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EXHIBIT 10.17
MODIFICATION AGREEMENT
This Modification Agreement (the "Modification Agreement") is made as of
March 7, 1997, by and between Xxxxx Systems Corporation, a Delaware Corporation
("PSC"), and Xxxxx X. Xxxxxxxxx ("Xxxxxxxxx").
WHEREAS, PSC (as a Texas corporation) granted Xxxxxxxxx the option to
purchase 1,000,000 shares of PSC's common stock pursuant to a Stock Option
Grant dated as of July 27, 1995 (the "Option Grant");
WHEREAS, in accordance with the Option Grant, PSC agreed to extend credit
to Xxxxxxxxx pursuant to the terms of the Purchase Price Note, the Covered
Claims Note and the General Note (as such terms are defined in the Option
Grant);
WHEREAS, on December 18, 1995, Xxxxxxxxx exercised his right under the
Option Grant and purchased 1,000,000 shares of PSC's common stock at $2.00 per
share, or $2,000,000 in total, by tendering a check in the amount of $600,000
and executing and delivering the Purchase Price Note in the principal sum of
$1,400,000;
WHEREAS, PSC and Xxxxxxxxx executed a Pledge Agreement dated as of
December 18, 1995 (the "Pledge Agreement") to secure payment of the Purchase
Price Note, the Covered Claims Note and the General Note;
WHEREAS, on December 19, 1995, PSC became a Delaware corporation and
implemented a two for one stock split of its common stock, resulting in the
conversation of Xxxxxxxxx'x 1,000,000 common shares as a Texas corporation into
2,000,000 PSC common shares as a Delaware corporation;
WHEREAS, Xxxxxxxxx executed and delivered the General Note on March 11,
1996, dated as of January 1, 1996;
WHEREAS, PSC advanced $614,587.50 in principal under the General Note to
Xxxxxxxxx on March 11, 1996;
WHEREAS, PSC and Xxxxxxxxx desire to modify and amend the Option Grant,
the General Note, and the Pledge Agreement to (1) increase the principal sum of
the General Note to $2,415,000 and amend the General Note as described below;
(2) secure payment of the General Note, as amended by this Modification
Agreement, under the Pledge Agreement; and (3) delete any reference to the
Covered Claims Note;
WHEREAS, in addition to the modifications set forth above, PSC agrees to
loan Xxxxxxxxx an additional $1,000,000 in connection with his purchase of a
home in the greater Dallas area under a general recourse note, payable no later
than 5 years from the date of the note, with substantially the terms set forth
for the new loans otherwise provided for by this Modification Agreement, and
additionally secured by a mortgage on such property;
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NOW THEREFORE, in consideration of mutual covenants contained herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, PSC and Xxxxxxxxx agree as follows:
1. Option Grant. The Option Grant is hereby amended as follows:
a. Section 10 is hereby deleted in its entirety;
b. Exhibit D is hereby deleted in its entirety;
c. Any reference to "the Pledge Agreement" in the Option Grant
shall hereinafter mean the Pledge Agreement as amended by this
Modification Agreement.
d. Section 11 is hereby amended to read in its entirety as follows:
11. General Advance. At the request of Xxxxxxxxx at any time prior
to December 31, 1997, PSC will loan Xxxxxxxxx amounts up to
$2,415,000 ($614,587.50 of which has been previously advanced
pursuant to that certain promissory note dated January 1, 1996, in
the original principal sum of $1,500,000 (the "Prior General
Note")) pursuant to the terms thereof, which Prior General Note has
been modified and increased by that certain Modification Agreement
between PSC and Xxxxxxxxx dated as of March 7, 1997 (the
"Modification Agreement") (the Prior General Note as modified and
increased by the Modification Agreement shall hereinafter be
referred to as the "General Note"). Any loan under the General
Note will be secured by the Pledge Agreement. Any loan, or portion
of such loan, under the General Note that is repaid by Xxxxxxxxx
may not be reborrowed. Xxxxxxxxx may use the proceeds of such loan
under the General Note for any purpose, including without
limitation, purchasing a house or furnishings for a house or for
other personal expenditures. PSC will not be required to advance
any funds under the General Note after Xxxxxxxxx'x death or after
the date on which the General Note would be due in accordance with
its terms.
e. Section 12 is hereby amended by deleting the reference to the
Covered Claims Note
2. Pledge Agreement. The Pledge Agreement is hereby amended as follows:
a. All references to "a Covered Claims Note" in the Pledge
Agreement are hereby deleted;
b. Any reference to "the Option Grant" in the Pledge Agreement
shall hereinafter mean the Option Grant as amended by this
Modification Agreement;
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c. Any reference to "a General Note" in the Pledge Agreement
shall hereinafter mean the General Note as amended by this
Modification Agreement; and
d. Any reference to "the Notes" in the Pledge Agreement shall
hereinafter mean the Purchase Price Note and the General Note as it
is the intent of PSC and Xxxxxxxxx that the Pledge Agreement as
amended by this Modification Agreement shall secure payment and
performance of all Xxxxxxxxx'x obligations under the Purchase Price
Note and the General Note;
4. Xxxxxxxxx and PSC hereby acknowledge that the unpaid principal balance of
the General Note as of the date hereof is Six Hundred Fourteen Thousand
Five Hundred Eighty-Seven and 70/100 Dollars ($614,587.70) plus interest
thereon.
5. General Note. The General Note is hereby amended as follows:
a. The principal Sum of the General Note is increased and
amended to read $2,415,000;
b. The lead in paragraph and paragraphs 1 - 4 are deleted in
their entirety and substituted in lieu thereof are the following:
FOR VALUE RECEIVED, Xxxxx X. Xxxxxxxxx ("Xxxxxxxxx"), promises to pay
to Xxxxx Systems Corporation, a Delaware corporation ("PSC"), or
order, at the principle offices of PSC or at such other place as the
holder of this Note may designate, the principal sum of Two Million
One Hundred Fifteen Thousand Dollars ($2,415,000), or such lesser
amount as may be advanced by PSC to Xxxxxxxxx hereunder, together
with interest (a) on all unpaid portions of the Initial Advance (as
defined below) from the date of advance until repayment at the
"Applicable Federal Rate," which is necessary to prevent such
interest from being treated as "below market," as such terms are
defined in the Internal Revenue Code of 1986, as amended, for the
month in which this Note is executed and delivered, compounded
annually, and (b) on all unpaid portions other than the Initial
Advance from the date of the advance until repayment at the greater
of (i) seven and one-quarter percent (7.25%) per annum or (ii) the
"Applicable Federal Rate," which is necessary to prevent such
interest from being treated as "below market," as such terms are
defined in the Internal Revenue Code of 1986, as amended, for the
month in which the advance is made, compounded annually.
1. Payment. Reference is made to the Stock Option Grant, dated as
of July 27, 1995, by PSC in favor of Xxxxxxxxx as modified and
amended by that certain Modification Agreement dated as of March, 7
1997 executed by and between Xxxxxxxxx and PSC (the "Modification
Agreement") (the Stock Option Grant as modified by the Modification
Agreement is hereafter called the "Option Grant"). Capitalized terms
used in this Note that are not otherwise defined have the meanings
given to such terms in the Option Grant. Principal plus interest on
this Note shall be payable as follows:
(a) The principal and all accrued interest on the initial
advance made
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under this Note in the amount of $614,587.70 (the "Initial
Advance") will be payable in full on the earliest to occur of
the following dates (or earlier if otherwise required by this
Note):
(i) the fifteenth anniversary of the Effective Date;
(ii) three years after the Restricted Stock is Publicly
Traded; or
(iii) six months after the first date on which the
Restricted Stock is Publicly Traded and on which, for
the preceding ten consecutive trading days, the product
of (i) the closing price of the Restricted Stock
multiplied by (ii) the number of shares of Vested Stock
then owned by Xxxxxxxxx is equal to or greater than two
times the aggregate outstanding balance of principal
and interest on this Note and the Purchase Price Note
at such time.
(b) The principal and all accrued interest on all advances
made after the Initial Advance will be payable in full on the
earliest to occur of the following dates (or earlier if
otherwise required by this Note):
(i) the fifteenth anniversary of the Effective Date;
(ii) five years after the Restricted Stock is Publicly
Traded; or
(iii) six months after the first date on which the
Restricted Stock is Publicly Traded and on which, for
the preceding ten consecutive trading days, the product
of (i) the closing price of the Restricted Stock
multiplied by (ii) the number of shares of Vested Stock
then owned by Xxxxxxxxx is equal to or greater than two
times the aggregate outstanding balance of principal
and interest on this Note and the Purchase Price Note
at such time.
2. Security. Payment of this Note is secured pursuant to a
Pledge Agreement dated as of December 18, 1995, between PSC and
Xxxxxxxxx as modified by the Modification Agreement (the "Pledge
Agreement").
3. Prepayment. Xxxxxxxxx may prepay this Note in whole or in
part at any time or from time to time, without premium or penalty.
If Xxxxxxxxx sells any of the Restricted Stock, then Xxxxxxxxx will
promptly (and in any event within five days after the completion of
each such sale) make a prepayment in an amount equal to the
proceeds of such sale, less any federal income taxes incurred by
Xxxxxxxxx as a result of such sale, which will be applied to this
Note and the Purchase Price Note as follows (but, in each case, not
to exceed the unpaid balance of principal and interest then
outstanding under such Notes, if any): (a) to the Purchase Price
Note, in an amount equal to $.70 for each share of Restricted Stock
(such Restricted Stock being the shares existing after PSC's two
for one stock split effective December 1995) sold, plus the accrued
interest on the Purchase Price Note applicable to such $.70 per
share; (b) to this Note; and (c) to any remaining balance on the
Purchase Price Note; provided that, if Restricted Stock is sold
upon exercise of the Put Option under the circumstances described
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in the last sentence of Section 9 of the Option Grant, Xxxxxxxxx
may apply the proceeds of such sale to his excise tax liability
before making the payments required by clauses (b) and (c). Any
prepayment under this paragraph resulting from the sale of
Restricted Stock will be applied first to accrued but unpaid
interest and then to principal in the order of borrowings with the
earliest borrowed principal paid first. Any prepayment other than
resulting from the sale of Restricted Stock will be applied first
to accrued but unpaid interest and then to principal in the order
of borrowings with the latest borrowed principal paid first. With
each prepayment, Xxxxxxxxx will give PSC a written statement
indicating whether the prepayment is a result of the sale of
Restricted Stock.
4. Recourse. Recourse of the holder of this Note is limited to
(a) full recourse and liability for all amounts advanced hereunder
except the Initial Advance and interest thereon and (b) the
Collateral (as defined in the Pledge Agreement), and Xxxxxxxxx has
no personal or other liability for the Initial Advance and interest
thereon except as to such Collateral on the terms set forth in the
Pledge Agreement; provided that if, prior to the maturity date of
this Note, (i) Xxxxxxxxx'x employment with PSC is terminated for
Cause (as defined in the Employment Agreement) or (ii) Xxxxxxxxx
terminates his employment with PSC without Good Reason (as defined
in the Employment Agreement), then, beginning on the date of such
transfer or termination, the holder of this Note will have full
recourse against Xxxxxxxxx and Xxxxxxxxx will be personally liable
for all of the obligations evidenced hereby.
5. Except as provided herein, the terms and provisions of the General Note,
the Purchase Price Note, the Pledge Agreement and the Option Grant shall
remain unchanged and shall remain in full force and effect. Any
modification herein of the General Note, the Purchase Price Note, the
Pledge Agreement and the Option Grant shall in no way affect the security
of the Pledge Agreement for the payment of the General Note, the Purchase
Price Note. The General Note and the Purchase Price Note, the Pledge
Agreement and the Option Grant as modified and amended hereby are hereby
ratified and confirmed in all respects. All security interests granted or
created by or existing under the Pledge Agreement remain unchanged and
continue, unabated, in full force and effect, to secure Xxxxxxxxx'x
obligation to repay the General Note and the Purchase Price Note.
6. In addition to the modifications set forth above, PSC agrees to loan
Xxxxxxxxx up to an additional $1,000,000 in connection with his purchase
of a home in the greater Dallas area under a general recourse note,
payable no later than 5 years from the date of the note, with
substantially the terms set forth for the new loans otherwise provided for
by this Modification Agreement, and additionally secured by a mortgage on
such property, pursuant to documentation satisfactory to both PSC and
Xxxxxxxxx. As a condition to such a loan, the property in question must
have an appraised value of at least the amount of principal borrowed under
the loan and the borrowing must take place prior to December 31, 1997.
7. This Agreement supersedes and merges all prior and contemporaneous
promises, representations and agreements. No provision of this Agreement,
the General Note, the Purchase Price Note, the Pledge Agreement or the
Option Grant may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing signed by Xxxxxxxxx and
PSC. No waiver by either party hereto of any condition or provision
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of this Agreement, the General Note, the Purchase Price Note, the Pledge
Agreement or the Option Grant to be performed by the other party will be
deemed a waiver of any other provisions or conditions at the same or at
any prior or subsequent time.
8. This Agreement may be executed in any number of counterparts with the same
effect as if all parties hereto had signed the same document. All such
counterparts shall be construed together and shall constitute one
instrument, but in making proof hereof it shall only be necessary to
produce one such counterpart.
9. If any covenant, condition, or provision herein contained is held to be
invalid by final judgment of any court of competent jurisdiction, the
invalidity of such covenant, condition, or shall not in any way affect any
other covenant, condition or provision herein contained.
10. This Agreement will be governed by and construed in accordance with the
laws of the State of Texas, without regard to the choice of law rules
thereof. PSC will be entitled, in addition to any other remedies it may
have at law or in equity, to temporary and permanent injunctive and other
equitable relief to enforce the provisions of this Agreement. Any action
to enforce the provisions of, or otherwise relating to, this Agreement may
be brought in the appropriate courts in Dallas, Dallas County, Texas, and
Xxxxxxxxx hereby consents to the personal jurisdiction of such courts in
any such action; provided that, at the request of PSC or Xxxxxxxxx, any
claim or dispute arising out of or relating to this Agreement will be
resolved without resort to the courts solely through mediation and, if
mediation is not successful, through binding arbitration pursuant to the
rules of the American Arbitration Association. Neither party will be
liable to the other for punitive damages for any such claim or dispute.
If any action at law or in equity is necessary to enforce or interpret the
terms of this Agreement, the prevailing party will be entitled to
reasonable attorneys' fees, costs and necessary disbursements in addition
to any other relief to which that party may be entitled; provided that, if
Xxxxxxxxx becomes liable for any such fees, costs or other disbursements,
such amounts will become Obligations under the applicable Note secured by
this Agreement.
11. The terms and provisions hereof shall be binding upon and inure to the
benefit of the parties hereto, their heirs, representatives, successors
and assigns.
IN WITNESS WHEREOF, and intending to be legally bound, Xxxxxxxxx and a
duly-authorized representative of PSC have executed this Agreement as of the
date first above written.
/s/ XXXXX X. XXXXXXXXX
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Xxxxx X. Xxxxxxxxx
XXXXX SYSTEMS CORPORATION
By: /s/ XXXXX XXXXXXX
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Name: Xxxxx Xxxxxxx
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Title: Vice President and General Counsel
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