SELLING AGREEMENT
Exhibit
10.6
This
Selling Agreement ("Agreement") made this 8th
day of
March 2006 by and between KH Funding Company, a Maryland corporation (the
"Company"), and CapWest Securities Inc., a Colorado corporation
("Seller") (collectively, the "Parties").
WHEREAS,
the
Company is an issuer of investment debt securities, and has registered or will
register the Investment Debt Securities it issues under the Securities Act
of
1933
("1933 Act"), to the extent required thereby, on Form SB-2 ("Registration
Statement"); and
WHEREAS,
the
Board
of Directors of the Company ("Board") has established and authorized
the issuance of
those
types of Investment Debt Securities listed on Schedule A hereto
(each,
a "Note"
and collectively, the "Notes"), as the same may be amended from time to time
by
mutual written agreement of
the
Parties (" Schedule A"); and
WHEREAS,
Seller
desires to act as an authorized seller of the Notes; and
WHEREAS,
Seller
is a broker-dealer registered under the Securities Exchange Act of 1934 ("1934
Act") and a member of
the
National Association of Securities Dealers, Inc. ("NASD"); and
NOW
THEREFORE,
in
consideration of the mutual covenants herein contained and other good and
valuable consideration, the receipt of which is hereby acknowledged, the Parties
agree as follows:
1. Appointment
and Obligation of Seller.
The
Company hereby appoints Seller as an authorized seller of the Notes and Seller
hereby accepts such appointment. By accepting this appointment, Seller
represents and
warrants that it is a business corporation duly organized, validly existing,
and
in good standing
under
the laws of the State of its incorporation as indicated above, and that it
has
full corporate power, authority and legal right to execute, deliver, and perform
its duties and comply with its obligations under this Agreement. Further, Seller
expressly represents that it is a member of the NASD and a registered
broker-dealer under the 1934 Act, and in such states as broker-dealer
registration may be required for the conduct of its business.
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2. Sale
of Notes.
2.1
Availability
of Notes.
The
Company agrees to issue such Notes as Seller may sell in accordance with the
terms and conditions set forth herein and the disclosures contained in the
Company's
Registration Statement.
2.2
Best
Efforts.
Seller
agrees to use its best efforts to promote the sale of the Notes, but
is
not obligated to sell any specific number of Notes.
2.3
Rejection
or Suspension of Sales: Corporate Actions.
Notwithstanding anything herein to the contrary, the Company may, at any time,
reject for any reason any order to purchase any Note. In addition, the Company
may suspend or terminate the offering of any Note, if such action is required
by
law, judicial order, or by regulatory authorities having jurisdiction, or if
the
Board, in its sole discretion, determines that such action is in the best
interests of the Company. Further, the Company reserves the right at all times
to terminate the future offering of Notes and to take any corporate actions,
including, but not limited to, the dissolution, merger, and sale of its assets,
solely upon the authorization of its Board.
2.4
Purchase
Payments.
Seller
shall accept purchase payments for Notes as described in the Company's then
effective prospectus relating to the Notes as it may be amended or supplemented
from time to time ("Prospectus," unless the context otherwise
requires).
2.5
Manner
of Offering.
Seller
shall offer the Notes for sale in the manner described in the Company's
Prospectus, and only in those jurisdictions where Seller is legally able to
offer or sell such Notes and where the Notes have been properly registered
or
qualified, or are exempt from registration.
2.6
Sales
Commissions.
As
compensation for services rendered hereunder, Seller shall be entitled to
payment of a commission on the sale of Certificates in accordance with Schedule
A.
2.7
Order
and Payment Processing.
Seller
shall immediately transmit to the Company any order to purchase Notes. Such
order shall consist of a completed application to purchase a Note, accompanied
by a check made payable to the Company, or any other form of payment deemed
acceptable by the Company. The Company, in its sole discretion, reserves the
right to reject, for any reason, any application for the purchase of a
Note.
2.8
Purchases
for Own Account.
Seller
shall not purchase Notes for its own account for purposes of resale to the
public. Seller may purchase Notes for its own investment account upon its
written assurance to the Company that the purchase is for investment purposes
only and that such Certificates will not be resold.
2.9
Non-Exclusivity.
Notwithstanding anything herein to the contrary, the Company may appoint other
broker-dealers who are registered as such under the 1934 Act and members
of the
NASD,
in addition to Seller to serve as authorized sellers of the Company's Notes,
and
the Notes may be directly sold by the Company without the services of any
broker-dealer.
2
3. Withdrawal,
Surrender, Conversion and Exchange Requests.
Seller
shall immediately forward any withdrawal, surrender or conversion request,
or a
request to exchange one type of Note for another, that it receives to the
Company. All such requests shall be provided in a manner deemed acceptable
by
the Company. The Company will make payments of withdrawal and surrender proceeds
directly to the Note holder.
4. Allocation
of Expenses.
Except
as
set forth herein, each Party shall bear all expenses of fulfilling its duties
and obligations under this Agreement. However, the Company may bear some of
Seller's initial costs in selling the Certificates, as the Parties may mutually
agree from time to time.
5. Marketing
Materials.
5.1 Preparation,
Printing, and Distribution.
Except
as provided below, the Company, at
its
sole cost, shall be responsible for preparing, printing, and distributing,
or
causing the same to
be done,
all marketing materials to be used in connection with its offer and sale of
Notes. Seller may create marketing materials in connection with the sale of
the
Notes. However, any such marketing materials shall be created at the Seller's
sole cost, and the Company shall be entitled to use such marketing materials
at
any time in its sole discretion with consent of Seller, which will not be
unreasonably withheld. The Company will reimburse the Seller for the filing
fees
paid to the NASD for any marketing materials it may use.
5.2
Company
Approval.
Seller
shall submit definitive copies of all marketing materials it creates to the
Company for its approval; consent shall not be unreasonably withheld, at least
ten (10) business days prior to their first use. The Company shall be deemed
to
have granted its approval of such marketing materials unless it objects within
such ten (10) business day period.
5.3 Regulatory
Approvals.
To the
extent required and in a timely manner: (i) Seller shall file with the NASD,
or
any other regulatory body, as appropriate, all marketing materials it employs
(other than the prospectus, annual and semi-annual reports) in the offer
and
sale of Notes, whether such materials are created by Seller or the Company
for
Seller's use. Seller shall obtain all necessary regulatory approvals of any
marketing materials it proposes to employ, and shall, provide to the Company,
promptly after receipt thereof, a copy of each NASD approval of marketing
materials submitted to the NASD for review and approval.
3
6.
Non-Marketing
Materials.
6.1
Note
Holder Correspondence.
Seller,
at its sole cost, shall be responsible for preparing, printing, and
distributing, or causing the same to be done, all correspondence with Note
holders in its capacity as an authorized Seller, except for correspondence
prepared, printed, and distributed by Seller at the Company's
request. Seller shall, from time to time, make such correspondence available to
the Company for review upon request.
6.2
Confirmations.
The
Company, at its sole cost, shall be responsible for preparing, printing, and
distributing in a timely manner, or causing the same to be done, confirmations
of Note holder transactions generated by the seller and required to be delivered
pursuant to applicable law. The Seller acknowledges its responsibilities as
a
Broker/Dealer to comply with the confirmation Rules under the 1934 Act and
agrees to provide such information as is required under those rules to the
company.
6.3
Prospectuses,
Reports, etc.
The
Company, at its sole cost, shall be responsible for preparing, printing, and
distributing, or causing the same to be done, all Prospectuses, Reports, and
other
documents required by applicable law to be provided to Note holders of each
series, and for
filing such materials with the SEC or any other regulatory body, as appropriate,
and shall obtain
any
necessary regulatory approvals or clearances of these materials.
7. Conduct
of Business.
7.1
General.
In
selling Notes, Seller shall comply in all respects with the requirements of
all
federal and state laws and regulations and the regulations of the NASD, relating
to the sale of the Notes. Neither Seller nor any other person is authorized
by
the Company to give any information or to make any representations, other than
those contained in the Company's Registration Statement, Prospectus or Reports,
and any marketing materials authorized by the Company as provided in section
5
above.
7.2
Independent
Contractor.
Seller
shall undertake and discharge its obligations hereunder as an independent
contractor and shall, unless otherwise expressly provided or authorized, have
no
authority to act for or represent the Company in any way and shall not be deemed
to be an employee of the Company. Seller shall be responsible for its own
conduct and the employment, control and conduct of its agents and employees,
and
for injury to such agents or employees or to others through its agents or
employees. Seller shall assume full responsibility for its agents and employees
under applicable statutes and agrees to pay all employer taxes
7.3
Non-Exclusive
Services.
Seller's
services pursuant to this Agreement shall not be deemed to be exclusive, and
Seller may render similar services for other companies
in the offering of their Notes, consistent with its best efforts obligations
set
forth herein.
7.4
Records.
Seller
shall prepare and maintain full and accurate books and records of its business
as conducted under this Agreement, including transactions by its registered
representatives; as such books and records are required to be maintained by
applicable law and regulations, including applicable rules of the SEC and NASD.
Such books and records shall remain the property of Seller. Seller shall,
however, make such books and records available to the Company or regulatory
authorities at any reasonable time and place upon request,
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7.5
Notice.
Seller
shall promptly provide notice to the Company of any inquiry or investigation
with respect to Seller's activities initiated or conducted by the NASD, SEC,
or
any other federal or state regulatory entity.
8. Termination.
This
Agreement may be terminated at any time without cause and without the payment
of
any penalty, by the Company or by Seller, on thirty days written notice to
the
other party.
9. Definitions.
Intentionally
left blank.
10. Notices.
Any
notice under this Agreement shall be in writing, addressed and delivered, or
mailed postage
prepaid, to the other party at such address as the other party may designate
for
the receipt
of
notices. Until further notice to the other party, it is agreed that the address
of the Company shall be 00000 Xxxxxxxx Xxxxx, Xxxxx 000, Xxxxxx Xxxxxx, XX
00000, and the address for Seller shall be 0000
X.
Xxxxxxxxx Xxxx., Xxxxx 000, Xxxxxxxx, XX 00000.
11.
Severability.
If
any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule, or otherwise, the remainder of this Agreement shall not be
affected thereby.
12. Confidentiality.
Each
party to this agreement shall maintain the confidentiality of any client list
or
any other
proprietary information that it may acquire in the performance of this
agreement.
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13. Applicable
Law.
This
Agreement shall be governed by the laws of the State of
Maryland
14. Parties
to Cooperate.
The
Company and Seller agree to fully cooperate with each other in assuring
compliance under this Agreement with all federal and state laws and
regulations.
15. Indemnification
15.1
By
Company.
The
Company hereby agrees to indemnify and hold Seller harmless from and against
any
and all losses, liability, damages and expenses (including reasonable attorneys'
fees and expenses) which Seller may incur or be obligated to pay, or for which
it may become liable or be compelled to pay in any action, claim or proceeding
against it, for or by reason of any breach by the Company of any of the
representations or covenants of the Company in this Agreement, or, to the extent
permitted by law, any such losses, liabilities, damages or expenses, based
on
any untrue statements of material facts or material omissions contained in
the
Registration Statement, including any prospectus contained therein or any
amendment or supplement thereto.
15.2.
By
Seller.
Seller
hereby agrees to indemnify and hold the Company harmless from and against any
and all losses, liability, damages and expenses (including reasonable attorneys'
fees and expenses) which the Company may incur or be obligated to pay or for
which it may become liable or be compelled to pay in any action, claim or
proceeding against it, for or by reason of any breach of any of the
representations or covenants of Seller in this Agreement, including, without
limitation, Seller's failure to comply with the provisions of paragraph 7.1
of
this Agreement.
15.3
Survival
of Provisions.
The
provisions of this paragraph 15 shall survive the expiration or termination
of
this Agreement.
IN
WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of
the
date first written above.
CapWest
Securities, Inc.,
A
Colorado corporation
_______________________
Xxxxx
Xxxxxxxx
Executive
Vice President
KH
Funding Company,
A
Maryland corporation
__________________
Xxxxxx
X.
Xxxxxx
Chief
Executive Officer, President
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SCHEDULE
A
This
Schedule A is an integral part of the Agreement to which it is attached.
Capitalized terms
used herein have the same meaning as given to them in the Agreement, except
as
otherwise
noted.
This Schedule A sets out the names of the types of Notes covered by the
Agreement and the compensation of Seller for the services rendered with respect
thereto.
NAMES
OF NOTES
Series
3 Senior Secured Notes:
One
Day
Demand Notes
Thirty
Day Demand Notes
One
Year
Fixed Term Notes
Three
Year Fixed Term Notes
Five
Year
Fixed Term Notes
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Series
4 Subordinated Unsecured Notes:
One
Year
Fixed Term Notes
Three
Year Fixed Term Notes
Five
Year
Fixed Term Notes
COMPENSATION
For
its
services
rendered
pursuant to the Agreement, Seller shall be entitled to receive
as full
compensation therefore, the
following sales concessions (subject to any
scheduled
variations or eliminations of concessions as set forth in the Company's
Prospectus):
Concession
Schedule
All
concessions are due upon the sale of any Note and calculated as
a
percentage of the
initial
purchase payment for such Note, except
that
with
respect to the sale of the One Day and Thirty Day Demand Notes, where the
concession and marketing allowance is payable quarterly, and shall be calculated
on the average daily balance for the respective previous quarter. Trailers
are
also calculated as a percentage of the initial purchase payment for such Note
and to be paid annually after the 1st
anniversary.
A.
For
Series 3 Senior Secured Notes
|
·
|
One
Day Demand Notes
|
0.50%
per annum
|
||
|
·
|
Thirty
Day Demand Notes
|
0.60%
per annum
|
||
|
·
|
One
Year Fixed Term Notes
|
1.00%
|
||
|
·
|
Three
Year Fixed Term Notes
|
2.00%+
0.20% annual trail
|
||
|
·
|
Five
Year Fixed Term Notes
|
3.00%+
0.20% annual trail
|
B.
For
Series 4 Subordinated Notes
|
·
|
One
Year Fixed Term Notes
|
1.00%
|
||
|
·
|
Three
Year Fixed Term Notes
|
2.00%+
0.40% annual trail
|
||
|
·
|
Five
Year Fixed Term Note
|
3.00%+
0.40% annual trail
|
A
concession becomes payable only upon acceptance, by the Company, of the
application to purchase a Note, and after payment for such Note has been
verified and cleared. The Company will make payment of all concessions and
marketing allowance then payable by the 15th
of each
calendar month.
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