EXHIBIT 10.13
AGREEMENT
This Agreement is made and entered into as of this 9th day of March, 1999,
by and between XXXXXX X. XXXXXX, ("Pledgor") and X.X. XXXX GROUP, INC., a
Delaware corporation (the "Company"), having its principal place of business at
0000 Xxxxxxx Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxxxxx 00000.
RECITALS:
A. The Company owns all of the outstanding capital stock of X.X. Xxxx &
Company, Inc., a Delaware corporation (the "Broker"), which is a securities
broker-dealer registered with the Securities and Exchange Commission, licensed
under the laws of all 50 states and a member of the National Association of
Securities Dealers, Inc. ("NASD").
B. The Pledgor and the Company executed an agreement dated August 7, 1997
for Pledgor to provide $1,000,000 in capital to the Company, which was amended
by an agreement dated August 7, 1998 (collectively,"Original Agreement").
Pursuant to the Original Agreement, the Company obtained a revolving loan from
Colorado State Bank, Denver, Colorado (the "Bank") in the principal amount of
$1,000,000 bearing interest at 1% over the annual rate paid by the Bank on one-
year certificates of deposit issued by the Bank ("Original Loan"). The Company
has drawn down $1,000,000 of the Original Loan from the Bank. The Company has
made to Broker a $500,000 subordinated loan as defined in 17 CFR (S) 240. 15c3-
1d. As required by the Original Agreement, the Broker filed the documents
required under 17 CFR 240.15c3-1d with the NASD and obtained the NASD's
approval.
C. The Pledgor assisted the Company in obtaining the Original Loan by
pledging, as collateral securing repayment of the Original Loan, a certificate
of deposit issued by the Bank in the amount of $1,000,000 ("the Original CD").
The Company has paid the Pledgor, concurrently with Company's payments of
interest on the Original Loan to the Bank, an amount equal to the difference
between 10% per annum and the interest rate payable to the Pledgor on the
Original CD on the amount of the outstanding balance due on the Loan to the Bank
("pledge fees").
D. The Company and the Broker wish to obtain additional capital in the
conduct of their respective securities brokerage and related businesses.
Pledgor is willing to assist the Company in acquiring such additional capital on
an arrangement similar to that for the Original Loan.
E. The Company wishes to consolidate the Original Loan and the new loan
for additional capital, and Pledgor is willing to pledge an additional
certificate of deposit to secure the consolidated loan on the terms and
conditions of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Consolidation. The Company and the Pledgor agree that Original
Agreement shall be superseded in its entirety by this Agreement effective as of
the closing of the transaction contemplated hereby.
2. The New Loan. The Company will make application for a revolving loan
from Colorado State Bank, Denver, Colorado for a new loan, which includes and is
consolidated with the Original Loan, in the principal amount of $2,000,000
bearing interest at 1% over the annual rate paid by the Bank on one-year
certificates of deposit issued by the Bank, with interest only payable monthly
and with principal and accrued and unpaid interest due and payable in full one
year from the date of making of the loan (the "Loan"), subject to renewals for
four years. If the Loan is approved by the Bank, the Company will have drawn
$1,000,000 from the Bank, as of the closing of the transaction contemplated
hereby, by virtue of the Original Loan. Any future borrowings on the Loan from
the Bank must be approved by the Pledgor. Any net proceeds from the Loan used
to provide capital to the Broker shall be in the form of a subordinated loan
agreement as defined in 17 CFR 240. 15c3-1d. The Broker shall file the
documents required under 17 CFR 240.15c3-1d with NASD for approval. The
proposed agreement shall not be a satisfactory subordination agreement until the
NASD has found the agreement acceptable and such agreement has become effective
in the form found acceptable.
3. Use of New Loan Proceeds. The Company may use the proceeds of the Loan
to provide financial assistance to registered representatives that the Broker
recruits and that become affiliated with the Broker. The Company agrees not to
provide financial assistance to the registered representative until the
registered representative has resigned from his existing broker dealer and upon
registration with the NASD, the Securities and Exchange Commission, all
necessary Securities Exchanges, and all necessary State Securities Commissions.
The Company's financial assistance will be in the form of a personal recourse
loan recoverable from the gross commissions of the registered representative.
Loans shall not exceed 50% of a registered representative's trailing commissions
for the last twelve month period. The term of a loan shall not exceed five
years. Pursuant to the terms of a loan the Company shall have the right to
declare the principal balance of the loan immediately due and payable without
notice or demand if (i) the registered representative's affiliation or
association with the Broker shall terminate for any reason whatsoever prior to
the due date of the loan; (ii) if the registered representative has not retained
all licenses and registrations issued by the NASD, Securities and Exchange
Commission, all necessary Securities Exchanges, and all necessary State
Securities Commissions; or (iii) if the registered representative shall be in
breach or default under any agreement with the Company or Broker. The
registered representative shall agree to assign to the Company the right to
apply his gross commissions as recorded on the Broker's books and records
against the outstanding principal balance, and that the Company shall have a
security interest in all his gross commissions, if he is in default of the loan.
The Company agrees to require the registered representative to execute a
promissory note with these provisions and to file an appropriate financing
statement to preserve a first lien security interest in favor of the Company
against the gross commissions of the registered representative.
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4. Pledge of CD. Pledgor agrees to assist the Company in obtaining the
Loan by pledging, as collateral securing repayment of the Loan, a certificate of
deposit issued by the Bank in the amount of $2,000,000 (the "CD"). Pledgor
agrees that the CD shall remain on deposit with the Bank at all times during the
term of the Loan and until the Loan are paid in full. Pledgor agrees to deposit
an additional $1,000,000 in an interest bearing Escrow Account at Colorado State
Bank until closing of the loan and issuance of the CD. The cash deposit with
interest will be returned if the transaction does not close. By written notice
to the Company at its principal office, no sooner than six months after the
effective date of this Agreement, the Pledgor may accelerate the withdrawal of
the CD as collateral for the Loan upon occurrence of an Event of Acceleration as
defined in this paragraph. The Pledgor may accelerate such withdrawal of the CD
as collateral to the last business day of a calendar month not less than six
months after the receipt of such notice by the Company. Events of Acceleration
which may be included shall be limited to:
(a) Failure to pay the pledge fees provided in this Agreement as
scheduled;
(b) Failure to pay when due other money obligations of a specified
material amount;
(c) Discovery that any material, specified representation or warranty of
the Company which is included in this Agreement and on which this
Agreement was based or continued was inaccurate in a material respect
at the time made;
(d) The following specified and clearly measurable event(s), which the
Pledgor and the Company agree (i) is a significant indication that the
financial position of Company and/or the Broker has changed materially
and adversely from agreed upon specified norms; or (ii) could
materially and adversely affect the ability of the Broker to conduct
its business as conducted on the effective date of this Agreement;
(iii) is a significant change in the senior management or in the
general business conducted by the Broker from date this Agreement
became effective; or (iv) constitute continued failure to perform
agreed-upon covenants included in this Agreement relating to the
maintenance and reporting by the Company of its financial position or
relating to the conduct of its business.
The events of Acceleration as discussed in paragraphs 4 (a) through
(d) are enumerated below:
(i) The filing of an application by the Securities Investor
Protection Corporation for a decree adjudicating that
customers of the Broker are in need of protection under the
Securities Investor Protection Act of 1970 and the failure
of the Broker to obtain the dismissal of such application
within 30 days;
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(ii) The aggregate indebtedness of the Broker exceeding 1500
percent of its net capital or, in the case the Broker has
elected to operate under Section 17 CFR (S) 240.15c3-
1(a)(2)(vi), its net capital computed in accordance
therewith is less than 2 percent of its aggregate debit
items computed in accordance with 17 CFR (S) 240.15c3-3a,
if greater, throughout a period of 15 consecutive business
days, commencing on the day the Broker first determines and
notifies the Company and the Pledgor of such fact.
(iii) Revocation by the Commission of the registration of the
Broker;
(iv) Suspension by the NASD (without reinstatement within 30
days) or revocation of the Broker's status as a member
thereof; and
(v) Receivership, insolvency, liquidation pursuant to the
Securities Investor Protection Act of 1970 or otherwise,
bankruptcy, assignment for the benefit of creditors,
reorganization whether or not pursuant to bankruptcy laws,
or any other marshaling of assets and liabilities of the
Broker.
5. Fees to Pledgor. The Company agrees to pay all pledge fees due under
the Original Agreement to the Pledgor on or before closing of the transaction
contemplated hereby. Pledgor requires a return of 10% per annum on the
$2,000,000 principal amount of the CD. Therefore, the Company agrees to pay the
Pledgor, concurrently with the Company's payments of interest on the Loan to the
Bank, an amount equal to the difference between 10% per annum and the interest
rate payable to the Pledgor on the CD on the amount of the outstanding balance
due on the Loan to the Bank ("pledge fees").
6. Closing. Closing of the transactions contemplated hereby shall occur
as soon as possible but not later than May 31, 1999. Closing shall take place
at such other time or place as the parties shall mutually agree. Each party
shall promptly cooperate with the Bank and the other party with a view toward
expediting the closing. The obligations of the Company and the Pledgor at
closing shall be subject to the conditions that all representations and
warranties of the other party shall be true as if then given and the other party
shall have performed or observed all terms, conditions and obligations hereunder
to be performed or observed by it on or prior to closing.
7. Representations, Warranties and Obligations of the Company. The
Company represents and warrants to Pledgor, which representations and
warranties shall survive the closing, as follows:
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, has all requisite
corporate power and authority to carry on its business as now conducted and as
proposed to be conducted, and is duly qualified as a
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foreign corporation and in good standing in all other jurisdictions in which
such qualification is required. The Company owns all of the issued and
outstanding capital stock of the Broker.
(b) All corporate action on the part of the Company and its officers,
directors and shareholders necessary for the authorization, execution, delivery
and performance of all obligations of the Company under this Agreement has been
taken. This Agreement, when executed and delivered, shall constitute a valid
and legally binding obligation of the Company.
(c) All consents, approvals, orders or authorizations of or registrations,
qualifications, designations, declarations or filings with any federal or state
governmental authority on the part of the Company required in connection with
the consummation of the transactions contemplated by this Agreement shall have
been obtained prior to, and be effective as of, the closing.
(d) The Company will furnish monthly consolidated financial statements
prepared under general accepted accounting principles and a quarterly update on
all customer complaints and/or litigation.
8. Representations and Warranties of Pledgor. Pledgor represents and
warrants to the Company as follows:
(a) Pledgor is domiciled in and is a bona fide resident of the State of
Texas.
(b) Pledgor acknowledges that the pledge fees ("the Securities") will be
acquired as an investment for Pledgor's own account, not as a nominee or agent,
and not with a view to the sale or distribution of any part thereof, and Pledgor
has no present intention of selling, granting participation in, or otherwise
distributing the same; that the Securities are restricted securities within the
meaning of Rule 144 promulgated pursuant to the Securities Act of 1933 (the
"Securities Act") and are subject to substantial restrictions on transfer; and
that any and all certificates representing the Securities and any and all
securities issued in replacement thereof or in exchange therefor shall bear the
following legend, or one substantially similar thereto, which the Pledgor has
read and understands:
The Securities represented by this Certificate have not been registered
under the Securities Act of 1933 (the "Act") and are "restricted
securities" as that term is defined in Rule 144 under the Act. The
Securities may not be offered for sale, sold or otherwise transferred
except pursuant to an effective registration statement under the Act or
pursuant to an exemption from registration under the Act, the
availability of which is to be established to the satisfaction of the
Company.
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(c) The Pledgor further agrees that the Company shall have the right to
give stop transfer instructions in its records against any transfer of the
pledge fees, and acknowledges that the Company has informed Pledgor of its
intention to issue such instructions.
(d) The Pledgor has been furnished with the Company's Confidential
Business Plan dated December 12, 1997, audited financial statements for X.X.
Xxxx Group, Inc. as of December 31, 1997 and unaudited monthly financial
statements for X.X. Xxxx Group, Inc. and subsidiaries since August 1997. Pledgor
acknowledges that the Company will, upon written request made by Pledgor,
provide without charge copies of all documents identified in the Confidential
Business Plan.
(e) Pledgor has had an opportunity to ask questions of and receive
satisfactory answers from duly designated representatives of the Company and has
been afforded an opportunity to examine such documents and other information
which she has requested for the purpose of verifying the information set forth
in the referred to above and for the purpose of answering any question she may
have concerning the business, affairs and financial condition of the Company.
Pledgor understands that the Confidential Business Plan does not, and does not
purport to, contain all information material to the making of an informed
investment decision.
(f) Pledgor understands that the Securities are unregistered and must be
held indefinitely unless they are subsequently registered under the Act or an
exemption from such registration is available. Pledgor further acknowledges
that she is fully aware of the applicable limitations on the resale of the
Securities. The Rule permits sales of "restricted securities" held for not less
than two years and upon compliance with the requirements of such Rule. If the
Rule is available to Pledgor, Pledgor may make only routine sales of the
Securities in limited amounts in accordance with the terms and conditions of
that Rule. The Company is the only person which may register its Securities
under the Act and it currently is not contemplating registering any of its
Securities. The Company has not made any representations, warranties or
covenants to Pledgor regarding the registration of the Securities or compliance
with Regulation A or some other exemption under the Act.
(g) Pledgor is an investor who directly or with the assistance of her
representatives has such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of an investment in
the Company based upon the information furnished to her; her personal knowledge
of the business and affairs of the Company; the records, files and plans of the
Company to all of which she has had full access; such additional information as
she may have requested and has received from the Company; and the independent
inquiries and investigations undertaken by it.
(h) Pledgor is an "accredited investor" as that term is defined in Rule
501 under the Securities Act of 1933; can bear the economic risk of loss of her
entire investment; she has adequate means for providing for her current needs
and personal contingencies; and she has no need for liquidity with respect to
her investment in the Securities.
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(i) All information, representations and warranties contained herein or
otherwise given or made to the Company by Pledgor are correct and complete as of
the date of this Agreement, and if there should be any material change in such
information prior to closing of the offering of the Securities, she will
immediately furnish such revised or corrected information to the Company.
(j) No person has given any information or made any representation not
contained in the Disclosure Document referred to above or otherwise provided to
Pledgor in writing by a person authorized by Company or Broker. Pledgor
understands and agrees that any information or representation not contained
therein must not, and will not, be relied upon and that nothing contained
therein should be construed as legal or tax advice to Pledgor.
(k) No person has made any direct or indirect representation or warranty
of any kind to Pledgor with respect to the economic return which may accrue as a
result of the transaction. Pledgor has consulted with its own tax counsel and
other advisors with respect to an investment in the Company.
(l) Notwithstanding anything contained herein to the contrary, the parties
acknowledge and agree that the pledge of the CD as collateral securing payment
of the Loan does not involve the offer or sale of a security under federal or
state law and, in any event, neither this Agreement nor any other written or
oral statement or representation made in connection with this Agreement shall be
deemed to be an admission by the Company that the transactions contemplated
hereby involve, in whole or in part, the offer or sale of a security.
9. Arbitration. In the event of any differences, claims or disputed
matters between the parties hereto arising out of this Agreement or connected
herewith, the parties agree to submit such matters to arbitration by the
American Arbitration Association or its successor in Denver, Colorado. Either
party can invoke arbitration upon ten days' notice to the other party. The
determination of the arbitrator shall be final and absolute. The arbitrator
shall be governed by the duly promulgated rules and regulations of the American
Arbitration Association or its successor, and the pertinent provisions of the
laws of the State of Colorado, relating to arbitration. The decision of the
arbitrator may be entered in a judgment in any court of the State of Colorado or
elsewhere. The arbitrator shall have no power to award exemplary or punitive
damages.
10. Indemnification. The parties understand and acknowledge the meaning
and legal consequences of the representations and warranties contained herein
and in any other document delivered in connection herewith. The Company and the
Pledgor each shall indemnify the other, their respective officers, directors,
partners, affiliates, controlling persons, shareholders, employees, and agents
and the heirs, personal representatives, successors and assigns of the foregoing
(all of whom are hereinafter referred to as the "Indemnified Persons") and shall
hold the Indemnified Persons harmless from and against any and all loss, damage,
liability, cost or expense of any nature whatsoever (including attorneys' fees
and disbursements) due to or arising out of a breach of any such representation,
warranty, acknowledgment or agreement made by the indemnifying party.
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11. Miscellaneous. This Agreement sets forth the understanding of the
parties and supersedes all prior written or oral understandings and agreements
and may be modified only by a writing signed by all parties. No party shall
have the right to assign all or any portion of its rights, duties or obligations
under this Agreement to any other person. Subject to the foregoing, all terms
and provisions of this Agreement shall be binding upon and inure to the benefit
of and be enforceable by the successors, assigns, legal representatives, heirs
and estates of the parties hereto. This Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado. The failure of
any party to insist in any one or more instances upon performance of any terms
or conditions of this Agreement shall not be construed as a waiver of future
performance of such or any other term, covenant or condition. In the event any
party invokes arbitration against the other party in order to enforce the terms
of this Agreement, the party in whose favor a final award is rendered shall be
entitled to recover from the other party its reasonable attorneys' fees and
costs to be fixed by the arbiters which render such award. Such fees and costs
shall include those incurred in connection with any appeal or appeals. Any
reference to he or his shall also include she or her. Should any term or
condition of this Agreement be determined by a court of competent jurisdiction
to be void or unenforceable, all other provisions of this Agreement shall remain
in full force and effect.
12. Notices. All notices required hereunder shall be deemed to have been
given when in writing upon the earlier of personal delivery or three days
following deposit in the United States mails by certified or registered mail,
postage prepaid, to the other party at the addresses set forth below, or such
other addresses as may subsequently be provided:
To Pledgor: To Company:
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Xxxxxx X. Xxxxxx Xxxx X. Xxxx
X. X. Xxxx Group, Inc.
0000 Xxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
first above written.
/s/ Xxxxxx X. Xxxxxx
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Xxxxxx X. Xxxxxx
X.X. XXXX GROUP, INC., a Delaware
corporation
By:/s/ Xxxx X. Xxxx Xxxx X. Xxxx, President
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