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EXHIBIT 10.17
SETTLEMENT AGREEMENT
WHEREAS, subsequent to the merger of the Xxxx Xxxx Company with
Rushmore Financial Group, Inc. ("RFGI") in 1999, Xxxx X. Xxxx ("Xxxx") asserted
claims against RFGI and its board members (the "Board") in 1999-2000 arising out
of RFGI's representations leading to the merger, business activities and the
business decisions of the Board; and
WHEREAS, bona fide disputes and controversies exist between the
parties, both as to liability and the amount thereof, if any, and by reason of
such disputes and controversies, the parties hereto desire to compromise and
settle all claims and causes of action of any kind whatsoever which Xxxx has
arising out of the pre-merger representations by RFGI, the business activities
of RFGI, and the business decisions made by the Board.
NOW, THEREFORE, for and in consideration of the recitals set forth
above and the execution of this Settlement Agreement, the parties hereto agree
to the following:
1. Effective May 31, 2000, unless RFGI shall give notice to Xxxx
before 5:00 p.m. Dallas time, on June 1, 2000, that all of the
terms set forth in the Term Sheet dated 5/17/00 (attached
hereto as Exhibit "A") have not been approved by the Board of
RFGI and an officer of Spectrum Insurance ("Spectrum") by such
time, the parties agree that the business of Rushmore
Investors Advisors, Inc. ("RIA"), a wholly owned subsidiary of
RFGI, will be operated in such a way that:
(a). Xxxx will serve as RIA's chairman, CEO, and sole
director, and shall be granted full authority to manage the
business and operations of RIA, subject to Xxxx'x and RIA's
continuing to conduct its operations in compliance with all
laws applicable to RFGI, as they may apply to RIA, and RIA,
including all federal and state securities and tax laws.
(b) RIA will retain possession and control over its own cash
flow, including but not limited to RIA's having complete
responsibility for the disposition of all cash receipts and
cash disbursements.
(c) To the extent RIA uses any of the services provided by
either RFGI or any RFGI subsidiary, then RFGI (or its
subsidiary) shall send an invoice at the then competitive
market rate charges for such services to RIA for such
services, and RIA shall pay in accordance with the terms of
such invoice.
(d) RIA shall pay for RIA's pro rata share of the cost of the
annual audit for RFGI to be performed by RFGI's independent
public accountants, Xxxxx Xxxxxxxx.
(e) RFGI shall arrange for the physical delivery to RIA of all
the computer hardware/software (including website and Advent
Link) and other assets, which are currently being used for the
business of RIA.
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(f) Xxxx will provide to RFGI, by the twelfth business day of
each month, all financial information regarding RIA's prior
month's activities that is reasonably necessary for RFGI to
prepare accurate financial statements for RIA in accordance
with GAAP and applicable regulatory principles. Such
information will include, but is not limited to, cash receipts
registers, cash disbursement registers, and statistical
information regarding assets under management.
(g) Xxxx will be the custodian of all RIA financial records
that relate to the time period for which Xxxx has
responsibility for RIA's own cash receipts and disbursements.
Xxxx agrees to cooperate with requests by governmental
authorities for such records, and agrees to maintain custody
of these records, for a time period encompassing the time
period for which the Federal Income Tax Return for the year
2000 is subject to audit by the Internal Revenue Service.
(h) Until the triggering even occurs (as described in either
Paragraphs 2 or 3 of this Settlement Agreement) RFGI cannot
terminate Xxxx from his position with RIA, except for good
cause. In the event of the perceived existence of "good cause"
grounds for termination or resignation, the party seeking to
terminate or resign shall give written notice to the other
party of the perceived grounds for "good cause", and the other
party receiving the notice shall have until March 31, 2001, to
cure such "good cause" grounds. Failure to cure on a timely
basis shall result in the termination or resignation. If such
termination or resignation occurs, and the parties are unable
to agree on whether or not it was appropriate, then the
dispute will be submitted to mediation in accordance with
Paragraph 9 of this Settlement Agreement.
2. On the first date when the publicly traded common stock of
RFGI has a closing price of $6.00 (or more) per share, Xxxx and RFGI
will exchange their stock, under the terms of which Xxxx will transfer
all of his RFGI stock to RFGI, and, simultaneously, RFGI will transfer
all of the RIA stock to Xxxx, subject to RFGI's holding such RIA stock
as collateral under the Loan Agreement and Collateral Transfer and
Security Agreement dated August 27, 1999, as described and modified in
Paragraph 7 of this Settlement Agreement. In the event that on the
first date when the publicly traded common stock of RFGI has a closing
price of $6.00 (or more), (i.e., the triggering event occurs), and the
actual closing price is $7.00 (or more) per share, to the extent that
RFGI records a gain on the stock exchange transaction in accordance
with GAAP, RFGI will forgive the then outstanding indebtedness
described in Paragraph 7 of this Settlement Agreement by the amount of
the gain.
3. If the election provided for in Paragraph 2 of this
Settlement Agreement is not exercised prior to 1/1/01, because of
RFGI's common stock not reaching the $6.00 (or more) per share closing
price, then Xxxx shall have the right to require RFGI to forthwith
effectuate a tax-free spin-off of RIA whereby RIA becomes a publicly
traded investment advisory entity under the terms of the spin-off. The
parties hereto shall utilize their best efforts to effect either the
transfer or spin-off in the most effective, reasonable, and expedient
way possible, and in no case shall either party cause such processes to
be delayed unreasonably. RIA and RFGI shall each be responsible for
paying one-half of the reasonable legal and
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accounting fees incurred which are associated with the spin-off. At the
time the spin-off is effectuated, Xxxx shall own in excess of 50.0% of
the publicly traded RIA entity, (with the remainder of the stock in the
new entity being owned by the remaining RFGI shareholders other than
the RFGI control group ("the RFGI Control Group") whose shares will be
transferred to Xxxx to reach the above 50.0% level) and Xxxx shall
transfer all of his RFGI stock to the RFGI Control Group. Xxxx'x shares
in the publicly traded RIA entity after the spin-off shall be held by
RFGI as collateral under the Loan Agreement and Collateral Transfer and
Security Agreement dated August 27, 1999, as described and modified in
Paragraph 7 of this Settlement Agreement.
4. Effective 5/31/00, subject to the RFGI board approving this
Settlement Agreement on 6/1/00, Xxxx has resigned from his position as
a member of RFGI's board of directors and from all other executive
positions he holds for RFGI, and shall deliver resignation letters to
that effect at the time this Settlement Agreement is executed. Xxxx
shall continue to enjoy the same indemnity benefits as enjoyed by all
other officers and directors of RFGI until such time as the triggering
event in Paragraphs 2 or 3 occurs.
5. Effective 5/31/00, subject to the RFGI board approving this
Settlement Agreement on 6/1/00, Xxxx'x existing Employment Agreement
with RFGI and the obligations of Xxxx set forth in Sections 3.18, 3.21,
3.25, 3.26, 5.1, 5.2, 5.4, 5.5, 5.6, 5.8, 8.1, 8.4, 8.8, and 8.9 of the
Merger Agreement, shall be terminated and be of no force or effect. If
any conflict arises between this Settlement Agreement and the Merger
Agreement, this Settlement Agreement shall govern and be controlling.
It is further understood and agreed by the parties to this Settlement
Agreement that after (i) the triggering event in Paragraph 2 of this
Settlement Agreement occurs, (ii) the spin-off described in Paragraph 3
is effectuated, (iii) the first date occurs when RFGI voluntarily seeks
relief from creditors under any state or federal statute, regulation or
code, including any state or federal bankruptcy statute, regulation or
code, or any third-party, person, entity or governmental agency or
regulatory body files to place RFGI in bankruptcy or receivership under
any state or federal statute, regulation or code, (and such involuntary
bankruptcy is not dismissed soon thereafter) or (iv) March 31, 2000,
whichever date comes first, then Section 5.7 of the Merger Agreement is
terminated and Xxxx and/or any entity in which he owns a controlling
interest is not prohibited from conducting a financial services
business or organization that engages or participates, directly or
indirectly, in the sale of insurance, securities or other investment
products and/or that solicits
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business from any person or entity that is or was a client of RFGI or
any of RFGI's subsidiaries or affiliates, specifically including
Rushmore Investment Advisors, Inc. Notwithstanding any of the other
provisions or language set forth in this Settlement Agreement, should
RFGI voluntarily seek relief from creditors under any state or federal
statute, regulation or code, including any state or federal bankruptcy
statute, regulation or code, or any third-party, person, entity or
governmental agency or regulatory body files to place RFGI in
bankruptcy or receivership under any state or federal statute,
regulation or code, (and such involuntary bankruptcy is not dismissed
soon thereafter) then the Merger Agreement shall be terminated
effective immediately and shall be of no force or effect.
6. Upon the first to occur of either (a) RFGI's common stock
reaching $6.00 (or more) per share closing price, as provided in
Paragraph 2 of this Settlement Agreement, or (b) Xxxx'x electing the
tax-free spin-off, as provided in Paragraph 3 of this Settlement
Agreement, then upon the occurrence of the completion of such first
event and transfer, (A) Xxxx (on behalf of himself, his heirs, assigns,
affiliates, predecessors, successors, and any Xxxx-controlled entity)
shall release, acquit, and forever discharge RFGI, its agents,
servants, representatives, attorneys, employees, officers, directors,
shareholders, successors, assigns, subsidiaries, and affiliates, and
all persons (including but not limited to Xx. Xxxxx Xxxxx), natural or
corporate, in privity with them or any of them, from any and all claims
or causes of action of any kind whatsoever, at common law, statutory or
otherwise, which Xxxx has now existing against RFGI, it being intended
that Xxxx will release all claims of any kind which he might have had
against those hereby released whether previously threatened or asserted
or not, and (B) RFGI (on behalf of itself, its officers, directors,
shareholders, assigns, affiliates, predecessors, successors, agents,
and representatives) shall release, acquit, and forever discharge Xxxx,
his heirs, assigns, affiliates, predecessors, successors, agents,
servants, representatives, attorneys, employees, and any
Xxxx-controlled entity, natural or corporate, in privity with them or
any of them, from any and all claims or causes of action of any kind
whatsoever, at common law, statutory or otherwise, which RFGI has now
existing against Xxxx, it being intended that RFGI will release all
claims of any kind which it might have had against those hereby
released whether previously threatened or asserted or not. The granting
of these mutual releases shall occur so long as RFGI and RIA are each
in compliance with the terms of this Settlement Agreement and all
applicable laws and regulations. Until such time as the triggering
event incurs in connection with Paragraphs 2 or 3 of this
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Settlement Agreement, Xxxx and RFGI hereby covenant not to institute
litigation or arbitration against each other or any RFGI agent,
servants, representatives, attorneys, employees, officers, directors,
shareholders, successors, assigns, subsidiaries, and affiliates.
7. It is acknowledged that Xxxx has previously obtained a loan
from RFGI, under a Loan Agreement, Promissory Note, and Collateral
Transfer and Security Agreement dated August 27, 1999, which loan
currently has an outstanding principal balance in the amount of
$270,000.00, plus accrued but unpaid interest in the amount of
$10,319.18, such that the current total indebtedness owed on the loan
is $280,319.18. The parties hereby agree that the terms of the Loan
Agreement, Promissory Note, and Collateral Transfer and Security
Agreement dated August 27, 1999, are all hereby restructured, such that
Xxxx'x repayment obligation to RFGI shall require him to pay 9%
interest on the $280,319.18 current total indebtedness amount, and,
therefore, shall pay to RFGI each month the amount of $2,102.39 on the
1st day of the month beginning 7/1/00 until the occurrence of the first
triggering event in either Paragraph 2 or 3 of this Agreement, and
after such triggering event, Xxxx shall make 48 monthly payments to
RFGI in the amount of $6,975.75 on the 1st day of the month following
the triggering event, in order to pay off the balance of the
indebtedness. Until the entirety of the debt is paid off, the
collateral for the modified loan shall continue to be all of Xxxx'x
RFGI stock, until such time as the triggering event occurs under
Paragraphs 2 or 3 of this Settlement Agreement, in which case the
collateral for the loan shall be substituted, at which time the
collateral for the unpaid loan shall either be all of the RIA stock or
the stock in the publicly traded RIA entity after the spin-off, which
Xxxx is to receive under said Paragraphs. After the execution of this
Settlement Agreement, RFGI shall deliver the collateral to Xxxx Xxxxx,
as RFGI's trustee or escrow agent under the Collateral Transfer and
Security Agreement, (or any other neutral who is mutually agreeable to
Xxxx XxXxxxxx and Xxxxxxx Boston), for such trustee to hold until (i)
Xxxx has defaulted on his payment obligations under the loan, been
given notice of default and failed to cure such default, or (ii) all
indebtedness owed on the loan has been paid in full. Upon the
occurrence of either of these two events, the trustee shall deliver the
collateral to RFGI in the event of default, or shall deliver the
collateral to Xxxx in the event of payoff. RIA shall be responsible for
the payment of all fees and costs charged or incurred by the trustee or
escrow agent.
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8. Until such time as the occurrence of the first triggering
event in either Paragraph 2 or 3 of the Agreement, Xxxx shall receive
monthly compensation from RIA in the minimum amount of $50,000.00 per
month, with $8,333.33 per month being Xxxx'x salary, and the balance of
the monthly payment being a bonus and/or additional compensation, which
payments shall be paid from RIA's cash flow. Any amounts paid to Xxxx
in excess of $50,000.00 per month shall require the approval of RFGI's
Compensation Committee, which approval shall not be unreasonably
withheld. In the event Xxxx believes that RFGI's Compensation Committee
is unreasonably withholding consent to Xxxx'x request for compensation
in excess of $50,000.00 per month, then such dispute shall be mediated
in accordance with Paragraph 9 of this Settlement Agreement.
9. In the event of a dispute between the parties arising from
or relating to this Settlement Agreement, they hereby agree to a delay
of four weeks before instituting any litigation or arbitration so that
such dispute may be mediated by Mr. Xxxx Xxxxx before the pursuit of
any litigation or arbitration. In the event Xx. Xxxxx is unavailable
within two (2) weeks after notice of the dispute, then the parties will
attempt to mediate with a mutually agreeable mediator but only if it
can be done within four weeks.
10. This Settlement Agreement may be executed in multiple
counterparts, each of which will be deemed an original, and all of
which constitute one and the same instrument.
11. This Settlement Agreement will be governed by, enforced,
and interpreted in accordance with the laws of the State of Texas.
12. The failure of any party to enforce any of its rights or
remedies under this Settlement Agreement with respect to any specific
act or failure to act will not constitute a waiver of the right to such
party to enforce such rights and remedies with respect to any other or
subsequent or failure to act.
13. Neither this Settlement Agreement nor any provision of it
may be changed, waived, discharged, or terminated orally, but only by
an agreement in writing signed by the party against which the
enforcement of such change, waiver, discharge, or termination is
sought.
14. This Settlement Agreement constitutes the entire agreement
between the parties with respect to the subject matter of this
Settlement Agreement and there are no representations, understandings,
or agreements relative to this Settlement Agreement which are not fully
expressed in it.
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15. Each party warrants and represents to the other party
that, before the execution of this Settlement Agreement, it has not
transferred, conveyed, pledged, or in any manner assigned any of the
claims, demands, actions, cause of action, suits, costs, losses,
damages, expenses, or liabilities released herein.
16. Each party agrees to execute and deliver such documents
and take such other action as will be reasonably required to carry out
the provisions of this Settlement Agreement.
17. Any notice required to be given or made pursuant to this
Settlement Agreement will be in writing and will be deemed properly and
sufficiently given or made if delivered in person or if sent by
registered or certified mail, return receipt requested, or by courier
receipt of delivery or by facsimile transmission to the other party at
the address or telecopier number set forth below:
If to Xxxx Xxxx, address to Xxxx Xxxx, 0000 Xxxxxx Xxxxx,
Xxxxx, Xxxxx 00000, fax 972/000-0000, with a copy to his
attorney Xxxx XxXxxxxx, XxXxxxxx XxxXxxxxx Xxxxx & Xxxxxxxxxx,
0000 Renaissance Tower, 0000 Xxx Xxxxxx, Xxxxxx, Xxxxx 00000,
fax (000) 000-0000.
If to RFGI, address to Xx. Xxxxx Xxxxx, Rushmore Financial
Group, Inc., 13355 Xxxx Road, Xxx Xxxxxxxx Xxxxx, Xxxxx 000,
Xxxxxx, Xxxxx 00000, fax (000) 000-0000, with a copy to Xx.
Xxxxxxx Boston, Xxxxxxxx Xxxxxxxx & Xxxxxx, 0000 Xxxxxxxxxxx
Xxxxx, 0000 Xxx, Xxxxxx, Xxxxx 00000, fax (000) 000-0000.
18. The person, address, or telecopier number to which notice
must be given pursuant to the previous paragraph may be changed at any
time upon giving two (2) business days' written notice to the other
party.
19. The terms and agreements set forth herein are binding upon
any successors and/or assigns of RFGI.
IT IS EXPRESSLY UNDERSTOOD AND AGREED that the terms hereof are
contractual and are not merely recitals and that the agreements herein
contained and the consideration transferred are to compromise doubtful
and disputed claims, avoid further litigation, and buy peace, and that
no consideration delivered nor releases given shall be construed as an
admission of liability, all liability being expressly denied.
Xxxx and RFGI warrant that they and their respective representatives
have read this agreement and fully understand it to be a compromise,
settlement and release of all present, known claims, that Xxxx has or
may have against the party or parties released, arising out of the
matters described. RFGI also warrants that its representative is fully
and legally competent to execute this agreement, and that he does so of
his own
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free will and accord without reliance on any representation of any kind
or character not expressly set forth herein.
SIGNED this 7th day of June, 2000.
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/s/ XXXX X. XXXX
/s/ RUSHMORE FINANCIAL GROUP, INC.
BY:
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ITS:
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