $116,503,000 (including $50 million reserved for such purposes)
\n in respect of Taxes accrued as of June 30, 2000, (ii) in an amount not
\n to exceed $35,134,000 in respect of distributions available as of
\n January 1, 2000, (iii) in an amount not to exceed $26,689,000 in
\n respect of distributions available as of June 30, 2000, (iv) in amounts
\n necessary to permit Members to pay the aggregate net U.S. federal,
\n state and local income taxes imposed on them with respect to the net
\n earnings of the Company during the period commencing on July 1, 2000
\n and ending immediately prior to the Effective Time (after taking into
\n account Tax credits and other available Tax assets and any prior
\n distributions to fund such Taxes and not including any Taxes payable as
\n the result of sales or other dispositions requiring the recognition of
\n unrealized gains reflected on the June<\/p>\n
-15-
\n 21<\/p>\n
30, 2000 Financial Statements (including the “short-against the box”
\n positions)), (v) in an amount with respect to each Member and taking
\n into account any amounts previously paid to such Member (other than the
\n distributions described in clauses (i) through (iv) and (vi) through
\n (ix) of this subsection (c)) since June 30, 2000, not to exceed 4% of a
\n Member’s average capital account balance (as such amount is calculated
\n on a monthly basis in the ordinary and usual course of the Company’s
\n business, but excluding any net income earned after June 30, 2000) for
\n the period from July 1, 2000 and ending immediately prior to the
\n Effective Time, (vi) of customary bi-weekly draws, in amounts per
\n Member consistent with past practice and in the ordinary and usual
\n course of business, (vii) for purposes of making charitable
\n contributions not in excess of $100,000,000, as contemplated by clause
\n (C) of the definition of Cash Pool Amount, (viii) of two percent (2%)
\n charitable giving draws of not more than $68,000 in the aggregate for
\n all Members and (ix) as previously disclosed on Schedule 5.03(g);
\n provided, however, that the Tax rates and taxable income used for
\n purposes of these computations are not inconsistent with any Tax
\n Returns filed by the Partnership or the Company, the Financial
\n Statements and any other available financial information, and provided,
\n further, that the manner in which the effective Tax rate is computed is
\n subject to Acquiror’s reasonable approval and is based upon the highest
\n applicable U.S. federal, state and local rates applicable to
\n individuals.<\/p>\n
(d) Compensation; Employment Agreements; Etc. Enter into,
\n amend, modify or renew any employment, consulting, severance or similar
\n contracts with any director, officer, employee or Member, or grant any
\n salary, wage or other compensation increase or increase any employee
\n payment or benefit (including incentive or bonus payments), except (1)
\n for normal individual increases in compensation to persons other than
\n Directors or Managing Directors in the ordinary course of business
\n consistent with past practice, (2) for other changes that are required
\n by applicable law, (3) to satisfy contractual obligations existing as
\n of the date hereof that have been previously made available to
\n Acquiror, and (4) for employment arrangements for, or grants of awards
\n (other than any ownership interest in the Company or any of its
\n Subsidiaries, or Rights with respect thereto) to, newly hired employees
\n of the Company (other than officers or directors) or any of its
\n Subsidiaries in the ordinary course of business consistent with past
\n practice.<\/p>\n
(e) Benefit Plans. Enter into, establish, adopt or amend
\n or communicate in writing or orally any intention to take such action,
\n or grant any waiver with respect to, any pension, retirement, equity
\n option, equity purchase, savings, profit sharing, deferred
\n compensation, consulting, bonus, group insurance or other employee
\n benefit, incentive or welfare contract, plan or arrangement, or any
\n trust agreement (or similar arrangement) related thereto, in respect of
\n any current of former director, officer, employee or Owner, except (1)
\n for non-material items in the ordinary and usual course of business or
\n by the transactions to be effected by this Agreement or (2) as may be
\n required (i) by applicable law or (ii) to satisfy contractual
\n obligations existing on the date hereof that have been Previously
\n Disclosed and accrued on the Financial Statements, or take any action
\n to accelerate the funding, vesting or exercisability of options,
\n restricted membership interest awards or other compensation or benefits
\n payable thereunder.<\/p>\n
-16-
\n 22<\/p>\n
(f) Dispositions. Initiate, solicit or otherwise
\n encourage, directly or indirectly, any (i) enquiries or the making of
\n any proposal or offer with respect to a merger, consolidation or
\n similar transaction involving the Company or any of its Subsidiaries,
\n or any purchase of membership interests or securities of the Company or
\n any of its Subsidiaries, or otherwise participate in or facilitate any
\n effort or attempt to make or effectuate such an offer or proposal
\n including, without limitation, by engaging in any discussions or
\n negotiations or providing any confidential information or data to, any
\n person making such other offer or proposal; and (ii) except for sales,
\n transfers, mortgages, encumbrances or other dispositions of securities
\n or other investments or assets in the ordinary course of business
\n consistent with past practice, sell, transfer, mortgage, encumber or
\n otherwise dispose of or discontinue (1) any material amount of assets
\n or properties or (2) any material business or operations.<\/p>\n
(g) Acquisitions. Except for the purchase of securities
\n or other investments or assets in the ordinary course of business
\n consistent with past practice, acquire any assets, business, or
\n properties of any other entity.<\/p>\n
(h) Governing Documents. Amend the Constitutive Documents
\n of the Company or any of its Subsidiaries.<\/p>\n
(i) Accounting Methods. Implement or adopt any change in
\n its accounting principles, practices or methods, other than as may be
\n required by generally accepted accounting principles or applicable law
\n or regulation.<\/p>\n
(j) Contracts. Without limiting the applicability of
\n Section 4.01(d) or (e), enter into or terminate any material contract
\n (other than a material contract which expires by its terms) or amend,
\n modify or waive in any respect any of its existing material contracts
\n or its rights thereunder other than in the ordinary course of business
\n consistent with past practice.<\/p>\n
(k) Claims. Settle any claim, action or proceeding,
\n except for any claim, action or proceeding involving solely money
\n damages in an amount, individually and in the aggregate for all such
\n settlements, not more than $1,000,000 and which is not reasonably
\n likely to establish an adverse precedent or basis for subsequent
\n claims, actions, proceedings or settlements.<\/p>\n
(l) Adverse Actions. Knowingly take any action that is
\n reasonably likely to result in (1) any of its representations or
\n warranties set forth in this Agreement being or becoming untrue at any
\n time at or prior to the Effective Time (after giving effect to Section
\n 5.02) or (2) any of the conditions set forth in Article VIII not being
\n satisfied, except, in either case, as may be required by applicable law
\n or regulation.<\/p>\n
(m) Indebtedness. Incur any indebtedness for borrowed
\n money (other than any indebtedness with a final maturity less than 12
\n months from the date of its issuance incurred in the ordinary course of
\n business consistent with past practice) or issue any debt obligations
\n that would be considered Managing Director Subordinated Notes.<\/p>\n
-17-
\n 23<\/p>\n
(n) Commitments. Agree, commit to or enter into any
\n agreement to take any of the actions referred to in Section 4.01(a)
\n through (m).<\/p>\n
4.02 Forbearances of Acquiror. Until the Effective Time,
\nexcept as expressly contemplated by this Agreement, without the prior written
\nconsent of the Company, Acquiror will not, and will cause each of its
\nSubsidiaries not to, knowingly take any action reasonably likely to result in
\n(1) any of its representations and warranties set forth in this Agreement being
\nor becoming untrue at any time at or prior to the Effective Time (after giving
\neffect to Section 5.02) or (2) any of the conditions set forth in Article VIII
\nnot being satisfied except, in either case, as may be required by applicable law
\nor regulation. In addition, Acquiror shall not declare, make or pay any
\nextraordinary dividend or other extraordinary distribution on Acquiror Common
\nStock, whether in cash or otherwise (which shall not include any quarterly cash
\ndividends in the ordinary and usual course of business) unless an equitable
\nadjustment is made to the Stock Consideration and the calculation element or
\nreference price of $128.025.<\/p>\n
ARTICLE V<\/p>\n
REPRESENTATIONS AND WARRANTIES<\/p>\n
5.01 Disclosure Schedules. On or prior to the date hereof,
\nthe Company has delivered to Acquiror, and Acquiror has delivered to the
\nCompany, a schedule (respectively, its “Disclosure Schedule”) setting forth,
\namong other things, items the disclosure of which is necessary or appropriate
\neither (a) in response to an express informational requirement contained in or
\nrequested by a provision hereof or (b) as an exception to one or more
\nrepresentations or warranties contained in Section 5.03, 5.04, 5.05 and 7.01.
\nInformation set forth in a party’s Disclosure Schedule, whether in response to
\nan express informational requirement or as an exception to one or more
\nrepresentations, warranties or covenants, as applicable, in each case that is
\ncontained (or incorporated by reference) in a correspondingly enumerated portion
\nof such Disclosure Schedule or as disclosed in the Offering Memorandum, is
\ndescribed herein as “Previously Disclosed”.<\/p>\n
5.02 Standard. No representation or warranty contained in
\nSection 5.03, 5.04, 5.05 and 7.01 shall be deemed untrue or incorrect, and no
\nparty hereto shall be deemed to have breached a representation or warranty, as a
\nconsequence of the existence of any fact, event, or circumstance that should
\nhave been disclosed as an exception to one or more representations or
\nwarranties, unless such fact, event or circumstance, whether individually or
\ntaken together with all other facts, events or circumstances that should have
\nbeen so disclosed (whether or not as exceptions) with respect to such
\nrepresentation or warranty contained in Section 5.03, 5.04, 5.05 or 7.01, has
\nhad or is reasonably likely to have a Material Adverse Effect with respect to
\nthe Company (in the case of Section 5.03 and Section 7.01), the Partnership (in
\nthe case of Section 5.04 and Section 7.01), Acquiror (in the case of Section
\n5.05); provided, that this Section 5.02 will not apply to, and will not limit
\nbreaches of, the first sentence of Section 5.03(a), Section 5.03(b), the last
\ntwo sentences of the first paragraph of Section 5.03(c), Section 5.03(d), the
\nlast two sentences of Section 5.03(g)(1), Section 5.03(g)(3)(B), the first
\nsentence of Section 5.04(a), Section 5.04(b), the<\/p>\n
-18-
\n 24<\/p>\n
first sentence of Section 5.05(a), Section 5.05(b), the last sentence of
\n5.05(d)(1), 5.05(d)(2)(B), 5.05(d)(3) and the last sentence of Section 5.05(e);
\nand provided, further, that this Section 5.02 will not apply in determining
\nwhether indemnification is available under Article VII or Article IX hereof.<\/p>\n
5.03 Representations and Warranties with Respect to the
\nCompany. Except as Previously Disclosed in a paragraph of its Disclosure
\nSchedule corresponding to the relevant paragraph below, the Company hereby
\nrepresents and warrants to, and agrees with, Acquiror as follows:<\/p>\n
(a) Organization, Standing and Authority. The Company has
\n been duly organized and is validly existing as a limited liability
\n company in good standing under the laws of the State of New York. The
\n Company is duly qualified to do business and is in good standing in the
\n States of the United States and foreign jurisdictions where its
\n ownership or leasing of property or the conduct of its business
\n requires it to be so qualified. The Company and each of its
\n Subsidiaries has the requisite power and authority and has in effect
\n all federal, state, local, and foreign governmental authorizations
\n necessary for it to own or lease its properties and assets and to carry
\n on its business as it is now conducted. The Company has delivered to
\n Acquiror a true and complete copy of its articles of organization and
\n operating agreement, which are the only Constitutive Documents of the
\n Company.<\/p>\n
(b) Membership Interests. Annex 1 is an accurate and
\n complete list of the Members of the Company and is an accurate and
\n complete list of their respective ownership interests in all material
\n respects. As of the date of this Agreement, the Company has no Company
\n Membership Interests reserved for issuance and no obligation to admit
\n any other person as a Member. All the outstanding Company Membership
\n Interests are duly authorized and validly issued and were not issued in
\n violation of any subscriptive or preemptive rights. There are no other
\n Company Membership Interests authorized, issued or outstanding and
\n there are no preemptive rights or any outstanding Rights of the Company
\n or any of its Subsidiaries of any character relating to the issued or
\n unissued securities of the Company (including those relating to the
\n issuance, sale, purchase, redemption, conversion, exchange, redemption,
\n voting or transfer thereof). Since June 30, 2000 and until the date
\n hereof, no dividend or other distribution has been paid on or in
\n respect of the Company Membership Interests other than (i) as would
\n have been permitted under Section 4.01(c)(iv), (v) and (vi) had this
\n Agreement been in effect at such time or (ii) as Previously Disclosed
\n on Schedule 5.03(b).<\/p>\n
Immediately after Effective Time, Acquiror shall own all of
\n the Membership Interests of the Company.<\/p>\n
(c) Subsidiaries. The Company has Previously Disclosed a
\n list of all its Subsidiaries, including the states or foreign
\n jurisdictions in which such Subsidiaries are organized and, if any of
\n such Subsidiaries is not wholly owned by the Company or one or more of
\n its Subsidiaries, the percentage owned by the Company or each such
\n Subsidiary and the names, addresses and type and percentage ownership
\n by any other person. No equity interests in any<\/p>\n
-19-
\n 25<\/p>\n
of the Company’s Subsidiaries are or may become required to be issued
\n (other than to the Company or a wholly owned Subsidiary of the Company)
\n by reason of any Rights with respect thereto. There are no Contracts or
\n outstanding claims assessed against the Company by which any of the
\n Company’s Subsidiaries is or may be bound to sell or otherwise issue
\n any equity interests, and there are no Contracts relating to the rights
\n of the Company to vote or to dispose of such equity interests. All of
\n the equity interests in each of the Company’s Subsidiaries have been
\n duly authorized and validly issued and, to the extent applicable, are
\n fully paid and nonassessable and are subject to no subscriptive or
\n preemptive rights or Rights and are owned by the Company or one of its
\n Subsidiaries free and clear of any Liens other than those Liens created
\n by the existence of the Constitutive Documents. Each of the Company’s
\n Subsidiaries is in good standing under the laws of the jurisdiction in
\n which it is organized, and is duly qualified to do business and in good
\n standing in each jurisdiction where its ownership or leasing of
\n property or the conduct of its business requires it to be so qualified.
\n The Company is the sole general partner of the Partnership and
\n (including the Float (as such term is defined in the Partnership
\n Agreement)), has the right to 98.942% of the Partnership’s profits,
\n free and clear of all Liens other than those Liens created by the
\n existence of the Constitutive Documents, and is responsible for 100% of
\n the Partnership’s losses, and no other person has any interest, legal,
\n beneficial or otherwise in such Partnership Interest. At the Closing
\n Date, the Company shall have the right to 100% of the Partnership’s
\n profits. Upon the consummation of the Merger, the Surviving LLC will
\n continue to own, beneficially and of record, such Partnership Interest,
\n free and clear of all Liens other than those Liens created by the
\n existence of the Constitutive Documents.<\/p>\n
The Company has Previously Disclosed a true and complete list
\n of all equity securities (other than those issued by a Subsidiary) it
\n or a Subsidiary of the Company holds or controls as of the date of this
\n Agreement involving, in the aggregate, ownership or control of 5% or
\n more of any class of the issuer’s voting securities or 25% or more of
\n the issuer’s equity. The Company has Previously Disclosed a list of all
\n corporations (and any other entities or joint undertakings treated as a
\n partnership for any Tax purpose), limited liability companies, joint
\n ventures or similar entities, in which it owns or controls a 5% or more
\n interest, directly or indirectly, and the nature and amount of each
\n such interest.<\/p>\n
(d) LLC Action. The Company has the requisite power and
\n authority, and has taken all limited liability company action
\n necessary, (1) to authorize the execution and delivery of and
\n performance of its obligations under this Agreement and (2) to approve
\n and adopt the Merger and in accordance herewith, to consummate the
\n Merger and the transactions contemplated by this Agreement. Without
\n limiting the foregoing, any action of the Members of the Company
\n required to approve or adopt this Agreement and the transactions
\n contemplated by this Agreement has been duly taken in accordance with
\n the requirements of the New York State Limited Liability Company Law
\n and the Operating Agreement. No further action of the Members or
\n Managers of the Company is required in order to consummate the Merger
\n and, except for the execution and delivery of documents referred to
\n herein that are contemplated to be entered into at or prior to Closing,
\n the transactions contemplated by this Agreement. As of the Closing, no
\n Member will have any<\/p>\n
-20-
\n 26<\/p>\n
dissenter’s or similar rights with respect to the Merger. This
\n Agreement has been duly executed and delivered on behalf of the Company
\n and constitutes the valid and legally binding agreement of the Company,
\n enforceable in accordance with its terms except as the enforceability
\n hereof may be limited by bankruptcy, insolvency, fraudulent conveyance,
\n reorganization, moratorium or other similar laws relating to the
\n enforcement of creditors’ rights generally and by general principles of
\n equity.<\/p>\n
(e) No Defaults. Subject to the receipt of Previously
\n Disclosed required regulatory approvals, and the filing of the Merger
\n Certificate, the execution, delivery and performance of this Agreement
\n and the consummation by the Company of the transactions contemplated by
\n this Agreement, do not and will not (1) conflict with or constitute a
\n breach or violation of, or a default under, or cause or allow the
\n acceleration or creation of any right, obligation or Lien (with or
\n without the giving of notice, passage of time or both) pursuant to any
\n law, rule or regulation or any judgment, decree, order, or any
\n governmental or non-governmental permit, license, franchise or
\n privilege or any Contract of it or any of its Affiliates or to which it
\n or any of its Affiliates or its or their properties is subject or
\n bound, (2) constitute a breach or violation of, or a default under, the
\n Constitutive Documents of the Company or any of its Subsidiaries, or
\n (3) require any consent or approval under any such law, rule,
\n regulation, judgment, decree, order, governmental or non-governmental
\n permit, license, franchise or privilege or the consent or approval of
\n any other party to any such Contract.<\/p>\n
(f) Reports. The Company and its Subsidiaries have timely
\n filed all reports, registrations, statements and other filings (other
\n than those relating to Taxes or Tax Returns), together with any
\n amendments required to be made with respect thereto, that were required
\n to be filed by the Company or any of its Subsidiaries since December
\n 31, 1998 with (1) the SEC or the CFTC, (2) any other applicable
\n Governmental Authorities (other than taxing authorities) or (3) any
\n Self-Regulatory Organization (all such reports and statements,
\n including the financial statements, exhibits and schedules thereto,
\n being collectively referred to herein as the “Reports”), including
\n without limitation, all reports, registrations, statements and filings
\n required under the Securities Laws. Each of the Reports, when filed,
\n complied (or, if filed after the date hereof, will comply) as to form
\n with all applicable statutes, rules, regulations and orders (whether or
\n not enforced or promulgated by the Governmental Authority with which
\n they were filed) and did not (or will not) contain any untrue statement
\n of a material fact or omit to state any material fact required to be
\n stated therein or necessary to make the statements therein, in the
\n light of the circumstances under which they were made, not misleading.<\/p>\n
(g) Financial Statements.<\/p>\n
(1) The Company has delivered to Acquiror copies of each of
\nthe audited consolidated statements of financial condition of the Partnership
\n(including all related notes and schedules thereto) as of September 30, 1998 and
\n1999, and the audited consolidated statements of income, changes in partner’s
\ncapital and cash flows of the Partnership (including any related notes<\/p>\n
-21-
\n 27<\/p>\n
and schedules thereto) for the fiscal years ended September 30, 1997, 1998 and
\n1999, and the unaudited consolidated financial statements of the Partnership as
\nof, and for the fiscal quarters ended, June 30, 1999 and 2000 and the unaudited
\nunconsolidated financial statements of each of the Subsidiaries of the
\nPartnership that are registered as broker-dealers under Section 15 of the
\nExchange Act contained in the Financial and Operational Combined Uniform Single
\nReports (each, a “Focus Report”) for the fiscal quarters ended June 30, 1999 and
\n2000 (collectively, the “Financial Statements”). Each of the statements of
\nfinancial condition included in the Financial Statements fairly presents in all
\nmaterial respects the consolidated financial position of the Partnership (or, in
\nthe case of the Focus Reports, of the relevant Subsidiary on an unconsolidated
\nbasis) as of its date, and each of the statements of income and changes in
\nowners’ capital and cash flows or equivalent statements included in the
\nFinancial Statements fairly presents in all material respects the consolidated
\nresults of operations, changes in owners’ capital and changes in cash flows, as
\nthe case may be, of the Partnership (or, in the case of the Focus Reports, of
\nthe relevant Subsidiary on an unconsolidated basis) for the periods set forth
\ntherein (subject, in the case of unaudited statements, to normal year-end
\nadjustments and footnote disclosure), in each case in accordance with generally
\naccepted accounting principles consistently applied during the periods involved
\n(except as may be noted therein and except that unaudited statements may not
\ninclude notes). As of the Closing Date, the only asset of the Company will be
\nits general partnership interest in the Partnership, and the Company will not,
\nexcept as Previously Disclosed, engage (and will not, except as Previously
\nDisclosed, have engaged since the date hereof) in any business other than owning
\nsuch general partnership interest, and the Company shall have no liabilities
\nwhether accrued, contingent, absolute, determined, determinable or otherwise,
\nother than those directly arising from the Company’s ownership of such general
\npartnership interest and the Company shall not have transferred any liabilities
\nto the Partnership or any other Subsidiary.<\/p>\n
(2) There are no liabilities as of the date hereof of the
\nPartnership or any of its Subsidiaries of any kind whatsoever that are required
\nto be disclosed on the balance sheet, whether accrued, contingent, absolute,
\ndetermined, determinable or otherwise, and there is no existing condition,
\nsituation or set of circumstances known to the Company or any of its
\nSubsidiaries which could reasonably be expected to result in such a liability,
\nother than:<\/p>\n
(A) liabilities reflected or reserved
\n against in the Financial Statements; and<\/p>\n
(B) liabilities arising, in the ordinary
\n course of business consistent with past practice,
\n after the date of the most recent statement of
\n financial condition included in the Financial
\n Statements that are not and could not reasonably be
\n expected to be materially adverse to the Company or
\n its Subsidiaries.<\/p>\n
(3) Since September 30, 1999, (A) the Company and its
\nSubsidiaries have conducted their respective businesses in the ordinary course
\nconsistent with past practice and (B) there has not occurred any change,
\noccurrence or event, and no change, occurrence or event has<\/p>\n
-22-
\n 28<\/p>\n
become reasonably likely, which has had, or is reasonably likely to have, a
\nMaterial Adverse Effect with respect to the Company.<\/p>\n
(4) The pricing of securities and loans held in the Company’s
\nand its Subsidiaries’ trading accounts or securities portfolios and reflected in
\nthe financial statements contained in the Focus Report for the quarter ended
\nJune 30, 2000 is consistent with past practices.<\/p>\n
(h) Contracts.<\/p>\n
(1) The Company has Previously Disclosed, and
\n delivered true and complete copies of, each of the following
\n Contracts to which it or any of its Subsidiaries is a party,
\n by which it or any of its Subsidiaries is bound, or to which
\n its or any of its Subsidiaries’ properties are subject (other
\n than trading commitments with customers or counterparties to
\n purchase or sell securities in the ordinary course of business
\n and consistent with past practice):<\/p>\n
(A) the real property leases relating to its
\n (i) 220,000 square feet lease for 120 Broadway, New
\n York, New York and (ii) 90,000 square feet lease for
\n its Jersey City, New Jersey location;<\/p>\n
(B) any joint venture, shareholder or other
\n similar agreement or arrangement or any options,
\n rights or obligations to acquire from any person any
\n capital stock, voting securities or equity interests
\n or Rights or securities convertible into or
\n exchangeable for capital stock, voting securities or
\n equity interests of such person;<\/p>\n
(C) any Contract entered into within the
\n last three (3) years relating to the acquisition or
\n disposition of any material business or operations
\n (whether by merger, sale of stock, sale of assets or
\n otherwise);<\/p>\n
(D) any Contract providing for existing or
\n future borrowing of money or payment of the deferred
\n purchase price of property in excess of $10,000,000
\n (in either case, whether incurred, assumed,
\n guaranteed or secured by any asset) (other than
\n borrowings with a maturity of less than one (1)
\n year);<\/p>\n
(E) any application, license, franchise or
\n other Contract relating to any trademark and
\n trademark rights, tradename and tradename rights,
\n service mark and service mark rights, service name
\n and service name rights, copyright and copyright
\n rights or patent and patent rights (collectively, the
\n “Intellectual Property”);<\/p>\n
-23-
\n 29<\/p>\n
(F) any Contract providing for exclusive
\n dealing or that limits the freedom of the Company or
\n any of its Affiliates to compete in any line of
\n business or with any person or in any area;<\/p>\n
(G) any Contract, other than this Agreement
\n and the Supplemental Agreements, between the Company
\n or any of its Subsidiaries and (i) an Owner or any
\n “associates” or members of the “immediate family” (as
\n such terms are respectively defined in Rule 12b-2 and
\n Rule 16a-1 of the Exchange Act) of an Owner, (ii) any
\n other Affiliate of the Company or of an Owner, (iii)
\n any person 5% or more of whose outstanding voting
\n securities are directly or indirectly owned,
\n controlled or held with power to vote by the Company
\n or any Affiliate of the Company or of an Owner or
\n (iv) any officer of the Company or any Affiliate of
\n the Company or of an Owner or any “associates” or
\n members of the “immediate family” (as such terms are
\n respectively defined in Rule 12b-2 and Rule 16a-1 of
\n the Exchange Act) of any such Owner; or<\/p>\n
(H) other than the Supplemental Agreements,
\n any Member agreement, voting agreement, voting trust
\n agreement or similar Contract involving the interests
\n of the Company or any of its Subsidiaries.<\/p>\n
The Company has made available its forms of
\n agreements relating to the clearing of futures or securities
\n transactions, the custody of assets or the extension of credit
\n (a “Clearing Agreement”). Each Clearing Agreement entered into
\n by the Company or any of its Subsidiaries is not modified in
\n any material respect from such form of Clearing Agreement that
\n has been made available.<\/p>\n
Each contract required to be disclosed or made available in
\n respect of this Section 5.03(h) is referred to as a “Material
\n Contract”.<\/p>\n
(2) Each Material Contract is a valid and binding
\n agreement of the Company (and\/or its Subsidiaries party
\n thereto (and\/or its Affiliates in the case of clause (F)
\n above)) and, with respect to any such of the Company and its
\n Subsidiaries (and\/or its Affiliates in the case of clause (F)
\n above), is in full force and effect, and none of the Company,
\n any of its Subsidiaries (and\/or its Affiliates in the case of
\n clause (F) above) or, as of the date hereof, to the knowledge
\n of the Company or any of its Subsidiaries (and\/or its
\n Affiliates in the case of clause (F) above), any other party
\n thereto is in default under any such Contract and there has
\n not occurred any event that, with the lapse of time or the
\n giving of notice or both, would constitute such a default (to
\n the knowledge of the Company or any of its Subsidiaries with
\n respect to any event relating to a party other than the
\n Company or its Subsidiaries).<\/p>\n
-24-
\n 30<\/p>\n
(i) Properties; Securities.<\/p>\n
(1) Except as reflected or reserved against in the
\n Financial Statements, each of the Company and its Subsidiaries
\n has good and marketable title to, or in the case of leased
\n property, has valid leasehold interests in all property and
\n assets purported to be owned or leased by it (whether real or
\n personal, tangible or intangible, and including investment
\n securities and other investments) reflected in the Financial
\n Statements or acquired after the date thereof, except for
\n property and assets sold or transferred since such date in the
\n ordinary course of business consistent with past practices.
\n None of such property or assets (except property or assets
\n sold or transferred since such date in the ordinary course of
\n business consistent with past practices) is subject to any
\n Liens (including Tax-related Liens), except:<\/p>\n
(A) Liens incurred in the ordinary
\n course of business consistent with past practice;<\/p>\n
(B) Liens securing liabilities which,
\n in each case, are disclosed or reserved against in
\n the Financial Statements;<\/p>\n
(C) Liens for Taxes not yet due or
\n payable or being contested in good faith (and, in
\n either case, for which adequate accruals or reserves
\n have been established in the Financial Statements);<\/p>\n
(D) Mechanics or materialmen liens and
\n similar liens arising by operation of law; or<\/p>\n
(E) Liens which do not materially
\n detract from the value or materially interfere with
\n any current use of such property or assets.<\/p>\n
(2) To the knowledge of the Company and its
\n Subsidiaries, all buildings and all fixtures, equipment, and
\n other property and assets used but not owned by the Company or
\n any of its Subsidiaries are held under valid leases or
\n subleases enforceable in accordance with their respective
\n terms, except as enforceability may be limited by applicable
\n bankruptcy, insolvency, reorganization, moratorium or other
\n laws affecting creditors’ rights generally and by general
\n equity principles.<\/p>\n
(3) Each of the Company and its Subsidiaries has a
\n “security entitlement” (as defined in the Uniform Commercial
\n Code) in all securities or investments held or purported to be
\n held by it (except securities sold under repurchase agreements
\n or held in any fiduciary or agency capacity), free and clear
\n of any Lien, except to the extent such securities are pledged
\n in the ordinary course of business consistent with past
\n practices to secure obligations of each of the Company or any
\n of its Subsidiaries. Such securities are valued on the books
\n of the Company and its Subsidiaries in accordance with
\n generally accepted accounting principles.<\/p>\n
-25-
\n 31<\/p>\n
(4) All Managing Director Subordinated Notes, by
\n their terms, are redeemable by the Company at a price equal to
\n the principal amount thereof, plus accrued interest, if any,
\n through the date of such redemption without penalty.<\/p>\n
(j) Litigation; Regulatory Action. Except as Previously
\n Disclosed, no litigation, proceeding or investigation (“Litigation”)
\n before or by any court, arbitrator, mediator or Governmental Authority
\n is pending against the Company or any of its Subsidiaries, and, to the
\n knowledge of the Company or any of its Subsidiaries, no such Litigation
\n has been threatened, and there is no existing condition, situation or
\n set of circumstances known to the Company or any of its Subsidiaries
\n which could reasonably be expected to result in such litigation;
\n neither the Company nor any of its Subsidiaries, or any of their
\n properties is a party to or is subject to any order, decree, agreement,
\n memorandum of understanding or similar arrangement with, or a
\n commitment letter or similar submission to, any Self-Regulatory
\n Organization or any Governmental Authority (including the SEC, the CFTC
\n and the Federal Trade Commission) charged with the supervision or
\n regulation of broker-dealers, securities underwriting or trading, stock
\n exchanges, commodities exchanges, alternative trading systems or the
\n supervision or regulation of the Company or any of its Subsidiaries
\n (collectively, “Regulatory Orders”). There is no Litigation involving
\n the Company, and to the Company’s knowledge there are no claims,
\n disputes or Litigation involving any Member or former Member, related,
\n in each case, to the ownership of the membership interests of the
\n Company.<\/p>\n
(k) Compliance with Laws. Each of the Company and its
\n Subsidiaries, and their respective Owners, managers, directors,
\n officers and employees:<\/p>\n
(1) in the conduct of its businesses has been and is
\n in compliance with all applicable federal, state, local and
\n foreign statutes, laws, regulations, ordinances, rules,
\n judgments, orders or decrees applicable thereto or to the
\n employees conducting such businesses, and with the applicable
\n rules of all Self-Regulatory Organizations including without
\n limitation, (w) all applicable regulatory net capital
\n requirements, including SEC Rule 15c3-1 and, as applicable,
\n the “early warning” and “expansion-contraction” capital
\n requirements in NYSE Rules 325 and 326, the liquid net assets
\n requirements of NYSE Rule 104.20 and the capital requirements
\n of any futures exchanges; (x) all rules and regulations
\n relating to the maintenance and preservation of books and
\n records; and (y) the provisions of the Foreign Corrupt
\n Practices Act of 1977, as amended, and the rules and
\n regulations promulgated thereunder;<\/p>\n
(2) has and has had all permits, licenses,
\n authorizations, orders and approvals of, and has made all
\n filings, applications and registrations with, all Governmental
\n Authorities and Self-Regulatory Organizations that are
\n required in order to permit them to own and operate their
\n businesses as presently conducted; all such permits, licenses,
\n authorizations, orders, franchises and approvals are in full
\n force and effect and, to the Company’s and its Subsidiaries’
\n knowledge, no suspension or cancellation of any of them is
\n threatened or reasonably likely; and all such filings,<\/p>\n
-26-
\n 32<\/p>\n
applications and registrations are current and do not need to
\n be amended in any material respect;<\/p>\n
(3) since January 1, 1997, except as disclosed on the
\n Partnership’s or its Affiliates’ most recent Form BD filed
\n with the SEC, the Partnership has received no written
\n notification or communication (or, to the Company’s and its
\n Subsidiaries’ knowledge, any other communication) from any
\n Governmental Authority or Self-Regulatory Organization (A)
\n asserting that any of them is not in compliance with any of
\n the statutes, rules, regulations, or ordinances which such
\n Governmental Authority or Self-Regulatory Organization
\n enforces, or has otherwise engaged in any unlawful business
\n practice except such assertions that were resolved to the
\n satisfaction of such Governmental Authority or Self-Regulatory
\n Organization and did not result in a material change to the
\n operations or practices of the Company or such Subsidiary, (B)
\n threatening to revoke any license, franchise, permit, seat on
\n any stock or commodities exchange, or governmental
\n authorization, (C) requiring any of them (including any of the
\n Company’s or its Subsidiaries’ Owners, managers, directors,
\n officers or controlling persons) to enter into a cease and
\n desist order, agreement, or memorandum of understanding (or
\n requiring the board of directors (or similar body) thereof to
\n adopt any resolution or policy) or (D) restricting or
\n disqualifying the activities of the Company or any of its
\n Subsidiaries (except for restrictions generally imposed by
\n rule, regulation or administrative policy on brokers or
\n dealers generally); and the Company has delivered true and
\n complete copies of each such written notification or
\n communication to Acquiror;<\/p>\n
(4) is not the subject of any pending or aware of any
\n threatened investigation, review, disciplinary proceedings or
\n unresolved issues raised by any Governmental Authority or
\n Self-Regulatory Organization against or with respect to the
\n Company, any of its Subsidiaries or any Owner, manager,
\n officer, director or employee thereof;<\/p>\n
(5) in the conduct of its business with respect to
\n employee benefit plans subject to Title I of ERISA or Section
\n 4975 of the Code (“ERISA Plans”), has not (A) engaged in any
\n conduct which would subject it or them to liability under
\n Sections 405, 406, 409, 502(i) or 502(l) of ERISA or Section
\n 4975 of the Code or (B) engaged in any conduct that could
\n constitute a crime or violation listed in Section 411 of ERISA
\n which could preclude such person from providing services to
\n any ERISA Plan;<\/p>\n
(6) is not, nor is any Affiliate of any of them,
\n subject to a “statutory disqualification” as defined in
\n Section 3(a)(39) of the Exchange Act; is not subject to a
\n disqualification that would be a basis for censure,
\n limitations on the activities, functions or operations of, or
\n suspension or revocation of, the registration of any
\n broker-dealer Subsidiary as broker-dealer under Section 15, or
\n municipal securities dealer, government securities broker or
\n government securities dealer under Section 15, Section 15B or
\n Section 15C of the Exchange Act; is not, nor are any of their<\/p>\n
-27-
\n 33<\/p>\n
“principals” (as defined in Section 8a(2) of the Commodity
\n Exchange Act), subject to any of the provisions of Section 8a
\n that would permit the CFTC, subject to the terms of such
\n section, to refuse to register or to suspend or revoke the
\n registration of any of them or their respective principals;
\n and, to the Company’s knowledge, there is no current
\n investigation, whether formal or informal, or whether
\n preliminary or otherwise, that is reasonably likely to result
\n in, any such censure, limitations, suspension or revocation;
\n and<\/p>\n
(7) has not acted as an underwriter of any
\n securities.<\/p>\n
(l) Registrations.<\/p>\n
(1) The Company has previously made available each
\n registration of the Company and any of its Affiliates as a
\n broker-dealer, a registered representative or a sales person
\n (or in a similar capacity) with the SEC, the securities or
\n commodities commission or similar authority of any state or
\n foreign jurisdiction or any Self-Regulatory Organization; each
\n such registration is in good standing (to the extent such
\n concept is applicable) and in full force and effect; and no
\n other such registrations are required in order to permit them
\n to own and operate their businesses as presently conducted.<\/p>\n
(2) Other than as previously made available, none of
\n the Company or its Affiliates, nor any of their respective
\n Owners, directors, managers, officers and employees, is
\n required to be registered as an investment adviser, investment
\n company, commodity trading advisor, commodity pool operator,
\n futures commission merchant, insurance agent, or transfer
\n agent under any United States federal, state, local or foreign
\n statutes, laws, rules or regulations (including any of the
\n Securities Laws).<\/p>\n
(m) Specialist Securities. On the date hereof, the
\n Partnership and certain of its Subsidiaries act as the Self-Regulatory
\n Organization specialist unit for each security Previously Disclosed.
\n Except as Previously Disclosed, the Company has no reason to believe
\n and has not been advised that it may be required to cease acting as the
\n Self-Regulatory Organization specialist unit for any of such
\n securities, nor has it agreed to act as the Self-Regulatory
\n Organization specialist unit for any other security, nor will it so
\n agree without the prior written approval of Acquiror. The Company will
\n use its best efforts to retain its status as the Self-Regulatory
\n specialist unit for each security Previously Disclosed.<\/p>\n
(n) No Brokers. None of the Company or its Subsidiaries,
\n or any of their respective Affiliates, has employed any broker or
\n finder, or incurred any brokers or finders commissions or fees, in
\n connection with the transactions contemplated hereby.<\/p>\n
-28-
\n 34<\/p>\n
(o) Compensation Plans; ERISA Matters.<\/p>\n
(1) The Company has Previously Disclosed a list of
\n all significant employment, consulting, benefit and
\n compensation plans, contracts, policies or arrangements and
\n descriptions of any unwritten plans, policies or arrangements
\n covering current or former Members or employees or consultants
\n of the Company or any of its Subsidiaries (the “Employees”)
\n and current or former Partners of the Partnership or as to
\n which the Company or any of its Subsidiaries could have,
\n directly or indirectly, any liability, including, but not
\n limited to, “employee benefit plans” within the meaning of
\n Section 3(3) of ERISA, and deferred compensation, stock
\n option, stock purchase, stock appreciation rights, stock
\n based, incentive and bonus plans and any applicable “change in
\n control” or similar provisions in any plan, contract or
\n arrangement (the “Compensation Plans”). True and complete
\n copies of all Compensation Plans, including, but not limited
\n to, any trust instruments and insurance contracts forming a
\n part of any Compensation Plans, and all amendments thereto
\n have been provided or made available to Acquiror. No
\n Compensation Plan provides for any benefit based in whole or
\n in part on the value of any Membership Interest or equity
\n interest owned by the Company or any of its Subsidiaries. For
\n purposes of this paragraph (1), a Compensation Plan is deemed
\n significant if (i) it covers fifty (50) or more individuals or
\n (ii) it requires annual contributions or payments by the
\n Company or any of its Subsidiaries or provides annual benefits
\n aggregating an amount equal to or in excess of $1,000,000.<\/p>\n
(2) All employee benefit plans covering Employees
\n (the “Plans”), to the extent subject to ERISA, are in
\n substantial compliance with ERISA. Each Plan which is an
\n “employee pension benefit plan” within the meaning of Section
\n 3(2) of ERISA (“Pension Plan”) and which is intended to be
\n qualified under Section 401(a) of the Code, has received a
\n favorable determination letter from the Internal Revenue
\n Service with respect to “TRA” (as defined in Section 1 of Rev.
\n Proc. 93-39), and the Company is not aware of any
\n circumstances likely to result in revocation of any such
\n favorable determination letter. There is no material pending
\n or, to the knowledge of the Company threatened, litigation
\n relating to the Plans, and there is no existing condition,
\n situation or set of circumstances known to the Company or any
\n of its Subsidiaries which could reasonably be expected to
\n result in such litigation. Neither the Company nor any of its
\n Subsidiaries has engaged in a transaction with respect to any
\n Plan that, assuming the taxable period of such transaction
\n expired as of the date hereof, could subject the Company or
\n any Subsidiary to a tax or penalty imposed by either Section
\n 4975 of the Code or Section 502(i) of ERISA in an amount which
\n would be material.<\/p>\n
(3) No liability under Subtitle C or D of Title IV of
\n ERISA has been or is expected to be incurred by the Company or
\n any of its Subsidiaries with respect to any ongoing, frozen or
\n terminated “single-employer plan”, within the meaning of
\n Section 4001(a)(15) of ERISA, currently or formerly maintained
\n by any of them, or the<\/p>\n
-29-
\n 35<\/p>\n
single-employer plan of any entity which is considered one
\n employer with the Company under Section 4001 of ERISA or
\n Section 414 of the Code (an “ERISA Affiliate”). Neither the
\n Company, any of its Subsidiaries nor an ERISA Affiliate has
\n contributed to a Pension Plan that is a “multiemployer plan”,
\n within the meaning of Section 3(37) of ERISA, at any time on
\n or after September 26, 1980 or could have liability in respect
\n of any such plan. No notice of a “reportable event”, within
\n the meaning of Section 4043 of ERISA for which the 30-day
\n reporting requirement has not been waived, has been required
\n to be filed for any Pension Plan or by any ERISA Affiliate
\n within the 12-month period ending on the date hereof or will
\n be required to be filed in connection with the transactions
\n contemplated by this Agreement.<\/p>\n
(4) All contributions required to be made under the
\n terms of any Compensation Plan have been timely made or have
\n been reflected on the Financial Statements. Neither any
\n Pension Plan nor any single-employer plan of an ERISA
\n Affiliate has an “accumulated funding deficiency” (whether or
\n not waived) within the meaning of Section 412 of the Code or
\n Section 302 of ERISA and no ERISA Affiliate has an outstanding
\n funding waiver. Neither the Company nor any of its
\n Subsidiaries has provided, or is required to provide, security
\n to any Pension Plan or to any single-employer plan of an ERISA
\n Affiliate pursuant to Section 401(a)(29) of the Code.<\/p>\n
(5) Under each Pension Plan which is a
\n single-employer plan, as of the last day of the most recent
\n plan year ended prior to the date hereof, the actuarially
\n determined present value of all “benefit liabilities”, within
\n the meaning of Section 4001(a)(16) of ERISA (as determined on
\n the basis of the actuarial assumptions contained in the Plan’s
\n most recent actuarial valuation), did not exceed the then
\n current value of the assets of such Plan, and there has been
\n no adverse change in the financial condition of such Plan
\n since the last day of the most recent plan year.<\/p>\n
(6) Neither the Company nor any of its Subsidiaries
\n has any obligations for retiree health, life or other benefits
\n under any Compensation Plan.<\/p>\n
(7) The consummation of the transactions contemplated
\n by this Agreement, either alone or in conjunction with any
\n other event, will not (x) entitle any Employees to severance
\n pay, (y) accelerate the time of payment or vesting or trigger
\n any payment or funding (through a grantor trust or otherwise)
\n of compensation or benefits under, increase the amount payable
\n or trigger any other material obligation pursuant to, any of
\n the Compensation Plans or (z) result in any payments under,
\n any of the Compensation Plans which would constitute a
\n “parachute payment” to any “disqualified individual” as those
\n terms are defined in Section 280G of the Code; provided, that
\n the representations of this paragraph (7) shall not apply with
\n respect to any awards, payments, compensation and benefits to
\n be paid or made pursuant to this Agreement or other agreements
\n related to the transactions to be effected hereby.<\/p>\n
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\n 36<\/p>\n
(8) All Compensation Plans covering current or former
\n non-U.S. employees or otherwise maintained outside the U.S.
\n for U.S. employees are in substantial compliance with
\n applicable local law (“Foreign Plans”). The Company and its
\n Subsidiaries have no unfunded liabilities with respect to any
\n Foreign Plan that are not properly reflected on the Financial
\n Statements;<\/p>\n
(9) There has been no amendment to, written
\n interpretation, communication or announcement by the Company
\n or any of its affiliates relating to, or change in employee
\n participation or coverage under, any Compensation Plan, which
\n would significantly increase the expense of maintaining such
\n Compensation Plan above the level of the expense incurred in
\n respect thereof for the most recent fiscal year; and<\/p>\n
(p) Labor Relations. Each of the Company and its
\n Subsidiaries is in compliance with all currently applicable laws
\n respecting employment and employment practices, terms and conditions of
\n employment and wages and hours, including, without limitation, the
\n Immigration Reform and Control Act, the Worker Adjustment and
\n Retraining Notification Act, any such laws respecting employment
\n discrimination, disability rights or benefits, equal opportunity, plant
\n closure issues, affirmative action, workers’ compensation, employee
\n benefits, severance payments, labor relations, employee leave issues,
\n wage and hour standards, occupational safety and health requirements
\n and unemployment insurance and related matters. None of the Company or
\n its Subsidiaries is engaged in any unfair labor practice (within the
\n meaning of the National Labor Relations Act). As of the date hereof,
\n there is no unfair labor practice complaint pending or, to the
\n knowledge of the Company, threatened against any of the Company or its
\n Subsidiaries before the National Labor Relations Board. Neither the
\n Company nor any of its Subsidiaries is a party to, or is bound by, any
\n collective bargaining agreement, contract or other agreement or
\n understanding with a labor union or labor organization, nor is the
\n Company or any of its Subsidiaries the subject of a proceeding as of
\n the date hereof asserting that the Company or any such Subsidiary has
\n committed an unfair labor practice (within the meaning of the National
\n Labor Relations Act) or seeking to compel it or such Subsidiary to
\n bargain with any labor organization as to wages and conditions of
\n employment, nor is there any strike or other labor dispute involving
\n the Company or any of its Subsidiaries, pending or, to the best of the
\n Company’s knowledge, threatened, nor is it aware of any activity
\n involving the Company’s or any of its Subsidiaries’ employees seeking
\n to certify a collective bargaining unit or engaging in any other
\n organization activity.<\/p>\n
(q) Insurance. The Company and its Subsidiaries are
\n insured with reputable insurers against such risks and in such amounts
\n as is in accordance with industry practices. Copies of all insurance
\n policies and related documents have been made available to Acquiror.<\/p>\n
(r) Accounting Controls. Each Subsidiary of the Company
\n that is registered as a broker-dealer has adopted recordkeeping systems
\n that comply with the requirements of Section 17 of the Exchange Act and
\n the rules and regulations promulgated thereunder and<\/p>\n
-31-
\n 37<\/p>\n
the rules of all Self-Regulatory Organizations having jurisdiction, and
\n maintains its records in accordance therewith. Each of the Company and
\n its Subsidiaries has devised and maintained systems of internal
\n accounting controls sufficient to provide reasonable assurances that
\n (1) all transactions are executed in accordance with management’s
\n general or specific authorization; (2) all transactions are recorded as
\n necessary to permit the preparation of financial statements in
\n conformity with generally accepted accounting principles consistently
\n applied with respect to broker-dealers, if applicable, or any other
\n criteria applicable to such statements; (3) access to the property and
\n assets of the Company and its Subsidiaries is permitted only in
\n accordance with management’s general or specific authorization; and (4)
\n the recorded amounts for items is compared with the actual levels at
\n reasonable intervals and appropriate action is taken with respect to
\n any differences.<\/p>\n
(s) Proprietary Rights. The Company and its Subsidiaries
\n exclusively own or have the perpetual and exclusive right to use
\n Intellectual Property material to the conduct of their business, and
\n all of these have been Previously Disclosed; and such ownership or
\n right to use such Intellectual Property is free and clear of any Liens,
\n and no other person has the right to use such Intellectual Property.
\n Except as Previously Disclosed: (A) neither the Company nor any of its
\n Subsidiaries is, or will be as a result of the execution and delivery
\n of this Agreement or the performance of its obligations under this
\n Agreement, in violation of any licenses, sublicenses and other
\n agreements as to which the Company or any such Subsidiary is a party
\n and pursuant to which the Company or any such Subsidiary is authorized
\n to use any third-party patents, trademarks, service marks, copyrights,
\n trade secrets, computer software or other proprietary rights
\n (collectively, “Third-Party Intellectual Property Rights”) nor shall
\n such agreements be subject to termination or material modification by
\n reason thereof; (B) no claims with respect to (I) the Intellectual
\n Property or (II) Third-Party Intellectual Property Rights are currently
\n pending or, to the knowledge of the Company or any of its Subsidiaries,
\n threatened by any person; (C) neither the Company nor any of its
\n Subsidiaries knows of any valid grounds for any bona fide claims (I) to
\n the effect that the Company or its Subsidiaries is infringing, or has
\n infringed, any Third-Party Intellectual Property Rights; (II) against
\n the use of the Intellectual Property or Third-Party Intellectual
\n Property Rights by the Company or any of its Subsidiaries as currently
\n conducted; (III) challenging the ownership, validity or enforceability
\n of any Intellectual Property; or (IV) challenging the license or
\n legally enforceable right to the use of the Third-Party Intellectual
\n Rights by the Company or any of its Subsidiaries; and (D) to the
\n knowledge of the Company or any of its Subsidiaries, there is no
\n unauthorized use, infringement or misappropriation of any of the
\n Intellectual Property by any third party, including any employee or
\n former employee of the Company or any of its Subsidiaries.<\/p>\n
(t) Affiliate Transactions. There is no indebtedness
\n between the Company or any of its Subsidiaries, on the one hand, and
\n any Owner, officer, manager, director or Affiliate (other than the
\n Company or any of its Subsidiaries) of the Company or the Partnership,
\n on the other, other than usual and customary advances made in the
\n ordinary course of business; no such Owner, officer, manager, director
\n or Affiliate provides or causes to be provided any assets, services
\n (other than services as an officer, director or employee) or<\/p>\n
-32-
\n 38<\/p>\n
facilities to the Company or any of its Subsidiaries; neither the
\n Company nor any of its Subsidiaries provides or causes to be provided
\n any assets, services or facilities to any such Owner, officer, manager,
\n director or Affiliate (other than as reasonably necessary for them to
\n perform their duties as officers, directors or employees); neither the
\n Company nor any of its Subsidiaries beneficially owns, directly or
\n indirectly, any investment in or issued by any such officer, manager,
\n director or Affiliate; and no such Owner, officer, manager, director or
\n Affiliate has any direct or indirect ownership interest in any person
\n with which the Company or any of its Subsidiaries competes or has a
\n business relationship other than an ownership interest that represents
\n less than five percent of the outstanding equity interests in a
\n publicly traded company.<\/p>\n
(u) Clearing Activities. Each of the Company and its
\n Subsidiaries have taken reasonable steps to manage risk in its clearing
\n business including performing due diligence with respect to the
\n character and integrity of customers in the opening of its customer
\n accounts. Since January 1, 1997, no person or Self-Regulatory
\n Organization has made a written claim that the Company or any of its
\n Subsidiaries is responsible or liable for the trading activities of its
\n clearing customers which the Company reasonably believes is likely to
\n give rise to a liability.<\/p>\n
(v) Disclosure. The copies of all documents furnished to
\n Acquiror in connection with this Agreement were accurate and complete
\n copies of the originals thereof, including all amendments and
\n supplements thereto.<\/p>\n
(w) Anti-takeover Statutes. No “fair price,”
\n “moratorium,” “control share acquisition” or other similar
\n anti-takeover statute or regulation enacted under state or federal laws
\n in the United States applicable to the Company or any of its
\n Subsidiaries is applicable to the Merger or the transactions
\n contemplated thereby.<\/p>\n
(x) Derivatives. All swap, forward, future, option, or
\n any other similar agreement or arrangement executed or arranged by the
\n Company or any of its Subsidiaries, whether entered into for the
\n Company’s account, or for the account of one or more of the Company’s
\n Subsidiaries or their customers were, to the Company’s knowledge,
\n entered into (i) in accordance with all applicable laws, rules,
\n regulations and regulatory policies and (ii) with counterparties
\n believed at the time to be financially responsible; and each of them
\n constitutes the valid and legally binding obligation of the Company or
\n any of its Subsidiaries, enforceable in accordance with its terms,
\n except as the enforceability thereof may be limited by bankruptcy,
\n insolvency, fraudulent conveyance, reorganization, moratorium or other
\n similar laws relating to the enforcement of creditors’ rights generally
\n and by general principles of equity, and are in full force and effect.
\n Neither the Company nor any of its Subsidiaries nor, to the Company’s
\n knowledge, any other party thereto, is in breach of any of its
\n obligations under any such agreement or arrangement.<\/p>\n
(y) Offering Memorandum. The Company has delivered to
\n Acquiror a copy of the Partnership’s confidential offering memorandum,
\n dated August 16, 2000, for the<\/p>\n
-33-
\n 39<\/p>\n
Partnership’s 8.25% Senior Notes due 2005 (the “Offering Memorandum”).
\n As of the date thereof, the Offering Memorandum did not contain any
\n untrue statement of a material fact or omit to state a material fact
\n required to be stated therein or necessary to make the statements made
\n therein, in light of the circumstances in which they were made, not
\n misleading.<\/p>\n
5.04 Representations and Warranties with Respect to the
\nPartnership. Subject to Section 5.02, except as Previously Disclosed in a
\nparagraph of its Disclosure Schedule corresponding to the relevant paragraph
\nbelow, the Company hereby represents and warrants to, and agrees with, Acquiror
\nas follows:<\/p>\n
(a) Organization, Standing and Authority. The Partnership
\n has been duly organized and is validly existing as a limited
\n partnership in good standing under the laws of the State of New York.
\n The Partnership is duly qualified to do business and is in good
\n standing in the States of the United States and foreign jurisdictions
\n where its ownership or leasing of property or the conduct of its
\n business requires it to be so qualified. Each of the Partnership and
\n its Subsidiaries has in effect all federal, state, local, and foreign
\n governmental authorizations necessary for it to own or lease its
\n properties and assets and to carry on its business as it is now
\n conducted. The Partnership has delivered to the Acquiror a true and
\n complete copy of its Certificate of Limited Partnership and its Amended
\n and Restated Articles of Partnership, which are the only Constitutive
\n Documents of the Partnership.<\/p>\n
(b) Partnership Interests. Subject to such changes in the
\n Class C limited partners of the Partnership permitted by Section
\n 4.01(b) of which the Company shall promptly give notice to Acquiror,
\n Annex 2 lists all of the Partners of the Partnership and the amount of
\n their Partnership Interests, and the Partnership has no Partnership
\n Interests reserved for issuance and no obligation to admit any other
\n person as a general or limited partner. All of the outstanding
\n Partnership Interests have been duly authorized, validly issued, fully
\n paid and, except for the general partnership interest, non-assessable,
\n and were not issued in violation of any subscriptive or preemptive
\n rights. There are no other Partnership Interests outstanding (or claims
\n made against the Partnership or the Company in respect thereof) and
\n there are no preemptive rights or any outstanding rights of any
\n character relating to issued or unissued Partnership Interests
\n (including those relating to the issuance, sale, purchase, redemption,
\n conversion, exchange, redemption, voting or transfer thereof). Since
\n September 30, 1999, no dividend or other distribution has been declared
\n or paid on or in respect of the Partnership Interests or any other
\n interest in the Partnership.<\/p>\n
5.05 Representations and Warranties of Acquiror. Subject
\nto Section 5.02, except as Previously Disclosed by Acquiror in a paragraph of
\nits Disclosure Schedule corresponding to the relevant paragraph below, Acquiror
\nhereby represents and warrants to the Company as follows:<\/p>\n
-34-
\n 40<\/p>\n
(a) Organization, Standing and Authority. Acquiror has
\n been duly incorporated and is validly existing as a corporation in good
\n standing under the laws of the State of Delaware. Each of Acquiror and
\n NewCo is or will be duly qualified to do business and is or will be in
\n good standing in the States of the United States and foreign
\n jurisdictions where its ownership or leasing of property or the conduct
\n of its business requires it to be so qualified. Each of Acquiror and
\n its Subsidiaries has in effect all federal, state, local and foreign
\n governmental authorizations necessary for it to own or lease its
\n properties and assets and to carry on its business as it is now
\n conducted.<\/p>\n
(b) Authority. Each of Acquiror and NewCo has the
\n requisite corporate or other power and authority, and has taken all
\n action necessary, in order (1) to authorize the execution and delivery
\n of, and performance of its obligations under, this Agreement and (2) to
\n approve and adopt the Merger and, in accordance therewith, to
\n consummate the Merger and the other transactions contemplated by this
\n Agreement. Without limiting the foregoing, any action of the
\n stockholders of Acquiror and the members of NewCo required to approve
\n or adopt this Agreement and the transactions contemplated by this
\n Agreement has been duly taken in accordance with the requirements of
\n the Delaware General Corporation Law or the New York Limited Liability
\n Company Law, as the case may be. No further action of the stockholders
\n or board of directors of Acquiror or the members of NewCo is required
\n in order to consummate the Mergers and the other transactions
\n contemplated by this Agreement. This Agreement constitutes the valid
\n and binding agreement of each of Acquiror and NewCo enforceable in
\n accordance with its terms except, in each case, as the enforceability
\n hereof may be limited by bankruptcy, insolvency, fraudulent conveyance,
\n reorganization, moratorium or other similar laws relating to the
\n enforcement of creditor’s rights generally and by general principles of
\n equity.<\/p>\n
(c) No Defaults. Except as Previously Disclosed, the
\n execution, delivery and performance of this Agreement, and the
\n consummation of the transactions contemplated by this Agreement by
\n Acquiror and NewCo does not and will not (1) conflict with or
\n constitute a breach or violation of, or a default under, or cause or
\n allow the acceleration or creation of any right, obligation or Lien
\n (with or without the giving of notice, passage of time or both)
\n pursuant to, any law, rule or regulation or any judgment, decree, order
\n or governmental or non-governmental permit, license, franchise or
\n privilege or any Contract of Acquiror or of any of its Subsidiaries or
\n to which Acquiror or any of its Subsidiaries or its or their properties
\n is subject or bound, (2) constitute a breach or violation of, or a
\n default under, the Constitutive Documents of Acquiror or any of its
\n Subsidiaries, or (3) require any consent or approval under any such
\n law, rule, regulation, judgment, decree, order or governmental or
\n non-governmental permit, license, franchise or privilege or the consent
\n or approval of any other party to any such Contract.<\/p>\n
(d) SEC Documents and Financial Statements. (1) Acquiror
\n has made available to the Company copies of its Annual Report on Form
\n 10-K for the fiscal year ended November 26, 1999, and its Quarterly
\n Reports on Form 10-Q for the fiscal quarters ended February 25, 2000
\n and May 26, 2000, each in the form (including exhibits and any<\/p>\n
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\n 41<\/p>\n
amendments thereto) filed with the SEC (collectively, including any
\n such reports filed subsequent to the date hereof, the “SEC Documents”).
\n As of their respective dates, each of the SEC Documents (including the
\n financial statements, exhibits and schedules thereto), filed, used or
\n circulated prior to the date hereof complied, and any such SEC
\n Documents filed, used or circulated subsequent to the date hereof will
\n comply, as to form with the Exchange Act and did not, and will not,
\n contain any untrue statement of a material fact or omit to state a
\n material fact necessary to make the statements made therein, in the
\n light of the circumstances under which they were made, not misleading.
\n Each of Acquiror’s consolidated statements of financial condition
\n included in the SEC Documents, including the related notes and
\n schedules thereto, fairly presents, or with respect to such statements
\n included in SEC Documents filed after the date hereof will fairly
\n present, in all material respects, the consolidated financial position
\n of Acquiror and its Subsidiaries as of the date of such statement of
\n financial condition and each of the consolidated statements of income,
\n cash flows and owners’ equity included in the SEC Documents, including
\n any related notes and schedules thereto, fairly presents, or with
\n respect to such statements included in SEC Documents filed after the
\n date hereof will fairly present, in all material respects, the
\n consolidated results of operations, cash flows and stockholders’ equity
\n of Acquiror and its Subsidiaries for the periods set forth therein
\n (subject, in the case of unaudited statements, to normal year-end audit
\n adjustments and footnote disclosure), in each case in accordance with
\n generally accepted accounting principles consistently applied during
\n the periods involved (except as may be noted therein and except that
\n unaudited statements may not include notes) (the “Acquiror Financial
\n Statements”).<\/p>\n
(2) There are no liabilities as of the date hereof of
\nAcquiror or any of its Subsidiaries of any kind whatsoever that are required to
\nbe disclosed on its balance sheet, whether accrued, contingent, absolute,
\ndetermined, determinable or otherwise, and there is no existing condition,
\nsituation or set of circumstances known to Acquiror or any of its Subsidiaries
\nwhich could reasonably be expected to result in such a liability, other than:<\/p>\n
(A) liabilities reflected or reserved
\n against in the Acquiror Financial Statements; and<\/p>\n
(B) liabilities arising in the ordinary
\n course of business consistent with past practice,
\n after the date of the most recent balance sheet
\n included in the Acquiror Financial Statements that
\n are not and could not reasonably be expected to have
\n a Material Adverse Effect with respect to Acquiror. <\/p>\n
(3) Since November 26, 1999, there has not occurred any
\nchange, occurrence or event, and no change, occurrence or event has become
\nreasonably likely, which has had, or is reasonably likely to have, a Material
\nAdverse Effect with respect to Acquiror.<\/p>\n
(e) Capital Stock. The Acquiror has (1) 4,000,000,000
\n authorized shares of Acquiror Common Stock, of which 440,901,874 were
\n outstanding as of May 26, 2000, (2) 200,000,000 authorized shares of
\n nonvoting common stock, of which 7,440,362 were<\/p>\n
-36-
\n 42<\/p>\n
outstanding as of May 26, 2000 and (2) 150,000,000 authorized shares of
\n Preferred Stock, of which none are outstanding. All of the outstanding
\n shares of Acquiror Common Stock have been duly authorized and validly
\n issued and are fully paid and nonassessable and were not issued in
\n violation of any subscriptive or preemptive rights. When issued in the
\n Merger in accordance with the terms of this Agreement, the shares of
\n Acquiror Common Stock constituting Merger Consideration will be duly
\n authorized, validly issued, fully paid and nonassessable, shall not
\n have been issued in violation of any subscriptive or preemptive rights
\n and shall have been approved for listing on the NYSE, upon official
\n notice of issuance.<\/p>\n
(f) Compliance with Laws. Except as set forth in the SEC
\n Documents filed prior to the date hereof, the businesses of each of
\n Acquiror and its Subsidiaries have not been, and are not being,
\n conducted in violation of any applicable laws, except as is not
\n reasonably likely to have a Material Adverse Effect on Acquiror. Except
\n as set forth in the SEC Documents filed prior to the date hereof, no
\n investigation or review by any Governmental Authority with respect to
\n Acquiror or any of its Subsidiaries is pending or, to the knowledge of
\n Acquiror, threatened, except as is not reasonably likely to have a
\n Material Adverse Effect on Acquiror. To the knowledge of Acquiror, no
\n material change is required in Acquiror’s or any of its Subsidiaries’
\n processes, properties or procedures in connection with any such laws,
\n and Acquiror has not received any notice or communication or any
\n material noncompliance with any such laws that has not been cured as of
\n the date hereof, except as is not reasonably likely to have a Material
\n Adverse Effect on Acquiror.<\/p>\n
5.06 Representations Regarding NewCo. No representation
\nor warranty contained in Section 5.05 with respect or relating to NewCo will be
\ndeemed made until the date on which it executes and delivers to the Company the
\nSupplement to this Agreement contemplated by Section 2.04.<\/p>\n
ARTICLE VI<\/p>\n
COVENANTS<\/p>\n
6.01 Reasonable Best Efforts. (a) Subject to the terms and
\nconditions of this Agreement, each of the Company and Acquiror agrees to use its
\nreasonable best efforts in good faith to take, or cause to be taken, all
\nactions, and to do, or cause to be done, all things necessary, proper or
\ndesirable, or advisable under applicable laws, so as to permit consummation of
\nthe transactions contemplated hereby as promptly as practicable and otherwise to
\nenable consummation of the transactions contemplated hereby and shall cooperate
\nfully with the other parties hereto to that end, including cooperating in
\nseeking to obtain any contractual consents required from third parties;
\nprovided, however, that nothing in this Section 6.01 shall require, or be
\nconstrued to require, Acquiror to proffer to, or agree to, sell or hold separate
\nand agree to sell, before or after the Effective Time, any assets, businesses,
\nor interest in any assets or businesses of Acquiror, the Company or any of their
\nrespective Affiliates (or to consent to any sale, or agreement to sell, by the
\nCompany of any<\/p>\n
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\n 43<\/p>\n
of its assets or businesses) or to agree to any material changes or restriction
\nin the operations of any such assets or businesses.<\/p>\n
(b) The Company agrees that it shall use its best efforts
\n to obtain, within 20 business days of the date hereof, executed and
\n delivered Member Agreements from Members owning not less than 90% of
\n the total outstanding Company Membership Interests.<\/p>\n
6.02 Access; Information.<\/p>\n
(a) The Company agrees that upon reasonable prior notice
\nand subject to applicable laws relating to the exchange of information, and in a
\nmanner so as to not interfere with the normal business operations of the Company
\nand its Subsidiaries, it shall afford Acquiror and its officers, employees,
\ncounsel, accountants and other authorized representatives, such access during
\nnormal business hours throughout the period from the date hereof to the Closing
\nto the books, records (including Tax Returns and work papers, whether prepared
\nby employees, consultants, or independent auditors), properties, personnel and
\nsuch other information of the Company, and its Subsidiaries as Acquiror (or any
\nsuch representative) may reasonably request and, during such period, the Company
\nshall furnish to Acquiror (or such other representative) (1) a copy of each
\nmaterial report, schedule and other document filed by the Company or any of its
\nSubsidiaries pursuant to the requirements of Securities Laws, promptly after the
\nfiling thereof, (2) monthly Focus Reports not later than the 25th day after the
\nend of each month, commencing with the first Focus Report filed after the date
\nof the Agreement, and (3) all other information concerning the business,
\nproperties and personnel of the Company and its Subsidiaries as Acquiror (or any
\nsuch other representative) may reasonably request, reasonably promptly after
\nsuch request.<\/p>\n
(b) No investigation by Acquiror of the business and
\naffairs of the Company or its Affiliates shall affect or be deemed to modify or
\nwaive any representation, warranty, covenant or agreement in this Agreement, or
\nany conditions to any party’s obligation to consummate the transactions
\ncontemplated by this Agreement.<\/p>\n
6.03 No Rights Triggered. The Company shall take all
\nreasonable steps necessary to ensure that the entry into this Agreement and the
\nconsummation of the transactions contemplated by this Agreement and any other
\naction or combination of actions, or any other transactions contemplated by this
\nAgreement, do not and will not result in the grant of any Rights to any person
\n(a) under the Constitutive Documents of the Company or any of its Affiliates or
\n(b) under any agreement to which the Company or any of its Affiliates is a party
\nor by which they are bound or to which any of their respective properties are
\nsubject.<\/p>\n
6.04 Regulatory Applications.<\/p>\n
(a) Subject to the proviso contained in Section 6.01,
\neach of Acquiror and the Company shall use its respective reasonable best
\nefforts to prepare all documentation, to effect all filings and to obtain all
\npermits, consents, approvals and authorizations of all third parties,
\nSelf-Regulatory Organizations and Governmental Authorities necessary to
\nconsummate the<\/p>\n
-38-
\n 44<\/p>\n
transactions contemplated by this Agreement. Each party will consult with the
\nother party, subject to applicable law, and rules or regulations of any
\nGovernmental Authority, with respect to the obtaining of all material permits,
\nconsents, approvals and authorizations of all third parties, Self-Regulatory
\nOrganizations and Governmental Authorities necessary or reasonably advisable to
\nconsummate the transactions contemplated by this Agreement and each will keep
\nthe other parties apprised of the status of material matters relating to
\ncompletion of the transactions contemplated hereby.<\/p>\n
(b) Unless precluded by applicable law, rule or
\nregulation of any Governmental Authority, each of Acquiror and the Company
\nagrees, upon request, to furnish the other party with all information concerning
\nitself, its Subsidiaries, Owners, directors, officers, employees and such other
\nmatters as may be necessary or reasonably advisable in connection with any
\nfiling, notice or application made by or on behalf of such other party to any
\nthird party, Self-Regulatory Organization or Governmental Authority.<\/p>\n
6.05 Regulatory Compliance.<\/p>\n
(a) The Company will use its reasonable best efforts to
\nmaintain all of the Company’s existing material permits, licenses,
\nauthorizations, orders and regulatory approvals and the minimum net capital
\nnecessary to conduct its businesses as currently conducted by the Company and
\ncomply in all material respects with all regulatory requirements applicable to
\nthe business of the Company.<\/p>\n
(b) The Company shall provide to Acquiror, promptly after
\nthe filing thereof, a copy of each report filed by the Company with any
\nSelf-Regulatory Organization.<\/p>\n
6.06 Performance Ranking. The Company will use its best
\nefforts to operate the specialist business in such a manner that the Company
\nwill maintain, at all times prior to the Closing Date, an overall tier
\nclassification of not lower than Tier 3 in the quarterly Specialist Performance
\nEvaluation Questionnaire results prepared by the NYSE.<\/p>\n
6.07 Notification of Certain Matters.<\/p>\n
(a) Each of Acquiror and the Company shall give prompt
\nnotice to the other of any fact, event or circumstance known to it or any of its
\nSubsidiaries that is reasonably likely, individually or taken together with all
\nother facts, events and circumstances known to it, to result in a breach of any
\nof its representations and warranties, after giving effect to Section 5.02, or
\ncovenants or agreements contained herein.<\/p>\n
(b) Prior to the Closing, the Company shall promptly
\nnotify Acquiror, and Acquiror shall promptly notify the Company, of:<\/p>\n
(1) any notice or other communication from any
\n person making any offer or proposal referred to in Section
\n 4.01(f) or alleging that the consent of such person is or may
\n be required as a condition to the Closing;<\/p>\n
-39-
\n 45<\/p>\n
(2) any notice or other written communications
\n from any client (A) terminating or threatening to terminate
\n any Contract relating to the rendering of services to such
\n client by the Company or any of its Subsidiaries or (B)
\n relating to any dispute with such client by the Company or any
\n of its Subsidiaries, in each case which, individually or in
\n the aggregate, are or are reasonably likely to be material; or<\/p>\n
(3) any notice or other communication from any
\n Governmental Authority or Self-Regulatory Organization in
\n connection with the transactions contemplated by this
\n Agreement.<\/p>\n
(c) Promptly after the date of this Agreement, the
\nCompany shall provide to each Member that has not, as of the date of this
\nAgreement, executed and delivered a Member Agreement a written notice that
\nsatisfies the requirements of Section 407(c) of the New York Limited Liability
\nCompany Law informing such Members that the Members that have executed and
\ndelivered a Member Agreement (i) hold in the aggregate voting interests having a
\nmajority in interest of the Members and (ii) have adopted and consented to the
\nMerger.<\/p>\n
6.08 Public Announcements. The parties agree that they
\nwill not, without the prior approval of the other parties, issue any press
\nrelease or written statement for general circulation relating to the
\ntransactions contemplated by this Agreement, except as otherwise required by
\napplicable law or regulation or the rules of any applicable Self-Regulatory
\nOrganization and, if so required, such party will endeavor to give the other
\nparty a reasonable opportunity to review and comment on the statement prior to
\nits release.<\/p>\n
6.09 Fee Agreements. The Company shall provide to
\nAcquiror, promptly after executing the same, a copy of any written fee agreement
\nor any material contract, agreement or other instrument relating specifically to
\nthe operation of the specialist business into which the Company enters after the
\ndate hereof.<\/p>\n
6.10 Private Placement. The parties understand and agree
\nthat the sale of shares of Acquiror Common Stock to the Members in the Merger
\nand to Withdrawn Members or holders of Managing Director Subordinated Notes
\npursuant to Article III is intended to be a “private placement” exempt from
\nregistration under the Securities Act by virtue of Regulation D thereof. Each
\nparty represents and warrants to the others that, as of the Closing Date,
\nassuming the truth of the representations and warranties made herein and in the
\nSupplemental Agreements by each of the parties thereto, such party has taken no
\naction without the prior written consent of the other parties that would cause
\n(i) the sale of Acquiror Common Stock in the Merger or (ii) the sale of Acquiror
\nSubordinated Notes pursuant to Section 3.03 to become subject to the
\nregistration requirements of the Securities Act.<\/p>\n
-40-
\n 46<\/p>\n
6.11 Employee Benefits. Acquiror agrees that during the
\nperiod commencing at the Effective Time and ending on the first anniversary
\nthereof, the employees of the Company and its Subsidiaries will continue to be
\nprovided with benefits under employee benefit plans (other than stock options or
\nother plans involving the issuance of securities of the Company or Acquiror)
\nwhich in the aggregate are substantially comparable to those currently provided
\nby the Company to such employees or that are comparable to those provided to
\nsimilarly situated employees of Acquiror or its Subsidiaries; provided, however,
\nthat employees covered by collective bargaining agreements need not be provided
\nwith such benefits. Acquiror will cause each employee benefit plan of Acquiror
\nor any of its Subsidiaries in which employees of the Company or any of its
\nSubsidiaries are eligible to participate to take into account for purposes of
\neligibility and vesting thereunder the service of such employees with the
\nCompany or any of its Subsidiaries as if such service were with Acquiror or any
\nof its Subsidiaries, to the same extent that such past service was credited
\nunder a comparable plan of the Company or any of its Subsidiaries or is provided
\ngenerally to employees of Acquiror (and similar treatment shall apply to past
\nemployee compensation). Within twenty days of the date hereof, the Company shall
\nfurnish a list to Acquiror of all Compensation Plans that are not significant
\nCompensation Plans that were not Previously Disclosed pursuant to Section
\n5.03(o)(1).<\/p>\n
6.12 Indemnification of Members and Employees. For the
\nsix-year period immediately following the Effective Time, Acquiror agrees that
\nit will indemnify and hold harmless each Member (in its capacity as an officer
\nor a Managing Director acting in an executive capacity of the Company, SLK
\nManagement Inc. or the Partnership) against any Losses incurred in connection
\nwith any third party claim, action, suit, proceeding or investigation, whether
\ncivil, criminal, administrative or investigative, arising out of matters
\nexisting or occurring at or prior to the Effective Time, whether asserted or
\nclaimed prior to, at or after the Effective Time, to the fullest extent that the
\nCompany would have been permitted under the New York Limited Liability Company
\nLaw to indemnify such person but only if such Member acted in good faith, for a
\npurpose which such Member reasonably believed to be in the best interests of the
\nCompany, SLK Management Inc. or the Partnership, as applicable, and, in criminal
\nactions or proceedings, had no reasonable cause to believe that his conduct was
\nunlawful; provided, further, that Acquiror shall have the right to assume and
\ncontrol the defense of such claim and any litigation resulting therefrom) it
\nbeing understood that such Member shall have the right to participate in such
\ndefense and that Acquiror shall not consent to entry of any judgment or entry
\ninto any settlement which does not include as an unconditional term thereof the
\ngiving by the claimant or plaintiff to the Member of a release from all
\nliability in respect to such claim or litigation.<\/p>\n
ARTICLE VII<\/p>\n
TAX MATTERS<\/p>\n
7.01 Tax Representations. Except as Previously Disclosed
\nin a paragraph of its Disclosure Schedule corresponding to the relevant
\nparagraph below, the Company, the Partnership and each of their Subsidiaries
\nhereby represent and warrant to Acquiror as follows:<\/p>\n
-41-
\n 47<\/p>\n
(a) All Tax Returns required to be filed or furnished to
\nany person (including its owners) on or before the Closing Date (taking into
\naccount applicable extensions) by or with respect to the Company, the
\nPartnership and each of their Subsidiaries or any of their income, properties or
\noperations have been, or will be, duly and timely filed or furnished, the
\ninformation reflected on those Tax Returns was, or when filed or furnished will
\nbe, accurate and complete, and the Company, the Partnership and each of their
\nSubsidiaries have, or will have, timely paid all Taxes other than Taxes
\nresulting from transactions or actions occurring on the Closing Date, but after
\nthe Closing, or after the Closing Date for which they are responsible that are
\ndue on or before the Closing Date or have provided for such Taxes in a reserve
\nwhich is adequate for the payment of such Taxes and is identified in the
\nFinancial Statements, and through the Closing Date will have maintained adequate
\nprovisions on their books for all Taxes other than Taxes resulting from
\ntransactions or actions occurring on the Closing Date, but after the Closing, or
\nafter the Closing Date payable by them that have accrued but are not yet due;<\/p>\n
(b) There are no outstanding assessments, claims or
\ndeficiencies for any Taxes of the Company, the Partnership or any of their
\nSubsidiaries that have been proposed, asserted or assessed in writing;<\/p>\n
(c) No Tax audit or examination is currently being
\nconducted or proposed in writing by any taxing authority with respect to the
\nCompany, the Partnership or any of their Subsidiaries;<\/p>\n
(d) There are no outstanding waivers or agreements
\nextending the applicable statute of limitations for any period with respect to
\nany Taxes of the Company, the Partnership or any of their Subsidiaries;<\/p>\n
(e) None of the Company, the Partnership or any of their
\nSubsidiaries will be required, as a result of (A) a change in accounting method
\nfor a Tax period beginning on or before the Closing, to include any adjustment
\nunder Section 481(c) of the Code (or any similar provision of state, local or
\nforeign law) in taxable income for any Tax period beginning on or after the
\nClosing Date, or (B) any “closing agreement” as described in Section 7121 of the
\nCode (or any similar provision of state, local or foreign law), to include any
\nitem of income in or exclude any item of deduction from any Tax period beginning
\non or after the Closing Date;<\/p>\n
(f) There is no outstanding written claim by a taxing
\nauthority that the Company, the Partnership or any of their Subsidiaries may be
\nsubject to taxation or required to file a Tax Return in a jurisdiction where it
\ndoes not file Tax Returns and none of the Company, the Partnership or any of
\ntheir Subsidiaries is aware of any jurisdiction that could properly make such a
\nclaim;<\/p>\n
(g) There are no Tax allocation or sharing agreements to
\nwhich the Company, the Partnership or any of their Subsidiaries is a party;<\/p>\n
(h) None of the Company’s Subsidiaries is or has been a
\nmember of an affiliated group (within the meaning of Section 1504 of the Code or
\nsimilar provisions of state, local or foreign<\/p>\n
-42-
\n 48<\/p>\n
law) with respect to which it is liable for Taxes of another person under
\nTreasury Regulations Section 1.1502-6 or any similar provision under state,
\nlocal or foreign law;<\/p>\n
(i) Each of the Company’s Subsidiaries that is required
\nto be is registered for the purposes of sales tax, transfer taxes, value added
\ntaxes or any similar Tax has been so registered at all times that it has been
\nrequired to be so registered, and it has complied in all material respects with
\nall statutory requirements, orders, provisions, directions or conditions
\nrelating to such Taxes;<\/p>\n
(j) There are no Material Liens or encumbrances for Taxes
\non any of the assets of the Company, the Partnership or any of their
\nSubsidiaries;<\/p>\n
(k) Each of the Company, the Partnership and each of
\ntheir Subsidiaries has paid all Taxes owed or which it is required to withhold
\nfrom amounts owing to employees, creditors or other third parties and has
\ncomplied with all requirements (including record retention) applicable to
\ninformation reporting or other reporting requirements;<\/p>\n
(l) None of the Company, the Partnership or any of their
\nSubsidiaries or any predecessor to the Company, the Partnership or their
\nSubsidiaries has made any consent under Section 341 of the Code;<\/p>\n
(m) No Tax is required to be withheld pursuant to Section
\n1445 of the Code as a result of the Merger or the acquisition of any Partnership
\nInterest by Acquiror;<\/p>\n
(n) For U.S. federal income tax purposes, each of the
\nCompany, the Partnership and each of their Subsidiaries is, and through the
\nClosing Date will be, treated as a partnership or disregarded entity, and none
\nof the Company, the Partnership, any of their Subsidiaries or, to the best
\nknowledge of the Company, any Owner or other owner of any interest in the
\nCompany or any of its Subsidiaries has, or through the Closing Date will have,
\nmade any election, taken any action or filed any Tax Return on a basis that is
\ninconsistent with the foregoing; and<\/p>\n
(o) All Tax Returns (including attachments thereto) of
\nthe Company, the Partnership and each of their Subsidiaries and all closing
\nagreements, private letter rulings, technical advice memoranda or similar
\nagreements or rulings (if any) entered into with or issued by any taxing
\nauthority, by or with respect to the Company, the Partnership or any of their
\nSubsidiaries that were delivered by the Company pursuant to Acquiror’s due
\ndiligence request are true copies of such documents.<\/p>\n
7.02 Covenants.<\/p>\n
(a) Elections. Until the Effective Time, except as
\nPreviously Disclosed or as expressly contemplated by this Agreement or any
\nSupplemental Agreement, the Company will not, and the Company will cause any of
\nits Subsidiaries and the Partnership not to, make any Tax elections, amend any
\nTax elections currently in effect, change or consent to any change in any method
\nof accounting for any Tax purpose or file any Tax Return (including any amended
\nreturn) on<\/p>\n
-43-
\n 49<\/p>\n
a basis that is not consistent with past practice, in each case without the
\nprior written consent of the Acquiror, which consent shall not be unreasonably
\nwithheld, provided, however, that such consent shall not be considered
\nunreasonably withheld if the election, amendment or change, as the case may be,
\nwould adversely affect the Acquiror.<\/p>\n
(b) Tax Returns. Any Tax Returns with respect to the
\noperations of the Company, the Partnership and their Subsidiaries for all
\nperiods ending on or before the Closing Date (the “Pre-Closing Period”),
\nincluding for those jurisdictions and tax authorities that permit or require a
\nshort period Tax Return, shall be or caused to be prepared and filed on a timely
\nbasis after the Closing by the Acquiror. Whenever it is necessary to determine
\nthe liability for Taxes of the Company, the Partnership or any of their
\nSubsidiaries for a portion of a taxable year or period that begins before and
\nends after the Closing Date, the determination of the Taxes of the Company, the
\nPartnership or any of their Subsidiaries for the portion of the taxable year or
\nperiod ending on, and the portion of the year or period beginning after, the
\nClosing Date shall be determined and shall equal: (i) in the case of any real or
\npersonal property Tax or any other Tax imposed on a periodic basis, an amount
\nequal to the Tax for the entire taxable period beginning before and ending after
\nthe Closing Date, multiplied by a fraction the numerator of which is the number
\nof days in such portion of the period ending on the Closing Date and the
\ndenominator of which is the number of days in such entire taxable period; and
\n(ii) in the case of any other Tax, the amount that would be payable by the
\nCompany, the Partnership or any of their Subsidiaries if its taxable year that
\nbegan prior to the Closing Date ended on the Closing Date. Any Taxes due in
\nrespect of Tax Returns filed pursuant to the first sentence of this paragraph
\nand any Taxes allocable to Pre-Closing Periods under the immediately preceding
\nsentence (including any interest or penalties assessed with respect to such
\nTaxes) shall be considered “Pre-Closing Taxes”. At least 10 business days prior
\nto the filing of any such Tax Return that includes Pre-Closing Taxes, Acquiror
\nshall make available to the SLK Representative copies of such proposed Tax
\nReturn, and the filing of such Tax Return shall be subject to the approval of
\nthe SLK Representative, which approval shall not be unreasonably withheld;
\nprovided, that, in the event the SLK Representative does not provide such
\napproval or disapproval to Acquiror within 5 business days after receipt of such
\nproposed Tax Return copies, the SLK Representative shall be deemed to have
\nprovided an irrevocable approval with respect to such Tax Return.<\/p>\n
(c) Cooperation. The currently designated Tax Matters
\nPartner (as defined in Section 6231(a)(7) of the Code) of the Company, the
\nPartnership and each of their Subsidiaries that is treated as a partnership for
\nU.S. federal income tax purposes, shall continue as Tax Matters Partner. If such
\nTax Matters Partner shall desire to resign such position (or is to be liquidated
\nor otherwise becomes ineligible) or the Acquiror shall request the Tax Matters
\nPartner’s resignation, the current Tax Matters Partner shall, subject to the
\nAcquiror’s consent which shall not be unreasonably withheld, designate his or
\nher replacement (and in the case of a liquidation of the Tax Matters Partner,
\nsuch designation shall occur prior to liquidation) (and complete and execute any
\nforms as may be required to evidence or effect such designation) . The Acquiror
\nand the Surviving LLC shall cooperate with the Tax Matters Partner in any Tax
\naudit, examination or other proceeding involving the Company, the Partnership or
\nany of their Subsidiaries that is treated as a partnership for U.S. federal
\nincome tax purposes for any taxable period that relates to periods prior to the<\/p>\n
-44-
\n 50<\/p>\n
Closing. The Tax Matters Partner shall not enter into any compromise or agree to
\nsettle any claim pursuant to any Tax audit, examination or other proceeding
\nwhich would adversely affect the Acquiror for any taxable year without the
\nwritten consent of the Acquiror, which consent may not be unreasonably withheld.<\/p>\n
(d) Section 754 Election. To the extent permitted by law
\nand contract, the Company, the Partnership and each of their respective
\nSubsidiaries that is treated as a partnership for U.S. federal income tax
\npurposes, shall make an election, or continue in effect any election previously
\nmade, under Section 754 of the Code and any comparable provision of any other
\ntax law for the taxable year in which the Closing occurs, provided, that the
\nCompany and the Partnership shall be required to exercise any right (or, to the
\nextent the Company or the Partnership can do so, the Company and the Partnership
\nshall cause any of their Subsidiaries to exercise any right) they have to amend
\nany contract to permit such election to be made.<\/p>\n
(e) Transfer Taxes. Fifty percent (50%) of all transfer,
\ndocumentary, sales, use, stamp, registration, value added and other such Taxes
\nand fees (including any penalties and interest) incurred in connection with the
\ntransactions contemplated by the Merger (including any real property transfer
\ntax and any similar Tax) shall be paid by each of Acquiror on the one hand, and
\nthe Members, on the other. Each party will, at its own expense, file all
\nnecessary Tax Returns and other documentation with respect to all such Taxes and
\nfees, and to the extent required by applicable law, each party will join, and
\ncause its Subsidiaries and Affiliates to join, in the execution of any such Tax
\nReturns and other documentation.<\/p>\n
(f) Allocation of Purchase Price. Acquiror shall
\ndetermine the allocation of any adjustments to the basis of the assets of the
\nCompany, the Partnership and each of their respective Subsidiaries resulting
\nfrom the Merger; provided, that any such allocation to assets covered under
\nSection 751 of the Code, if any, shall be subject to approval of the Company,
\nor, if after the Effective Time, the SLK Representative, which consent shall not
\nbe unreasonably withheld.<\/p>\n
7.03 Termination of Tax Sharing Agreements. Any Tax
\nallocation or sharing agreement or arrangement, whether or not written, that may
\nhave been entered into by any of the Company’s Subsidiaries or any member of its
\naffiliated groups (as defined in Section 1504(a) of the Code) shall be
\nterminated as of the Closing Date unless a continuation of such agreement is
\nrequired by law or contract, or consented to by the Acquiror. After the Closing
\nDate, none of the Surviving LLC or any of its Subsidiaries shall have any
\nfurther rights or liabilities thereunder.<\/p>\n
7.04 Seller Tax Indemnification.<\/p>\n
(a) Each Acquiror Party shall, pursuant to this Section
\n7.04(a) and the Supplemental Agreements, be entitled to indemnification from the
\nMembers, severally and not jointly (in proportion to their respective
\nConsideration Percentages), against, and shall be held harmless (subject to the
\nlimitations set forth herein) by the Members, severally and not jointly (in
\nproportion to their respective Consideration Percentages), from:<\/p>\n
-45-
\n 51<\/p>\n
(i) Pre-Closing Taxes in excess of Taxes for which
\n reserves have been established prior to the date hereof or
\n will be established prior to the Closing Date, consistent with
\n past practice;<\/p>\n
(ii) Pre-Closing Taxes imposed on any Acquiror Party as
\n members of an “affiliated group” (within the meaning of
\n Section 1504(a) of the Code or any comparable provision of
\n foreign, state or local law) that arises under Treasury
\n Regulations Section 1.1502-6(a) or any comparable provision of
\n foreign, state or local law; and<\/p>\n
(iii) a breach of the representations set forth in Section
\n 7.01;<\/p>\n
provided, however, that the Members shall not be liable for and shall not
\nindemnify any Acquiror Party for any Taxes resulting from transactions or
\nactions taken on the Closing Date (but after the Closing) or after the Closing
\nDate; provided, further, that notwithstanding the foregoing, no Acquiror Party
\nshall be entitled to payment of indemnification pursuant to this Section 7.04
\n(a) with respect to any individual Loss unless the aggregate of all such Losses
\n(after reduction for any tax benefits realized as a result of the payment or
\naccrual of such Losses) shall exceed $5 million (and then only for the amount of
\nsuch excess).<\/p>\n
(b) The amount of any indemnification payment payable in
\naccordance with this Section 7.04 and Article IX shall be reduced by the amount
\nof any reduction in Taxes actually realized (or to be realized in such year) as
\na result of the event giving rise to the indemnification payment. The
\nIndemnified Party shall pay the Indemnifying Party the amount of any reduction
\nin Taxes actually realized in a future year as a result of the event giving rise
\nto such indemnification payment within ten (10) business days of receiving such
\npayment with respect to such reduction to the extent such payment with respect
\nto such reduction is received after the Indemnified Party receives such
\nindemnification payment, provided, that, the amount paid shall not exceed the
\npayments previously made by such Members under this Section 7.04 or Article IX,
\nas the case may be. Each Member shall be severally and not jointly liable for
\nsuch indemnification obligations in proportion to their respective Consideration
\nPercentages. Unless settled in a reasonable period of time in cash by a Member
\nor by delivery of Acquiror Common Stock (valued at market price at the time of
\ndelivery), all amounts payable for indemnification of Acquiror by any Member
\npursuant to this Section 7.04 may, in Acquiror’s sole discretion, be offset
\nagainst shares of Acquiror Common Stock owned by such Member or against other
\namounts payable by Acquiror or any Affiliates of Acquiror to such Member. It is
\nunderstood that an Member’s Acquiror Common Stock may be used to satisfy amounts
\npayable for indemnification even if such shares are not then transferable under
\nthe transfer restrictions in the Member’s Member Agreement.<\/p>\n
(c) Contests.<\/p>\n
(i) The Acquiror shall notify the SLK Representative if
\n the Internal Revenue Service (or other taxing authority) shall
\n propose an adjustment, which, if upheld, would result in the
\n Members making a payment under Section 7.04(a). If the SLK<\/p>\n
-46-
\n 52<\/p>\n
Representative shall request, the Acquiror shall (x) consult
\n with the SLK Representative regarding the contest of such
\n proposed adjustment, (y) use good faith efforts to permit the
\n SLK Representative to attend scheduled meetings with the
\n Internal Revenue Service (or other taxing authority) regarding
\n such contest and (z) if feasible, provide the SLK
\n Representative with copies of written materials prior to
\n submission. Notwithstanding the foregoing, the Acquiror shall
\n have absolute and complete control of any contest provided,
\n that the Acquiror shall not settle any contest without the
\n consent of the SLK Representative, which consent shall not be
\n unreasonably withheld.<\/p>\n
(ii) The SLK Representative shall control any contest
\n involving proposed adjustments to Tax returns filed by the
\n Company, the Partnership or any of their respective
\n Subsidiaries for which the liability for additional Taxes, if
\n the adjustments were to be upheld, would be borne directly by
\n the Members. The SLK Representative shall consult in good
\n faith with the Acquiror during the course of such contest,
\n provided, that without the consent of the Acquiror, which
\n consent shall not be unreasonably withheld, the SLK
\n Representative shall not consent to any adjustment that would
\n adversely affect Acquiror after the Closing.<\/p>\n
(iii) To the extent consistent with the foregoing, the
\n Company and the SLK Representative shall cooperate with each
\n other in pursuing any contest under this section.<\/p>\n
7.05 Exclusivity. The indemnification and other provisions
\nof this Article VII shall be the sole provisions governing tax indemnification
\nmatters.<\/p>\n
7.06 Survival of Obligations. The obligations of the
\nparties set forth in this Article VII shall remain in effect until 60 days after
\nthe expiration of the applicable statute of limitations.<\/p>\n
7.07 Agreed Tax Treatment. Any Payment made to an Acquiror
\nParty pursuant to Section 7.04 and any Payment pursuant to Article IX shall
\nconstitute an adjustment of the Merger Consideration for tax purposes, and shall
\nbe treated as such by the Acquiror Parties, the Company and any Member on their
\nrespective Tax Returns to the extent permitted by law. The parties intend that
\nthe Merger Consideration shall, for U.S. federal income tax purposes, be treated
\nas a payment for the Members’ Company Membership Interest.<\/p>\n
ARTICLE VIII<\/p>\n
CONDITIONS TO CONSUMMATION OF THE MERGER<\/p>\n
8.01 Conditions to Each Party’s Obligation to Effect the
\nMerger. The respective obligation of each of Acquiror, NewCo and the Company to
\nconsummate the Merger is subject to the<\/p>\n
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\n 53<\/p>\n
fulfillment or written waiver by the other parties prior to the Closing of each
\nof the following conditions:<\/p>\n
(a) Governmental and Regulatory Consents. The waiting
\n period applicable to the consummation of the Merger under the
\n Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall
\n have expired or been terminated. All approvals and authorizations of,
\n filings and registrations with, and notifications to, all Governmental
\n Authorities and Self-Regulatory Organizations required for the
\n consummation of the Merger and the other transactions contemplated by
\n this Agreement and for the prevention of any termination of any
\n material right, privilege, license or franchise of either (1) Acquiror
\n or its Subsidiaries or (2) the Company or its Subsidiaries (and, in
\n each case, granted by any Governmental Authority or Self-Regulatory
\n Organization) shall have been obtained or made and shall be in full
\n force and effect and all waiting periods required by law or by rule or
\n regulation of any Governmental Authority shall have expired.
\n Notwithstanding the foregoing, none of the preceding in the previous
\n two sentences shall be deemed obtained or made if it shall be subject
\n to any condition or restriction the effect of which is that such
\n condition or restriction could reasonably be expected to have a
\n Material Adverse Effect on the Company or Acquiror.<\/p>\n
(b) No Injunction. No Governmental Authority of competent
\n jurisdiction shall have, after the date of this Agreement, enacted,
\n issued, promulgated, enforced or entered any statute, rule, regulation,
\n judgment, decree, injunction or other order (whether temporary,
\n preliminary or permanent) which is in effect and prohibits or
\n materially restricts or materially adversely affects the consummation
\n of the transactions contemplated by this Agreement (an “Order”).<\/p>\n
8.02 Conditions to Obligations of the Company. The
\nobligations of the Company to consummate the Merger are also subject to the
\nfulfillment or written waiver by the Company prior to the Closing of each of
\nthe following conditions:<\/p>\n
(a) Representations and Warranties. The representations
\n and warranties of Acquiror set forth in this Agreement shall be true
\n and correct (after giving effect to Section 5.02) as of the date of
\n this Agreement and as of the Closing Date as though made on and as of
\n the Closing Date, except that representations and warranties that by
\n their terms speak only as of the date of this Agreement or some other
\n date need be true and correct only as of such date; and the Company
\n shall have received a certificate, dated the Closing Date, signed on
\n behalf of Acquiror by a senior executive officer to such effect.<\/p>\n
(b) Performance of Obligations of Acquiror. Acquiror and
\n NewCo shall have performed and complied with in all material respects
\n all agreements, covenants and obligations required to be performed by
\n them under this Agreement at or prior to the Closing Date, and the
\n Company shall have received a certificate, dated the Closing Date,
\n signed on behalf of Acquiror by a senior executive officer to such
\n effect.<\/p>\n
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\n 54<\/p>\n
8.03 Conditions to Obligations of Acquiror and NewCo.
\nThe obligations of each of Acquiror and NewCo to consummate the Merger are also
\nsubject to the fulfillment or written waiver by Acquiror prior to the Closing of
\neach of the following conditions:<\/p>\n
(a) Representations and Warranties. The representations
\n and warranties of the Company set forth in this Agreement (after giving
\n effect to Section 5.02 in the case of the representations and
\n warranties of the Company) and of the Members in the Member Agreements
\n (other than violations of the representations and warranties of the
\n Members that will not adversely affect Acquiror’s ownership of, or
\n rights with respect to, any Partnership Interest or Membership
\n Interest) shall be true and correct as of the date of this Agreement
\n and as of the Closing Date as though made on and as of the Closing
\n Date, except that representations and warranties that by their terms
\n speak only as of the date of this Agreement or some other date need be
\n true and correct only as of such date; and Acquiror shall have received
\n a certificate, dated the Closing Date, signed on behalf of the Company
\n by a senior executive officer of the Company to such effect.<\/p>\n
(b) Performance of Obligations of the Company. The
\n Company shall have performed and complied in all material respects with
\n all agreements, covenants and obligations required to be performed by
\n it under this Agreement at or prior to the Closing Date, and Acquiror
\n shall have received a certificate, dated the Closing Date, signed on
\n behalf of the Company by a senior executive officer of the Company to
\n such effect.<\/p>\n
(c) Third Party Consents. All consents or approvals of
\n all persons, other than Governmental Authorities and those Previously
\n Disclosed in Items 1 through 4 in Section 5.03(e) of the Disclosure
\n Schedule, (i) required for or in connection with the execution,
\n delivery and performance of this Agreement and the consummation of the
\n Merger and the other transactions contemplated by this Agreement shall
\n have been obtained and shall be in full force and effect, unless the
\n failure to obtain any such consent or approval is not reasonably likely
\n to have, individually or in the aggregate, a Material Adverse Effect on
\n Acquiror or the Surviving LLC and (ii) required so that Acquiror or any
\n of its Affiliates are not restricted from engaging in any material
\n business or activity in, or relating to, the financial services
\n industry.<\/p>\n
(d) Member Agreement. A Member Agreement and Supplemental
\n Member Agreement for each person who is a Member as of the date hereof
\n or is a Member as of the Closing Date shall have been executed and
\n delivered.<\/p>\n
(e) Acquiror Shareholders Agreement. Each Member of the
\n Company shall have executed and delivered to the Acquiror a counterpart
\n of the Acquiror Shareholders Agreement.<\/p>\n
(f) Agreements with Exchanges. Acquiror shall have
\n established procedures that shall have been approved by the NYSE
\n pursuant to NYSE Rule 98, and procedures that shall have been approved
\n by the American Stock Exchange pursuant to its Rule 193 (as well as<\/p>\n
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\n 55<\/p>\n
procedures approved by the Philadelphia Stock Exchange, the Chicago
\n Board Options Exchange and the Pacific Stock Exchange pursuant to
\n analogous rules), each in a form, and with terms and conditions,
\n reasonably satisfactory to Acquiror.<\/p>\n
(g) SLK Investing Co. Concurrently with the Closing,
\n Acquiror shall have acquired, either directly or indirectly, all
\n interests with respect to, and be the sole record and beneficial owner
\n of, the outstanding Class A limited partnership interests of the
\n Partnership for an amount not to exceed $25,000,000.<\/p>\n
(h) Pledge Agreement. Each Member of the Company shall
\n have executed and delivered to the Acquiror a counterpart of the Pledge
\n Agreement (as defined in the Member Agreement).<\/p>\n
(i) Company Condition. As of the Effective Time, the
\n Company shall have no assets, liabilities (whether accrued, contingent,
\n absolute, determined, determinable or otherwise) or other obligations
\n other than its Partnership Interest and shall not have transferred to
\n the Partnership or any other Subsidiary any liability (other than
\n actions Previously Disclosed on Section 5.03(g) of the Disclosure
\n Schedule).<\/p>\n
(j) Manager. At the Effective Time, SLK Management Inc.
\n shall have resigned as manager of the Company in accordance with
\n Section 415 of the New York Limited Liability Company Law.<\/p>\n
ARTICLE IX<\/p>\n
INDEMNIFICATION<\/p>\n
9.01 Indemnification.<\/p>\n
(a) After the Effective Time, each Acquiror Party shall,
\npursuant to this Section 9.01(a) and the Supplemental Agreements, be entitled to
\nindemnification from the Members against, and shall be held harmless (subject to
\nthe limitations set forth herein) by the Members from, any and all damage, loss,
\nliability and expense (including without limitation reasonable expenses of
\ninvestigation and attorneys’ fees and expenses in connection with any action,
\nsuit or proceeding) (“Losses”) incurred or suffered by such person arising out
\nof, related to, or in connection with (i) any breaches of the Company’s
\nrepresentations and warranties (other than breaches of those representations and
\nwarranties set forth in Article VII for which indemnification is provided in
\nSection 7.04 and other than for which indemnification is provided in Section
\n9.01(b)) set forth in this Agreement (determined without regard to Section
\n5.02), (ii) the failure by the Company to perform in any material respect any of
\nits covenants or agreements contained in this Agreement, (iii) any claim of any
\ncurrent or former Partner or Partners (other than a current or former holder of
\na Class C limited partnership interest) or other person alleging rights
\nequivalent to those of a Partner against Acquiror (excluding any unrelated
\nbusiness or other transaction), the Company (or the Surviving LLC as successor
\nto the Company) or any of its Affiliates for any event, occurrence, act or
\nomission<\/p>\n
-50-
\n 56<\/p>\n
occurring at or prior to the Effective Time, (iv) any claim of any current or
\nformer Member or Members (or other person alleging rights equivalent to those of
\na Member) against Acquiror (excluding any unrelated business or other
\ntransaction), the Company (or the Surviving LLC as successor to the Company) or
\nany of its Affiliates for any event, occurrence, act or omission occurring at or
\nprior to the Effective Time (other than any claim of a current Member
\ncontemplated by clause (v)) and (v) any claim of a current Member or Members in
\nrespect of any issue with the Company or another Member arising out of Article
\nIII hereof; provided, however, that notwithstanding the foregoing each Member
\nshall be severally and not jointly liable for such indemnification obligations
\nin proportion to their respective Consideration Percentages; and provided,
\nfurther, that notice of any claim under this Section 9.01(a) in respect of or
\nrelating to a breach of the representations and warranties or the Company shall
\nhave been received by the Members on or prior to the date until which the
\nrelevant representation or warranty shall survive pursuant to Section 9.03; and
\nprovided, further, that notwithstanding the foregoing, no Acquiror Party shall
\nbe entitled to payment of indemnification pursuant to this Section 9.01(a)(i),
\n(iii) or (iv) with respect to any individual item of Loss, (A) unless, with
\nrespect to this Section 9.01(a)(i), such item exceeds $1,000,000 (after
\nreduction for any tax benefits realized by any Acquiror Party as a result of
\nsuch Loss) and, with respect to this Section 9.01(a)(iii) and (iv), such item
\nexceeds $100,000 (after reduction for any tax benefits realized by any Acquiror
\nParty as a result of such Loss) and (B) unless, with respect to this Section
\n9.01(a)(i), the aggregate of all such Losses of all Acquiror Parties shall
\nexceed $10 million (after reduction for any tax benefits realized by any
\nAcquiror Party as a result of such Loss and then only for the amount of such
\nexcess) (it being understood that this proviso shall not apply to any Loss
\narising out of, related to or in connection with, any breach of the last
\nsentence of Section 5.03(g)(1)); and provided, further, that no Acquiror Party
\nshall be entitled to payment of indemnification pursuant to the provisions of
\nthis Section 9.01(a)(i), (iii) or (iv) to the extent that the amount of all
\nLosses against which the Acquiror Parties shall have been previously indemnified
\nunder such provisions of this Section 9.01(a)(i), (iii) or (iv) exceeds $300
\nmillion in the aggregate (it being understood that this proviso shall not apply
\nto any Loss arising out of, related to or in connection with, any breach of the
\nlast sentence of Section 5.03(g)(1)). Unless settled in a reasonable period of
\ntime in cash by a Member or by delivery of Acquiror Common Stock (valued at
\nmarket price at the time of delivery), all amounts payable for indemnification
\nof Acquiror by any Member pursuant to this Section 9.01(a) may, in Acquiror’s
\nsole discretion, be offset against shares of Acquiror Common Stock owned by such
\nMember or against other amounts payable by Acquiror or any Affiliates of
\nAcquiror to such Member and held pursuant to the terms of the Custody Agreement.
\nIt is understood that a Member’s Acquiror Common Stock may be used to satisfy
\namounts payable for indemnification even if such shares are not then
\ntransferable under the transfer restrictions in the Member’s Member Agreement.<\/p>\n
(b) After the Effective Time, each Acquiror Party shall,
\npursuant to this Section 9.01(b) and the Supplemental Agreements, be entitled to
\nindemnification from the Members against, and shall be held harmless by the
\nMembers from, any and all Losses incurred or suffered by such person arising out
\nof, related to or in connection with the pending or threatened Litigation
\ninvolving the Company or any of its Affiliates as of the date hereof and
\nPreviously Disclosed; provided, however, that (i) the first proviso contained in
\nSection 9.01(a) and the last two sentences contained in Section 9.01(a) shall
\napply mutatis mutandis to the indemnification provided in this Section 9.01(b),<\/p>\n
-51-
\n 57<\/p>\n
(ii) no Acquiror Party shall be entitled to payment of indemnification pursuant
\nto this Section 9.01(b) unless the aggregate of all such Losses of all Acquiror
\nParties (after reduction for any benefits realized by any Acquiror Party as a
\nresult of such Loss) shall exceed $4 million (and then only for the amount of
\nsuch excess) and (iii) no Acquiror Party shall be entitled to payment of
\nindemnification pursuant to the provisions of this Section 9.01(b) to the extent
\nthat the amount of all Losses against which the Acquiror Parties shall have been
\npreviously indemnified under this Section 9.01(b) exceed $29 million in the
\naggregate.<\/p>\n
(c) After the Effective Time, the Members shall, pursuant
\nto this Section 9.01(c), be entitled to indemnification from Acquiror against,
\nand shall be held harmless (subject to the limitations set forth herein) by
\nAcquiror from, any and all Losses incurred or suffered by them arising out of,
\nrelated to, or in connection with, any breaches of, (i) Acquiror’s
\nrepresentations and warranties set forth in this Agreement (determined without
\nregard to Section 5.02); or (ii) the failure by Acquiror to perform in any
\nmaterial respect any of its covenants or agreements contained in this Agreement;
\nprovided, that notice of any claim under this Section 9.01(c)(i) shall have been
\nreceived by Acquiror on or prior to the date until which the relevant
\nrepresentation or warranty shall survive pursuant to Section 9.03; and provided,
\nfurther, that notwithstanding the foregoing, no Member shall be entitled to
\npayment of indemnification pursuant to this Section 9.01(c)(i) with respect to
\nany individual item of Loss, (A) unless, with respect to this Section
\n9.01(c)(i), such item exceeds $1,000,000 (after reduction for any tax benefits
\nrealized by any Member as a result of such Loss) and (B) unless the aggregate of
\nall such Losses of all such parties with respect to this Section 9.01(c)(i)
\nshall exceed $10 million (after reduction for any tax benefits realized by any
\nMember as a result of such Loss and then only for the amount of such excess);
\nand provided, further, that notwithstanding the foregoing, no Member will be
\nentitled to payment of indemnification pursuant to this Section 9.01(c)(i) to
\nthe extent that the amount of all Losses for which Acquiror has previously
\nprovided indemnification under Section 9.01(c)(i) exceeds $300 million in the
\naggregate.<\/p>\n
(d) For the purposes of this Section 9.01, in computing
\nsuch individual or aggregate amounts of claims, the amount of each claim shall
\nbe deemed to be an amount net of any insurance proceeds and any indemnity,
\ncontribution or other similar payment recoverable by the indemnified party from
\nany third party with respect thereto.<\/p>\n
9.02 Notice and Defense of Claims.<\/p>\n
(a) Each party entitled to indemnification under this
\nArticle IX (the “Indemnified Party”) shall give notice to the party or parties
\nrequired to provide indemnification (the “Indemnifying Party”) promptly, but not
\nlater than 45 days, after such Indemnified Party receives written notice of any
\nclaim, event or matter as to which indemnity may be sought; provided, that the
\nfailure of the Indemnified Party to give notice as provided in this Section 9.02
\nshall not relieve any Indemnifying Party of its obligations under Section 9.01
\nor Section 7.04, except to the extent that such failure actually and materially
\nprejudices the rights of any such Indemnifying Party and then only to the extent
\nof such prejudice. In the event of any claim, action, suit, proceeding or demand
\nasserted by any person who is not a party (or a successor to a party) to this
\nAgreement (a “Third-Party Claim”) which is or gives rise to an indemnification
\nclaim, the Indemnifying Party<\/p>\n
-52-
\n 58<\/p>\n
may elect to assume and control the defense of any such claim and any litigation
\nresulting therefrom, provided, that counsel for the Indemnifying Party, who
\nshall conduct the defense of such claim or any litigation resulting therefrom,
\nshall be approved by the Indemnified Party (whose approval shall not
\nunreasonably be withheld or delayed), and the Indemnified Party may participate
\nin such defense at the Indemnified Party’s expense, which shall include counsel
\nof its choice, provided, further, that the Indemnified Party shall have the
\nright to employ, at the Indemnifying Party’s expense, one counsel of its choice
\nin each applicable jurisdiction (if more than one jurisdiction is involved) to
\nrepresent the Indemnified Party if, in the Indemnified Party’s reasonable
\njudgment, there exists an actual or potential conflict of interest between the
\nIndemnified Party and the Indemnifying Party or if the Indemnifying Party elects
\nnot to defend, compromise or settle a Third-Party Claim, provided, further, that
\nif the Indemnifying Party elects to assume and control the defense but fails to
\nretain counsel to prosecute the action within thirty days of such election, then
\nthe Indemnified Party shall have the right to defend such Third-Party Claim on
\nbehalf of and for the account and risk of the Indemnifying Party. The
\nIndemnifying Party, in the defense of any such claim or litigation, shall not,
\nexcept with the prior written consent of the Indemnified Party, consent to entry
\nof any judgment or entry into any settlement (i) which does not include as an
\nunconditional term thereof the giving by the claimant or plaintiff to the
\nIndemnified Party of a release from all liability in respect to such claim or
\nlitigation or (ii) which could reasonably be expected to restrict materially the
\nconduct of business of Acquiror or any of its Subsidiaries. In the event the
\nIndemnifying Party is prepared to settle an action and the Indemnified Party
\nreasonably believes that such settlement could have such an impact on it then
\nthe Indemnified Party may choose to continue to defend such action in which case
\nthe Indemnified Party shall be responsible for the incremental costs of
\ncontinuing such matter (including, the additional legal costs and additional
\ncosts or losses with respect to such matter) in excess of the amount offered to
\nbe settled by the Indemnifying Party (and the legal costs incurred to date)
\nwhich costs shall be borne by the Indemnifying Party. The Indemnified Party
\nshall not settle or compromise any such claim without the prior written consent
\nof the Indemnifying Party, which consent shall not be unreasonably withheld. The
\nIndemnified Party shall make its employees available and furnish such
\ninformation regarding itself or the claim in question as the Indemnifying Party
\nmay reasonably request in writing and as shall be reasonably required in
\nconnection with the defense of such claim and litigation resulting therefrom.<\/p>\n
9.03 Survival of Representations and Warranties. The
\nrepresentations and warranties shall survive the Closing, until February 28,
\n2002 and, thereafter, to the extent a claim is made prior to such date with
\nrespect to any breach of any such representation or warranty until such claim is
\nfinally determined or settled, provided, that the representations and warranties
\ncontained in Sections 5.03(o) and Article VII shall survive the Closing until
\nthe expiration of all applicable statutes of limitation. Notwithstanding any
\nother provision of this Agreement, the last sentence of the representation and
\nwarranty set forth in Section 5.03(g)(i) and the indemnity obligation contained
\nin Section 9.01(b) shall survive forever.<\/p>\n
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\n 59<\/p>\n
ARTICLE X<\/p>\n
TERMINATION<\/p>\n
10.01 Termination. This Agreement may be terminated, and
\nthe Merger may be abandoned:<\/p>\n
(a) Consent. At any time prior to the Effective Time, by
\n the mutual consent of each of Acquiror and the Company.<\/p>\n
(b) Breach. At any time prior to the Effective Time, by
\n Acquiror on the one hand, or the Company, on the other hand, in the
\n event of either: (1) a breach by the other of any representation or
\n warranty contained herein, which breach cannot be or has not been cured
\n within 30 days after the giving of written notice to the breaching
\n party of such breach; or (2) a breach by the other of any of the
\n covenants or agreements contained herein, which breach cannot be or has
\n not been cured within 10 days after the giving of written notice to the
\n breaching party of such breach and which breach in the case of either
\n of (1) and (2) above, would cause any condition set forth in Article
\n VIII not to be satisfied.<\/p>\n
(c) Delay. At any time prior to the Effective Time, by
\n Acquiror, on the one hand, or the Company on the other hand, in the
\n event that the Effective Time shall have failed to occur on or before
\n May 31, 2001 except to the extent that such failure arises out of or
\n results from any breach of this Agreement by or knowing action or
\n inaction of the party seeking to terminate pursuant to this Section
\n 10.01(c).<\/p>\n
(d) No Approval. By Acquiror, on the one hand, or the
\n Company, on the other hand, if the approval of any Governmental
\n Authority required for consummation of the Merger and the other
\n transactions contemplated by this Agreement shall have been denied by
\n final nonappealable action of such Governmental Authority, or such
\n Governmental Authority shall have requested the permanent withdrawal of
\n any application therefor, or any such approval shall be made subject to
\n any condition or restriction described in the proviso to Section
\n 8.01(b).<\/p>\n
(e) Order. At any time prior to the Effective Time, by
\n Acquiror, on the one hand, or the Company on the other hand, if any
\n Order permanently restraining, enjoining or otherwise prohibiting
\n consummation of the Merger shall become final and non-appealable or any
\n Law is in effect or is adopted or issued, which has the effect of
\n prohibiting the Merger.<\/p>\n
10.02 Effect of Termination and Abandonment. In the event
\nof termination of this Agreement and the abandonment of the Merger pursuant to
\nthis Article X, no party to this Agreement shall have any liability or further
\nobligation to any other party hereunder except (a) as set forth in Section 11.03
\nand (b) that termination will not relieve a breaching party from liability for
\nany willful breach of this Agreement.<\/p>\n
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\n 60<\/p>\n
ARTICLE XI<\/p>\n
MISCELLANEOUS<\/p>\n
11.01 Entire Understanding; No Third-Party Beneficiaries.
\nThis Agreement and the Supplemental Agreements represent the entire
\nunderstanding of the parties hereto with reference to the transactions
\ncontemplated hereby and this Agreement and the Supplemental Agreements supersede
\nany and all other oral or written agreements heretofore made other than the
\nConfidentiality Agreement. Except for Section 3.05 (with respect to the Members
\nor employees of the Company as it relates to Acquiror’s obligation to award the
\nRetention RSUs and SLK RSUs only), for Section 3.03 (with respect to Withdrawn
\nMembers and holders of the Managing Director Subordinated Notes), for Section
\n6.12 (with respect to Members), for Article VII (with respect to Members and the
\nSLK Representative), and for Article IX, in each case only, on and after the
\nEffective Time, nothing in this Agreement, expressed or implied, is intended to
\nconfer upon any person, other than the parties hereto or their respective
\nsuccessors and permitted assigns, any rights, remedies, obligations or
\nliabilities under or by reason of this Agreement.<\/p>\n
11.02 Waiver; Amendment. Prior to the Effective Time, any
\nprovision of this Agreement may be (a) waived by the party benefitted by the
\nprovision or (b) amended or modified at any time, by an agreement in writing
\nbetween the parties hereto approved or authorized by their respective Boards of
\nDirectors or similar governing body and executed in the same manner as this
\nAgreement.<\/p>\n
11.03 Expenses. Each party hereto will bear all expenses
\nincurred by it in connection with this Agreement and the transactions
\ncontemplated hereby.<\/p>\n
11.04 Notices. All notices, requests and other
\ncommunications hereunder to a party shall be in writing and shall be deemed
\ngiven (a) on the date of delivery, if personally delivered or telecopied (with
\nconfirmation), (b) on the first business day following the date of dispatch, if
\ndelivered by a recognized next-day courier service, or (c) on the third business
\nday following the date of mailing, if mailed by registered or certified mail
\n(return receipt requested), in each case to such party at its address or
\ntelecopy number set forth below or such other address or numbers as such party
\nmay specify by notice to the parties hereto.<\/p>\n
If to the Company to:<\/p>\n
SLK LLC
\n 120 Broadway
\n New York, New York 10271
\n Facsimile: (212) 433-7294<\/p>\n
Attention: Carl H. Hewitt
\n General Counsel and Managing Director<\/p>\n
-55-
\n 61<\/p>\n
With a copy to:<\/p>\n
Paul, Weiss, Rifkind, Wharton & Garrison
\n 1285 Avenue of the Americas
\n New York, New York 10019
\n Facsimile: (212) 757-3990
\n Attention: Robert B. Schumer, Esq.<\/p>\n
If to Acquiror or NewCo to:<\/p>\n
The Goldman Sachs Group, Inc.
\n One New York Plaza
\n New York, New York 10004
\n Facsimile: (212) 902-3000<\/p>\n
Attention: Gregory Palm
\n General Counsel and Managing Director<\/p>\n
With a copy to:<\/p>\n
Sullivan & Cromwell
\n 125 Broad Street
\n New York, New York 10004
\n Facsimile: (212) 558-3588
\n Attention: James C. Morphy, Esq.<\/p>\n
11.05 Additional Provisions. (a) The parties recognize that
\ncertain Members whose aggregate percentage allocation of the profits and losses
\nof the Company do not exceed 5% may wish to remain members of the Company
\nfollowing the Effective Time. The parties agree to negotiate in good faith such
\nchanges to this Agreement, including to Sections 2.01(b), 2.01(c) and 3.01(a),
\nwith a view to permitting such Members to remain as members and, if the parties
\nreach Agreement thereon, in each party’s absolute discretion, they will set
\nforth in writing such terms as may be agreed including (i) that such members’
\ninterests in the Company after the Effective Time shall have no allocation of
\nprofit and loss or any voting rights, by law or otherwise, (ii) that such
\nmembers’ interests shall be entitled to distributions limited to a fixed
\ninterest rate applicable to their capital account for so long as such persons
\nremain members and (iii) that none of Acquiror or any of its Affiliates
\n(including the managing member of the Company) shall have any duty (including
\nfiduciary duty) or obligation to such members not required by law.<\/p>\n
(b) Any Member who withdraws from the Company after the
\ndate hereof and prior to the Closing shall not be deemed a “Withdrawn Member”
\nfor purposes of this Agreement and shall continue to be deemed a Member for
\npurposes of this Agreement.<\/p>\n
11.06 Counterparts. This Agreement may be executed in one
\nor more counterparts, each of which shall be deemed to constitute an original.<\/p>\n
-56-
\n 62<\/p>\n
11.07 Governing Law; Enforcement; Waiver of Jury Trial. (a)
\nThis Agreement shall be governed by, and interpreted in accordance with, the
\nlaws of the State of New York applicable to contracts made and to be performed
\nentirely within such State. The parties agree that irreparable damage would
\noccur in the event that any of the provisions of this Agreement were not
\nperformed in accordance with their specific terms or were otherwise breached. It
\nis accordingly agreed that the parties shall be entitled to an injunction or
\ninjunctions to prevent breaches of this Agreement in any court of the State of
\nNew York or the Federal courts of the United States of America located in the
\nState of New York, in each case in the borough of Manhattan (the “Chosen
\nCourts”). The parties hereby irrevocably submit to the exclusive jurisdiction of
\nthe Chosen Courts in respect of the interpretation and enforcement of the
\nprovisions of this Agreement and of the documents referred to in this Agreement,
\nand in respect of the transactions contemplated hereby, and hereby waive, and
\nagree not to assert, as a defense in any action, suit or proceeding for the
\ninterpretation or enforcement hereof or of any such document, that it is not
\nsubject thereto or that such action, suit or proceeding may not be brought or is
\nnot maintainable in the Chosen Courts or that the venue thereof may not be
\nappropriate or that this Agreement or any such document may not be enforced in
\nor by such courts, and the parties hereto irrevocably agree that all claims with
\nrespect to such action or proceeding shall be heard and determined in the Chosen
\nCourts. The parties hereby consent to and grant the Chosen Courts exclusive
\njurisdiction over the person of such parties and over the subject matter of such
\ndispute and agree that mailing of process or other papers in connection with any
\nsuch action or proceeding in the manner provided in Section 11.04 or in such
\nother manner as may be permitted by law shall be valid and sufficient service
\nthereof.<\/p>\n
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
\nUNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
\nTHEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
\nRIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
\nDIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE
\nTRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
\nACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
\nHAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
\nEVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY
\nUNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY
\nMAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER
\nINTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
\nCERTIFICATIONS IN THIS SECTION 11.07.<\/p>\n
* * *<\/p>\n
-57-
\n 63<\/p>\n
IN WITNESS WHEREOF, the parties hereto have caused this
\nAgreement to be executed in counterparts by their duly authorized officers, all
\nas of the day and year first above written.<\/p>\n
THE GOLDMAN SACHS GROUP, INC.<\/p>\n
By: \/s\/ HENRY M. PAULSON, JR.
\n ————————-
\n Name: Henry M. Paulson, Jr.
\n Title: Chairman and Chief Executive Officer<\/p>\n
SLK LLC
\n By SLK Management Inc., its Managing Member<\/p>\n
By: \/s\/ GARY GOLDRING
\n ——————–
\n Name: Gary Goldring
\n Title: Co-Chief Executive Officer<\/p>\n
64
\n Annex 3<\/p>\n
Form of Member Agreement<\/p>\n
MEMBER AGREEMENT, dated as of September 10, 2000 (this
\n“Agreement”), between The Goldman Sachs Group, Inc., a Delaware corporation
\n(“Acquiror”), the signatory hereto, who is the owner of that membership interest
\n(“Membership Interest”) of SLK LLC, a New York limited liability company (the
\n“Company”) set forth next to such signatory’s name in Exhibit A (the “Member”)
\nand, for purposes of Section 1(b) hereof only, SLK LLC.<\/p>\n
RECITALS<\/p>\n
A. Subject to the terms and conditions contained in the Agreement
\nand Plan of Merger, dated as of September 10, 2000, by and between Acquiror and
\nthe Company (the “Merger Agreement”), the Company and Acquiror intend to effect
\nthe merger (the “Merger”) of NewCo with and into the Company. Capitalized terms
\nused but not defined herein shall have the meaning set forth in the Merger
\nAgreement.<\/p>\n
B. Upon the consummation of the Merger, the Merger Agreement
\nprovides for the conversion of the Member’s Membership Interests into such
\namount of cash and shares of common stock, par value $0.01 per share (“Acquiror
\nCommon Stock”), of Acquiror (the “Shares”), as provided in the Merger Agreement.
\nMember will derive substantial value from Acquiror’s execution, delivery and
\nperformance of the Merger Agreement.<\/p>\n
C. As an inducement to, and a condition of, Acquiror’s
\nwillingness to enter into the Merger Agreement, and having reviewed the Merger
\nAgreement and the terms of the proposed Merger, Member is executing this
\nAgreement for the benefit of Acquiror, the Firm (as hereinafter defined), and
\neach Acquiror Party.<\/p>\n
NOW, THEREFORE, in consideration of the premises and the
\ncovenants and agreements contained in the Merger Agreement, and intending to be
\nlegally bound hereby, Member agrees as follows:<\/p>\n
1. Adoption of Merger Agreement; Irrevocable Proxy; Termination.
\n(a) Member hereby (i) adopts and approves the resolutions attached hereto as
\nExhibit B and adopts and consents to the Merger Agreement and the transactions
\ncontemplated thereby including, without limitation, the Merger, in accordance
\nwith the provisions of Section 407 of the New York Limited Liability Company
\nLaw, (ii) upon request by Acquiror, agrees to vote to adopt and approve such
\nmatters described in clause (i) of this Section 1(a), (iii) agrees to vote
\nagainst, and to withhold consent from, any action or proposal that would compete
\nwith or would serve to materially interfere with, delay, discourage, adversely
\naffect or inhibit <\/p>\n
65<\/p>\n
the timely consummation of the transactions contemplated by the Merger
\nAgreement, including, without limitation, the Merger, (iv) consents to the
\nreplacement of SLK Management Inc. by Acquiror or an Affiliate designated
\nthereby, as the managing member of the Company, such replacement to be effective
\nas of the Effective Time, and (v) elects to cause the payment and distribution
\nby the Company of the Shares (as such term is defined in the Operating
\nAgreement) of the Withdrawn Members (as such term is defined in the Operating
\nAgreement) to such Withdrawn Members prior to the close of any applicable
\nAdditional Holding Periods (as such term is defined in the Operating Agreement)
\nin the manner set forth in Section 3.04 of the Merger Agreement. To the extent
\nnecessary and as permitted by applicable law, Member hereby also irrevocably (i)
\nwaives any notice, or requirement thereof, with respect to any meeting of
\nMembers or other proceeding for the purpose of adopting and approving the Merger
\nAgreement, the Merger or any related matters and (ii) acknowledges that Member
\nwill not have any dissenters’ or similar rights in connection with the Merger
\nand the consummation of the other transactions contemplated by the Merger
\nAgreement. If the Merger Agreement is properly terminated for any reason in
\naccordance with its terms and the Merger is not consummated, this Agreement
\nshall terminate concurrently with such termination of the Merger Agreement.<\/p>\n
(b) The Company hereby acknowledges receipt and delivery at its
\nprincipal place of business of an executed copy of this Agreement sufficient to
\ncomply with Section 407(b) of the New York Limited Liability Company Law.<\/p>\n
2. Cooperation and Support; HSR; No Transfer of Membership
\nInterest.
\n(a) Member will timely execute and deliver all Supplemental Agreements, if any,
\nto which it is to be a party as provided in the Merger Agreement.<\/p>\n
(b) Each Member who will be considered an “acquiring person”
\nunder the rules and regulations promulgated under the Hart-Scott-Rodino
\nAntitrust Improvements Act of 1976 (the “HSR Act”) in connection with the
\nconsummation of the transactions contemplated by the Merger Agreement agrees to
\nuse its reasonable best efforts to file a Notification and Report Form under the
\nHSR Act with respect to the transactions contemplated by the Merger Agreement as
\nsoon as practicable after the date hereof.<\/p>\n
(c) From and after the date hereof and until the earlier of the
\nEffective Time or the termination of this Agreement in accordance with its
\nterms, Member shall not Transfer (as hereinafter defined), directly or
\nindirectly, all or any portion of its Membership Interest without Acquiror’s
\nprior written consent; provided, however, that in the event of such Member’s
\ndeath during the term of this Agreement, Member’s Membership Interest may be
\ntransferred in accordance with the Operating Agreement.<\/p>\n
(d) Member hereby agrees that from and after the date hereof
\nuntil the earlier of the Effective Time or the termination of this Agreement in
\naccordance with its terms, Member will not, in any manner, directly or
\nindirectly (including through advisors, agents or other intermediaries), take
\nany action to seek, encourage, support or discuss any offer from <\/p>\n
-2-
\n 66<\/p>\n
any corporation, partnership, person or other entity or group (other than
\nAcquiror) to acquire any direct or indirect Company Membership Interests,
\nPartnership Interests or equity securities of any Subsidiary of the Company
\n(other than the issuance by the Partnership of Class C Limited Partnership
\nInterests and the issuance by First Options of Chicago Inc. of shares of Class A
\nPreferred Stock in connection with joint back office arrangements in the
\nordinary course of business and consistent with past practices), to merge the
\nCompany or any Subsidiary or Affiliate of the Company with any such person, or
\nto otherwise acquire any significant portion of the assets of the Company or any
\nSubsidiary of the Company.<\/p>\n
(e) Member hereby agrees to execute and deliver to Acquiror at
\nthe Closing, a counterpart of the Acquiror Shareholders Agreement, which
\nagreement shall be in full force and effect.<\/p>\n
(f) At any time after the date hereof, Member shall promptly
\nexecute, acknowledge and deliver any other assurances or documents reasonably
\nrequested by Acquiror and necessary for Member to satisfy its obligations
\nhereunder.<\/p>\n
(g) If, at the Closing, Member shall have an interest, direct or
\nindirect, in SLK Investing Co. (“SLK”), Member shall, acting together with all
\nother Members holding such an interest in SLK, cause SLK to convey to Acquiror
\nor its designee any and all of SLK’s current right, title and interest, whether
\ndirect or indirect, in the Class A Limited Partnership Interest of the
\nPartnership for an amount that shall be determined by the Company, provided,
\nthat in no event shall Acquiror pay more than $25 million in the aggregate for
\n100% of all of the Class A Partnership Interest of the Partnership. After the
\ndate hereof, Member shall not Transfer its interest in SLK and, except as
\notherwise provided by the preceding sentence, Member shall, acting together with
\nall other Members holding such an interest in SLK, take all actions necessary to
\ncause SLK not to transfer, sell or otherwise reduce its right, title or interest
\nin the Class A Limited Partnership Interest of the Partnership.<\/p>\n
3. Representations, Warranties and Agreements. Member represents
\nand warrants to, and agrees with, Acquiror as follows:<\/p>\n
(a) Member has all requisite power and authority to execute and
\ndeliver this Agreement and to perform all of the obligations imposed upon Member
\nhereunder. Member is the lawful record and beneficial owner of Member’s
\nMembership Interest set forth next to Member’s name in Exhibit A hereto, free
\nand clear of all Liens other than Liens created by the Constitutive Documents;
\nno other person (other than any wholly-owned affiliate controlled by Member) has
\nan interest, legal, beneficial or otherwise, in Member’s Membership Interest and
\nno consent of any other person is required for the execution and delivery by
\nMember of, and performance by Member of its obligations under, this Agreement
\nand the Merger Agreement. Without limiting the foregoing, no person has any
\nrights with respect to Member’s Membership Interest or the cash or Shares to be
\nissued to Member pursuant to the Merger Agreement under any community property
\nor similar legal provision <\/p>\n
-3-
\n 67<\/p>\n
or concept. The representations and warranties contained in the second and third
\nsentences of this Section 3(a) shall not apply to any Membership Interest to the
\nextent that such representations and warranties would be deemed breached by
\nvirtue of any existing pledge of such Membership Interest or by an existing
\ncontractual restriction or because spousal consent is required as of the date
\nhereof (so long as such representations and warranties shall be true and
\ncorrect, and any required spousal consent under any community property law shall
\nhave been obtained, at the Closing); provided, however, that this sentence shall
\nnot affect any representation and warranty relating to the right, power or
\nauthority of Member to vote or give a proxy or consent with respect to Member’s
\nMembership Interest. There are no actions, suits or proceedings pending or, to
\nMember’s knowledge, threatened against or affecting Member or the assets of
\nMember in any court or before or by any federal, state, municipal or other
\ngovernmental department, commission, board, bureau, agency or instrumentality
\nwhich is reasonably likely to materially impair, restrict or delay the ability
\nof Member to perform Member’s obligations under this Agreement and the Merger
\nAgreement or would make this paragraph untrue in any material respect. This
\nAgreement constitutes the valid and legally binding agreement of Member,
\nenforceable in accordance with its terms except as the enforceability hereof may
\nbe limited by bankruptcy, insolvency, fraudulent conveyance, reorganization,
\nmoratorium or other similar laws relating to the enforcement of creditors’
\nrights generally and by general principles of equity.<\/p>\n
(b) The execution, delivery and performance of this Agreement do
\nnot and will not (1) constitute a breach or violation of, or a default under, or
\ncause or allow the acceleration or creation of a Lien (with or without the
\ngiving of notice, passage of time or both) pursuant to any law, rule or
\nregulation or any judgment, decree, order, governmental or non-governmental
\npermit or license, or any Contract to which Member is a party or to which Member
\nor any of Member’s assets are subject or bound or (2) require any consent or
\napproval of any other person under any such law, rule, regulation, judgment,
\ndecree, order, governmental or non-governmental permit, license or Contract, in
\neach case, which would materially impair, restrict or delay the ability of
\nMember to perform Member’s obligations under this Agreement.<\/p>\n
(c) Member will acquire the Shares for Member’s own account and
\nnot with a view to, or for resale in connection with, the distribution thereof
\nand Member has no present intention of selling, Transferring, granting any
\nparticipation in, or otherwise distributing the Shares except in conformity with
\nthe Securities Act and other applicable federal and state securities laws (the
\n“Securities Laws”).<\/p>\n
(d) Member has read and fully understands this Agreement and the
\nMerger Agreement and the terms of the proposed Merger. The SEC Documents related
\nto Acquiror have been made available to Member, and Member understands and has
\nevaluated the risks of an investment in the Shares. Member has been given the
\nopportunity to ask questions of, and receive answers from, Acquiror and its
\nrepresentatives concerning the matters pertaining to Member’s investment in the
\nShares and has been given the opportunity to review such <\/p>\n
-4-
\n 68<\/p>\n
additional information as was necessary to evaluate the merits and risks of an
\ninvestment in the Shares. Member can bear the economic risk of an investment in
\nthe Shares.<\/p>\n
(e) Member is an “accredited investor” as defined in Regulation
\nD, which has been adopted by the Securities and Exchange Commission (the “SEC”)
\nunder the Securities Act.<\/p>\n
(f) Member understands that all the Shares will be characterized
\nas “restricted securities” under the Securities Laws inasmuch as they are being
\nacquired from Acquiror in a transaction not involving a public offering and
\nthat, consequently, the Shares may not be resold without first being registered
\nunder the Securities Laws except in certain limited circumstances. Specifically,
\nMember is familiar with SEC Rules 144 and 145 and understands, and agrees to
\ncomply with, the resale limitations imposed thereby, by the legends described in
\nparagraph (g) below and by the Securities Laws generally or cause any other
\nperson who has an interest in such Shares to so comply.<\/p>\n
(g) Member understands and agrees that the certificates issued to
\nMember representing the Shares will bear the following legends and such other
\nlegends as Acquiror may reasonably deem necessary or desirable:<\/p>\n
“THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
\n MEMBER’S AGREEMENT WITH THE GOLDMAN SACHS GROUP, INC. (THE
\n “MEMBER’S AGREEMENT”), AND A SHAREHOLDERS’ AGREEMENT AMONG THE
\n GOLDMAN SACHS GROUP, INC. AND THE PERSONS NAMED THEREIN, COPIES
\n OF WHICH ARE ON FILE AT THE PRINCIPAL EXECUTIVE OFFICE OF THE
\n GOLDMAN SACHS GROUP, INC., AND WHICH, AMONG OTHER MATTERS, PLACE
\n RESTRICTIONS ON THE VOTING AND DISPOSITION OF SUCH SECURITIES.
\n THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE INDIRECTLY
\n OR DIRECTLY SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF,
\n INCLUDING ANY DISPOSITION OF THE ECONOMIC OR OTHER RISKS OF
\n OWNERSHIP THROUGH HEDGING TRANSACTIONS OR DERIVATIVES INVOLVING
\n SUCH SECURITIES, ONLY IN ACCORDANCE WITH THE PROVISIONS OF THE
\n MEMBER’S AGREEMENT.”<\/p>\n
“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
\n REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
\n “SECURITIES ACT”), OR OTHER SECURITIES LAWS AND MAY NOT BE
\n OFFERED, SOLD, EXCHANGED, TRANSFERRED, ASSIGNED, PLEDGED,
\n PARTICIPATED, HYPOTHECATED OR OTHERWISE DISPOSED OF (EACH A
\n “TRANSFER”) EXCEPT PURSUANT TO AN EXEMPTION <\/p>\n
-5-
\n 69<\/p>\n
FROM REGISTRATION UNDER THE SECURITIES ACT AND, IF APPLICABLE,
\n SUCH OTHER SECURITIES LAWS AND FOLLOWING RECEIPT BY THE GOLDMAN
\n SACHS GROUP, INC. OF A LEGAL OPINION IN FORM AND SUBSTANCE
\n SATISFACTORY TO IT THAT SUCH TRANSFER IS PERMITTED.”<\/p>\n
The foregoing legends will be removed from a Share certificate at the request of
\nMember or another holder thereof in connection with the proposed transfer
\nthereof only upon satisfaction of Acquiror that such legend is no longer
\nrequired or appropriate, including, in the case of the Securities Laws legend,
\nreceipt by Acquiror of an opinion of counsel, in form and substance satisfactory
\nto Acquiror, to the effect that registration under the Securities Act is
\nunnecessary in respect of such proposed transfer, in reliance upon SEC Rule 144
\nor 145 under the Securities Act, and that such legend is not required by law to
\nappear on such certificate.<\/p>\n
Member agrees and consents to the entry of stop transfer orders
\nagainst the transfer of Shares subject to transfer restrictions.<\/p>\n
(h) Member meets any suitability standards imposed by the state
\nof Member’s residence or imposed by any other applicable laws.<\/p>\n
(i) From and after the date hereof and until the earlier of the
\nEffective Time or the termination of this Agreement in accordance with its
\nterms, Member agrees to comply as soon as reasonably practicable with the
\nrestrictions on hedging contained in Exhibit D hereto; it being understood that
\nMember shall in no event on or after the date hereof commence any activities
\nthat involve the disposition of the economic or other risks of ownership through
\nhedging transactions or derivatives involving Acquiror securities or Member’s
\nMembership Interest.<\/p>\n
(j) Member has not, and through the Closing Date will not have,
\nmade any election, taken any action or filed any Tax Return or any other
\ndocument filed or provided to any taxing authority that is inconsistent with the
\nTax Returns filed and furnished by the Company and the Company’s Subsidiaries or
\nthe treatment of the Company as a partnership and of each of the Company’s
\nSubsidiaries as a partnership or disregarded entity (except as set forth in
\nSection 7.01(n) of the Disclosure Schedule to the Merger Agreement) for U.S.
\nfederal, state and local Tax purposes and Member agrees that the foregoing
\nrepresentations shall be subject to the same indemnification provisions as
\ncontemplated by Section 13 herein.<\/p>\n
(k) Member will not make any election, take any action or take
\nany position on any Tax Return or any other document filed or provided to any
\nTaxing Authority that is inconsistent with any Tax Return filed with any taxing
\nauthority, or furnished to such Member, by or on behalf of the Company, the
\nCompany’s Subsidiaries or the Surviving LLC.<\/p>\n
-6-
\n 70<\/p>\n
(l) Member agrees to provide, and to use its reasonable best
\nefforts to cause its respective relatives and affiliates to provide, any
\ndocument or take any other action reasonably requested by Acquiror in connection
\nwith any Tax matters relating to the Company, the Company’s Subsidiaries and the
\nSurviving LLC so long as such action does not adversely affect the Member (or
\nany of its respective relatives or affiliates).<\/p>\n
(m) Member has received, separately considered and executed the
\nSupplemental Members Agreement attached as Exhibit E.<\/p>\n
4. Restrictions on Transfer. (a) Member agrees that the Shares
\nmay be Transferred only as follows:<\/p>\n
(i) 33 1\/3% of the Shares may be Transferred at any time after
\n May 8, 2002;<\/p>\n
(ii) An additional 33 1\/3% of the Shares may be Transferred at
\n any time after May 8, 2003; and<\/p>\n
(iii) All of the Shares may be Transferred at any time after May
\n 8, 2004.<\/p>\n
Notwithstanding the foregoing, if Acquiror generally waives the restrictions on
\ntransfer imposed upon the former Schedule II limited partners (the “LPs”) of The
\nGoldman Sachs Group, L.P. (“Group”) in connection with Group’s 1999 Plan of
\nIncorporation in order to permit the LPs generally to engage in a registered
\nsecondary offering or estate planning transactions, Acquiror will waive the
\ntransfer restrictions in this Section 4 with respect to the Shares on (i) the
\nsame percentage basis as the waiver granted to LPs in connection with such
\nregistered secondary offering and to permit Member to sell such shares in the
\nregistered secondary offering and (ii) the same basis as the waiver granted to
\nLPs in connection with such estate planning transactions. (For example, if each
\nLP is permitted to sell 5% of his Acquiror Common Stock in a registered
\nsecondary offering, Member shall be permitted to sell 5% of Member’s Shares; and
\nif each LP is permitted to engage in estate planning transactions, Member shall
\nbe permitted to do so to a similar extent.)<\/p>\n
For purposes of this Agreement, the term “Transfer” means any
\ndirect or indirect sale, transfer, pledge or other disposition of securities of
\nAcquiror or Member’s Membership Interests, as the case may be, including any
\ndisposition of the economic or other risks of ownership through hedging
\ntransactions or derivatives involving Acquiror securities or Member’s Membership
\nInterests; provided, however, that in the event of such Member’s death during
\nthe term of this Agreement, Member’s Shares may be transferred in the same
\nmanner and to the same extent as the LPs may transfer their shares of Acquiror
\nCommon Stock pursuant to the Acquiror Shareholders Agreement.<\/p>\n
(c) Member agrees that, at any time Member is employed by the
\nFirm, it will:<\/p>\n
-7-
\n 71<\/p>\n
(i) comply with respect to all Shares with Transfer
\n restrictions related to future primary or secondary
\n offerings of Shares if requested to do so by Acquiror to
\n the extent that such restrictions are generally applicable
\n to similarly titled employees of Acquiror;<\/p>\n
(ii) comply with restrictions that may be imposed by Acquiror
\n from time to time to enable Acquiror or another party to
\n account for a business combination using the
\n pooling-of-interests method of accounting to the extent
\n that such restrictions are generally applicable to
\n similarly titled employees of Acquiror;<\/p>\n
(iii) be subject to the same internal compliance and trading
\n policies as are in effect from time to time for similarly
\n titled employees of Acquiror; and<\/p>\n
(iv) comply with the hedging restrictions of Acquiror relating
\n to securities of Acquiror and financial services companies
\n as are in effect from time to time for managing directors
\n of Acquiror.<\/p>\n
References in this Section 4 to “Shares” shall be deemed to also
\nrefer to securities received in exchange for Shares on the same basis as
\nprovided in Section 6.4 of the Acquiror Shareholders Agreement.<\/p>\n
5. Confidential Information. (a) In the course of involvement in
\nthe Firm’s activities or otherwise, Member has obtained or may obtain
\nconfidential information concerning the Firm’s businesses, strategies,
\noperations, financial affairs, organizational and personnel matters (including
\ninformation regarding any aspect of Member’s tenure as a member in, or officer
\nor employee of, the Firm or of the termination of such membership, officership
\nor employment), policies, procedures and other non-public matters, or concerning
\nthose of third parties. Such information (“Confidential Information”) may have
\nbeen or be provided in written or electronic form or orally. In consideration
\nof, and as a condition to, continued access to Confidential Information, and
\nwithout prejudice to or limitation on any other confidentiality obligations
\nimposed by agreement or by law, Member hereby undertakes to use and protect
\nConfidential Information in accordance with any reasonable restrictions placed
\non its use or disclosure. Without limiting the foregoing, except as authorized
\nby the Firm or as required by law, Member may not disclose, directly or
\nindirectly, any Confidential Information, or any information derived therefrom,
\nin whatever form, to any person unless such person is a director, officer,
\npartner, employee, attorney or agent of the Firm and, in Member’s reasonable
\ngood faith judgment, has a need to know the Confidential Information or
\ninformation derived therefrom in furtherance of the business of the Firm. The
\nforegoing obligations will survive, and remain binding and enforceable
\nnotwithstanding any termination of Member’s employment with the Firm and any
\nsettlement of the financial rights and obligations arising from Member’s
\nemployment with the Firm. Without limiting the foregoing, the existence of, and
\nany information concerning, any dispute <\/p>\n
-8-
\n 72<\/p>\n
between Member and the Firm shall constitute Confidential Information except
\nthat Member may disclose information concerning such dispute to the arbitrator
\nor court that is considering such dispute, or to Member’s legal counsel
\n(provided that such counsel agrees not to disclose any such information other
\nthan as necessary to the prosecution or defense of the dispute).<\/p>\n
(b) For purposes of this Agreement, “Firm” means (i) prior to the
\nconsummation of the Merger, the Company and its Subsidiaries and Affiliates, and
\n(ii) from and after the consummation of the Merger, Acquiror and its
\nSubsidiaries and Affiliates (including the Company and its Subsidiaries).<\/p>\n
6. Noncompetition. (a) In view of Member’s importance to the
\nFirm, Member hereby agrees that the Firm would likely suffer significant harm
\nfrom Member’s competing with the Firm for some period of time following the
\nconsummation of the Merger, and at any time prior to the date of termination
\nspecified in the notice of termination pursuant to Section 10 hereof (the
\n“Employment Period”) and for some time thereafter, and Member understands that
\nAcquiror would not have agreed to acquire the Company and its business unless
\nMember entered into this Agreement. Moreover, Member recognizes and agrees that
\nthe business activities of the Firm are worldwide and that the restrictions on
\ncompetition included herein are commensurate in geographic scope with those
\nactivities. Accordingly, Member hereby agrees that commencing at the time of
\nconsummation of the Merger, Member will not, without the written consent of
\nAcquiror, until the later of (x) three years following the Effective Time and
\n(y) two years following the date of termination of the Employment Period (such
\nlater date is referred to as the “Expiration Date”):<\/p>\n
(1) form, or acquire a 5% or greater equity ownership, voting or
\n profit participation interest in, any Competitive Enterprise (as defined
\n below); or<\/p>\n
(2) associate (including, but not limited to, association as an
\n officer, employee, partner, director, consultant, agent or advisor) with
\n any Competitive Enterprise and in connection with such association
\n engage in, or directly or indirectly manage or supervise personnel
\n engaged in, any activity<\/p>\n
(i) which is similar or substantially related to any
\n activity in which Member was engaged, in whole or in part, at the
\n Firm,<\/p>\n
(ii) for which Member had direct or indirect managerial or
\n supervisory responsibility at the Firm, or<\/p>\n
(iii) which calls for the application of the same or similar
\n specialized knowledge or skills as those utilized by Member in
\n Member’s activities with the Firm,<\/p>\n
-9-
\n 73<\/p>\n
at any time during the one-year period immediately prior to the
\n Expiration Date (or, in the case of an action taken during the
\n Employment Period, during the one-year period immediately prior to such
\n action), and, in any such case, irrespective of the purpose of the
\n activity or whether the activity is or was in furtherance of advisory,
\n agency, proprietary or fiduciary business of either the Firm or the
\n Competitive Enterprise.<\/p>\n
(By way of example only, this provision precludes an information systems
\n professional from joining a management or other consulting firm and
\n providing information technology consulting services or advice to any
\n Competitive Enterprise.)<\/p>\n
(b) For purposes of this Agreement, a “Competitive Enterprise” is
\na business enterprise that (1) engages in any activity, or (2) owns or controls
\na significant interest in any entity that engages in any activity, that, in
\neither case, competes anywhere with any activity in which the Firm is engaged.
\nThe activities covered by the previous sentence include, without limitation,
\nfinancial services such as investment banking, public or private finance,
\nlending, financial advisory services, private investing (for anyone other than
\nMember and members of Member’s family), merchant banking, asset or hedge fund
\nmanagement, insurance or reinsurance underwriting or brokerage, property
\nmanagement, or securities, futures, commodities, energy, derivatives or currency
\nbrokerage, sales, market making, lending, custody, clearance, settlement or
\ntrading. It is the intent that the provisions of this Section 6 shall include,
\nfor the entire period through the Expiration Date, the activities described in
\nsubparagraphs 1 through 4 of Article 14.E of the Operating Agreement as in
\neffect as of the date hereof.<\/p>\n
If Member is employed by the Firm immediately following the
\nEffective Time and the Firm terminates Member’s employment with the Firm without
\nCause, the Firm may only enforce the provisions of this Section 6 for so long as
\nthe Firm continues to pay Member the same base salary (i.e., excluding any
\nincentive, bonus or similar compensation) Member was receiving immediately prior
\nto such termination. In determining whether the Firm has paid Member’s base
\nsalary for any period, the Firm shall receive credit for any payments under any
\nseverance, salary continuation or similar plan or arrangement.<\/p>\n
For the purposes of this Section 6 and Section 10 only, “Cause”
\nmeans (i) Member’s conviction, whether following trial or by plea of guilty or
\nnolo contendere (or similar plea), in a criminal proceeding (A) on a misdemeanor
\ncharge involving fraud, false statements or misleading omissions, wrongful
\ntaking, embezzlement, bribery, forgery, counterfeiting or extortion, or (B) on a
\nfelony charge or (C) on an equivalent charge to those in clauses (A) and (B) in
\njurisdictions which do not use those designations; (ii) Member’s engaging in any
\nconduct which constitutes an employment disqualification under applicable law
\n(including statutory disqualification as defined under the Exchange Act); (iii)
\nMember’s willful or grossly negligent failure to perform Member’s duties to the
\nFirm; (iv) Member’s violation of any securities or commodities laws, any rules
\nor regulations issued pursuant to such laws, or the rules and regulations of any
\nsecurities or commodities exchange or <\/p>\n
-10-
\n 74<\/p>\n
association of which Acquiror or any of its subsidiaries or affiliates is a
\nmember; (v) Member’s violation of any Firm policy concerning hedging or
\nconfidential or proprietary information, or Member’s material violation of any
\nother Firm policy as in effect from time to time; (vi) Member’s engaging in any
\nact or making any statement which impairs, impugns, denigrates, disparages or
\nnegatively reflects upon the name, reputation or business interests of the Firm;
\nor (vii) Member’s engaging in any willful or grossly negligent conduct
\ndetrimental to the Firm. The determination as to whether “Cause” has occurred
\nshall be made by the Board of Directors of Acquiror in its good faith judgment.<\/p>\n
7. Nonsolicitation of Clients. (a) Member hereby agrees that
\nduring the Employment Period and thereafter until the Expiration Date, Member
\nwill not, in any manner, directly or indirectly, (1) Solicit a Client to
\ntransact business with a Competitive Enterprise or to reduce or refrain from
\ndoing any business with the Firm, or (2) interfere with or damage (or attempt to
\ninterfere with or damage) any relationship between the Firm and a Client.<\/p>\n
(b) For purposes of this Agreement, the term “Solicit” means any
\ndirect or indirect communication of any kind whatsoever, regardless of by whom
\ninitiated, inviting, advising, encouraging or requesting any person or entity,
\nin any manner, to take or refrain from taking any action. It is the intent that
\nthe provisions of this Section 7 shall include, for the entire period through
\nthe Expiration Date, the activities described in subparagraph 5 of Article 14.E
\nof the Operating Agreement as in effect as of the date hereof.<\/p>\n
(c) For purposes of this Agreement, the term “Client” means any
\nclient or prospective client of the Firm to whom Member provided services, or
\nfor whom Member transacted business, or whose identity became known to Member in
\nconnection with Member’s relationship with or employment by the Firm.<\/p>\n
8. Nonsolicitation of Employees; Expiration. Member hereby agrees
\nthat during the Employment Period and thereafter until the Expiration Date,
\nMember will not, in any manner, directly or indirectly, Solicit any person who
\nis a Member or former Member of the Company or a key employee of the Firm to
\nresign from the Firm or to apply for or accept employment with any Competitive
\nEnterprise.<\/p>\n
9. Damages. (a) Member acknowledges that Acquiror would not have
\nentered into this Agreement or the Merger Agreement in the absence of the
\nMember’s agreement to the provisions of this Section 9 and the Covenants and
\nMember further acknowledges that such compliance with such Covenants is an
\nimportant factor to the continued success of the Firm’s operations and its
\nfuture prospects. Member and Acquiror agree that upon the occurrence of any of
\nthe following events, the damages to the Firm would be material, but that the
\namount of such damages would be uncertain and not readily ascertainable.
\nAccordingly, Member and Acquiror agree that, if, prior to the fifth anniversary
\nof the date of this Agreement, Member breaches any of the Covenants set forth in
\nSection 6, 7 or 8, as determined by the Board of Directors of Acquiror (the
\n“Board”) in its <\/p>\n
-11-
\n 75<\/p>\n
good faith judgment, Acquiror will be entitled to receive immediately following
\nsuch determination and written demand therefor, and Member will make, within ten
\nbusiness days after written demand has been received, a payment in cash or
\nAcquiror Common Stock (valued at the average closing per share price of Acquiror
\nCommon Stock for the five trading days immediately preceding the date of payment
\nunder this Section 9(a)) in such combination of cash and\/or Acquiror Common
\nStock as the Member shall determine as and for liquidated damages (the
\n“Liquidated Damages”) in the amount set forth next to such Member’s name in
\nExhibit C (under the heading “Liquidated Damages”) attached hereto, which amount
\nshall be the aggregate amount of liquidated damages due for all such breaches
\nprior to the fifth anniversary of this Agreement.<\/p>\n
The payment of any amount as liquidated damages will not be
\nconstrued as a release or waiver by Acquiror of the right to prevent the
\ncontinuation of any such violation of such Covenants in equity or otherwise. In
\naddition, Member and Acquiror agree that it would be too speculative to attempt
\nto determine any amount of liquidated damages that would be applicable following
\nthe fifth anniversary of the date of this Agreement, and that any damages
\npayable as a result of any breach following such date shall be determined
\nwithout regard to this Section 9.<\/p>\n
(b) Member and Acquiror agree that the Liquidated Damages are
\nreasonable in proportion to the probable damages likely to be sustained by the
\nFirm if Member breaches at any time prior to the fifth anniversary of this
\nAgreement any of the Covenants set forth in Sections 6, 7 and 8 hereof, that the
\namount of actual damages to be sustained by the Firm in the event of such breach
\nis incapable of precise estimation and that such cash payments are not intended
\nto constitute a penalty or punitive damages for any purposes.<\/p>\n
(c) Member acknowledges and agrees that Member’s payment
\nobligations under this Section 9 will be full recourse obligations and will be
\nsecured pursuant to a Pledge Agreement, in substantially the form set forth as
\nExhibit F hereto (the “Pledge Agreement”). Member agrees to execute and deliver
\nto Acquiror a Pledge Agreement prior to the Closing.<\/p>\n
(d) Member acknowledges and agrees that any cash payment of
\nLiquidated Damages pursuant to this Section 9 shall be in addition to, and not
\nin lieu of, any forfeitures of awards (required pursuant to the terms of any
\nsuch awards) that may be granted to Member in the future under one or more of
\nthe Firm’s compensation and benefit plans.<\/p>\n
10. Employment with the Firm. (a) Member acknowledges that
\nAcquiror would not have entered into this Agreement or the Merger Agreement in
\nthe absence of Member’s agreement to the provisions of this Section 10, and
\nMember further acknowledges that such Member’s continued employment with the
\nFirm through the second anniversary of the Effective Time is essential to assure
\nthe proper integration of the business operations of the Company into the Firm
\nand is an important factor to the continued success of the Firm’s operations and
\nits future prospects. Accordingly, Member hereby agrees to remain employed with
\nthe Firm for the period commencing on the Effective Time through the second<\/p>\n
-12-
\n 76<\/p>\n
anniversary of the Effective Time (the “Initial Employment Period”). After the
\nInitial Employment Period (unless otherwise agreed by Member and the Firm in
\nwriting), there will be no set term of employment. The Firm may terminate
\nMember’s employment at any time during or after the Initial Employment Period
\nfor any reason, or for no reason, and Member may terminate employment for any
\nreason or no reason after the Initial Employment Period. Such termination shall
\nbe effected only by giving not less than ninety (90) days’ prior written notice
\nof termination; provided, however, that (i) the Firm may elect to place Member
\non paid leave for all or any part of such 90-day period; (ii) no advance notice
\nneed be given by the Firm to Member in connection with a termination of Member’s
\nemployment for Cause or on account of Disability; and (iii) provided that the 90
\ndays prior written notice is given, Member may terminate his employment during
\nthe Initial Employment Period on account of Good Reason, Disability or with
\nAcquiror’s written consent. For purposes of this Section 10, “Good Reason”
\nmeans, without the consent of Member, a materially adverse alteration in
\nMember’s position or in the nature or status of Member’s responsibilities from
\nthose in effect immediately after the Effective Time, or (ii) the Firm’s
\nrequiring Member’s principal place of employment to be located more than
\nseventy-five (75) miles from the location at which Member is principally
\nemployed immediately after the Effective Time (except for required travel on the
\nFirm’s business to an extent substantially consistent with Member’s customary
\nbusiness travel obligations in the ordinary course of business prior to the
\nEffective Time). For purposes of this Section 10, “Disability” means Member’s
\nabsence from employment for at least 180 days in any 12-month period as a result
\nof Member’s incapacity due to mental or physical illness or incapacity, as
\nreasonably determined by the Firm.<\/p>\n
(b) At the outset of the Employment Period, Member’s duties and
\nresponsibilities will not be, without Member’s written consent, materially
\ndiminished from Member’s duties and responsibilities immediately prior to the
\nEffective Time (it being understood that any diminishment in duties or
\nresponsibilities as a result of the Company and its Affiliates being
\nSubsidiaries of Acquiror shall be disregarded). During the Employment Period:
\n(i) Member will have such duties and responsibilities as the Firm may from time
\nto time determine; (ii) Member will devote his entire working time, labor, skill
\nand energies to the business and affairs of the Firm, provided, however, that
\nMember shall not be prohibited from making passive personal investments or
\nconducting private affairs if those activities do not interfere with the
\nservices required under this Agreement; and (iii) Member will be paid such base
\nsalary and other compensation as shall be separately communicated to him.<\/p>\n
(c) It is understood and agreed that the provisions of this
\nSection 10 shall not apply to: Pumpkin Trust; Michael Appleby; Patrick C. Boyle;
\nMichael H. Davis; Robert W. Luckow; Lowell J. Millar; William G. Peskoff; Norman
\nR. Schlanger; Alfred Thomas; and Frank Weinberg III (collectively, the “Retiring
\nMembers”).<\/p>\n
11. Transfer of Client Relationships. (a) During the Coverage
\nPeriod, Member hereby agrees to take all actions and do all such things as may
\nbe reasonably requested by the Firm from time to time to maintain for the Firm
\nthe business, goodwill, and <\/p>\n
-13-
\n 77<\/p>\n
business relationships with any of the Firm’s Clients with whom Member worked
\nduring the term of Member’s employment with the Firm.<\/p>\n
(b) For purposes of this Agreement, the term “Coverage Period”
\nmeans, the 90-day period beginning on the date on which notice of Member’s
\ntermination of employment is delivered to or by the Firm pursuant to Section 10,
\nor in the case of termination of Member’s employment by the Firm for Cause or on
\naccount of Extended Absence, the 90-day period beginning on the date of
\ntermination.<\/p>\n
12. Prior Notice Required. Member hereby agrees that prior to
\naccepting employment with any other person or entity prior to the date of
\ntermination, Member will provide such prospective employer with written notice
\nof the provisions of this Agreement, with a copy of such notice delivered
\nsimultaneously to the General Counsel of Acquiror.<\/p>\n
13. Indemnification. Member hereby agrees that it shall indemnify
\neach Acquiror Party as an Indemnifying Party as set forth in Articles 7 and 9 of
\nthe Merger Agreement.<\/p>\n
14. Taxes.<\/p>\n
(a) Tax Returns. Member hereby agrees to prepare and file (or
\ncause to be prepared and filed) when due (taking into account any applicable
\nextensions) all of his, her or its Tax Returns related to periods during which
\nthe Merger occurs, and Member will timely pay all Taxes reflected on such Tax
\nReturns (or which are due with respect to such Tax Returns after adjustment by
\nany taxing authority). Member further agrees to cooperate with Acquiror and to
\nprovide Acquiror with any documentation as reasonably requested in establishing
\nthe timely filing of such Tax Returns and timely payment of such Taxes.<\/p>\n
(b) Tax Treatment of the Common Stock. Member agrees that the
\nAcquiror Common Stock subject to the restrictions on Transfer (as described in
\nSection 4 herein) and received by the Members in the Merger will be valued for
\nall U.S. federal income tax purposes at 100% of the mean of the high and low of
\nthe trading price of the Acquiror Common Stock on the Effective Date.<\/p>\n
(c) Cooperation. Member agrees to cooperate with the Tax Matters
\nPartner (as defined in Section 6231(a)(7) of the Code) (or its designee) to the
\nextent reasonably requested in any Tax audit, examination or other proceeding
\ninvolving the Company, the Partnership or any Subsidiary that is treated as a
\npartnership for U.S. federal income tax purposes for any taxable period that
\nrelates to periods prior to the Closing. Member further agrees that the existing
\nTax Matters Partner (or if the existing Tax Matters Partners does not so act,
\nthe Acquiror (or its designee)) shall have the right to designate or appoint any
\nindividual or entity in the name and on behalf of such Member, as the Tax
\nMatters Partner, with respect to any taxable year of the Company, the
\nPartnership or any of their Subsidiaries.<\/p>\n
-14-
\n 78<\/p>\n
(d) Overpayments and Underpayments. The parties hereby agree that
\nin the event the Company makes distributions to Member pursuant to the terms of
\n4.01(c)(i) or (iv) of the Merger Agreement, the parties shall as promptly as
\npracticable after the Closing determine whether the actual amount of Taxes owed
\nby Member in respect of the net earnings of the Company during the period from
\nJuly 1, 2000 to the Closing Date (after taking into account Tax credits and
\nother available Tax assets and not including any Taxes payable as the result of
\nsales or other dispositions requiring the recognition of unrealized gains
\nreflected on the June 30, 2000 Financial Statements (including the “short
\nagainst the box” positions)) is greater than (an “Underpayment”) or less than
\n(an “Overpayment”) the amounts distributed to such Member with respect to the
\nperiod from July 1, 2000 to the Closing Date in respect to such Taxes, and, in
\nthe event of an Overpayment, Member shall promptly pay to Acquiror and, in the
\nevent of an Underpayment, Acquiror shall promptly pay to Member, the amount of
\nsuch difference.<\/p>\n
15. Intentionally Omitted.<\/p>\n
16. Covenants Generally. (a) Member’s covenants as set forth in
\nSections 5 through 14 of this Agreement are from time to time referred to herein
\nas the “Covenants.” If any of the Covenants is finally held to be invalid,
\nillegal or unenforceable (whether in whole or in part), such Covenant shall be
\ndeemed modified to the extent, but only to the extent, of such invalidity,
\nillegality or unenforceability and the remaining such Covenants (or part of such
\nCovenants, as the case may be) shall not be affected thereby; provided, however,
\nthat if any of such Covenants is finally held to be invalid, illegal or
\nunenforceable because it exceeds the maximum scope determined to be acceptable
\nto permit such provision to be enforceable, such Covenant will be deemed to be
\nmodified to the minimum extent necessary to modify such scope in order to make
\nsuch provision enforceable hereunder.<\/p>\n
(b) Member understands that the provisions of the Covenants may
\nlimit Member’s ability to earn a livelihood in a business similar to the
\nbusiness of the Firm.<\/p>\n
(c) Member acknowledges that a violation on Member’s part of any
\nof the Covenants would cause irreparable damage to the Firm. Accordingly, Member
\nagrees that the Firm will be entitled to injunctive relief for any actual or
\nthreatened violation of any of the Covenants in addition to any other remedies
\nit may have.<\/p>\n
(d) Acquiror will at all times maintain an effective S-8 or other
\nregistration statement covering shares of Acquiror Common Stock to be delivered
\npursuant to the restricted stock unit awards specified in Section 3.05 of the
\nMerger Agreement and in connection with the administration of such awards shall
\ntreat the Member in the same manner as similarly titled employees of Acquiror
\nand its subsidiaries.<\/p>\n
17. Waiver and Release. (a) Member hereby irrevocably waives any
\nright to contest the terms of the Merger Agreement and the transactions
\ncontemplated thereby, <\/p>\n
-15-
\n 79<\/p>\n
whether on the grounds of unequal or disparate treatment, inconsistency or
\nconflict with the terms and provisions of the Operating Agreement.<\/p>\n
(b) Member hereby irrevocably releases Acquiror, each and every
\naffiliate, shareholder, subsidiary, partner, officer, member, director and
\nemployee of Acquiror and its affiliates in their capacities as such
\n(“Releasees”) from any claims, liabilities, costs, expenses, actions, suits or
\ndemands however arising, whether at law or in equity, contingent, known or
\nunknown, which Member or his heirs, successors or assigns may have or assert, in
\nrespect of any interest in the Company and its affiliates or arising out of any
\nMembership Interest, Partnership Interest, or Member, partnership or employment
\nrelationship with the Company or its affiliates which Member or Member’s heirs,
\nsuccessors or assigns may have or have had; provided that this release shall not
\nextend to (i) agreements entered into hereunder or in connection with the
\ntransactions contemplated by the Merger Agreement and (ii) any conduct that
\nresulted from a Releasee’s bad faith, fraud or criminal act or omission.<\/p>\n
18. Arbitration. Subject to the provisions of Sections 19 and 20
\nhereof, any dispute, controversy or claim between Member and the Firm arising at
\nor after the Effective Time out of or relating to or concerning the provisions
\nof this Agreement, relating to or arising out of Member’s employment with the
\nFirm or otherwise concerning any rights, obligations or other aspects of
\nMember’s employment relationship in respect of the Firm (“Employment Related
\nMatters”), shall be finally settled by arbitration in New York City before, and
\nin accordance with the rules then obtaining of, the New York Stock Exchange,
\nInc. (the “NYSE”) or, if the NYSE declines to arbitrate the matter, the American
\nArbitration Association (the “AAA”) in accordance with the commercial
\narbitration rules of the AAA.<\/p>\n
19. Injunctive Relief; Submission to Jurisdiction; Specific
\nPerformance. (a) Notwithstanding the provisions of Section 18, and in addition
\nto its right to submit any dispute or controversy to arbitration, the Firm may
\nbring an action or special proceeding in a state or federal court of competent
\njurisdiction sitting in the City of New York, whether or not an arbitration
\nproceeding has theretofore been or is ever initiated, for the purpose of
\ntemporarily, preliminarily, or permanently enforcing the provisions of the
\nCovenants, or to enforce an arbitration award, and, for the purposes of this
\nSection 19, Member (i) expressly consents to the application of Section 20 to
\nany such action or proceeding, (ii) agrees that proof will not be required that
\nmonetary damages for breach of the provisions of the Covenants would be
\ndifficult to calculate and that remedies at law would be inadequate and (iii)
\nirrevocably appoints the General Counsel of Acquiror as Member’s agent for
\nservice of process in connection with any such action or proceeding, who shall
\npromptly advise Member of any such service of process.<\/p>\n
(b) Each party hereto severally acknowledges that it will be
\nimpossible to measure in money the damage to the other party if the party hereto
\nfails to comply with any of the obligations imposed by this Agreement and that
\nevery such obligation is material. Accordingly, each party hereto severally
\nagrees that injunctive relief or other equitable remedy, in addition to remedies
\nat law or damages, is the appropriate remedy for any such <\/p>\n
-16-
\n 80<\/p>\n
failure and will not oppose the granting of such relief on the basis that the
\nother party has an adequate remedy at law.<\/p>\n
20. Choice of Forum. (a) MEMBER AND THE FIRM HEREBY IRREVOCABLY
\nSUBMIT TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN
\nTHE CITY OF NEW YORK OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
\nRELATING TO OR CONCERNING THIS AGREEMENT OR ANY EMPLOYMENT RELATED MATTER THAT
\nIS NOT OTHERWISE ARBITRATED ACCORDING TO THE PROVISIONS OF SECTION 18 HEREOF.
\nThis includes any suit, action or proceeding to compel arbitration or to enforce
\nan arbitration award. This also includes any suit, action, or proceeding arising
\nout of or relating to any post-employment Employment Related Matters. Member and
\nthe Firm acknowledge that the forum designated by this Section 20 has a
\nreasonable relation to this Agreement, and to Member’s relationship to the Firm.
\nNotwithstanding the foregoing, nothing herein shall preclude the Firm from
\nbringing any action or proceeding in any other court for the purpose of
\nenforcing the provisions of Sections 18, 19 or 20.<\/p>\n
(b) The agreement of Member and the Firm as to forum is
\nindependent of the law that may be applied in the action, and Member and the
\nFirm agree to such forum even if the forum may under applicable law choose to
\napply non-forum law. Member and the Firm hereby waive, to the fullest extent
\npermitted by applicable law, any objection which Member or the Firm now or
\nhereafter may have to personal jurisdiction or to the laying of venue of any
\nsuch suit, action or proceeding in any court referred to in Section 20(a).
\nMember and the Firm undertake not to commence any action arising out of or
\nrelating to or concerning this Agreement in any forum other than a forum
\ndescribed in this Section 20. Member and the Firm agree that, to the fullest
\nextent permitted by applicable law, a final and non-appealable judgment in any
\nsuch suit, action or proceeding in any such court shall be conclusive and
\nbinding upon Member and the Firm.<\/p>\n
21. Choice of Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
\nCONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
\nTO PRINCIPLES OF CONFLICT OF LAWS.<\/p>\n
22. No Right to Employment. Nothing in this Agreement or the
\nMerger Agreement shall confer upon Member the right to employment or continued
\nemployment by the Firm or affect the Firm’s right to terminate such employment
\nat will.<\/p>\n
23. Miscellaneous. (a) This Agreement and the Merger Agreement
\nshall supersede any other agreement, written or oral, pertaining to the matters
\ncovered herein.<\/p>\n
(b) Notices hereunder shall be delivered to Acquiror at its
\nprincipal executive office directed to the attention of its General Counsel, and
\nto Member at Member’s last address appearing in the Firm’s employment records.<\/p>\n
-17-
\n 81<\/p>\n
(c) This Agreement may not be amended or modified, other than by
\na written agreement executed by Member and Acquiror or its successors, nor may
\nany provision hereof be waived other than by a writing executed by Member or
\nAcquiror or its successors; provided, that any waiver, consent, amendment or
\nmodification of any of the provisions of this Agreement will not be effective
\nagainst the Firm without the written consent of Acquiror or its successors.
\nMember may not, directly or indirectly (including by operation of law), assign
\nMember’s rights or obligations hereunder without the prior written consent of
\nAcquiror or its successors, and any such assignment by Member in violation of
\nthis Agreement shall be void. This Agreement shall be binding upon Member’s
\npermitted successors and assigns. Without impairing Member’s obligations
\nhereunder, Acquiror may at any time and from time to time assign its rights and
\nobligations hereunder to any of its subsidiaries or affiliates (and have such
\nrights and obligations reassigned to it or to any other subsidiary or
\naffiliate). This Agreement shall be binding upon and inure to the benefit of the
\nFirm and its assigns.<\/p>\n
(d) Without limiting the provisions of Section 16(a) hereof, if
\nany provision of this Agreement is finally held to be invalid, illegal or
\nunenforceable (whether in whole or in part), such provision shall be deemed
\nmodified to the extent, but only to the extent, of such invalidity, illegality
\nor unenforceability and the remaining provisions shall not be affected thereby.<\/p>\n
(e) Except as expressly provided herein, this Agreement shall not
\nconfer on any person other than Acquiror, the Firm and each Member any rights or
\nremedies hereunder.<\/p>\n
(f) The captions in this Agreement are for convenience of
\nreference only and shall not define or limit the provisions hereof.<\/p>\n
-18-
\n 82<\/p>\n
IN WITNESS WHEREOF, each signatory hereto has caused this
\nAgreement, including the written consent evidenced hereby, to be executed and
\ndelivered this 10th day of September, 2000.<\/p>\n
THE GOLDMAN SACHS GROUP, INC.
\n (on its behalf, and on behalf of its
\n subsidiaries and affiliates)<\/p>\n
By:
\n ——————————–
\n Name:<\/p>\n
SLK LLC
\n (with respect to Section 1(b) only)
\n By SLK Management Inc., its Managing
\n Member<\/p>\n
By:
\n ——————————–
\n Name:<\/p>\n
(As received by SLK LLC at its principal office)<\/p>\n
MEMBER<\/p>\n
———————————
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