SALE AND PURCHASE AGREEMENT

EXHIBIT 2.1

 

EXECUTION COPY

 

 

SALE AND PURCHASE AGREEMENT

 

among

 

JPMORGAN CHASE & CO.,

 

J.P. MORGAN INVEST INC.,

 

and

 

E*TRADE FINANCIAL CORPORATION

 

Dated as of September 28, 2005

 

TABLE OF CONTENTS

 

 

-i-

TABLE OF CONTENTS

(continued)

 

 

-ii-

TABLE OF CONTENTS

(continued)

 

 

 

Seller Disclosure Schedule

Purchaser Disclosure Schedule

 

-iii-

SALE AND PURCHASE AGREEMENT

 

SALE AND PURCHASE AGREEMENT, dated as of September 28, 2005 (this “ Agreement ”), among JPMORGAN CHASE & CO., a Delaware corporation (“ Seller Parent ”), J.P. MORGAN INVEST INC., a Delaware corporation (“ Seller ”), and E*TRADE FINANCIAL CORPORATION, a Delaware corporation (“ Purchaser ”).

 

WITNESSETH

 

WHEREAS, Seller is the beneficial and record owner of all of the issued and outstanding membership interests (the “ Membership Interests ”) of J.P. Morgan Invest, LLC., a Delaware limited liability company (the “ Company ”);

 

WHEREAS, the Company is engaged in, among other things, the business of providing self-directed, deep-discount securities brokerage services branded under the name “BrownCo” primarily to retail and other customers and primarily in the United States (the “ Business ”, which term shall exclude the Excluded Business (as defined below));

 

WHEREAS, Seller is a wholly owned Subsidiary of Seller Parent;

 

WHEREAS, on the terms and subject to the conditions set forth herein, Seller Parent and Seller desire to sell, and Purchaser desires to purchase, all of the Membership Interests; and

 

WHEREAS, prior to the Closing (as defined below), the Company intends to distribute as a dividend or sell for cash to Seller or one or more Subsidiaries of Seller Parent (other than the Company), the Excluded Assets and to complete the other steps of the Reorganization described herein;

 

NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows:

 

ARTICLE I

DEFINITIONS

 

1.1 Definitions . The following terms when used in this Agreement shall have the following meanings:

 

“ 401(k) Plan ” has the meaning set forth in Section 7.7(a).

 

“ Adjusted Purchase Price ” means One Billion Six Hundred Million Dollars ($1,600,000,000) plus the excess (or minus the deficiency) of the Closing Date Adjusted Book Value over the Target Adjusted Book Value, as finally determined in accordance with Section 2.3.

 

“ Affected Employees ” means (a) those Persons who are active employees of the Company immediately prior to the Closing Date and (b) employees of the Company who return to employment with the Company immediately following the termination of an

authorized leave of absence that begins prior to the Closing Date; provided that “Affected Employees” shall exclude, in either case (i) the Retained Employees (but subject to Section 7.1(a)), and (ii) the Excluded Employees.

 

“ Affiliate ” means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with, such specified Person.

 

“ Aggregate Debits ” means, as of any date, the amount calculated on the same basis as the corresponding amount calculated as of June 30, 2005 as set forth in 1.1(a) of the Seller Disclosure Schedule and, to the extent not set forth therein, as specified in Rule 15c3-1 under the Exchange Act. For the avoidance of doubt, the parties acknowledge and agree that, to the extent the calculations set forth in Section 1.1(a) of the Seller Disclosure Schedule differ from the provisions of Rule 15c3-1 under the Exchange Act, the calculations set forth in Section 1.1(a) of the Seller Disclosure Schedule shall govern.

 

“ Agreement ” has the meaning set forth in the preamble hereof.

 

“ Allocation Statement ” has the meaning set forth in Section 2.4(a).

 

“ Ancillary Agreements ” means the collective reference to the Corporate Transition Services Agreement, the IT Transition Services Agreement, the Clearing Agreement, the Boston Sublease, the Tampa Sublease and the Trademark Assignment Agreement.

 

“ Applicable Law ” has the meaning set forth in Section 4.3.

 

“ Benefit Plans ” has the meaning set forth in Section 4.10(a).

 

“ Boston Company Premises ” means the portion of the Leased Premises to be occupied by Purchaser and its Affiliates (including the Company) following the Closing and that will not be subject to the Boston Sublease.

 

“ Boston Sublease ” means a sublease for the portion of the Leased Premises described in Section 6.8 of the Seller Disclosure Schedule, on the terms and conditions set forth in Section 6.8 of the Seller Disclosure Schedule.

 

“ Brown Trademarks ” means the mark “BROWNCO” and any logo, trademark, trade name or service mark owned by the Seller, Seller Parent or any of their Affiliates using the mark “BROWNCO” or used together with or associated with the mark BROWNCO, any registrations or applications for registration of such marks, and all rights and privileges pertaining thereto.

 

“ Business ” has the meaning set forth in the recitals hereto.

 

“ Business Day ” means any day which is not a Saturday, Sunday or a day on which banks in New York, New York, are authorized or obligated by law or executive order to be closed.

 

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“ Claim Notice ” has the meaning set forth in Section 11.3(a).

 

“ Clearing Agreement ” means the clearing agreement, to be entered into on the Closing Date, in the form attached hereto as Exhibit C.

 

“ Closing ” has the meaning set forth in Section 3.1.

 

“ Closing Date ” has the meaning set forth in Section 3.1.

 

“ Closing Date Adjusted Balance Sheet ” has the meaning set forth in Section 2.3(a).

 

“ Closing Date Adjusted Book Value ” means the amount equal to (i) the total assets of the Company minus (ii) the total liabilities of the Company, in each case as reflected in the Closing Date Adjusted Balance Sheet prepared in accordance with the requirements of Section 2.3(a); provided , however , that for purposes of determining the Closing Date Adjusted Book Value, the following assets and liabilities that would otherwise be so reflected shall be disregarded: (A) all intangible assets, (B) all fixed assets of the Company (including all furniture, equipment, software, and leasehold improvements), (C) all deferred Tax assets, (D) all Excluded Assets, (E) all liabilities associated with lease obligations pursuant to Contracts constituting part of the Excluded Liabilities, (F) all liabilities for Taxes (except to the extent otherwise provided in Section 2.3(a) of the Seller Disclosure Schedule), and (G) all other accrued expenses and other liabilities constituting Excluded Liabilities or otherwise assumed by Seller; and provided , further , that the Closing Date Adjusted Book Value shall include net capital, as computed in accordance with Section 1.1(a) of the Seller Disclosure Schedule, equal to at least 7.5% of Aggregate Debits.

 

“ Code ” means the Internal Revenue Code of 1986, as amended.

 

“ Combination Transaction ” has the meaning set forth in Section 6.5(b)(ii).

 

“ Combining Person ” has the meaning set forth in Section 6.5(b)(ii).

 

“ Company ” has the meaning set forth in the recitals hereto.

 

“ Company Filings ” has the meaning set forth in Section 4.8(c).

 

“ Company Financial Statements ” has the meaning set forth in Section 4.6(a).

 

“ Company Office Lease ” means the office lease listed in Section 1.1(b) of the Seller Disclosure Schedule.

 

“ Confidential Memorandum ” means the Confidential Information Memorandum, dated August 10, 2005, provided to Purchaser on behalf of Seller by J.P. Morgan Securities Inc.

 

“ Confidentiality Agreement ” means the Confidentiality Agreement, dated as of August 7, 2005, between Seller Parent and Purchaser relating to, among other things, the

 

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confidentiality of certain information provided by or on behalf of Seller to Purchaser with respect to the Business.

 

“ Contract ” has the meaning set forth in Section 4.3.

 

“ Corporate Transition Services Agreement ” means the transition services agreement, to be entered into on the Closing Date, in the form attached hereto as Exhibit A.

 

“ CPA Firm ” has the meaning set forth in Section 2.3(c).

 

“ Damages ” has the meaning set forth in Section 11.1(a).

 

“ De Minimis Claim ” has the meaning set forth in Section 11.1(b)(i).

 

“ Deductible ” has the meaning set forth in Section 11.1(b)(ii).

 

“ Divestiture ” has the meaning set forth in Section 6.3(b).

 

“ Environmental Claim ” means any written claim, notice, complaint, proceeding or litigation by any third person alleging any violation of, or any liability under, any Environmental Laws.

 

“ Environmental Laws ” means all applicable federal, state and local statutes, rules, regulations, ordinances, and orders relating to pollution or protection of natural resources or the environment.

 

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.

 

“ ERISA Affiliate ” means a Person required at any particular time to be aggregated with any of the Company or any Subsidiary under Sections 414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA.

 

“ Estimated Closing Date Adjusted Book Value ” has the meaning set forth in Section 2.2.

 

“ Estimated Purchase Price ” means One Billion Six Hundred Million Dollars ($1,600,000,000) plus the excess (or minus the deficiency) of the Estimated Closing Date Adjusted Book Value over the Target Adjusted Book Value, as determined by Seller in accordance with Section 2.2.

 

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC thereunder.

 

“ Excluded Accounts ” means all customer accounts maintained by the Company as part of the Excluded Business on the Closing Date and the customer relationships and goodwill relating thereto.

 

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“ Excluded Assets ” means the following assets of the Company:

 

(i) except as otherwise required by the second proviso in the definition of Closing Date Adjusted Book Value, all cash of the Company, other than cash of the Company that is segregated and held for the accounts of customers;

 

(ii) all Contracts to which the Company is a party listed in Section 2.1 of the Seller Disclosure Schedule;

 

(iii) the Company’s seat on the New York Stock Exchange;

 

(iv) all IT Assets of the Company;

 

(v) all personal property of the Company (including all furniture, fixtures, equipment and leasehold improvements), other than (A) all Office Equipment and (B) all other personal property (including furniture, fixtures, equipment and leasehold improvements) located at the Boston Company Premises;

 

(vi) all assets of the Company (other than personal property of the Company located at the Boston Company Premises and Office Equipment) used or held for use primarily in connection with the Excluded Business, including the Excluded Accounts and any Contracts (in addition to those referred to in clause (ii) above) between the Company and the customers of the Excluded Business pursuant to which the services of the Excluded Business are made available to such customers; and

 

(vii) all claims, causes of action, rights of recovery and rights of set-off of any kind to the extent pertaining to or arising out of the Excluded Assets or the Excluded Liabilities.

 

“ Excluded Business ” means (i) the Company businesses associated with the accounts acquired under the “JPMorgan INVEST” brand, including the Company’s IRA rollover and retirement plan self-directed accounts, and (ii) any order flow sent to the Company by the private banking, retirement plan services or investment management businesses of Seller Parent and its Affiliates.

 

“ Excluded Employees ” means those employees of the Company who are inactive as of the Closing Date due to authorized leave of absence or short- or long-term disability (but not employees who as of the Closing Date are (i) on vacation or (ii) out sick and are reasonably expected to return to work no later than five days after the Closing).

 

“ Excluded Liabilities ” means (i) all liabilities arising under Contracts that are Excluded Assets, (ii) all reserves relating to the Excluded Accounts, (iii) all other liabilities to the extent arising out of the Excluded Assets regardless of when incurred, (iv) Excluded Taxes, (v) all liabilities and obligations associated with or incurred in connection with the Retained Employees, the Excluded Employees and any employee terminated by the

 

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Company prior to the date hereof, (vi) all liabilities associated with any of the Benefit Plans (except as specifically set forth in Article VII hereof), (vii) all liabilities arising out of the Reorganization, (viii) all liabilities and obligations arising from the matters set forth on Section 1.1(d) of the Seller Disclosure Schedule and (ix) all liabilities under the retention agreements referred to in Section 4.10(a) of the Seller Disclosure Schedule.

 

“ Excluded Taxes ” means (i) all Taxes imposed on or payable by or with respect to Seller or the Company for any taxable period ending on or prior to the Closing Date; (ii) with respect to Straddle Periods, all Taxes imposed on or payable by or with respect to Seller or the Company which are allocable, pursuant to Section 10.1(a) hereof, to the portion of such period ending on (and including) the Closing Date; (iii) all Taxes for which the Company is held liable pursuant to Treasury Regulations Section 1.1502-6 (or any corresponding provision of state, local or foreign law) by reason of the Company’s (or any predecessor entity’s) having been included in any consolidated, affiliated, combined or unitary group together with any party other than Purchaser at any time prior to the Closing Date; (iv) all Taxes resulting from the failure of any of the representations and warranties contained in Section 4.11 hereof to be true and correct or the failure of Seller to perform any covenant contained in this Agreement with respect to Taxes; (v) all Taxes resulting from, arising out of, based on, or relating to the Reorganization or any other Taxes relating to the transactions contemplated by this Agreement (other than Transfer Taxes for which Purchaser is responsible pursuant to Section 10.1(d)); and (vi) any costs and expenses, including reasonable attorneys’ fees, incurred or arising in connection with or in respect of the assessment, assertion, contest or imposition of a Tax described in any of clauses (i) through (v) above (it being understood for the avoidance of doubt that the penultimate sentence of Section 11.3(b) shall not apply to any costs and expenses described in this clause (vi)).

 

“ Financing Commitment ” has the meaning set forth in Section 5.7.

 

“ Final Closing Statement ” has the meaning set forth in Section 2.3(c).

 

“ GAAP ” means generally accepted accounting principles in the United States.

 

“ Governmental Approvals ” has the meaning set forth in Section 4.4(a).

 

“ Governmental Authority ” has the meaning set forth in Section 4.3.

 

“ Hazardous Materials ” means all materials defined as “hazardous” or “toxic” or any other term of similar import under any Environmental Law, including petroleum, friable asbestos and polychlorinated biphenyls.

 

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

 

“ Indemnified Entity ” has the meaning set forth in Section 11.3(a).

 

“ Indemnified Purchaser Entities ” has the meaning set forth in Section 11.1(a).

 

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“ Indemnified Seller Entities ” has the meaning set forth in Section 11.2(a).

 

“ Indemnifying Party ” has the meaning set forth in Section 11.3(a).

 

“ Intellectual Property ” means United States and foreign intellectual property, including (a)(i) inventions, discoveries, processes, algorithms, formulae, technology, know-how and related improvements, whether or not patented or patentable; (ii) copyrights and copyrightable works (including software, code, applications, databases, website content, documentation and related items); (iii) trademarks, service marks, trade names, corporate names, domain names, logos, trade dress and other source indicators and the goodwill associated therewith and symbolized thereby; (iv) trade secrets and confidential or proprietary information; (b) all applications, registrations, patents, certifications and recordings relating thereto; and (c) all rights to obtain renewals, extensions, continuations, continuations-in-part, reissues, divisions or similar legal protections related thereto.

 

“ IRS ” means the Internal Revenue Service or any successor agency or authority.

 

“ IT Assets ” means all (i) computers, servers, printers, routers, switches, data storage devices, backup devices, PBX (telephone switch equipment), and other hardware, including equipment and associated attachments, features, accessories and peripheral devices, (ii) wide area network, virtual private network, local area network and other internet and intranet communications tools and equipment and all software and equipment used to transmit voice and data, including connections to third parties which support the Business, and (iii) computer software, source code, computer programs, operating systems, control programs and other elements of the operating environment and all databases, services, processes, data, files or other information contained or stored therein or transmitted thereby (other than Customer account data relating to accounts other than Excluded Accounts) and all improvements, fixes, releases and updates related thereto and all documentation associated therewith; provided , however , that the “IT Assets” shall in no event include the Office Equipment.

 

“ IT Transition Services Agreement ” means the transition services agreement, to be entered into on the Closing Date, in the form attached hereto as Exhibit B.

 

“ June Adjusted Balance Sheet ” means the adjusted balance sheet of the Company, after giving effect to the Reorganization, set forth in Section 2.3(a) of the Seller Disclosure Schedule, which balance sheet was prepared in accordance with the accounting policies, principles, bases and methods, and related calculation principles, set forth in Section 2.3(a) of the Seller Disclosure Schedule.

 

“ Knowledge of Seller ” means the actual knowledge of those Persons listed in Section 1.1(c) of the Seller Disclosure Schedule.

 

“ Leased Premises ” means the premises leased pursuant to the Company Office Lease.

 

“ Lien ” means any mortgage, pledge, lien, charge, security interest or other encumbrance of any kind.

 

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“ Major Transaction ” has the meaning set forth in Section 6.5(b)(ii).

 

“ Material Adverse Effect ” means any (a) effect that is materially adverse to the business, assets (other than Excluded Assets), results of operations or financial condition of the Company, other than any such effect attributable to or resulting from (i) the transactions contemplated by this Agreement or proximately from the announcement thereof, (ii) any change in financial securities or other market conditions (including market price and trading volume fluctuations) or prevailing interest rates, (iii) any change in Applicable Law, GAAP, regulatory accounting principles or in the interpretations of any of the foregoing, each case, after the date hereof, (iv) any change in economic or political conditions (including acts of war, declared or undeclared, armed hostilities, sabotage and terrorism) or (v) any act or omission by Seller Parent or any of its Subsidiaries taken with the prior consent or at the direction or request of Purchaser in accordance with the requirements of this Agreement or (b) prohibition or impairment of the ability of Seller or Seller Parent to perform their material obligations under this Agreement on a timely basis.

 

“ Material Contract ” means each of the following Contracts to which the Company is a party, except in each case any contract with customers of the Business and any such Contract that constitutes a part of the Excluded Assets:

 

(i) Contracts providing for the payment by or to the Company in an aggregate amount for the unexpired term thereof equal to or greater than $200,000;

 

(ii) loan agreements, indentures, letters of credit (including related letter of credit applications and reimbursement obligations), mortgages, security agreements, pledge agreements, deeds of trust, bonds, notes, guarantees, instruments and other contracts relating to the incurrence of indebtedness or obtaining of or extension of credit;

 

(iii) joint venture, partnership, alliance, cooperation and similar agreements involving a sharing of profits or expenses;

 

(iv) agreements prohibiting or restricting the ability of the Company to conduct its business, operate in any geographical area or compete with any Person;

 

(v) material Contracts in respect of or with affinity partnerships and registered investment advisors;

 

(vi) agreements which require the referral by the Company of any business or require the Company to make available to its customers investment or other business opportunities or products or services on a priority, equal or exclusive basis;

 

(vii) all Contracts with a Governmental Authority; and

 

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(viii) all Contracts entered into by the Company relating to the acquisition or divestiture of a business that contain ongoing indemnification or other payment obligations of the Company.

 

“ Membership Interests ” has the meaning set forth in the recitals hereto.

 

“ NASD ” means NASD, Inc. and its wholly-owned Subsidiary, NASD Regulation, Inc.

 

“ Non-Compete Period ” has the meaning set forth in Section 6.5(a).

 

“ Non-Qualified Plan ” has the meaning set forth in Section 7.7(b).

 

“ NYSE ” means the New York Stock Exchange, Inc.

 

“ Objection ” has the meaning set forth in Section 2.3(b).

 

“ Office Equipment ” means all personal and laptop computers (including desktop software and build currently on such computers), telephones, fax machines and network and local printers located at Purchaser’s Boston Leased Premises or at the premises subject to the Tampa Sublease.

 

“ Permits ” has the meaning set forth in Section 4.8(b).

 

“ Permitted Liens ” means (i) Liens for taxes, assessments or other governmental charges not yet due or which are being contested in good faith by appropriate proceedings, (ii) carriers’, warehousemen’s, mechanics’, materialmen’s, repairman’s or other similar Liens arising in the ordinary course of business securing obligations that are not overdue for a period of more than thirty (30) calendar days or (iii) Liens on assets or properties that do not materially impair business operations or the use of such assets or properties in the ordinary course of business.

 

“ Person ” means any individual, corporation, company, partnership (limited or general), limited liability company, joint venture, association, trust, unincorporated organization or other business entity.

 

“ Plan ” means any employment, consulting, bonus, incentive compensation, deferred compensation, pension, profit sharing, retirement, stock purchase, stock option, stock ownership, stock appreciation rights, phantom stock, equity (or equity-based), leave of absence, layoff, vacation, day or dependent care, legal services, cafeteria, life, health, medical, dental, vision, welfare, accident, disability, workmen’s compensation or other insurance, severance, separation, termination, change of control, collective bargaining or other benefit plan, understanding, agreement, practice, policy or arrangement of any kind, whether written or oral, and whether or not subject to ERISA, including, but not limited to, any “employee benefit plan” within the meaning of Section 3(3) of ERISA.

 

“ Pre-Closing Matters ” has the meaning set forth in Section 6.4(b).

 

“ Prime Rate ” has the meaning set forth in Section 2.3(d).

 

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“ Purchase Price ” means the purchase price paid by the Purchaser for the Membership Interests, as such purchase price may be adjusted pursuant to Section 2.3.

 

“ Purchaser ” has the meaning set forth in the preamble hereof.

 

“ Purchaser Disclosure Schedule ” means the disclosure schedule delivered by Purchaser to Seller at the time of execution hereof.

 

“ Reorganization ” means the transfer of the Excluded Business, the Excluded Assets and the Excluded Liabilities (other than liabilities for Taxes referred to in clause (iv) of the definition thereof) to Seller Parent and its Subsidiaries and the other actions detailed in Section 6.7 hereof and Section 6.7 of the Seller Disclosure Schedule.

 

“ Restricted Business ” means the business of providing online, self-directed, deep discount brokerage services primarily directed at the active trader segment of the retail customer market; -provided that the Restricted Business shall not include the foregoing business unless provided on a stand-alone basis and not as part of a diversified suite of products offered to customers of Seller Parent and its Affiliates.

 

“ Retained Employees ” shall mean (i) the employees of the Company that are employed in the Company’s IT Production Management Group or that report (directly or indirectly) to the director of such Group or to the Company’s Chief Information Officer, all of which employees as of the date hereof are listed on Schedule 7.1(a), (ii) the employees of the Company engaged primarily in the Excluded Business as of the date hereof and listed on Schedule 7.1(b) and (iii) all Persons first hired following the date hereof to replace or perform the same functions as any of the Persons referred to in clause (i) or (ii) above.

 

“ Retirement Plan ” has the meaning set forth in Section 7.7(a).

 

“ SEC ” means the Securities and Exchange Commission.

 

“ Seller ” has the meaning set forth in the preamble hereof.

 

“ Seller Customer Data ” means all personally identifiable information about any present or former customer of the Excluded Business and all other information related to each such customer, such customer’s accounts with the Company or any activities or transactions in such accounts, it being understood that information gathered by Purchaser and its Affiliates independently, in the ordinary course of their businesses, and without any use of information in the Company’s possession concerning such customers of the Excluded Business, about Persons who are also customers of Purchaser and its Affiliates shall not be considered Seller Customer Data.

 

“ Seller Disclosure Schedule ” means the disclosure schedule delivered by Seller to Purchaser at the time of execution hereof.

 

“ Seller Marks ” has the meaning set forth in Section 6.6(a).

 

“ Seller Parent ” has the meaning set forth in the preamble hereof.

 

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“ Seller’s Insurance Policies ” has the meaning set forth in Section 6.4(b).

 

“ Straddle Period ” has the meaning set forth in Section 10.1(a).

 

“ Subsidiary ” means, with respect to any Person, a corporation or other entity of which such Person owns, directly or indirectly through one or more intermediaries, at least a majority of the outstanding shares of stock or other equity interests having ordinary voting power to elect a majority of the board of directors (or comparable body) of such corporation or other entity. Ownership through fiduciary, trust, custodial, nominee or similar arrangements for the account of customers shall not constitute ownership of stock or other equity interests for purposes of this definition.

 

“ Survival Period ” has the meaning set forth in Section 12.1.

 

“ Tampa Sublease ” means a sublease between JPMorgan Chase Bank, N.A., as sub-lessor, and the Company, as sub-tenant, for the Company’s Tampa, Florida premises and the furniture and fixtures located at such premises, for a term which ends on the later of (i) September 30, 2006 and (ii) the last day that Seller Parent or any of its Affiliates has the right to occupy the Tampa, Florida premises currently occupied by the Company, or such earlier date as the parties shall mutually agree, and on the other terms and conditions set forth in Section 6.8 of the Seller Disclosure Schedule.

 

“ Target Adjusted Book Value ” means $281,237,539.

 

“ Tax Return ” means any return, report, information return or other document (including any related or supporting information) required to be filed with any taxing authority with respect to Taxes, including information returns, claims for refunds of Taxes, withholding forms, declarations of estimated Tax, and any amendments or supplements to any of the foregoing (and, including for the avoidance of doubt any Forms W-2 and 1042-S and Forms in the Series 1098, 1099 and 5498 provided to or completed in respect of third parties).

 

“ Taxes ” means (i) all taxes, charges, levies, penalties or other assessments imposed by any United States federal, state, local or foreign taxing authority, including but not limited to income, excise, property, sales, transfer, franchise, payroll, withholding, social security or other similar taxes, including any interest or penalties, additions to Tax or additional amounts imposed by any Taxing Authority attributable thereto; and (ii) any liability in respect of any item described in (i) hereof by reason of a contract, by operation of law (including Treasury Regulations Section 1.1502-6) or otherwise.

 

“ Taxing Authority ” means the IRS or any other Governmental Authority having authority with regard to the administration of any Tax.

 

“ Third Party ” has the meaning set forth in Section 11.3(a).

 

“ Third Party Consents ” has the meaning set forth in Section 4.4(b).

 

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“ Trademark Assignment Agreement ” means the trademark assignment agreement, to be entered into on the Closing Date, substantially in the form attached hereto as Exhibit D.

 

“ Transfer Taxes ” means all liabilities for transfer, sales, use, value added, registration, documentary, stamp and other Taxes arising in connection with the consummation of the transactions contemplated hereby, other than Taxes based on or measured with reference to net income and other than payroll Taxes.

 

“ United States ” means the United States (including Puerto Rico) and its territories and possessions.

 

“ Vacation Policy ” has the meaning set forth in Section 7.4.

 

1.2 Interpretation . (a) In this Agreement, unless the context otherwise requires, references to:

 

(i) the words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement;

 

(ii) the preamble or the recitals, Sections or Schedules refer to the preamble or a recital or Section of, or Schedule to, this Agreement;

 

(iii) any Contract (including this Agreement) refer to the Contract as amended, modified, supplemented or replaced from time to time;

 

(iv) any statute or regulation refer to the statute or regulation as amended, modified, supplemented or replaced from time to time (and, in the case of statutes, include any rules and regulations promulgated under the statute) and to any section of any statute or regulation include any successor to the section;

 

(v) any Governmental Authority includes any successor to the Governmental Authority; and

 

(vi) this Agreement are to this Agreement and the Schedules to it.

 

(b) The table of contents and headings contained in this Agreement are for reference purposes only and do not limit or otherwise affect any of the provisions of this Agreement.

 

(c) Whenever the word “include,” “includes” or “including” is used in this Agreement, it shall be deemed to be followed by the words “without limitation.”

 

(d) This Agreement is the product of negotiation by the parties having the assistance of counsel and other advisers. It is the intention of the parties that this Agreement not be construed more strictly with regard to one party than with regard to any other.

 

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ARTICLE II

PURCHASE AND SALE

 

2.1 Sale and Delivery of Membership Interests . On the terms and subject to the conditions of this Agreement, Seller shall, at the Closing on the Closing Date, sell and transfer to Purchaser, and Purchaser shall purchase and accept from Seller, all of the Membership Interests.

 

2.2 Payment of Estimated Purchase Price . Not less than two Business Days prior to the Closing Date, Seller shall deliver to Purchaser its good faith estimate of the Closing Date Adjusted Book Value of the Company (the “Estimated Closing Date Adjusted Book Value”). On the terms and subject to the conditions of this Agreement and against transfer of the Membership Interests as provided in Section 2.1 and the other deliveries of Seller set forth in Section 3.2, Purchaser shall pay, at the Closing on the Closing Date, by wire transfer of immediately available funds to such account or accounts as Seller shall designate in writing to Purchaser not less than one Business Day prior to the Closing Date, the Estimated Purchase Price and shall make the other deliveries set forth in Section 3.3.

 

2.3 Purchase Price Adjustment .

 

(a) Within 60 days after the Closing Date, Purchaser will prepare an unaudited statement of financial condition of the Company as of the Closing Date, after giving effect to the Reorganization on a pro forma basis, completed in accordance with Section 6.7 of the Seller Disclosure Schedule, and a calculation of the Closing Date Adjusted Book Value (collectively, the “ Closing Date Adjusted Balance Sheet ”). The Closing Date Adjusted Balance Sheet shall be prepared in the same manner and using the same accounting policies, principles, bases, methods and calculation principles as used in the preparation of the June Adjusted Balance Sheet, as set forth in Section 2.3(a) of the Seller Disclosure Schedule, except as otherwise stated in Section 2.3(a) of the Seller Disclosure Schedule. Seller shall provide such assistance and cooperation to Purchaser in the preparation of the Closing Date Adjusted Balance Sheet and the calculation of the Closing Date Adjusted Book Value set forth therein as Purchaser may reasonably request.

 

(b) Following the delivery by Purchaser to Seller of the Closing Date Adjusted Balance Sheet, Seller shall have a period of 30 days in which to review the Closing Date Adjusted Balance Sheet and the calculation of the Closing Date Adjusted Book Value. Seller and its accountants shall be provided with reasonable access to the work papers of Purchaser and its accountants in connection with such review. In the event that Seller determines that the Closing Date Adjusted Balance Sheet and/or the calculation of Closing Date Adjusted Book Value have not been prepared on a basis consistent with the requirements of Section 2.3(a) (including the defined terms used therein), Seller shall, on or before the last day of such 30-day period, inform Purchaser in writing of such determination (the “ Objection ”), setting forth in reasonable detail a specific description of the basis of the Objection, the adjustments to the Closing Date Adjusted Balance Sheet and/or the calculation of Closing Date Adjusted Book Value that Seller believes should be made, and, if different from Purchaser’s calculation thereof, Seller’s calculation of the Closing Date Adjusted Book Value. Seller shall be deemed to have accepted any items not specifically disputed in the Objection. Failure to so notify Purchaser

 

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shall constitute acceptance and approval of Purchaser’s preparation of the Closing Date Adjusted Balance Sheet and calculation of the Closing Date Adjusted Book Value.

 

(c) Purchaser shall then have 30 days following the date it receives the Objection to review and respond to the Objection, during which period Seller and Purchaser shall negotiate in good faith to resolve the Objection. If Seller and Purchaser are unable to resolve all of their disagreements with respect to the determination of the foregoing items by the 30th day following the date on which Purchaser receives the Objection, after having used their good faith efforts to reach a resolution, they shall refer their remaining differences to KPMG LLP (or if they are unable or unwilling to serve, a firm of accountants of nationally recognized standing reasonably satisfactory to Seller and Purchaser) (the “ CPA Firm ”), who shall, acting as experts in accounting and not as arbitrators, determine on a basis consistent with the requirements of Section 2.3(a) (including the defined terms used therein), and only with respect to the specific remaining accounting-related differences so submitted, whether and to what extent, if any, the Closing Date Adjusted Balance Sheet and/or the calculation of the Closing Date Adjusted Book Value requires adjustment. Seller and Purchaser shall request the CPA Firm to use its reasonable best efforts to render its determination within 45 days following submission of such matters to the CPA Firm. The CPA Firm’s determination shall be conclusive and binding upon the parties hereto. Seller and Purchaser shall make reasonably available to the CPA Firm all relevant books and records, and (subject to the execution of customary access agreements) work papers (including those of the parties’ respective accountants, to the extent applicable) and supporting documentation relating to the Closing Date Adjusted Balance Sheet and/or the calculation of the Closing Date Adjusted Book Value and all other items reasonably requested by the CPA Firm. The “ Final Closing Statement ” shall mean the Closing Date Adjusted Balance Sheet and the calculation of the Closing Date Adjusted Book Value (i) as submitted by Purchaser pursuant to Section 2.3(a) in the event that (A) no Objection is delivered to Seller during the initial 30 day period specified above or (B) Seller and Purchaser so agree, (ii) as adjusted in accordance with the Objection, in the event that (A) Purchaser does not respond to the Objection during the 30 day period specified above following receipt by Seller of the Objection or (B) Seller and Purchaser so agree, (iii) as adjusted in accordance with the agreement of Seller and Purchaser, if Seller and Purchaser so agree during the 30 day period following receipt by Purchaser of the Objection, or (iv) as adjusted by the CPA Firm, if it has been submitted to the CPA Firm for review, together with any other modifications to the Closing Date Adjusted Balance Sheet and/or the calculation of Closing Date Adjusted Book Value agreed upon by Seller and Purchaser. All fees and expenses of the CPA Firm shall be shared equally by Seller and Purchaser.

 

(d) If the Adjusted Purchase Price is less than the Estimated Purchase Price, Seller shall pay to Purchaser an amount in cash equal to the sum of (i) the amount by which the Adjusted Purchase Price is less than the Estimated Purchase Price, plus (ii) interest payable on the amount paid under clause (i), computed at the rate declared from time to time by Seller Parent as its “base rate” (based on a 365-day year) (the “ Prime Rate ”) for the period from the Closing Date to the date of such payment, in immediately available funds no later than the third Business Day following the date on which the Final Closing Statement is determined pursuant to Section 2.3(c) above. If the Adjusted Purchase Price is greater than the Estimated Purchase Price, Purchaser shall pay Seller an amount in cash equal to the sum of (x) the excess of the Adjusted Purchase Price over the Estimated Purchase Price, as set forth in the Final Closing Statement, plus (y) interest payable on the amount paid under clause (x), computed at the Prime

 

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Rate for the period from the Closing Date to the date of such payment, in immediately available funds no later than the third Business Day following the date on which the Final Closing Statement is determined pursuant to Section 2.3(c) above. The Purchase Price shall be deemed to be reduced by any payment to Purchaser pursuant to this Section 2.3(d) and increased by any payment to Seller pursuant to this Section 2.3(d).

 

2.4 Purchase Price Allocation .

 

(a) Within 180 days after the Closing, Purchaser shall prepare and deliver to Seller a draft of a statement (the “ Allocation Statement ”) setting forth its proposed calculation of the aggregate amount of the Purchase Price to be allocated among the assets of the Company and the proposed allocation of such aggregate amount among such assets. If within 30 days after Seller’s receipt of the draft Allocation Statement, Seller shall not have objected in writing to such draft Allocation Statement, the draft Allocation Statement shall become the Allocation Statement. In the event that Seller objects in writing within such 30-day period, Seller and Purchaser shall negotiate in good faith to resolve the dispute. If Seller and Purchaser are unable to reach an agreement within 30 days after Purchaser’s receipt of Seller’s written objection, the dispute shall be resolved and the Allocation Statement shall be determined by an independent, nationally recognized firm of accountants mutually selected by the parties. The Allocation Statement, as agreed upon by Purchaser and Seller and/or determined under this Section, shall be final and binding upon the parties. Each of Purchaser and Seller shall bear all fees and costs incurred by it in connection with the determination of the Allocation Statement, except that the parties shall each pay one-half (50%) of the fees and expenses of any accounting firm retained to resolve the allocation dispute.

 

(b) The Allocation Statement will be prepared in accordance with Section 1060 of the Code and the rules and regulations promulgated thereunder; provided that no amount shall be allocated to any non-compete, non-hire, or non-solicitation covenant or agreement.

 

(c) The parties hereto agree to report the allocation of the total consideration among the assets of the Company in a manner consistent with the Allocation Statement and agree to act in accordance with the Allocation Statement in the preparation and filing of all Tax Returns (including filing Form 8594 with their respective Federal income tax returns for the taxable year that includes the Closing Date and any other forms or statements required by the Code, treasury regulations, the Internal Revenue Service or any applicable state or local taxing authority) and in the course of any Tax audit, Tax review or Tax litigation relating thereto; provided that neither Seller or any of its Affiliates nor Purchaser or any of its Affiliates will be obligated to litigate any challenge to such allocation of the Purchase Price by a taxing authority.

 

(d) The parties will promptly inform one another of any challenge by any taxing authority to any allocation made pursuant to this Section and agree to consult and keep one another informed with respect to the status of, and any discussion, proposal or submission with respect to, such challenge.

 

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ARTICLE III

CLOSING DATE

 

3.1 Closing Date . Unless this Agreement shall have theretofore been terminated and the transactions herein abandoned pursuant to Section 9.1, the closing (the “Closing”) of the purchase and sale of the Membership Interests as provided for in Article II shall take place at the offices of Simpson Thacher & Bartlett LLP, 425 Lexington Avenue, New York, New York, at 10:00 a.m., New York City time, on the second Business Day after the day on which all conditions set forth in Article VIII (other than those that by their terms must be satisfied on the Closing Date) are first satisfied or waived, or at such other place and time and on such other date as the parties may agree. The date on which the Closing occurs is herein called the “Closing Date”.

 

3.2 Deliveries by Seller and Seller Parent . At the Closing Seller and Seller Parent shall deliver to Purchaser the following:

 

(a) evidence of the registration of the sale of the Membership Interests;

 

(b) a certificate of Seller and Seller Parent, dated the Closing Date, executed on behalf of each of Seller and Seller Parent by an authorized officer thereof, to the effect that the conditions specified in Sections 8.2(a) and (b) have been fulfilled; and

 

(c) resignations signed by each director and officer of the Company other than those designated by Purchaser to retain their positions following the Closing Date.

 

3.3 Deliveries by Purchaser . At the Closing, Purchaser shall deliver to Seller and Seller Parent the following:

 

(a) the Estimated Purchase Price; and

 

(b) a certificate of Purchaser, dated the Closing Date, executed on behalf of Purchaser by an authorized officer thereof, to the effect that the conditions specified in Sections 8.3(a) and (b) have been fulfilled.

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF SELLER AND SELLER PARENT

 

Seller and Seller Parent, jointly and severally, represent and warrant to Purchaser that:

 

4.1 Organization, Power, etc . (a) Each of Seller and Seller Parent is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization.

 

(b) The Company has been duly organized and is validly existing and in good standing under the laws of its jurisdiction of organization and, where applicable, is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or properties makes such qualification or license necessary, and the Company has full

 

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power and authority necessary to own all of its properties and assets and to carry on its business as it is now being conducted, except where failure to be so qualified, licensed or in good standing would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The only Subsidiary of the Company on the date hereof is named in Section 4.1(b) of the Seller Disclosure Schedule. All capital stock of such Subsidiary is owned by the Company free and clear of any Lien. Prior to the Closing Date the Company shall cause such Subsidiary to be liquidated and dissolved and all assets and liabilities thereof to be transferred to an Affiliate of Seller Parent so that as of the Closing the Company shall have no Subsidiaries.

 

4.2 Authority Relative to Agreement . Each of Seller and Seller Parent has the corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery by each of Seller and Seller Parent of this Agreement, the performance of its obligations hereunder and its consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action. This Agreement has been duly and validly executed and delivered by each of Seller and Seller Parent and, assuming the due authorization, execution and delivery by Purchaser, constitutes its legal and binding obligation, enforceable against it in accordance with its terms, except as may be affected by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally and general equitable principles.

 

4.3 Non-Contravention . The execution and delivery of this Agreement by each of Seller and Seller Parent do not, and the consummation of the transactions contemplated hereby and the performance by it of the obligations which it is obligated to perform or cause to be performed hereunder will not: (a) violate any provision of the organizational documents of Seller, Seller Parent or the Company; or (b) assuming that all consents, authorizations, orders or approvals of, filings or registrations with, and notices to, each United States federal and state court, governmental commission, board or other regulatory authority or agency, including any industry self-regulatory organization (each, a “ Governmental Authority ”) referred to in Section 4.4(a) and all Third Party Consents referred to in Section 4.4(b) have been obtained or made, (i) violate any law, regulation, rule, order, judgment or decree of any Governmental Authority (“ Applicable Law ”) to which Seller, Seller Parent or the Company is subject, (ii) violate, result in the termination or acceleration of, or conflict with or constitute a default under, any mortgage, indenture, lease, agreement or instrument (each a “ Contract ”) to which Seller, Seller Parent or the Company is a party or by which any of their respective properties is bound or (iii) result in the creation of (x) any Lien on the Membership Interests or (y) any Lien (other than Permitted Liens) on any of the other assets or properties of the Company, except, in the case of clauses (i), (ii) and (iii)(y), for any such violation, termination, acceleration, conflict, default or Lien as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

4.4 Consents, etc . (a) Except for (i) consents, authorizations, approvals or filings pursuant to the applicable provisions of United States federal and state laws relating to the regulation of broker-dealers and the rules and regulations of the SEC, applicable state securities commissions, and the securities exchanges, boards of trade or other industry self-regulatory organizations of which the Company is a member that are set forth in Section 4.4(a) of the Seller Disclosure Schedule, (ii) the filing of notice under the HSR Act, and the expiration or early

 

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termination of the applicable waiting period, and (iii) as described in Section 4.4(a) of the Seller Disclosure Schedule, no consent, authorization, order or approval of, filing or registration with, or notice to, any Governmental Authority (collectively, “Governmental Approvals”) and (b) except as described in Section 4.4(b) of the Seller Disclosure Schedule, no consent, authorization, approval or waiver from any party (other than a Governmental Authority) to any Contract (collectively, “Third Party Consents”) to which Seller or the Company is a party or by which any of their respective properties are bound is required for the execution and delivery of this Agreement by Seller and Seller Parent, the performance of their respective obligations hereunder and their consummation of the transactions contemplated hereby, except in any such case for any such Governmental Approval or Third Party Consent the failure of which to be obtained or made would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

4.5 Title to the Membership Interests; Capitalization . (a) Upon the transfer and payment for the Membership Interests as contemplated herein, Seller will transfer to Purchaser valid title to the Membership Interests, free and clear of any Liens (other than Liens created or incurred by Purchaser or any of its Affiliates).

 

(b) As of the date hereof there are no, and on the Closing Date there will not be any, membership interests or other equity interests in or other securities of the Company outstanding other than the Membership Interests. The Membership Interests are owned of record and beneficially by Seller, free and clear of all Liens. There are no outstanding obligations, warrants, options or other rights to subscribe for or purchase from the Company, or other contracts or commitments providing for the issuance of or granting any Person the right to acquire or vote, membership interests or other equity interests in, or securities of, the Company, or any securities or other instruments convertible into or exchangeable or exercisable for any membership interests or other equity interests in, or securities of, the Company.

 

4.6 Financial Statements . (a) Set forth in Section 4.6(a) of the Seller Disclosure Schedule are true and complete copies of the audited statement of financial condition of the Company as of December 31, 2004 and the related statements of income, changes in member’s equity and cash flows for the year ended December 31, 2004 and the unaudited statement of financial condition of the Company as of June 30, 2005 and the related statement of income for the six-month period then ended (collectively, the “ Company Financial Statements ”). The Company Financial Statements (including, in each case, any related notes thereto) were prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto, except for the absence of footnotes in the case of unaudited statements and except as otherwise indicated in Section 4.6(a) of the Seller Disclosure Schedule) and fairly present in all material respects the financial position and results of operations of the Company at the respective dates thereof and for the periods indicated (subject, in the case of unaudited statements, to normal year-end adjustments). The June Adjusted Balance Sheet was prepared in accordance with the accounting policies, principles, bases, methods and calculation principles set forth in Section 2.3(a) of the Seller Disclosure Schedule.

 

(b) Except as and to the extent reflected in or reserved against in the balance sheet of the Company as of June 30, 2005 in the Company Financial Statements (including the

 

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notes thereto) or in the Final Closing Statement, or as otherwise set forth in Section 4.6(b) of the Seller Disclosure Schedule, the Company has no liabilities (whether accrued, absolute, contingent or otherwise) that would be required to be reflected on a balance sheet prepared in accordance with GAAP, except for (i) liabilities or obligations incurred since June 30, 2005 in the ordinary course of business and (ii) other liabilities that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.

 

4.7 Litigation . Except (i) for any litigation that may arise out of the transactions contemplated by this Agreement or (ii) as set forth in Section 4.7 of the Seller Disclosure Schedule, there is no action, suit or proceeding pending or, to the Knowledge of Seller, threatened against Seller or the Company by or before any Governmental Authority or arbitrator that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Except as set forth in Section 4.7 of the Seller Disclosure Schedule, there are no outstanding judgments, decrees, injunctions, settlement agreements or orders of any Governmental Authority to which the Company is subject or to which any of its properties or assets is bound that permanently or temporarily enjoin the Company from acting as a broker or dealer in securities or that would reasonably be expected to have a Material Adverse Effect. Except as set forth in Section 4.7 of the Seller Disclosure Schedule or as would not reasonably be expected to have a Material Adverse Effect, neither the Seller nor the Company is subject to any cease-and-desist or other order or enforcement action issued by, or party to any written agreement, consent agreement or memorandum of understanding with, or a party to any commitment letter or similar undertaking, or subject to any order or directive by, or has been ordered to pay any civil penalty by, or is a recipient of any supervisory letter from, or has adopted any board or member resolutions at the request or suggestion of, any Governmental Authority that restricts the conduct of its business or that in any manner relates to its capital adequacy, its ability to pay dividends, its credit or risk management policies, its management, its trading privileges or its business.

 

4.8 Compliance with Laws; Permits and Licenses . (a) The operations of the Company are being conducted in compliance with all Applicable Laws, except as set forth in Section 4.8(a) of the Seller Disclosure Schedule or where the failure to so comply would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Except as set forth in Section 4.8(a) of the Seller Disclosure Schedule, since January 1, 2004, the Company has not received any written notification from any Governmental Authority asserting that the Company is not in compliance with any of the statutes, regulations or ordinances that such Governmental Authority enforces or that such Governmental Authority intends to revoke or suspend any such Permit, except where such noncompliance, revocation or suspension would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(b) The Company holds all material permits, certificates, licenses, approvals and other authorizations of each Governmental Authority which are necessary for the operation of its business as presently conducted (collectively, the “ Permits ”). Section 4.8(b) of the Seller Disclosure Schedule sets forth a complete list of all securities exchanges, boards of trade, clearing organizations, trade associations and similar organizations in which the Company holds a membership or has been granted trading privileges and which memberships or trading privileges are material to the Business. The Company is not required to be registered as a futures commission merchant, commodities trading adviser, commodity pool operator or introducing

 

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broker under the Commodities Exchange Act or any similar state laws. The Company is not subject to registration under the Investment Company Act of 1940, as amended.

 

(c) The Company has timely filed all registrations, declarations, reports, notices, forms and other filings required to be filed by it with the SEC, NASD, NYSE, any other Governmental Authority or any clearing agency, and all amendments or supplements to any of the foregoing (the “ Company Filings ”), except where any failure to file would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(d) The Company is duly registered, licensed or qualified as a broker-dealer in each jurisdiction where the conduct of the Company’s business requires such registration, licensing or qualification, and is in compliance with all laws requiring any such registration, licensing or qualification and is not subject to any material liability or disability by reason of the failure to be so registered, licensed or qualified, except where such failure to register, license or qualify or noncompliance would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(e) Seller has delivered or made available to Purchaser a copy of the currently effective Form BD as filed by the Company with the SEC. The information contained in such form was complete and accurate in all material respects as of the time of filing thereof.

 

(f) Except with respect to employees in training or employees who have been employed by the Company for fewer than 90 days, or except to the extent failure to be so licensed or registered would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, all of the Company’s employees who are required to be licensed or registered to conduct the business of the Company are duly licensed or registered in each state and with each Governmental Authority in which or with which such licensing or registration is so required.

 

(g) Except as disclosed on Form BD filed prior to the date of this Agreement or as would not reasonably be expected to have a Material Adverse Effect, neither the Company nor any of its directors, officers, employees or “associated persons” (as defined in the Exchange Act) has been the subject of any disciplinary proceedings or orders of any Governmental Authority arising under applicable laws which would be required to be disclosed on Form BD. Except as set forth in Section 4.8(g) of the Seller Disclosure Schedule, no such disciplinary proceeding or order is pending or, to the Knowledge of Seller, threatened. Except as disclosed on a Form BD filed prior to the date of this Agreement, neither the Company nor any of its directors, officers, employees or associated persons has been permanently enjoined by the order of any Governmental Authority from engaging or continuing any conduct or practice in connection with any activity or in connection with the purchase or sale of any security. Except as disclosed on Form BD filed prior to the date of this Agreement, neither the Company nor any of its directors, officers, employees or associated persons is or has been ineligible to serve as a broker-dealer or an associated person of a broker-dealer under Section 15(b) of the Exchange Act (including being subject to any “statutory disqualification” as defined in Section 3(a)(39) of the Exchange Act).

 

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4.9 Absence of Certain Changes . Since December 31, 2004, (i) the Company has conducted the Business only in the ordinary course consistent with past practice (except as otherwise set forth in Section 4.9 of the Seller Disclosure Schedule) and (ii) there has been no change, event or development or combination of changes, events and developments which has resulted in or would reasonably be expected to result in a Material Adverse Effect.

 

4.10 Personnel and Employee Benefits Matters . (a) Section 4.10(a) of the Seller Disclosure Schedule sets forth a list of each material (i) ”employee benefit plan” (within the meaning of Section 3(3) of ERISA), (ii) severance, change in control and employment plan, policy, program or agreement and (iii) vacation, incentive, bonus, stock option, stock purchase, restricted stock plan, and any other stock based plan program or policy sponsored by the Seller, Company or Seller Parent (or Seller Parent’s wholly owned subsidiary, JPMorgan Chase Bank, National Association) in which Affected Employees participate (collectively, the “ Benefit Plans ”). Except to the extent otherwise set forth in Section 4.10(a) of the Seller Disclosure Schedule, Seller has made available to Purchaser a true and complete copy of each such Benefit Plan document, policy or summary plan description thereof.

 

(b) The Benefit Plans are in compliance with all applicable requirements of ERISA, the Code, and other Applicable Laws and have been administered in accordance with their terms and such laws, except where the failure to so comply or administer would not reasonably expected to have a Material Adverse Effect. Each Benefit Plan that is intended to be qualified within the meaning of Section 401 of the Code has received a favorable determination letter as to its qualification, and, to the Knowledge of Seller, nothing has occurred that would reasonably be expected to adversely affect such qualification, except where such lack of qualification would not reasonably be expected to have a Material Adverse Effect.

 

(c) Except as set forth in Section 4.10(c) of the Seller Disclosure Schedule or for ordinary and usual claims for benefits by participants and beneficiaries, there are no pending or, to the Knowledge of Seller, threatened claims and no pending or, to the Knowledge of Seller, threatened litigation with respect to any Benefit Plan which would reasonably be expected to have a Material Adverse Effect.

 

(d) Except as set forth in Section 4.10(d) of the Seller Disclosure Schedule, nothing has occurred with respect to any Benefit Plan that is not a multiemployer plan (as defined in Section 3(37) of ERISA) but is subject to Title IV of ERISA which would reasonably be expected to have a Material Adverse Effect.

 

(e) Except as set forth in Section 4.10(e) of the Seller Disclosure Schedule, with respect to any multiemployer plan (within the meaning of Section 4001(a)(3) of ERISA) to which the Company or any member of its “Controlled Group” (defined as any organization which is a member of a controlled group of organizations within the meaning of Section 414(b), (c), (m) or (o) of the Code) has any liability or contributes (or has at any time contributed or had an obligation to contribute): none of the Company or any member of its Controlled Group (i) has incurred any withdrawal liability under Title IV of ERISA which remains unsatisfied that would reasonably be expected to have a Material Adverse Effect or (ii) would be subject to withdrawal liability that would reasonably be expected to have a Material Adverse Effect if, as of the Closing Date, the Company or any member of its Controlled Group were to engage in a

 

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complete withdrawal (as defined in Section 4203 of ERISA) or partial withdrawal (as defined in Section 4205 of ERISA) from any such multiemployer plan.

 

(f) Except as expressly provided in Section 7.6, no Plan is or will be directly or indirectly binding on Purchaser by virtue of the transaction contemplated hereby. Purchaser, its Subsidiaries, and its Affiliates (including without limitation, on and after the Closing, the Company and its Subsidiaries) shall have no liability for, under, with respect to or otherwise in connection with any Plan, which liability arises under ERISA or the Code, by virtue of the Company or any Subsidiary being aggregated, with any other person that is an ERISA Affiliate (other than with the Company or its Subsidiary), in a controlled group or affiliated service group for purposes of ERISA or the Code at any relevant time prior to the Closing.

 

4.11 Taxes.

 

(a) Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect (i) Seller has filed or caused to be filed, or will file or cause to be filed, on or prior to the Closing Date, all Tax Returns required to be filed with respect to the Company, other than with respect to Transfer Taxes as provided for in Section 10.1(d) hereof; (ii) all Taxes, whether or not shown as due on such Tax Returns, have been timely paid or provided for on the Company’s books, and all such Tax Returns are true and complete in all material respects; (iii) except as set forth in Section 4.11(a) of the Seller Disclosure Schedule, there are no pending or (to the best knowledge of Seller) threatened actions or proceedings for the assessment or collection of any Taxes against the Seller or the Company; and (iv) with respect to any period for which Tax Returns have not yet been filed or for which Taxes are not yet due and owing, the Seller and the Company have made due and sufficient accruals in accordance with U.S. GAAP.

 

(b) The Company has not taken part in any “listed transaction” within the meaning of Treasury Regulations Section 1.6011-4(c)(3)(i)(A) or any comparable statute or regulation in any jurisdiction in which the Company is subject to Tax. Except as would not have a Material Adverse Effect, the Company has complied in all material respects with all applicable laws related to the withholding and payment of Taxes. Except insofar as would not be material, the Company, or the Seller on the Company’s behalf, has timely and properly issued to all of the Company’s employees, independent contractors, officers, directors and customers all of the annual information returns and statements, including but not limited to IRS Forms W-2, 1099-MISC, 1099-B, 1099-INT, 1099-DIV and 1042-S that are required by law to be issued to such parties.

 

(c) Section 4.11(c) of the Disclosure Schedule sets forth (i) all material types of Taxes paid and all types of material Tax Returns filed by or on behalf of the Company and (ii) all jurisdictions in which such Taxes are paid or such Tax Returns are filed. No claim has been made by a Taxing Authority in a jurisdiction in which neither the Seller nor the Company files Tax Returns that the Company may be subject to taxation by that jurisdiction. Neither the Seller nor the Company has ever elected to treat the Company as a corporation for tax purposes under Treasury Regulation §301.7701-3