TRANSACTION AGREEMENT

Exhibit 2.2

TRANSACTION AGREEMENTDated as of April 22, 2005by and amongThe Nasdaq Stock Market, Inc.,Norway Acquisition Corp.andIceland Acquisition Corp.

 

 

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TABLE OF CONTENTS

 

 

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SCHEDULES

 

Disclosure Schedule

 

EXHIBITS

 

Exhibit A – Form of Transition Services Agreement

 

Exhibit B – Form of Amendment to Clearing Agreement

 

Exhibit C – Form of Co-Location Agreement

 

Exhibit D – Form of Billing and VTE License Agreement

 

Exhibit E – Retained Business Balance Sheet as of December 31, 2004

 

Exhibit F – Newco Business Balance Sheet as of December 31, 2004

 

Exhibit G – Form of First Amendment to Sublease

 

 

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TRANSACTION AGREEMENT

 

THIS TRANSACTION AGREEMENT (this “ Agreement ”) is made and entered into as of April 22, 2005, by and among The Nasdaq Stock Market, Inc., a Delaware corporation (“ Parent ”), the Company (as defined herein) and Iceland Acquisition Corp., a Delaware corporation (“ Newco ”).

 

WHEREAS, concurrently with the execution of this Agreement, the Company has entered into an Agreement and Plan of Merger, dated as of the date hereof, by and among Instinet Group Incorporated, a Delaware corporation (“ Instinet ”), Parent and the Company (the “ Merger Agreement ”), pursuant to which, among other things, the Company will merge with and into Instinet (the “ Merger ”); and

 

WHEREAS, immediately after the Effective Time (as defined herein), Parent, the Company and Newco desire to consummate the sale to Newco of all the Newco Assets (as defined herein), subject to the assumption of the Newco Liabilities (as defined herein), and upon the terms and subject to the conditions set forth herein.

 

NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements set forth herein, the parties hereto, intending to be legally bound hereby, agree as follows:

 

ARTICLE IDEFINITIONS

 

Section 1.1 General

. As used in this Agreement, the following terms shall have the following meanings:

 

“ Accountant ” shall have the meaning set forth in Section 4.9.

 

“ Action ” means any suit, claim, action, arbitration, inquiry, proceeding or investigation by or before any Authority.

 

“ Affiliate ” means a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.

 

“ Aged Receivable ” means an accounts receivable of the Retained Business that is outstanding for more than 90 days but for less than 181 days as of the close of business on the final day of the month ending immediately prior to the Closing Date to the extent it is reflected in “Accounts Receivable, net”, on the Final Retained Business Working Capital Statement.

 

“ Aged Receivable Collection Amount ” shall have the meaning set forth in Section 2.9(c).

 

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“ Aged Receivables Excess ” shall have the meaning set forth in Section 2.8(a).

 

“ Aged Receivables Percentage ” means a fraction, the numerator of which equals the Aged Receivables Excess, and the denominator of which equals the aggregate amount of all Aged Receivables.

 

“ Agreement ” shall have the meaning set forth in the Recitals.

 

“ Allocation Schedule ” shall have the meaning set forth in Section 2.6.

 

“ Ancillary Agreements ” means (a) the Transition Services Agreement in the form attached as Exhibit A, (b) the Amendment to Clearing Agreement in the form attached as Exhibit B, (c) the Co-Location Agreement in the form attached as Exhibit C and (d) the Billing and VTE License Agreement in the form attached as Exhibit D.

 

“ Antitrust Law ” means any Law that is designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade, or the lessening of competition through merger or acquisition, specifically including, the Sherman Antitrust Act of 1890, the Clayton Act of 1914, the HSR Act, and the Federal Trade Commission Act of 1914.

 

“ Applicable Authority ” means the persons set forth on Part F of Schedule 1.1 of the Disclosure Schedule.

 

“ Archipelago Offset Amoun t” shall have the meaning set forth in the definition of VAB Tax Attribute.

 

“ Archipelago Sale ” means any sale of shares of Archipelago Holdings Inc. held by Instinet or any of its Subsidiaries as of the date of this Agreement and sold by Instinet or any its Subsidiaries prior to the Closing Date.

 

“ Archipelago Tax Benefit ” means the economic benefit resulting from the application of the Archipelago Offset Amount against the LJR Gain pursuant to Section 4.5(b) or 4.5(c).

 

“ Asset ” means, with respect to any person, except as otherwise provided herein, any and all of its right, title and interest in and to all of the rights, properties, assets, claims, contracts and businesses of every kind, character and description, whether real, personal or mixed, tangible and intangible, whether accrued, contingent or otherwise, of every kind and description and wherever located, owned or used by such person, including (i) all cash, cash equivalents, notes and accounts receivable (whether current or non-current), deposit accounts, securities accounts and other banks accounts; (ii) all certificates of deposit, banker’s acceptances and other investment securities; (iii) all patents, patent rights, trademarks, service marks, trademark and service mark rights, trade names, trade name rights, domain names, copyrights, data rights, privacy rights, publicity rights, registrations or applications for any of the foregoing, trade secrets, works of authorship, technology and know-how (including all data bases, customer lists,

 

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confidential information, discoveries, inventions and improvements), and other proprietary rights and information; (iv) all rights existing under leases, contracts, licenses, service agreements, sales and purchase agreements, other agreements and business arrangements and all policies of insurance and proceeds, benefits and rights to coverage under insurance policies; (v) all real estate and all buildings and other improvements thereon; (vi) all leasehold improvements and all equipment (including all office equipment), fixtures, trade fixtures and furniture; (vii) all office supplies, other miscellaneous supplies and other tangible property of any kind; (viii) all computer hardware, software, computer programs and systems and documentation relating thereto, including all databases and reference and resource materials; (ix) all prepayments or prepaid expenses; (x) all claims, causes of action, rights of recovery, rights to sue for past, present and future infringement of any intellectual property rights and rights of set-off of any kind; (xi) the right to receive mail, accounts receivable payments and other communications; (xii) all customer lists and records pertaining to customers and accounts, personnel records, all lists and records pertaining to suppliers and agents, and all books, ledgers, files and business records of every kind and all minute books, stock ledgers and other corporate books and records; (xiii) all advertising materials and all other printed or written materials; (xiv) all permits, waivers, licenses, approvals and authorizations of governmental authorities or third parties relating to the ownership, possession or operation of the Assets; (xv) all capital stock, partnership interests and other equity or ownership interests or rights, directly or indirectly, in any Subsidiary of such person or other entity; (xvi) all goodwill as a going concern and all other intangible properties; (xvii) all net operating losses, tax credits, net capital losses or any other tax attributes which are held by such person as a matter of Law; and (xviii) all employee contracts, including the right thereunder to restrict the employee from competing in certain respects.

 

“ Assumed Non-U.S. Benefit Plans ” has the meaning set forth in Section 8.2(b).

 

“ Assumed U.S. Benefit Plans ” has the meaning set forth in Section 8.2(a).

 

“ Authority ” means any court, arbitrator, administrative or other governmental department, agency, commission, tribunal, authority or instrumentality, domestic (including federal, state or local) or foreign or any Self-Regulatory Organization, which has authority or jurisdiction over the Company or any of its Subsidiaries or any of their respective properties or assets.

 

“ Available Merger Consideration Cash ” means all cash held in U.S. Dollars by Instinet, including the net after-tax proceeds of the LJR Sale, at the Effective Time to the extent such cash is immediately available without restriction for use in the payment of Merger Consideration (as defined in the Merger Agreement) and the cash out of the Company Options (as defined in the Merger Agreement) pursuant to and in accordance with Article 3 of the Merger Agreement.

 

“ Burdensome Condition ” shall have the meaning set forth in Section 6.6(h).

 

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“ Carry Tax Years ” shall have the meaning set forth in Section 4.5(e).

 

“ CBX ” shall have the meaning set forth in Section 6.10(a).

 

“ Closing ” shall have the meaning set forth in Section 2.4.

 

“ Closing Date ” means the date on which the Merger is consummated, provided that all of the conditions set forth in Section 9.1 have been satisfied or waived by the applicable party or parties, which date shall be the first business day following the last day of an Instinet fiscal month end unless another date is agreed upon by the parties.

 

“ Closing Date Newco Business Working Capital Amount ” shall have the meaning set forth in Section 2.7(a).

 

“ Closing Date Receivables ” means all accounts receivable of the Retained Business that are outstanding for less than 181 days as of the close of business of the final day of the month ending immediately prior to the Closing Date to the extent reflected in “Accounts Receivable, net”, on the Final Retained Business Working Capital Statement.

 

“ Closing Date Retained Business Working Capital Amount ” shall have the meaning set forth in Section 2.7(a).

 

“ Closing Date Working Capital Amounts ” shall have the meaning set forth in Section 2.7(a).

 

“ Code ” means the Internal Revenue Code of 1986.

 

“ Company ” means (a) prior to the Effective Time, Norway Acquisition Corp., a Delaware corporation, and (b) after the Effective Time, Instinet, as the surviving corporation in the Merger.

 

“ Company Indemnitees ” shall have the meaning set forth in Section 5.1.

 

“Company Percentage” means 85.58%.

 

“ Consolidated Return ” shall have the meaning set forth in Section 4.1.

 

“ Convertible Notes Documents ” means the Convertible Notes Securities Purchase Agreement and the other Transaction Documents (as defined in the Convertible Notes Securities Purchase Agreement).

 

“ Convertible Notes Securities Purchase Agreement ” means the Securities Purchase Agreement, dated as of April 22, 2005, between Parent and Norway Acquisition SPV, LLC, a Delaware limited liability company.

 

“ Determination Month ” shall have the meaning set forth in Section 2.8(a).

 

“ Disclosure Schedule ” means the disclosure schedule dated as of the date hereof and attached hereto.

 

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“ ECN Entities ” means IHCI and each of its Subsidiaries, including the entities set forth on Part A of Section 1.1 of the Disclosure Schedule.

 

“ Effective Time ” shall have the meaning provided for such term in the Merger Agreement.

 

“ ERISA ” shall have the meaning set forth in Section 8.2(a).

 

“ Excess Dissenting Shares Liability ” shall have the meaning set forth in clause (ii) of the definition of Shared Transaction Liabilities.

 

“ Final Newco Business Working Capital Statement ” shall have the meaning set forth in Section 2.7(e).

 

“ Final Retained Business Working Capital Statement ” shall have the meaning set forth in Section 2.7(e).

 

“ First Parent Year ” shall have the meaning set forth in Section 4.5(c).

 

“ GAAP ” means U.S. generally accepted accounting principles.

 

“ HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

 

“ IHCI ” means INET Holding Company Inc., a Delaware corporation.

 

“ Indemnifiable Losses ” means any and all losses, Liabilities, claims, damages, obligations, payments, costs and expenses (including the Liabilities, costs and expenses of any and all Actions, demands, assessments, Judgments, settlements and compromises relating thereto and reasonable attorneys’ fees and expenses in connection therewith) suffered or incurred by an Indemnitee; provided , that the foregoing does not include any losses, Liabilities, claims, damages, obligations, payments, costs, fees or expenses arising out of or relating to any claim for loss of profits or earnings, diminution in value or incidental, indirect, special or consequential damages unless awarded against any Indemnitee in a Third Party Claim.

 

“ Indemnifying Party ” means any party or other person who is required to indemnify any other person pursuant to any indemnification provisions contained in this Agreement.

 

“ Indemnitee ” means any party or other person who is entitled to receive indemnification from an Indemnifying Person pursuant to any indemnification provisions contained in this Agreement.

 

“ INET Embedded Refund ” means the extent to which the Final Retained Business Working Capital Statement includes tax refunds that were filed for, but not received, in both cases prior to the Closing; for the avoidance of doubt, the Final Retained Business Working Capital Statement may reflect such filed for tax refunds that

 

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were filed for as positive quantities within the “Deferred Tax Assets” and/or “Taxes Receivable” line items, and/or within the “Taxes Payable” line item as negative or “contra” entries.

 

“ Information ” shall have the meaning set forth in Section 7.1.

 

“ Instinet ” shall have the meaning set forth in the Recitals.

 

“ Instinet Transaction Liabilities ” means Liabilities incurred by Instinet and its Affiliates for fees and expenses of investment bankers, attorneys, accountants and other consultants and advisors and other out-of-pocket costs and expenses incurred in connection with the transactions contemplated by the Merger Agreement (or any other transactions considered by Instinet and its Subsidiaries as alternatives to the Merger since November 18, 2004) and the LJR Sale that are incurred prior to Closing or arise from or relate to arrangements, agreements or commitments entered into or made by Instinet or its Affiliates prior to the Effective Time, including Liabilities for filing fees and printing and mailing costs and other expenses incurred in connection with the Proxy Statement (as defined in the Merger Agreement) and other out-of-pocket costs and expenses incurred in connection with Instinet’s and its Affiliates’ efforts to comply with the pre-closing covenants and agreements contained in the Merger Agreement (in all cases, excluding Parent/NAC Transaction Liabilities and Newco Transaction Liabilities).

 

“ IRS ” shall have the meaning set forth in Section 2.6.

 

“ Judgments ” means any and all judgments, orders, writs, directives, rulings, decisions, injunctions, decrees, assessments, settlement agreements (other than settlement agreements under which there are no continuing obligations) or awards of any Authority.

 

“ Laws ” means any and all applicable (a) federal, territorial, state, local and foreign laws, ordinances and regulations; (b) codes, standards, rules, requirements, orders and criteria issued under any federal, territorial, state, local or foreign laws, ordinances or regulations; (c) rules, guidelines or published interpretations of any Self-Regulatory Organization; and (d) Judgments.

 

“ Liabilities ” means, with respect to any person, any and all liabilities and obligations of such person, whether absolute, accrued, contingent, reflected on a balance sheet (or in the notes thereto) or otherwise, including those arising under any Law or Action, and those arising under any contract, commitment or undertaking, and including Tax liabilities (other than liabilities for Newco Business Taxes, Retained Business Taxes, Unallocated Taxes, Transaction Taxes and Transfer Taxes).

 

“ Lien ” means any lien, encumbrance, pledge, mortgage, security interest, claim under bailment, or storage contract.

 

“ Listed ” means, when referring to any Liability reflected on either the Final Retained Business Working Capital Statement or the Final Newco Business Working Capital Statement, “reflected on” or “reserved for” without regard to whether bthe amount of such Liability has been overstated, understated or is properly valued on or quantified on such statement.

 

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“ LJR ” means Lynch, Jones and Ryan, Inc., a Delaware corporation, and any predecessors thereof.

 

“ LJR Assets ” means the Assets of LJR at the time of the LJR Sale.

 

“ LJR Business ” means the business of LJR at the time of the LJR Sale and all former businesses of LJR.

 

“ LJR Employees ” means all employees of LJR at the time of the LJR Sale and all former employees of LJR.

 

“ LJR Gain ” means the taxable gain recognized on the LJR Sale for income tax purposes; provided , that , in the event that the Company reports both the LJR Sale and the sale of the Newco Business as occurring within the same federal income tax year of the Company pursuant to Section 4.16, the ordinary losses and capital losses from the sale of the Newco Business shall be netted against the ordinary gains and capital gains from the LJR Sale in accordance with applicable Law, and the LJR Gain may accordingly be reduced (but not below zero).

 

“ LJR Insurance Policy ” means the insurance policy contemplated to be purchased by Reuters America LLC in connection with the LJR Sale.

 

“ LJR Liabilities ” means Liabilities (other than Pre-Closing LJR Adjustment Liabilities, Shared Transaction Liabilities relating to the LJR Sale and Transaction Taxes relating to the LJR Sale) of the Company and its Subsidiaries relating directly to LJR, the LJR Assets, the LJR Sale, the LJR Sale Agreement, the LJR Business or the LJR Employees, in each case, to the extent such Liability is or becomes a Liability of the Company, any ECN Entity or any Newco Entity and is not reimbursed by Reuters Group PLC in a reasonable timely manner in accordance with the LJR Sale Agreement (as defined in the Merger Agreement) or covered by the LJR Insurance Policy and paid for by such insurance in a reasonable timely manner.

 

“ LJR Offset Loss ” shall have the meaning set forth in the definition of “VAB Tax Attributes.”

 

“ LJR Sale ” has the meaning provided for such term in the Merger Agreement.

 

“ LJR Sale Agreement ” has the meaning provided for such term in the Merger Agreement.

 

“ Merger ” shall have the meaning set forth in the Recitals.

 

“ Merger Agreement ” shall have the meaning set forth in the Recitals.

 

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“ Net VAB Transaction Loss ” shall have the meaning set forth in the definition of VAB Tax Attributes.

 

“ Neutral Auditors ” shall have the meaning provided in Section 2.7(d).

 

“ Newco ” shall have the meaning set forth in the Recitals.

 

“ Newco Action ” shall have the meaning set forth in Section 5.5.

 

“ Newco Adverse Effect ” means any event, occurrence, fact, condition, change, or effect that (A) would have the effect of decreasing either the Available Merger Consideration Cash or the Closing Date Retained Business Working Capital Amount or (B) is or would have an adverse effect on: (i) the VAB Purchase, (ii) Newco’s rights and obligations under this Agreement, (iii) Newco’s rights as a third party beneficiary of the Merger Agreement, (iv) the Newco Assets, the Newco Employees, the Newco Business or the Newco Liabilities, (v) the Final Newco Business Working Capital Statement, (vi) the probability that the transactions contemplated by this Agreement and the Merger Agreement will be consummated or (vii) the condition (financial or other) of Newco or any of the Newco Entities or any Affiliate of Newco; provided, that, notwithstanding the foregoing, none of the following shall constitute a Newco Adverse Effect: (a) Parent or the Company providing written notice to Instinet of a misrepresentation or breach of any representation, warranty, covenant or agreement made by Instinet in the Merger Agreement, (b) Parent or the Company asserting any right of termination under Article 8 of the Merger Agreement (other than Section 8.1 of the Merger Agreement) or (c) Parent or the Company asserting any right of termination under this Agreement.

 

“ Newco Assets ” means all Assets of the Company as of the Closing Date, including all cash of the Company (after giving effect to the transactions contemplated by clause (i) of Section 2.3(b) and Section 2.3(c)) not used to pay Merger Consideration (as defined in the Merger Agreement), cash out Company Options (as defined in the Merger Agreement) or make payments in respect of Appraisal Shares (as defined in the Merger Agreement) (calculated for this purpose to equal the Merger Consideration which would have otherwise been payable in respect of such Appraisal Shares) other than (a) the Retained Assets and (b) the LJR Assets. By virtue of acquiring the Newco Assets pursuant to this Agreement, after the Closing, Newco will directly or indirectly own all of the capital stock of the Newco Entities and the Assets of such entities, including the Newco Proprietary Name Rights, and such Assets of the Newco Entities will be considered Newco Assets for purposes of this Agreement; provided , that for purposes of the definition of Newco Adverse Effect and Sections 6.4(a), 6.6(b), 6.6(f) and 6.6(h), Newco Assets shall be deemed to include any Asset held by Instinet or any of its Subsidiaries that is of a type that if held by the Company on the Closing Date would constitute a Newco Asset.

 

“ Newco Business ” means all present and past businesses of Instinet and its Subsidiaries (and their respective predecessors) other than the Retained Business and the LJR Business.

 

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“ Newco Business Balance Sheet ” shall have the meaning set forth in Section 2.7(a).

 

“ Newco Business Price ” means $207,500,000.

 

“ Newco Business Working Capital Amount ” means, as of the close of business on a given date, an amount equal to the “Stockholders Equity” (as such term is used and calculated in the Newco Business Balance Sheet); provided , however , that, when calculating the Newco Business Working Capital Amount, the accrual for each Specified Non-Operating Liability (and related tax accruals) reflected thereon shall be the same as the December 31, 2004 accruals, if any, reflected on the Newco Business Balance Sheet for such Specified Non-Operating Liability.

 

“ Newco Business Working Capital Statement ” shall have the meaning set forth in Section 2.7(a).

 

“ Newco Business Working Capital Statement Proposals ” shall have the meaning set forth in Section 2.7(e).

 

“ Newco Competing Business ” shall have the meaning set forth in Section 6.10(a).

 

“ Newco Economic Tax Period ” means any taxable period beginning on or after January 1, 2004 and ending no later than the Closing Date.

 

“Newco Employees” means:

 

(i) all employees of Instinet and its Subsidiaries as of immediately prior to the Effective Time (other than the Retained Employees as of immediately prior to the Effective Time);

 

(ii) the individual listed on Section 6.10(c) of the Disclosure Schedule; and

 

(iii) with respect to Liabilities, all former employees of Instinet and its Subsidiaries (other than LJR Employees) that were (at the time the applicable Liability was incurred) employed solely or primarily in connection with the Newco Business;

 

provided , that for purposes of the definition of Newco Adverse Effect and Section 6.4(a), Newco Employees shall be deemed to include any employee of Instinet or any of its Subsidiaries who would be a Newco Employee if such person were employed by the Company on the Closing Date.

 

“ Newco Entities ” means all of the direct and indirect Subsidiaries of Instinet other than the ECN Entities, including the entities set forth on Part B of Section 1.1 of the Disclosure Schedule, but excluding LJR.

 

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“ Newco Indemnitees ” shall have the meaning set forth in Section 5.2.

 

“ Newco Liabilities ” means, without duplication:

 

(i) the obligations of Newco to perform and comply with its representations, warranties, covenants and agreements contained in this Agreement and Liabilities arising from or relating to any breach by Newco of such representations, warranties, covenants and agreements;

 

(ii) Liabilities (including indebtedness) Listed on the Final Newco Business Working Capital Statement; provided , that if a specific and unique Liability is Listed on both the Final Newco Business Working Capital Statement and the Final Retained Business Working Capital Statement (it being understood that this proviso shall not be deemed to apply to general balance sheet line items or categories of Liabilities), such specific and unique Liability will be allocated between Newco and the Newco Entities, on the one hand, and Parent, the Company and the ECN Entities, on the other hand, in proportion to the relative amounts of such Liability accrued, reflected or reserved for on such statements;

 

(iii) Liabilities of the Newco Entities (other than Retained Liabilities, Pre-Closing LJR Adjustment Liabilities, Unallocated Liabilities, Undisclosed Liabilities and Shared Transaction Liabilities);

 

(iv) Undisclosed Liabilities (whether first known to the parties before, on or after the Closing Date) to the extent directly related to the Newco Business, the Newco Assets or the Newco Employees;

 

(v) 50.0% of Pre-Closing Unallocated Undisclosed Liabilities;

 

(vi) the Newco Percentage of Unallocated Liabilities;

 

(vii) Newco Transaction Liabilities;

 

(viii) Newco Scheduled Liabilities;

 

(ix) the first $19,400,000 of Shared Transaction Liabilities (less the amount of Pre-Closing Shared Transaction Liabilities paid by Instinet and its Subsidiaries on or prior to the Closing Date);

 

(x) 50.0% of Pre-Closing Shared Transaction Liabilities in excess of the amount provided in clause (ix) above (less the amount of Pre-Closing Shared Transaction Liabilities paid by Instinet and its Subsidiaries on or prior to the Closing Date) but in no event more than $2.5 million pursuant to this clause (x);

 

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(xi) the Newco Percentage of Post-Closing Shared Transaction Liabilities in excess of the amount provided in clause (ix) above;

 

(xii) 50.0% of all Pre-Closing LJR Adjustment Liabilities (less the amount of any such Pre-Closing LJR Adjustment Liabilities paid by Instinet and its Subsidiaries on or prior to the Closing Date); and

 

(xiii) Liabilities that arise from or relate to the conduct of the Newco Business following the Closing.

 

“ Newco Names ” shall have the meaning set forth in Section 6.2.

 

“ Newco Percentage ” means 14.42%.

 

“ Newco Proprietary Name Rights ” shall have the meaning set forth in Section 6.2.

 

“ Newco Scheduled Liabilities ” means the Liabilities set forth on Part C of Section 1.1 of the Disclosure Schedule (it being understood that such Liabilities shall be deemed to be Newco Liabilities and not Retained Liabilities irrespective of whether or not any such Liabilities would fall within any category of Retained Liabilities as set forth in the definition thereof).

 

“ Newco Transaction Liabilities ” means Liabilities incurred by Newco and its Affiliates (i) for fees and expenses of investment bankers, attorneys, accountants and other consultants and advisors and other out-of-pocket costs and expenses, in each case, to the extent incurred in connection with the transactions contemplated by this Agreement (it being understood that inclusion of such fees and expenses in this definition shall have no effect on any provision of the Convertible Notes Documents relating to the obligation of Parent to reimburse such fees and expenses in accordance with the terms thereof), (ii) that arise from or relate to any Action initiated by any Authority or private party in connection with the transactions contemplated by this Agreement and the Merger Agreement and (iii) for Newco’s out-of-pocket costs and expenses, if any, associated with any attempt to transfer or failure to transfer any Newco Asset.

 

“ Parent ” shall have the meaning set forth in the Recitals.

 

“ Parent Competing Business ” shall have the meaning set forth in Section 6.10(b).

 

“ Parent/NAC Transaction Liabilities ” means Liabilities, other than Shared Transaction Liabilities, incurred by Parent, the Company and their Affiliates (i) for fees and expenses of investment bankers, attorneys, accountants and other consultants and advisors and other out-of-pocket costs and expenses, in each case, to the extent incurred in connection with the transactions contemplated by this Agreement and the Merger Agreement, (ii) that arise from or relate to any Action initiated by any Authority or private party in connection with the transactions contemplated by this Agreement and the Merger Agreement and (iii) subject to Section 6.1, the out-of-pocket costs and expenses,

 

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if any, of Parent and the Company associated with any attempt to transfer or failure to transfer any Newco Asset.

 

“ Parent Tax Attributes” means any net operating losses, net capital losses or tax credits (other than the VAB Tax Attributes) of Parent or any of its Subsidiaries, including if held at the time of Closing, subsequently created, subsequently acquired, or acquired as part of the Merger.

 

“ Post-Closing Shared Transaction Liabilities ” means Shared Transaction Liabilities that are either (i) Instinet Transaction Liabilities that are not paid or invoiced on or prior to the Closing Date or (ii) Shared Transaction Litigation Liabilities that are not paid by Instinet or any Subsidiary thereof on or prior to the Closing Date or which are not the subject of a settlement (whether or not definitive) as of the Closing Date.

 

“ Post-Closing Unallocated Undisclosed Liabilities ” means Undisclosed Liabilities that are incurred on or prior to the Closing Date but do not become known to the parties until after the Closing Date, to the extent not directly related to the Newco Business, the Newco Assets, the Newco Employees, the Retained Business, the Retained Assets or the Retained Employees.

 

“ Pre-Closing LJR Adjustment Liabilities ” means Liabilities incurred by Instinet and its Subsidiaries on or prior to the Closing Date pursuant to Section 2.3 or 2.4 of the LJR Sale Agreement (as defined in the Merger Agreement).

 

“ Pre-Closing Shared Transaction Liabilities ” means Shared Transaction Liabilities that are either (i) Instinet Transaction Liabilities that are paid on or prior to the Closing Date (or are the subject of an invoice delivered on or prior to the Closing Date) or (ii) all Shared Transaction Litigation Liabilities that are paid by Instinet or any Subsidiary thereof on or prior to the Closing Date or which are the subject of a settlement (whether or not definitive) as of the Closing Date.

 

“ Pre-Closing Unallocated Undisclosed Liabilities ” means Undisclosed Liabilities that are incurred and become known to the parties on or prior to the Closing Date to the extent not directly related to the Newco Business, the Newco Assets, the Newco Employees, the Retained Business, the Retained Assets or the Retained Employees.

 

“ Pro Forma Loss Amount ” means, for each taxable year beginning on or after January 1, 2005 and ending on or prior to the Closing Date and the pre-Closing portion (as determined below) of any taxable period beginning before and ending after the Closing Date, the excess, if any, of (x) the aggregate amount of deductions taken by the consolidated federal income tax group of which Instinet is the common parent for the federal income tax year in which the LJR Sale occurs less the amount of Restructuring Deductions taken by Instinet and its Subsidiaries in such tax year over (y) the gross income of such consolidated federal income tax group for such federal income tax year under Section 61 of the Code less the LJR Gain; it being understood that if Instinet has not filed its federal Tax Return for such tax year as of the Closing Date, Instinet shall

 

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estimate in good faith the amount of the Pro Forma Loss Amount, and such estimate shall be adjusted when Instinet actually files such Tax Return. In the case of taxable periods that begin before and end after the Closing, the Pro Forma Loss Amount shall include only those amounts attributable to the portion of such taxable period ending on and including the Closing Date, determined on an “interim closing of the books” as of such date.

 

“ Purchase Price ” shall have the meaning set forth in Section 2.3.

 

“ Reference Balance Sheets ” shall have the meaning set forth in Section 2.7(a).

 

“ Representatives ” shall have the meaning set forth in Section 5.1.

 

“ Resolution Period ” shall have the meaning set forth in Section 2.7(c).

 

“ Restructuring Deduction ” means any Tax deduction of Instinet or any of its Subsidiaries taken with respect to the period from and including January 1, 2005 to and including the Closing Date and attributable to any Restructuring Tax Asset.

 

“ Restructuring Tax Assets ” means deferred tax assets of the Newco Business as of December 31, 2004 relating to (i) accrued compensation (in the amount of $2.5 million as of December 31, 2004, comprised primarily of annual bonuses); (ii) accrued restructuring (in the amount of $12.4 million as of December 31, 2004, comprised primarily of severance, termination of leases and technology write downs); and (iii) other accruals (in the amount of $7.8 million as of December 31, 2004, comprised primarily of accrued legal fees, accrued medical fees, accrued communication, accrued post-retirement benefits, prepaid insurance, deferred income, deferred rent, excess charitable deductions and supplemental employee retirement plan expense), all as noted on the Newco Business Balance Sheet and supporting 2004 tax provision.

 

“ Retained Action ” shall have the meaning set forth in Section 5.5.

 

“ Retained Assets ” means (i) all of the capital stock of IHCI, (ii) the rights of the Company under this Agreement, (iii) all net operating losses, tax credits, net capital losses or any other tax attributes which are held by the Company or the Retained Business as a matter of Law (subject to the sharing of the economic impact of such tax attributes pursuant to Article IV), (iv) the stock books, minute books and corporate records of the Company and all other books and records of the Company relating solely to the Retained Assets, the Assets of the ECN Entities, the ECN Entities, the Retained Business or the Retained Liabilities and (v) subject to Section 6.14, all of the Company’s rights, if any, to coverage under the LJR Insurance Policy. By virtue of retaining all of the capital stock of IHCI after the Closing, the Company will indirectly own all of the Assets owned by IHCI, including the capital stock of the other ECN Entities and the Assets of such entities, including the Retained Proprietary Name Rights, and such Assets of the ECN Entities will be considered Retained Assets for purposes of this Agreement.

 

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“ Retained Business ” means all present and past businesses of Instinet and its Subsidiaries (and their respective predecessors) to the extent, in the case of Instinet and its Subsidiaries (other than the ECN Entities) only, such businesses constituted an electronic communications network or constituted a broker-dealer to broker-dealer execution services business or the former Instinet “sell-side” business.

 

“ Retained Business Balance Sheet ” shall have the meaning set forth in Section 2.7(a).

 

“ Retained Business Price ” means the amount equal to (x) $934,500,000, plus (y) the amount (not to exceed $30,800,000) of Cash and Securities Owned (as such terms are used on the Retained Business Balance Sheet) held by the ECN Entities on the Closing Date as provided in Section 6.18 of the Merger Agreement.

 

“ Retained Business Working Capital Adjustment ” shall have the meaning set forth in Section 2.7(f).

 

“ Retained Business Working Capital Amount ” means, as of the close of business on a given date, an amount equal to the sum of (A) “Stockholder’s Equity” (as such term is used in the Retained Business Balance Sheet), minus (B) the sum of (x) “Intangible assets, net” (as such term is used in the Retained Business Balance Sheet), (y) “Fixed assets, net” (as such term is used in the Retained Business Balance Sheet) and (z) “Deferred Tax Assets, net” associated with fixed assets and intangible assets, bad debt and net operating losses (as such terms are used and calculated in the Retained Business Balance Sheet); provided , however , that, for purposes of calculating the Retained Business Working Capital Amount, in no event shall accounts receivable that are outstanding for more than 90 days but for less than 181 days be reflected in an aggregate amount in excess of the product of (i) 0.35 multiplied by (ii) the aggregate amount of all accounts receivable of the Retained Business that are outstanding for less than 181 days (notwithstanding the exclusion of such accounts receivable in the calculation of the Retained Business Working Capital Amount, such excess accounts receivable shall be reflected in “Accounts Receivable, net”, on the Retained Business Working Capital Statement and the Final Retained Business Working Capital Statement); provided , further , that, when calculating the Retained Business Working Capital Amount the accrual for each Specified Non-Operating Liability (and any related tax accruals) shall be the same as the December 31, 2004 accruals, if any, reflected on the Retained Business Balance Sheet for such Specified Non-Operating Liability (it being understood that if the Retained Business Balance Sheet did not contain any accrual for such Specified Non-Operating Liability, there shall be no accrual therefor when calculating the Retained Business Working Capital Amount).

 

“ Retained Business Working Capital Statement ” shall have the meaning set forth in Section 2.7(a).

 

“ Retained Business Working Capital Statement Proposals ” shall have the meaning set forth in Section 2.7(e).

 

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“ Retained Employees ” means:

 

(i) employees of the ECN Entities as of immediately prior to the Effective Time (other than the individual listed on Section 6.10(c) of the Disclosure Schedule); and

 

(ii) with respect to Liabilities, former employees of Instinet and its Subsidiaries (other than LJR Employees) that were (at the time the applicable Liability was incurred) employed solely or primarily in connection with the Retained Business.

 

“ Retained Liabilities ” means, without duplication:

 

(i) the obligations of Parent and the Company to perform and comply with their respective representations, warranties, covenants and agreements contained in this Agreement and Liabilities arising from or relating to any breach by the Company or Parent of such representations, warranties, covenants and agreements;

 

(ii) Liabilities (including indebtedness) Listed on the Final Retained Business Working Capital Statement; provided , that if a specific and unique Liability is Listed on both the Final Newco Business Working Capital Statement and the Final Retained Business Working Capital Statement (it being understood that this proviso shall not be deemed to apply to general balance sheet line items or categories of Liabilities), such specific and unique Liability will be allocated between Newco and the Newco Entities, on the one hand, and Parent, the Company and the ECN Entities, on the other hand, in proportion to the relative amounts of such Liability accrued, reflected or reserved for on such statements;

 

(iii) Liabilities of the ECN Entities (other than Newco Liabilities, Pre-Closing LJR Adjustment Liabilities, Unallocated Liabilities, Undisclosed Liabilities and Shared Transaction Liabilities);

 

(iv) Undisclosed Liabilities (whether first known to the parties before, on or after the Closing Date) to the extent directly related to the Retained Business, the Retained Assets or the Retained Employees;

 

(v) 50.0% of Pre-Closing Unallocated Undisclosed Liabilities;

 

(vi) the Company Percentage of Unallocated Liabilities;

 

(vii) Parent/NAC Transaction Liabilities;

 

(viii) Retained Scheduled Liabilities;

 

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(ix) Shared Transaction Liabilities to the extent not covered by clause (ix), (x) and/or (xi) of the definition of Newco Liabilities;

 

(x) 50.0% of all Pre-Closing LJR Adjustment Liabilities; and

 

(xi) Liabilities that arise from or relate to the conduct of the Retained Business following the Closing.

 

“ Retained Names ” shall have the meaning set forth in Section 6.2.

 

“ Retained Proprietary Name Rights ” shall have the meaning set forth in Section 6.2.

 

“ Retained Scheduled Liabilities ” means the Liabilities set forth on Part D of Section 1.1 of the Disclosure Schedule (it being understood that such Liabilities shall be deemed to be Retained Liabilities and not Newco Liabilities irrespective or whether or not any such Liabilities would fall within any category of Newco Liabilities set forth in the definition thereof).

 

“ Reuters ” shall have the meaning set forth in Section 8.2(b).

 

“ Self-Regulatory Organization ” means the National Association of Securities Dealers, Inc., any domestic or foreign securities exchange, commodities exchange, registered securities association, the Municipal Securities Rulemaking Board, National Futures Association, and any other board or body, whether United States or foreign, that is charged with the supervision or regulation of brokers, dealers, commodity pool operators, commodity trading advisors or future commission merchants.

 

“ Shared Transaction Liabilities ” means, without duplication, Liabilities incurred by Instinet and its Subsidiaries that arise out of or relate to the transactions contemplated by the Merger Agreement (or any transactions considered by Instinet and its Subsidiaries as alternatives to the Merger since November 18, 2004), including:

 

(i) Instinet Transaction Liabilities;

 

(ii) Liabilities arising from or relating to any Actions that arise from or relate to the transactions contemplated by this Agreement and the Merger Agreement, whether brought before or after the Closing and whether brought by current or former stockholders or option holders of Instinet, any Authority or third parties, including any obligation of the Company to make payments to dissenting stockholders of Instinet (but only to the extent such Liabilities to dissenting stockholders are in excess (such excess amount, the “ Excess Dissenting Shares Liability ”) of the amount of Merger Consideration that would have been payable in respect of the Appraisal Shares (as defined in the Merger Agreement) held by such dissenting stockholders at the Effective Time if such appraisal proceeding had not been brought) (the Liabilities described in this clause (ii) being referred to as “ Shared Transaction Litigation Liabilities ”);

 

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provided , that notwithstanding anything to the contrary contained herein, “Shared Transaction Liabilities” shall not include:

 

(a) any Parent/NAC Transaction Liabilities;

 

(b) any Newco Transaction Liabilities; or

 

(c) any Liabilities of Parent or the Company to (x) pay Merger Consideration (as defined in the Merger Agreement), (y) cash out Company Options (as defined in the Merger Agreement) or (z) make payments in respect of Appraisal Shares (as defined in the Merger Agreement) except as set forth above with respect to any Excess Dissenting Shares Liability.

 

“ Shared Transaction Litigation Liabilities ” shall have the meaning set forth in clause (ii) of the definition of Shared Transaction Liabilities.

 

“ Short Federal Tax Year ” means the Company’s federal income tax year ending with the date of the closing of the Merger.

 

“Specified Non-Operating Liabilities” means:

 

(i) Pre-Closing LJR Adjustment Liabilities;

 

(ii) LJR Liabilities;

 

(iii) Shared Transaction Liabilities;

 

(iv) Newco Scheduled Liabilities;

 

(v) Retained Scheduled Liabilities;

 

(vi) Unallocated Scheduled Liabilities; and

 

(vii) Undisclosed Liabilities.

 

“ Subsidiary ” means, with respect to any person, any corporation, limited liability company, partnership, trust or other organization, whether incorporated or unincorporated, of which (i) such person or any other Subsidiary of such person is a general partner (excluding partnerships, the general partnership interests of which held by such person and/or by any Subsidiary of such person do not constitute a majority of the voting interest in such partnership) or (ii) at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the Board of Directors or others performing similar functions is directly or indirectly owned or controlled by such person or by any one or more of its Subsidiaries, or by such person and one or more of its Subsidiaries.

 

“ Target Retained Business Working Capital Amount ” means the amount equal to (x) $40,527,476, plus (y) the amount (not to exceed $30,800,000) of Cash and

 

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Securities Owned (as such terms are used on the Retained Business Balance Sheet) held by the ECN Entities on the Closing Date as provided in Section 6.18 of the Merger Agreement.

 

“ Tax ” means all (i) taxes imposed by any U.S. federal, state, local, foreign or other Tax Authority, including all income, gross receipts, gains, profits, windfall profits, gift, severance, ad valorem, capital, social security, unemployment disability, premium, recapture, credit, excise, property, sales, use, occupation, service, service use, leasing, leasing use, value added, transfer, payroll, employment, withholding, estimated, license, stamp, franchise or similar taxes of any kind whatsoever, including interest, penalties or additions thereto; (ii) liabilities of the Company, any of its Subsidiaries, or any of the Newco Entities for Taxes of any person (other than the Company, any of its Subsidiaries, or any of the Newco Entities) under Treasury Regulation Section 1.1502-6 (or any comparable provision of U.S. state or local or foreign law) and (iii) liabilities of the Company, any of its Subsidiaries, or any of the Newco Entities for the payment of any amounts pursuant to any tax-sharing, tax allocation or similar agreement; provided , that the foregoing does not include any losses, Liabilities, claims, damages, obligations, payments, costs, fees or expenses arising out of or relating to any claim for loss of profits or earnings, diminution in value or incidental, indirect, special or consequential damages unless awarded against any Indemnitee in a Third Party Claim.

 

“ Tax Attributes ” shall have the meaning provided in the definition of VAB Tax Attributes.

 

“ Tax Authority ” means any Authority or quasi-governmental or private body having jurisdiction over the assessment, determination, collection or imposition of any Tax.

 

“ Tax Claim ” means any claim with respect to Taxes made by any Tax Authority that, if pursued successfully, would reasonably be expected to serve as the basis for a claim for indemnification under Article IV.

 

“ Tax Proceeding ” shall have the meaning set forth in Section 4.3.

 

“ Tax Return ” means any report, return, documents, declaration or other information (and any supporting schedules or attachments thereto) required to be supplied to any Tax Authority or jurisdiction with respect to Taxes (including any returns or reports filed on a consolidated, unitary, or combined basis) (collectively, “ Returns ”), amended returns and claims for refund.

 

“ Termination Date ” means the date which is the first anniversary of the date of this Agreement.

 

“ Transactions ” means the Merger, the LJR Sale and the sale of the Newco Business.

 

“ Transaction Taxes ” shall have the meaning set forth in Section 4.1.

 

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“ Third Party Claim ” shall have the meaning set forth in Section 5.4(a).

 

“ Unallocated Action ” shall have the meaning set forth in Section 5.5.

 

“ Unallocated Liabilities ” means, without duplication:

 

(i) LJR Liabilities;

 

(ii) Post-Closing Unallocated Undisclosed Liabilities;

 

(iii) Unallocated Scheduled Liabilities;

 

(iv) the costs and expenses of maintaining policies of directors’ and officers’ liability insurance coverage under Section 6.9(c) of the Merger Agreement and any Liabilities incurred by Parent or the Company under Section 6.9(b) of the Merger Agreement in respect of the Company; and

 

(v) other Liabilities of the Company to the extent such Liabilities are not (a) Liabilities of the type described in any clause of the definition of Newco Liabilities (other than clause (vi) thereof) or (b) Liabilities of the type described in any clause of the definition of Retained Liabilities (other than clause (vi) thereof).

 

“ Unallocated Scheduled Liabilities ” means the Liabilities set forth on Part E of Section 1.1 of the Disclosure Schedule (i.e., all Liabilities arising from or relating to the Unallocated Actions).

 

“ Unallocated Taxes ” shall have the meaning set forth in Section 4.1

 

“ Undisclosed Liabilities ” means any Liabilities of Instinet or any Subsidiary thereof (whether or not of a nature required to be set forth or reflected in a consolidated balance sheet of Instinet prepared in accordance with GAAP) that are incurred on or prior to the Closing Date and not (a) set forth, accrued, reserved or otherwise reflected in the December 31, 2004 balance sheets included in the Financial Statements (as defined in the Merger Agreement) or referred to in the notes thereto, (b) set forth or referred to in the Company Disclosure Schedule (as defined in the Merger Agreement) or (c) incurred since December 31, 2004 in the ordinary course of business of the Newco Business or the Retained Business on a basis consistent with past practice.

 

“ VAB Loss Year ” shall have the meaning set forth in Section 4.5(d).

 

“ VAB Purchase ” shall have the meaning set forth in the Merger Agreement.

 

“ VAB Tax Attributes ” means, without duplication, (a) any Restructuring Deduction, (b) any Pro Forma Loss Amount, (c) any net operating losses, tax credits and net capital losses (collectively, “ Tax Attributes ”) related to or created by (x) the operation of Instinet and its Subsidiaries through the Closing Date, excluding any net operating loss

 

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available for any state or local income tax purposes as of the close of business on December 31, 2004, or (y) the inability of the Company to utilize any portion of the Net VAB Transaction Loss in the tax year in which such Net VAB Transaction Loss is incurred, (d) any Tax deduction of Instinet or any of its Subsidiaries attributable to (i) accounting, legal, investment banking, consulting and other advisory fees and expenses incurred in anticipation of the possibility of, or in connection with, any of the Transactions or (ii) the vesting, cash-out, exercise, receipt, redemption or other disposition of any form of equity-based compensation (including, without limitation, restricted and unrestricted stock, performance shares, options and stock appreciation rights) in connection with any of the Transactions, (e) the excess, if any, of (x) any ordinary or capital loss related to or created by the Company’s disposition of the Newco Business over (y) the sum of the amount of such loss that offsets or is carried back to offset any ordinary or capital gain recognized on the LJR Sale (the “ LJR Offset Loss ”) plus the amount of such loss that offsets or is carried back to offset any net capital gain recognized on the Archipelago Sale (the “Archipelago Offset Loss”), such excess being referred to herein as the “Net VAB Transaction Loss”; it being understood that to the extent that the Net VAB Transaction Loss is not fully utilized in the tax year in which such Net VAB Transaction Loss is incurred as determined under Section 4.5(d), the unutilized portion of such Net VAB Transaction Loss shall be treated as a net operating loss and/or net capital loss described in clause (c)(y) of this definition arising in the tax year of the incurrence of the Net VAB Transaction Loss; it being further understood that neither the LJR Offset Loss nor the Archipelago Offset Loss shall be deemed to be a VAB Tax Attribute.

 

“ VAB Tax Benefits ” means any economic benefit resulting from (i) the application of any VAB Tax Attribute pursuant to Section 4.5 (whether in the form of refunds, credits, offsets to Taxes for which Parent or any of its Subsidiaries would otherwise be liable, or offsets to income that would otherwise give rise to such Taxes) or (ii) any amount payable to Newco pursuant to clause (1) of Section 4.16(b).

 

“ Working Capital Shortfall ” shall have the meaning set forth in Section 2.7(g)(i).

 

“ Working Capital Statements ” shall have the meaning set forth in Section 2.7(a).

 

ARTICLE IITRANSFER OF ASSETS AND LIABILITIES

 

Section 2.1 Sale and Transfer of Newco Assets

. Subject to the terms and conditions of this Agreement, at the Closing, the Company shall sell, convey, assign, transfer and deliver to Newco, free and clear of all Liens (other than Liens in existence immediately prior to the Effective Time), all of the Company’s right, title and interest in and to all Newco Assets of the Company.

 

 

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Section

2.2 Transfer of Newco Liabilities

. Subject to the terms and conditions of this Agreement, at the Closing, Newco shall assume and agree to pay, perform and discharge when due, or cause to be assumed, paid, performed and discharged, in due course, all of the Newco Liabilities of the Company and the ECN Entities.

 

Section 2.3 Purchase Price; Payment of Merger Consideration; Reimbursement of Certain Amounts Paid By Instinet Prior to the Closing

. (a) Subject to the terms and conditions of this Agreement, in consideration of the aforesaid sale, conveyance, assignment, transfer and delivery to Newco of the Newco Assets, at the Closing, Newco shall (a) pay to the Company an amount of cash equal to the Newco Business Price (it being understood that the cash held by the Company on the Closing Date (after giving effect to Sections 2.3(b) and 2.3(c) below) and available for inclusion in the Newco Assets may be used by Newco, in Newco’s sole discretion, to pay a portion of the Newco Business Price) and (b) assume and agree to pay, perform and discharge when due, or cause to be assumed, paid, performed and discharged, in due course, all of the Newco Liabilities assumed by Newco pursuant to Section 2.2 (collectively, the “ Purchase Price ”).

 

(b) Subject to the terms and conditions of this Agreement, Parent agrees that (i) on the Closing Date, Parent shall deposit with the Company an amount in cash equal to the sum of (x) the Retained Business Price, plus (y) the amount required pursuant to Section 4.16 and (ii) subject to Section 6.12, Parent shall, or shall cause the Company to, (A) satisfy the obligation of Parent and the Company to pay the Merger Consideration (as defined in the Merger Agreement) and cash out the Company Options (as defined in the Merger Agreement) pursuant to and in accordance with Article 3 of the Merger Agreement out of the amounts represented by the Retained Business Price, Newco Business Price, Available Merger Consideration Cash and the amount required to be contributed by Parent to the Company pursuant to Section 4.16(a) or clause (ii) of the first sentence in Section 4.16(b), as the case may be; and (B) subject to Newco’s obligation to pay the Newco Percentage of any Excess Dissenting Shares Liability as contemplated by clause (ii) of the definition of Shared Transaction Liabilities, make any payments required to be made in respect of Appraisal Shares (as defined in the Merger Agreement).

 

(c) At the Closing, Parent shall contribute cash in U.S. Dollars to the Company for inclusion in the Newco Assets an amount equal to the total amount (less any accruals therefor reflected on the Retained Business Balance Sheet) of all Liabilities of Instinet and its Subsidiaries that (A) are known to the parties as of the Closing Date to have been paid by Instinet or any Subsidiary thereof on or prior to the Closing Date and (B) would have been Retained Liabilities of the types referred to in clauses (iv), (v), (vi), (vii), (viii), (ix) or (x) of the definition of Retained Liabilities payable by Parent, the Company and the ECN Entities following the Closing Date if not so paid on or prior to the Closing Date. Except as provided in the foregoing, and subject to Section 6.11, the parties agree that Parent and its Subsidiaries have no responsibility for any Liabilities paid by Instinet or any Subsidiary thereof on or prior to the Closing Date. The parties agree that any payments pursuant to this Section 2.3(c) will be treated for Tax purposes as an adjustment to the Purchase Price, unless otherwise required by applicable Law.

 

 

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Section

2.4 The Closing

. Subject to the satisfaction or waiver of the conditions set forth in Section 9.1 of this Agreement, the sale and transfer of the Newco Assets and the assumption of the Newco Liabilities to be assumed pursuant to Section 2.2 shall take place on the Closing Date at the offices of Skadden, Arps, Slate, Meagher & Flom LLP immediately after the Effective Time (the “Closing”). The parties hereto agree that (a) the sale, conveyance, assignment and transfer of the Newco Assets contemplated pursuant to Section 2.1 shall be effected at the Closing by delivery by the Company to Newco of (i) with respect to those Newco Assets which are evidenced by capital stock certificates or similar instruments, certificates duly endorsed in blank or accompanied by stock powers or other instruments of assignment executed in blank and (ii) with respect to all other Newco Assets, such good and sufficient instruments of transfer and delivery as shall be necessary to vest in Newco all of the right, title and interest of the Company in and to such Newco Assets, and (b) the assumption of the Newco Liabilities contemplated pursuant to Section 2.2 shall be effected by delivery by Newco to the Company of such good and sufficient instruments of assumption, as shall be necessary for the assumption by Newco of the Newco Liabilities to be assumed pursuant to Section 2.2. All of the foregoing transfer or assumption instruments or other documents shall be in such form as are reasonably satisfactory to the parties hereto.

 

Section 2.5 Indebtedness of the Company and its Subsidiaries

. The parties agree that:

 

(i) (A) with respect to any Newco Liabilities that constitute obligations for money borrowed, Newco shall use its reasonable best efforts to cause the Company and the ECN Entities and their respective capital stock or other equity interests, properties and assets to be released and discharged from any and all Liabilities, Liens, guarantees, and the like under such indebtedness (and the Company shall, and shall cause the ECN Entities to, cooperate in seeking such release and discharge), and Newco shall, or shall cause a Newco Entity to, pay, perform and discharge such indebtedness pursuant to the terms thereof, and perform and abide by all other obligations, covenants and agreements therein, in each case, pending such release and discharge and (B) with respect to any Retained Liabilities that constitute obligations for money borrowed, the Company shall use its reasonable best efforts to cause the Newco Entities and their respective capital stock or other equity interests, properties and assets to be released and discharged from any and all Liabilities, Liens, guarantees and the like under such indebtedness (and Newco shall, and shall cause the Newco Entities to, cooperate in seeking such release and discharge), and the Company shall, or shall cause an ECN Entity to, pay, perform and discharge such indebtedness pursuant to the terms thereof, and perform and abide by all other obligations, covenants and agreements therein, in each case, pending such release and discharge; and

 

(ii) (A) if the Company or any ECN Entity is a party to or bound by any agreement or instrument governing any Newco Liabilities that constitute obligations for money borrowed or any related guaranty, security agreement or pledge, the Company shall, or shall cause such ECN Entity to, at the expense of Newco, perform and abide by all obligations, covenants and agreements contained therein pending the release and discharge contemplated by clause (i)(A) above and (B) if any Newco Entity is a party to or bound by any agreement or instrument governing any Retained Liabilities that constitute obligations for money borrowed or any related guaranty, security agreement or pledge, Newco shall, or shall cause such Newco Entity to, at the expense of the Company, perform and abide by all obligations, covenants and agreements contained therein pending the release and discharge contemplated by clause (i)(B) above.

 

Section 2.6 Purchase Price Allocation

. The Purchase Price (including any adjustments thereto) shall be allocated in accordance with a schedule which Newco shall provide to Parent within 30 days after the Final Retained Business Working Capital Statement shall have become final and binding on the parties pursuant to Section 2.7 and which shall be agreed upon by Parent and Newco within 15 days thereafter (the “ Allocation Schedule ”). The Allocation Schedule shall be prepared by an independent third-party valuation firm engaged by Newco that is reasonably acceptable to Parent. Parent and Newco shall each pay 50% of Newco’s reasonable and documented out-of-pocket costs and expenses, including the fees of such valuation firm, incurred by Newco in preparing the Allocation Schedule. In the event that Parent and Newco are unable to agree on the Allocation Schedule, the tax dispute resolution procedures set forth in Section 4.9 shall apply. After the Allocation Schedule is finalized, the parties shall use the allocation and fair market value specified in the Allocation Schedule for all Tax purposes and in all filings, declarations and reports with the Internal Revenue Service (the “ IRS ”) in respect thereof, including the reports required to be filed under Section 1060 of the Code. Newco shall prepare and deliver IRS Form 8594 to the Company within ninety (90) days the Final Retained Business Working Capital Statement shall have become final and binding on the parties pursuant to Section 2.7 to be filed with the IRS. On any Tax Return and in any Tax Proceeding (as defined in Section 4.3(b)), none of Parent, the Company, the ECN Entities, Newco or the Newco Entities shall take any position inconsistent with or represent that the allocation specified in the Allocation Schedule is not correct. In the event that the allocation is disputed by any Tax Authority, the party receiving notice of the dispute shall promptly notify and consult with the other parties and keep the other parties reasonably apprised of material developments concerning the resolution of such dispute.

 

Section 2.7 Working Capital.

 

(a) Within 30 days after the Closing Date, Newco shall deliver to Parent (i) a statement (the “ Retained Business Working Capital Statement ”) in a form substantially similar to the sample statement (which sets forth the Retained Business Working Capital Amount as of the close of business on December 31, 2004) attached hereto as Exhibit E (the “ Retained Business Balance Sheet ”), together with reasonable

 

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supporting documentation, setting forth the Retained Business Working Capital Amount (the “ Closing Date Retained Business Working Capital Amount ”) as of the close of business on the final day of the month ending immediately prior to the Closing Date, and (ii) a statement (the “ Newco Business Working Capital Statement ” and, together with the Retained Business Working Capital Statement, the “ Working Capital Statements ”) in a form substantially similar to the sample statement (which sets forth the Newco Business Working Capital Amount as of the close of business on December 31, 2004) attached hereto as Exhibit F (the “ Newco Business Balance Sheet ” and, together with the Retained Business Balance Sheet, the “ Reference Balance Sheets ”), together with reasonable supporting documentation, setting forth the Newco Business Working Capital Amount (the “ Closing Date Newco Business Working Capital Amount ” and, together with the Closing Date Retained Business Working Capital Amount, the “ Closing Date Working Capital Amounts ”) as of the close of business on the final day of the month ending immediately prior to the Closing Date.

 

(b) The Working Capital Statements shall be prepared in accordance with GAAP applied on a basis consistent with the preparation of the Reference Balance Sheets, except that irrespective of GAAP, the method of preparation of the Reference Balance Sheets and/or the Company’s policies, the Working Capital Statements shall be adjusted (i) to reflect the settlement of all inter-company receivables, payables, loans and other accounts (and settling against cash) and (ii) to reflect any inter-company dividend payments between the close of business on the final day of the month ending immediately prior to the Closing Date and the Closing.

 

(c) Parent and Newco shall mutually, from and after the Closing Date, provide the other party and its Representatives access to all information, books and records required or used by Newco and its advisors to prepare the Working Capital Statements, and shall consult with each other during the preparation of such statements. Unless Parent delivers written notice to Newco on or prior to the 10th business day after Parent’s receipt from Newco of the Working Capital Statements specifying any disputed items and the basis therefor, Parent shall be deemed to have accepted and agreed to the Working Capital Statements. If Parent so notifies Newco of its objection to either of the Working Capital Statements, Parent and Newco shall, during 10 days following such notice (the “ Resolution Period ”), attempt to resolve their differences and any resolution by them as to any disputed amounts shall be final, binding and conclusive. If Parent and Newco agree on the calculation of one or more of the Closing Date Working Capital Amounts, then such agreed amount or amounts shall become final and binding on the parties.

 

(d) If, at the conclusion of the Resolution Period, Parent and Newco are unable to agree on the calculation of one or more of the Closing Date Working Capital Amounts, the parties will refer the matter to KPMG LLP to resolve any disputes between the parties regarding such calculation(s). If KPMG LLP is unavailable or declines to serve in such capacity, the parties will, within five days of notification by KPMG LLP that it will not accept such engagement, agree upon and jointly engage another “Big 4” firm of independent public accountants (other than PricewaterhouseCoopers LLP and Ernst & Young LLP); provided , that if Newco and \

 

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Parent are unable to agree on a “Big 4” firm of independent public accountants within such five day period, then Parent and Newco shall each have the right to request the American Arbitration Association to appoint a “Big 4” firm of independent public accountants (other than PricewaterhouseCoopers LLP and Ernst & Young LLP) to which to refer such disputes. The “Big 4” firm of independent public accountants that is

 

engaged by the parties to resolve disputes pursuant to this Section 2.7(d) is referred to herein as the “ Neutral Auditors ”. The parties hereto agree to execute, if requested by the Neutral Auditors, a reasonable engagement letter. All fees and expenses relating to the work, if any, to be performed by the Neutral Auditors shall be borne equally by Parent and Newco.

 

(e) At a mutually agreed time within five business days following the date that the parties engage the Neutral Auditors, each of the parties shall simultaneously submit to the Neutral Auditors its final proposal (which proposal shall specify the items as to which the parties have been able to agree pursuant to this Section 2.7 and such party’s proposal as to the items in dispute) in respect of (i) the Retained Business Working Capital Statement (the “ Retained Business Working Capital Statement Proposals ”), to the extent items are in dispute with respect to the Retained Business Working Capital Statement and (ii) the Newco Business Working Capital Statement (the “ Newco Business Working Capital Statement Proposals ”), to the extent items are in dispute with respect to the Newco Business Working Capital Statement. Within 10 business days of such final submissions, (i) to the extent items are in dispute with respect to the Retained Business Working Capital Statement, the Neutral Auditors will select one of the two Retained Business Working Capital Statement Proposals as being most representative of the Closing Date Retained Business Working Capital Amount and (ii) to the extent items are in dispute with respect to the Newco Business Working Capital Statement, the Neutral Auditors will select one of the two Newco Business Working Capital Statement Proposals as being most representative of the Closing Date Newco Business Working Capital Amount, and the proposals so selected shall be final and binding on the parties, and judgment thereon may be entered by any court of competent jurisdiction. In making such determination, the Neutral Auditors shall consider only those items or amounts as to which the parties have been unable to agree pursuant to Section 2.7(c). The term “ Final Retained Business Working Capital Statement ” means the definitive Retained Business Working Capital Statement setting forth the Closing Date Retained Business Working Capital Amount and the calculation thereof agreed or deemed to have been agreed to by Parent and Newco in accordance with Section 2.7(c) or the definitive Retained Business Working Capital Statement resulting from the determinations made by the Neutral Auditors in accordance with this Section 2.7(e) (in addition to those items theretofore agreed to by Newco and Parent). The term “ Final Newco Business Working Capital Statement ” means the definitive Newco Business Working Capital Statement setting forth the Closing Date Newco Business Working Capital Amount and the calculation thereof agreed or deemed to have been agreed to by Parent and Newco in accordance with Section 2.7(c) or the definitive Newco Business Working Capital Statement resulting from the determinations made by the Neutral Auditors in accordance with this Section 2.7(e) (in addition to those items theretofore agreed to by Newco and Parent).

 

(f) For purposes of this Agreement, “ Retained Business Working Capital Adjustment ” shall equal the Closing Date Retained Business Working Capital Amount as reflected on the Final Retained Business Working Capital Statement, minus the Target Retained Business Working Capital Amount (provided, that if the Target Retained Business Working Capital Amount is greater than the Closing Date Retained Business Working Capital Amount as reflected on the Final Retained Business Working Capital Statement, the Retained Business Working Capital Adjustment shall be a negative number).

 

(g) If the Retained Business Working Capital Adjustment is a positive amount, then Parent shall pay to Newco such amount using the following sources (as necessary until such Retained Business Working Capital Adjustment has been paid in full):

 

(i) from Parent’s cash on hand, an amount up to the sum of (x) $5,000,000 and (y) the excess, if any, of the amount of Cash & Securities Owned included on the Final Retained Business Working Capital Statement over $30,800,000 (any such payment to be made promptly after the final determination of the Retained Business Working Capital Adjustment in accordance with this Section 2.7) (with the amount, if any, of the Retained Business Working Capital Adjustment remaining unpaid after giving effect to such payment being referred to as the “ Working Capital Shortfall ”); and

 

(ii) using amounts collected with respect to Closing Date Receivables under procedures set forth in Section 2.9; and

 

(iii) on the first anniversary of the Closing Date, any amount of the Working Capital Shortfall that has not been paid shall be paid by Parent to Newco from cash on hand and Parent’s obligations pursuant to Section 2.9 shall terminate.

 

If the Retained Business Working Capital Adjustment is a negative number, then Newco shall pay to Parent, promptly after the final determination of the Retained Business Working Capital Adjustment in accordance with this Section 2.7, an amount equal to the Retained Business Working Capital Adjustment (as if such number was a positive number). The parties agree that any payment of a Retained Business Working Capital Adjustment pursuant to this Section 2.7 will be treated for Tax purposes as an adjustment to the Purchase Price, unless otherwise required by applicable Law.

 

Section 2.8 Collection of Aged Receivables

. (a) In addition to the Retained Business Working Capital Adjustment, if the aggregate amount of Aged Receivables is in excess of the product of (i) 0.35 multiplied by (ii) the aggregate amount of all Closing Date Receivables (such excess, the “ Aged Receivables Excess ”), then within 10 business days after the end of each calendar month beginning the month during which the Final Retained Business Working Capital Statement is finally determined pursuant to Section 2.7 (each such month, a “ Determination Month ”), Parent shall deliver to Newco a written statement setting forth the amounts collected with respect to the Aged

 

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Receivables during the applicable Determination Month, together with reasonable supporting documentation, and shall pay to Newco, by wire transfer of immediately available funds to an account designated by Newco for such purposes, an amount equal to the product of (i) the aggregate amount collected by Parent with respect to the Aged Receivables during the applicable Determination Month, multiplied by (ii) the Aged Receivables Percentage; provided , however , that Parent shall not have any obligation pursuant to this Section 2.8(a) to pay to Newco an aggregate amount in excess of the Aged Receivables Excess. Notwithstanding the foregoing, calculations in respect of the first Determination Month shall cover the period of time beginning on the Closing Date and ending on the last day of such Determination Month.

 

(b) Parent’s obligations to allocate and pay to Newco amounts relating to collected Aged Receivables under Section 2.8(a) shall terminate upon the earlier of (i) 12 months after the end of the month during which the Closing Date occurs, and (ii) the determination pursuant to this Section 2.8 that Parent has allocated and paid to Newco an amount, in the aggregate, equal to the Aged Receivables Excess.

 

Section 2.9 Working Capital Adjustment Shortfall

. (a) If the Retained Business Working Capital Adjustment is a positive amount or there is a Working Capital Shortfall, then within 10 business days after the end of each calendar month beginning the first Determination Month, Parent shall deliver to Newco a written statement setting forth the amounts collected with respect to the Closing Date Receivables during the applicable Determination Month, together with reasonable supporting documentation, and shall pay to Newco, by wire transfer of immediately available funds to an account designated by Newco for such purposes, an amount equal to the aggregate amount collected by Parent or its Subsidiaries with respect to the Closing Date Receivables during the applicable Determination Month; provided , however , that Parent shall not have any obligation pursuant to this Section 2.9(a) to pay to Newco an aggregate amount in excess of the Working Capital Shortfall. Notwithstanding the foregoing, calculations in respect of the first Determination Month shall cover the period of time beginning on the Closing Date and ending on the last day of such Determination Month.

 

(b) Parent’s obligations to allocate and pay to Newco amounts relating to collected Closing Date Receivables under Section 2.9(a) shall terminate upon the earlier of the making of the payment required to be made pursuant to Section 2.7(g)(iii) or the determination pursuant to this Section 2.9 that Parent has allocated and paid to Newco an amount, in the aggregate, equal to the Working Capital Shortfall.

 

(c) Notwithstanding anything to the contrary in this Section 2.9, if there is both an Aged Receivables Excess and a Working Capital Shortfall, and Parent or any Subsidiary thereof collects an amount relating to an Aged Receivable (such amount, an “Aged Receivable Collection Amount”) and Parent is required pursuant to Section 2.8 to pay to Newco an amount in connection with such Aged Receivable Collection Amount, then, for all purposes of this Section 2.9, Parent and its Subsidiaries shall be deemed to have collected, with respect to such Aged Receivable Collection Amount, an amount equal to the difference between (i) such Aged Receivable Collection Amount, minus (ii) the amount payable to Newco pursuant to Section 2.8. For the avoidance of doubt, no payment pursuant to Section 2.8 will reduce the amount of the Working Capital Shortfall.

 

 

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Section 2.10 Collection Policies

. Parent will collect the Closing Date Receivables in accordance with Parent’s standard collection practices.

 

ARTICLE III REPRESENTATIONS AND WARRANTIES

 

Section 3.1 Representations and Warranties of Newco

. Newco represents and warrants to Parent and the Company on the date hereof and as of immediately prior to the Closing as follows:

 

(a) Organization and Standing . Newco is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.

 

(b) Authorization . Newco has all requisite corporate power and authority to execute this Agreement and to carry out and perform its obligations under this Agreement and to consummate the transactions contemplated hereunder. The execution, delivery and performance by Newco of this Agreement, and the consummation of the transactions contemplated hereunder, have been duly and validly authorized by all necessary action of Newco, and no other action on the part of Newco or its stockholders is necessary for the authorization, execution, delivery or performance by Newco of this Agreement and the consummation of the transactions contemplated hereunder.

 

(c) Binding Agreement . This Agreement has been duly and validly executed and delivered on behalf of Newco and, assuming due authorization, execution and delivery by Parent and the Company, constitutes the legal and binding obligation of Newco enforceable against Newco in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally and to general equity principles (whether considered in a proceeding in equity or at law).

 

(d) Consents . Except as set forth in the Merger Agreement, no material declaration, filing or registration with, or notice to, or authorization, consent or approval of, other action by, any Authority or any third party is required in connection with the execution and delivery by Newco of this Agreement or the consummation by Newco of the transactions contemplated under this Agreement or the Merger Agreement.

 

(e) Financing . An Affiliate of Newco has delivered an equity commitment letter to Newco and a contingency letter to Newco, Parent and the Company pursuant to which such Affiliate of Newco has committed, among other things, subject to the terms and conditions set forth therein, to provide Newco with up to $207,500,000 equity financing in connection with the transactions contemplated hereby. Such letter agreements are valid and in full force and effect and have not been amended or modified and such Affiliate’s obligations to fund its commitments thereunder are not subject to any conditions other than as set forth in such letter.

 

 

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(f) Information Supplied . None of the information supplied or to be supplied by Newco specifically for inclusion or incorporation by reference in the Proxy Statement (as defined in the Merger Agreement) will, at the date the Proxy Statement is mailed to the Company Stockholders (as defined in the Merger Agreement) or at the time of the Company Stockholders Meeting (as defined in the Merger Agreement), contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary in order to make the statement therein, in the light of the circumstances in which they are made, not misleading.

 

Section 3.2 Representations and Warranties of the Company

. The Company represents and warrants to Newco on the date hereof and as of immediately prior to the Closing as follows:

 

(a) Organization and Standing . The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware.

 

(b) Authorization . The Company has all requisite corporate power and authority to execute this Agreement and to carry out and perform its obligations under this Agreement and to consummate the transactions contemplated hereunder. The execution, delivery and performance by the Company of this Agreement, and the consummation of the transactions contemplated hereunder, have been duly and validly authorized by all necessary action of the Company, and no other action on the part of the Company or its stockholder is necessary for the authorization, execution, delivery or performance by the Company of this Agreement and the consummation of the transactions contemplated hereunder.

 

(c) Binding Agreement . This Agreement has been duly and validly executed and delivered on behalf of the Company and, assuming due authorization, execution and delivery by Newco, constitutes the legal and binding obligation of the Company enforceable against the Company in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally and to general equity principles (whether considered in a proceeding in equity or at law).

 

(d) Consents . Except as set forth in the Merger Agreement, no material declaration, filing or registration with, or notice to, or authorization, consent or approval of, other action by, any Authority or any third party is required in connection with the execution and delivery by the Company of this Agreement or the consummation by the Company of the transactions contemplated under this Agreement or the Merger Agreement.

 

(e) Merger Agreement Representations and Warranties . The representations and warranties set forth in Article 5 of the Merger Agreement (other than Section 5.10) are true and correct on the date hereof and will be true and correct in all material respects on the Closing Date.

 

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(f) Limited Operations of the Company Prior to Closing . The Company was formed on April 14, 2005 solely for the purpose of engaging in the transactions contemplated by this Agreement and the Merger Agreement. Except for (i)

 

obligations or liabilities incurred in connection with its organization and the transactions contemplated by this Agreement and the Merger Agreement and (ii) Liabilities under this Agreement, the Merger Agreement and any other agreements or arrangements contemplated hereby or thereby or entered into in furtherance hereof or thereof, the Company has not incurred any Liabilities or engaged in any business activities.

 

Section 3.3 Representations and Warranties of Parent

. Parent represents and warrants to Newco on the date hereof and as of immediately prior to the Closing as follows:

 

(a) O