1
EXHIBIT CC
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of March 19, 2001 (the "Agreement"),
by and between The Xxxxxxx Xxxxx Group, Inc., a Delaware corporation ("GS
Inc."), on its behalf and on behalf of its subsidiaries and affiliates
(collectively with GS Inc., and its and their predecessors and successors, the
"Firm"), and the individual whose name appears at the end of this Agreement
("Pledgor"). Capitalized terms used but not defined herein shall have the
respective meanings ascribed to such terms in the Merger Agreement (as defined
below).
RECITALS
A. Covenants. In connection with the execution and delivery of
that certain Agreement and Plan of Merger (the "Merger Agreement"), dated as of
January 26, 2001, by and between GS Inc. and Xxxxxxxx Xxxxxxxx & Sons, LLC, a
New York limited liability company (the "Company"), Pledgor and GS Inc. have
entered into a Member Agreement (the "Member Agreement"), in respect of, inter
alia, Pledgor's obligations (the "Obligations") not to engage in competitive
activities, not to solicit the Firm's clients or employees, and to cooperate
with the Firm in maintaining certain relationships following the termination of
Pledgor's employment. In addition, Pledgor has agreed under the Member Agreement
to certain provisions regarding arbitration, choice of law and choice of forum,
injunctive relief and submission to jurisdiction with respect to the enforcement
of the Obligations.
B. The Pledge. Pursuant to the Member Agreement, Pledgor has
agreed to pay a certain amount of liquidated damages to GS Inc. in respect of
any breach by Pledgor of certain of the Obligations set forth in the Member
Agreement pursuant to Section 9 of such Agreement (the "Payment Amounts"). As
security for the timely payment of the Payment Amounts, Pledgor has agreed to
pledge to the Firm shares (the "Pledged Shares") of common stock of GS Inc. (the
"Common Stock"), or other collateral described below, all as set forth herein.
NOW, THEREFORE, in consideration of the premises contained
herein and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto agree as follows:
1. Pledge.
(a) Unless otherwise requested by Pledgor pursuant to the
last sentence of Section 1(b), as collateral security for the full and timely
payment of the Payment
2
Amounts, Pledgor hereby delivers, deposits, pledges, transfers and assigns to GS
Inc., in form transferable by delivery, and creates for the benefit of GS Inc. a
perfected first priority security interest in, (i) Pledged Shares or (ii) solely
in the event that Pledgor is not receiving Common Stock as Merger Consideration
in the Merger, readily marketable direct obligations of the United States, any
agency thereof, or any triple-A rated sovereign, shares of Common Stock, or
other collateral acceptable to the Board of Directors of GS Inc. in its sole and
absolute discretion, in each case with a Fair Market Value (as defined in
Section 1(d)) on the date hereof equal to the amount of the Payment Amounts (and
all certificates or other instruments or documents evidencing the Pledged
Shares) and, except as set forth in Sections 1(c) and 2(a), all proceeds thereof
(together with any securities or property to be delivered to GS Inc. pursuant to
Section 2(b) and, upon substitution or delivery in accordance with Section 1(b),
any Substitute Collateral (as defined in Section 1(b)), "Pledged Securities").
Pledgor herewith delivers to GS Inc. appropriate undated security transfer
powers duly executed in blank (or other documents deemed necessary or
appropriate by GS Inc. to give GS Inc. control (as defined in the Uniform
Commercial Code of the State of New York (the "UCC"))) (such transfer powers and
other appropriate documents, the "Control Documents") in respect of Pledged
Securities, and will deliver Control Documents for all Pledged Securities to be
pledged hereunder from time to time.
(b) During the term of this Agreement, Pledgor may
substitute for Pledged Securities (other than the Minimum Share Collateral as
defined in Section 1(c)) readily marketable direct obligations of the United
States, any agency thereof, or any triple-A rated sovereign, shares of Common
Stock, or other collateral acceptable to the Board of Directors of GS Inc. in
its sole and absolute discretion (collateral other than Pledged Shares, the
"Substitute Collateral") with a Fair Market Value on the date of substitution
equal to or greater than the Fair Market Value on such date of the Pledged
Securities to be released in exchange therefor. Upon such substitution, the
Pledged Securities replaced by such Substitute Collateral shall be released from
the pledge hereunder.
(c)(i) If Pledgor is not prohibited from doing so by the terms
of the Member Agreement, the Shareholders' Agreement, dated as of May 7, 1999,
among GS Inc. and the individuals listed on Appendix A thereto, as in effect
from time to time (the "Shareholders' Agreement"), any other written agreement
with GS Inc. or the Firm, or any law or regulation or Firm policy (collectively,
the "Restrictions"), this Agreement shall not prohibit Pledgor from disposing of
Pledged Shares; provided, that Pledgor must maintain the Minimum Share
Collateral as provided in Section 1(c)(ii) below, that such disposition shall be
made expressly subject to all of GS Inc.'s rights hereunder, that the provisions
of this Agreement shall (as described in Section 1(a)) apply to all proceeds of
such disposition (except as provided in Section 1(c)(ii) below) and that such
disposition shall be permitted only if GS Inc. shall have determined that such
disposition will not
-2-
3
result in the loss for any period by GS Inc. of the perfection of its first
priority security interest in such proceeds; provided, further, that the
proceeds of such disposition are cash, Substitute Collateral, Tender or Exchange
Offer Consideration (as defined herein) or a combination thereof, with an
aggregate Fair Market Value on the date of such disposition equal to or greater
than the Fair Market Value on such date of the Pledged Shares so disposed.
Pledgor shall give GS Inc. prior written notice of any proposed transaction
under this Section 1(c). For purposes of this Agreement, "Tender or Exchange
Offer Consideration" means the consideration issuable for Pledged Shares
pursuant to any tender or exchange offer in which the Pledgor is not prohibited
from participating by the Restrictions.
(ii) Pledgor may withdraw the proceeds of dispositions of
Pledged Shares that are permitted to be disposed of under clauses (i), (ii) or
(iii) of Section 4(a) of the Member Agreement and by Section 1(c)(i) hereof,
but, until the date upon which all Pledged Securities are released from the
pledge hereunder pursuant to Section 2(e) hereof, Pledgor may not dispose of
Pledged Shares if, after giving effect to such disposition, the collateral
remaining subject to the pledge hereunder would represent less than the Minimum
Share Collateral. "Minimum Share Collateral" shall mean the number of Shares
obtained by dividing (A) Pledgor's allocation of the aggregate Merger
Consideration (as defined in the Merger Agreement) by (B) $110.9375, and
multiplying the result by (aa) .20 if Pledgor is a party to the Shareholders'
Agreement immediately following the Merger or at the time of computation or (bb)
.10 in all other circumstances. The Minimum Share Collateral shall be equitably
adjusted in the event of a change in the number of outstanding shares of Common
Stock as a result of a reclassification, stock split, reverse stock split, stock
dividend or similar transaction or in the event that the Common Stock is changed
into another security or cash as a result of a merger or otherwise. In the event
that Pledgor is permitted by clauses (i), (ii) or (iii) of Section 4(a) of the
Member Agreement and by Section 1(c)(i) hereof to sell any of the Shares
referred to in the immediately preceding sentence and Pledgor sells any such
Shares, "Minimum Share Collateral" shall cease to refer to such sold Shares and
shall refer to the actual aggregate gross proceeds to Pledgor from such sale.
Notwithstanding anything to the contrary in this Agreement, Pledgor may not
dispose of any Pledged Shares unless all shares of Common Stock received by
Pledgor in the Merger (and any securities received in respect of such shares)
that are not Pledged Shares (including, without limitation, shares of Common
Stock no longer subject to the pledge pursuant to Section 1(b)) have been
previously disposed of.
(d) For purposes of this Agreement, the "Fair Market Value"
of any Pledged Security means, as of any date (1) in the case of a Pledged
Security that is a share of Common Stock, the average of the daily closing
prices for a share of Common Stock on the principal securities exchange or
market on which the Common Stock is traded for the 20 consecutive business days
before the date in question (the "Average Closing
-3-
4
Price"); provided, however, that the Fair Market Value of a share of Common
Stock for purposes of determining the initial amount to be pledged as of the
date of this Agreement shall be $110.9375 per share of Common Stock; and
provided, further, that in connection with any taking of ownership by GS Inc. of
Pledged Securities under Section 3 hereof, the Average Closing Price shall be
determined as the average of the daily closing prices for a share of Common
Stock on the principal securities exchange or market on which the Common Stock
is traded for the 20 consecutive business days before the date the Enforcement
Notice (as hereafter defined) was given, and (2) otherwise, the fair market
value thereof as determined in good faith by GS Inc. Any good faith
determination by GS Inc. of the Fair Market Value of any Pledged Security will
be binding on Pledgor.
2. Administration of Security. The following provisions shall
govern the administration of Pledged Securities:
(a) So long as no Payment Event (as defined below) has
occurred and is continuing, Pledgor shall (subject to any restrictions imposed
under the Shareholders' Agreement) be entitled to vote Pledged Securities and to
exercise Pledgor's rights under the Shareholders' Agreement, if applicable, in
respect of the Pledged Shares, and to receive and retain all regular quarterly
cash dividends and distributions and, except as set forth in Section 2(b) below,
other distributions thereon and to give consents, waivers and ratifications in
respect thereof. As used herein, a "Payment Event" shall mean the failure by
Pledgor to make any payment of the Payment Amounts upon demand by GS Inc.
therefor as provided in the Member Agreement.
(b) If Pledgor becomes entitled to receive, or receives, any
certificate representing Pledged Securities (or other security that may succeed
Pledged Securities or any security issued as a dividend or distribution in
respect of Pledged Securities) in respect of any stock split, reverse stock
split, stock dividend, spinoff, splitup, merger or other combination, exchange
or distribution in connection with any reclassification, increase or reduction
of capital, in each case, with respect to Pledged Securities, Pledgor agrees to
accept the same as GS Inc.'s agent and to hold the same in trust on behalf of
and for the benefit of GS Inc. and to deliver the same forthwith to GS Inc. in
the exact form received, with the endorsement of Pledgor when deemed necessary
or appropriate by GS Inc. of undated security transfer powers duly executed in
blank, to be held by GS Inc., subject to the terms of this Agreement, as
additional collateral security for the Payment Amounts.
(c) Pledgor hereby agrees that GS Inc. is authorized to hold
Pledged Securities through one or more custodians. GS Inc. and its agents (and
its and their assigns) shall have no obligation in respect of Pledged
Securities, except to hold and dispose of the same in accordance with the terms
of this Agreement. In the event that
-4-
5
Pledgor substitutes cash for Pledged Securities as provided in Section 1(b) or
1(c), such cash shall be invested, in GS Inc.'s sole discretion, in any of the
following:
(a) obligations issued or guaranteed by the United
States of America or any agency or instrumentality thereof;
(b) certificates of deposit of or accounts with national
banks or corporations endowed with trust powers having capital and
surplus in excess of $100,000,000;
(c) commercial paper at the time of investment rated A-1
by Standard & Poor's Corporation or Prime-1 by Moody's Investor's
Service, Inc.; and
(d) obligations issued by any state or municipality of
the United States.
(d) Pledgor agrees with GS Inc. that: (i) Pledgor will not,
and will not purport to, grant or suffer liens or encumbrances against
(excluding for such purpose the Shareholders' Agreement), or except as provided
in Section 1(c), sell, transfer or dispose of, any Pledged Securities other than
to or in favor of GS Inc.; (ii) GS Inc. is authorized, at any time and from time
to time, to file financing statements and give notice to third parties regarding
Pledged Securities without Pledgor's signature to the extent permitted by
applicable law, to transfer all or any part of Pledged Securities to GS Inc.'s
name or that of its nominee, and, subject to the provisions of Section 2(a), to
exercise all rights as if the absolute owner thereof; and (iii) Pledgor has
provided GS Inc. with Pledgor's true legal name and principal residence, and
Pledgor will not change Pledgor's name without 30 days' prior written notice to
GS Inc.
(e) Subject to the earlier disposition and application of
Pledged Securities pursuant to this Agreement following a Payment Event, Pledged
Securities shall be released from the pledge hereunder, and the lien hereby
created in such Pledged Securities shall simultaneously be released, upon the
earliest to occur of (i) Pledgor's death, (ii) the later of three years from the
Effective Time and two years following the date of termination of the Employment
Period (as such term is defined in the Member Agreement) or (iii) five years
from the date of the Member Agreement, and all remaining Pledged Securities
shall be thereupon released from the pledge hereunder and this Agreement shall
terminate. As provided in Section 1(c), Pledged Securities shall also be
released from the pledge hereunder in connection with permitted sales of Pledged
Securities. Notwithstanding the foregoing, no Pledged Securities shall be
released from the pledge hereunder pursuant to this Section 2(e), if there are
one or more pending disputes between Pledgor and GS Inc. as to the occurrence of
a Payment Event or as to
-5-
6
the right of GS Inc. or the Firm to exercise its remedies under this Agreement
or the Member Agreement, including realization against Pledged Securities in
accordance with Section 3 hereof, and this Agreement shall not terminate until
the resolution of all such disputes.
(f) GS Inc. shall immediately upon request by Pledgor
execute and deliver to Pledgor such instruments, deeds, transfers, assurances
and agreements, in form and substance as Pledgor shall reasonably request,
including the withdrawal or termination of any financing statements and
amendments thereto, or the filing, withdrawal, termination or amendment of any
other document required under applicable law to evidence the termination of the
security interest created hereunder with respect to any securities that are
released from the pledge hereunder in accordance with the provisions of this
Agreement.
3. Remedies in Case of a Payment Event. If a Payment Event has
occurred and is continuing, GS Inc. shall have the rights and remedies of a
secured party under Article 9 of the UCC. To the extent required and permitted
by applicable law, GS Inc. will give Pledgor notice of the time and place of any
public sale or of the time after which any private sale or other disposition of
Pledged Securities is to be made, by sending notice at least three days before
the time of sale or disposition, which Pledgor hereby agrees is reasonable. GS
Inc. need not give such notice if not required by the UCC. Pledgor acknowledges
the possibility that the public sale of some or all Pledged Securities by GS
Inc. may not be made without a then existing and effective registration
statement under the Securities Act. Pledgor acknowledges and agrees with GS Inc.
that GS Inc. has no affirmative obligation to prepare or keep effective any such
registration statement and agrees that at any private sale Pledged Securities
may be sold at a price that is less than the price which might have been
obtained at a public sale or that is less than the aggregate outstanding amount
of the Payment Amounts. For so long as Pledged Securities consist of securities
of a type customarily sold in a recognized market or which are the subject of
widely distributed standard price quotations, following a Payment Event GS Inc.
may, as its remedy hereunder, take ownership of such number of Pledged
Securities as are necessary (based upon the Fair Market Value thereof) to
satisfy the then unpaid portion of the Payment Amounts (without payment of any
cash consideration) by giving written notice to Pledgor (the "Enforcement
Notice"). Effective upon the giving of the Enforcement Notice, and without
further action on the part of the parties to this Agreement, GS Inc. shall be
deemed to have (1) taken ownership and disposed of the lesser of (A) all Pledged
Securities or (B) such whole number of Pledged Securities as has a Fair Market
Value at least equal to the then unpaid Payment Amounts; and (2) received
proceeds in the amount of the Fair Market Value of such Pledged Securities and
applied such proceeds to the payment of any then Payment Amounts. Any excess net
proceeds from the deemed sale of such Pledged Securities will continue to be
held as Pledged Securities under this Agreement until returned in accordance
with Section 2(e). Nothing
-6-
7
in this Agreement, however, shall require the Firm to take ownership of Pledged
Securities in accordance with this Section 3 in order to satisfy Pledgor's
obligation to pay the Payment Amounts.
4. Pledgor's Obligations Not Affected. Except as provided in
Section 9(b), the obligations of Pledgor under this Agreement shall remain in
full force and effect without regard to, and shall not be impaired or affected
by (a) any subordination, amendment or modification of or addition or supplement
to this Agreement, the Member Agreement, the Merger Agreement or any assignment
or transfer thereof; (b) any exercise or non-exercise by GS Inc. of any right,
remedy, power or privilege under or in respect of this Agreement, the Member
Agreement, Merger Agreement or any waiver of any such right, remedy, power or
privilege; (c) any waiver, consent, extension, indulgence or other action or
inaction in respect of this Agreement, the Member Agreement, Merger Agreement or
any assignment or transfer of any thereof; (d) any bankruptcy, insolvency,
reorganization, arrangement, readjustment, composition, liquidation or the like,
of GS Inc., whether or not Pledgor shall have notice or knowledge of any of the
foregoing; (e) any substitution of collateral pursuant to Sections 1(b) or 1(c);
or (f) any other act or omission to act or delay of any kind by Pledgor, GS Inc.
or any other person or any other circumstance whatsoever which might, but for
the provisions of this clause (f), constitute a legal and equitable discharge of
Pledgor's obligations hereunder.
5. Attorneys-in-Fact. Each of GS Inc., and each General Counsel
of GS Inc. from time to time, acting separately, are hereby appointed the
attorneys-in-fact of Pledgor for the purpose of carrying out the provisions of
this Agreement and taking any action and executing any instrument that GS Inc.
reasonably may deem necessary or advisable to accomplish the purposes hereof,
which appointments as attorneys-in-fact are irrevocable as ones coupled with an
interest.
6. Termination. Upon the earliest to occur of the events set
forth in Section 2(e)(i), (ii) and (iii) hereof, this Agreement shall terminate
and GS Inc. shall return to Pledgor the remaining Pledged Securities, except as
otherwise provided in such Section.
7. Notices. All notices or other communications required or
permitted to be given hereunder shall be delivered as provided in the Member
Agreement.
8. No Third Party Beneficiaries. Except as expressly provided
herein, this Agreement shall not confer on any person other than the Firm and
Pledgor any rights or remedies hereunder.
-7-
8
9. Miscellaneous.
(a) This Agreement, the Member Agreement and the Merger
Agreement contain the entire understanding and agreement between Pledgor and GS
Inc. with respect to the matters expressly covered therein and supersede any
other agreement, written or oral, pertaining to such matters.
(b) This Agreement may not be amended or modified other than by
a written agreement executed by Pledgor and GS Inc. or its successors, nor may
any provision hereof be waived other than by a writing executed by Pledgor or GS
Inc. or its successors; provided, that any waiver, amendment or modification of
any of the provisions of this Agreement will not be effective against the Firm
without the written consent of the Chief Executive Officer of GS Inc. or its
successors, or such individual's designee. Pledgor may not, directly or
indirectly (including by operation of law), assign Pledgor's rights or
obligations hereunder without the prior written consent of the Chief Executive
Officer of GS Inc. or its successors, or such individual's designee, and any
such assignment by Pledgor in violation of this Agreement shall be void. This
Agreement shall be binding upon Pledgor's permitted successors and assigns.
Without impairing Pledgor's obligations hereunder, GS Inc. may at any time and
from time to time assign its rights and obligations hereunder to any of its
subsidiaries or affiliates (and have such rights and obligations reassigned to
it or to any other subsidiary or affiliate). This Agreement shall be binding
upon and inure to the benefit of the Firm and its assigns.
(c) If any provision of this Agreement is finally held to be
invalid, illegal or unenforceable (whether in whole or in part), such provision
shall be deemed modified to the extent, but only to the extent, of such
invalidity, illegality or unenforceability and the remaining provisions shall
not be affected thereby.
(d) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS, AND SHALL BE SUBJECT TO THE PROVISIONS OF SECTIONS 17, 18
AND 19 OF THE MEMBER AGREEMENT.
(e) The captions in this Agreement are for convenience of
reference only and shall not define or limit the provisions hereof.
(f) This Agreement may be executed (including by facsimile
transmission) in one or more counterparts, each of which shall be deemed an
original and all such counterparts together shall constitute one and the same
instrument.
-8-
9
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered on the date first above written.
THE XXXXXXX XXXXX GROUP, INC.
By:
-----------------------------------
Name: Xxxxxxxxx X. Xxxxxx
Title: Authorized Person
PLEDGOR
By:
-----------------------------------
Name:
