ACO HOLDINGS, INC.
STOCK PLEDGE AND SECURITY AGREEMENT
THIS STOCK PLEDGE AND SECURITY AGREEMENT ("Agreement") is made this
11th day of March, 1997, by and between ACO HOLDINGS, INC., a Texas
corporation ("Pledgor"), and DORINCO REINSURANCE COMPANY ("Lender").
RECITALS
T h e following recitals constitute a material part of this
Agreement:
I. Pursuant to the terms of a Loan Agreement (hereinafter "Loan
Agreement") of even date herewith between Lender and Hallmark Financial
S e r v i ces, Inc., a Nevada corporation ("Borrower"), Lender is
concurrently herewith extending to Borrower a loan in the principal
amount of $7,000,000.00, to be evidenced by Borrower's promissory note
(the "Note") which is secured by Pledgor's pledge of the Pledged Stock
(as defined below) pursuant to this Agreement.
II. For convenience, the Loan Agreement, the Note and this
Agreement, as the same are hereafter modified, amended or extended, are
sometimes hereinafter collectively referred to as the "Transaction
Documents".
III. Pledgor represents and warrants to Lender that Pledgor has and
will continue to receive substantial benefit from the loans by Lender to
Borrower and that, in consideration of such benefit, Pledgor is pledging
the Pledged Stock to Lender to secure the Obligations (as defined
below).
IV. Pledgor further represents and warrants to Lender that Pledgor
has received reasonably equivalent value in exchange for the pledge of
the Pledged Stock to Lender and that Pledgor (i) was not insolvent on
the date of the pledge of the Pledged Stock to Lender; (ii) was not
engaged in and was not about to engage in a business or transaction for
which it had unreasonably small capital; or (iii) did not intend to
incur, or believe that it would incur, debts that would be beyond
Pledgor's ability to pay as such debts matured.
V. This Agreement and the rights hereby granted shall secure the
following (the "Obligations"):
A. All present and future liabilities, indebtedness and
obligations of Borrower to Lender of every kind, type, nature and
description, arising under the Transaction Documents;
B. All costs and expenses, including attorneys' fees, of all
legal actions or proceedings brought by Lender to enforce this
Agreement or any other Transaction Document, all other costs and
expenses paid or incurred in respect of or in connection with the
Pledged Stock, and any other sums that may become due and payable
to Lender by Pledgor; and
C. The observance and performance by Pledgor of all terms,
provisions, covenants and obligations of Pledgor under this
Agreement and all other Transaction Documents.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and other good and valuable
c o n sideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. Pledged Stock. The term "Pledged Stock" shall mean the shares
of capital stock described in Schedule 1 which is attached hereto and
made a part hereof and all other shares of capital stock, options,
rights and warrants issued to Pledgor by the issuer of the aforesaid
capital stock described in Schedule 1, together with all certificates,
options, rights and other distributions issued as an addition to, in
substitution or exchange for, or on account of, any such shares of
capital stock, options, rights and warrants arising from any and all of
the foregoing or relating thereto, and all proceeds of all the
foregoing, whether now owned or hereafter acquired by Pledgor.
2. Pledged Stock; Security For Obligations.
(a) As security for the prompt payment, performance and
satisfaction of the Obligations, Pledgor hereby pledges, assigns,
hypothecates and transfers to Lender the Pledged Stock, and grants
Lender a lien on and security interest therein.
(b) If Pledgor shall become entitled to receive or shall
receive at any time or from time to time, in connection with any of
the Pledged Stock, any:
(i) stock certificate, including, but not limited to,
any certificate representing a stock dividend or in connection
with any increase or reduction of capital, reclassification,
merger, consolidation, sale of assets, combination of shares,
stock split, spin-off or splitoff;
(ii) o p tion, warrant or right, whether as an
addition to or in substitution or exchange for the Pledged
Stock or otherwise;
(iii) dividend or distribution payable in property,
including, but not limited to, any securities issued by other
than the issuer of the Pledged Stock; or
(iv) dividends or distributions of any kind, type,
nature or description;
Then Pledgor shall, subject to subparagraph 2(d) below, accept
the same as Lender's agent, in trust for Lender, and shall deliver
them forthwith to Lender or its nominee in the exact form received
with, as applicable, Pledgor's endorsement in blank for transfer
when necessary, or appropriate stock powers duly executed in blank
for transfer, to be held by Lender, or its nominee, subject to the
terms hereof, as part of the Pledged Stock.
(c) Upon the occurrence of an Event of Default (as herein
defined), Lender, at its option, may have any or all of the Pledged
Stock registered in the name of Lender or its nominee, and Pledgor
hereby covenants that, upon Lender's request, Pledgor will cause
the issuer of the Pledged Stock to effect such registration. In
connection with such registration, Pledgor hereby designates and
appoints Lender as the agent and attorney-in-fact of Pledgor to
execute any and all documents and instruments in the name of
Pledgor and to do any and every act which Pledgor might do on its
own behalf in order to effectuate the change in registered
ownership of any or all of the Pledged Stock upon the occurrence of
an Event of Default. Pledgor hereby agrees that the foregoing
powers granted to Lender hereunder are coupled with an interest and
are irrevocable so long as any of the Obligations remain unpaid.
Pledgor shall nevertheless retain all voting rights with respect to
the Pledged Stock until the occurrence of an Event of Default.
Immediately and without further notice, upon the occurrence of an
Event of Default, Lender or its nominee shall have, with respect to
the Pledged Stock, at Lender's option, the right but not the
obligation to exercise all voting rights, all other corporate
rights and all conversion, exchange, subscription or other rights,
privileges or options pertaining thereto as if it were the absolute
owner thereof, including, but not limited to, the right to exchange
any or all of the Pledged Stock upon the merger, consolidation,
reorganization, recapitalization or other readjustment of the
issuer thereof, or upon the exercise by such issuer of any right,
privilege or option pertaining to the Pledged Stock, and, in
connection therewith, to deliver any of the Pledged Stock to any
c o m m ittee, depository, transfer agent, registrar or other
designated agency upon such terms and conditions as it may
determine, all without liability except to account for property
actually received by it; but Lender shall have no duty to exercise
any of the aforesaid rights, privileges or options and shall not be
responsible to Pledgor for any failure to do so or delay in so
doing.
(d) So long as no Event of Default has occurred and is
continuing, all cash dividends on all or any portion of the Pledged
Stock shall be paid to Borrower and Borrower shall not be deemed to
accept said dividends as Lender's agent in trust for Lender.
Following the occurrence of an Event of Default, any cash dividends
on all or any portion of the Pledged Stock shall be paid to Lender
in reduction of the Obligations unless Lender otherwise consents in
writing.
3. Events of Default. The occurrence of any of the following
events shall constitute and is hereby defined to be an "Event of
Default" hereunder:
(a) any failure or neglect to observe or perform any of the
terms, provisions, promises, agreements or covenants of this
Agreement within thirty (30) days of written notice of such failure
or neglect; or
(b) any warranty, representation or statement contained in
this Agreement or otherwise made or furnished to Lender by or on
behalf of Pledgor in connection with the Obligations shall be or
shall prove to have been false or incorrect when made or furnished
or shall at any time hereafter become false or incorrect; or
(c) the occurrence of an Event of Default under the Loan
Agreement after all applicable cure periods, if any.
4. Remedies. Upon the occurrence of an Event of Default and at
any time thereafter, Lender may, at its option, in its sole and absolute
discretion and, except as otherwise expressly set forth herein, without
further demand or notice of any kind, pursue any or all of its rights
and remedies under any or all of the Transaction Documents or at law or
in equity in such order and manner as Lender may elect in its sole
discretion, including, without limitation, any one or more of the
following:
(a) Lender may declare all Obligations to be immediately due
and payable, without presentment, protest or notice of any kind to
Pledgor or any other person (all of which are hereby expressly
waived by Pledgor).
(b) Lender may, without demand of performance or other
demand, advertisement or notice of any kind (except the notice
specified below with respect to the time and place of public or
private sale) to or upon Pledgor or any other person (all of which
are, to the extent permitted by law, hereby expressly waived),
forthwith realize upon the Pledged Stock or any part thereof or
interest therein, and may forthwith sell or otherwise dispose of
and deliver the Pledged Stock or any part thereof or interest
therein, or agree to do so, in one or more parcels at public or
private sale or sales, at any exchange, broker's board or at any of
Lender's offices or elsewhere, at such prices and on such terms
(including, without limitation, a requirement that any purchaser of
all or any part of the Pledged Stock purchase the shares
constituting the Pledged Stock for investment and without any
intention to make a distribution thereof) as it may deem best, for
cash or on credit, or for future delivery without assumption of any
credit risk, with the right to Lender or any purchaser to purchase
at any such sale the whole or any part of the Pledged Stock free of
any right or equity of redemption in Pledgor which right or equity
o f r e d emption is hereby expressly waived and released.
Notwithstanding any other provision in this Agreement to the
contrary, Pledgor agrees that Lender, in its sole discretion, may
determine that a sale, public or private, of all or any portion of
the Pledged Stock is not in Lender's best interest, and Lender is
hereby expressly authorized to retain all or any part of the
P l edged Stock indefinitely until Lender deems in its sole
discretion that a sale would be in its best interest. Until such
sale, Lender may, in its sole discretion, elect to hold all or any
part of the Pledged Stock and be treated as the beneficial owner
thereof and shall be entitled to collect all income and proceeds
therefrom and Pledgor shall cause the issuer of the Pledged Stock
to treat Lender in all respects as if Lender were a shareholder of
issuer and with all the rights applicable to such status as to the
Pledged Stock.
(c) The proceeds of any such disposition or other action by
Lender shall be applied as follows:
(i) first, to the costs and expenses incurred in
connection therewith or incidental thereto or to the care or
safekeeping of any of the Pledged Stock or in any way relating
to the rights of Lender hereunder, including, but not limited
to, attorneys' fees and legal expenses;
(ii) second, to the satisfaction of the Obligations
in such order of priority as Lender shall determine in its
sole discretion;
(iii) third, to the payment of any other amounts
required by applicable law (including, without limitation,
Section 9-504(1)(c) of the Uniform Commercial Code); and
(iv) fourth, to the extent of any surplus proceeds, to
the person(s) legally entitled thereto.
(d) Lender need not give more than fifteen (15) days' notice
of the time and place of any public sale or of the time after which
a private sale may take place, which notice Pledgor hereby deems
and agrees to be commercially reasonable.
(e) Pledgor hereby waives to the fullest extent permitted by
applicable law any right Pledgor may have to require Lender to
xxxxxxxx assets or sell the Pledged Stock, or any other collateral,
in any particular order of priority.
5. Rights and Remedies Not Exclusive. Notwithstanding any
provision in this Agreement or in any Transaction Document to the
contrary, the rights and remedies provided herein and in the other
Transaction Documents and in all other agreements, instruments and
documents delivered pursuant to or in connection with the Transaction
Documents are cumulative and are in addition to and not exclusive of any
rights or remedies provided by law or under the principles of equity,
including, without limitation, the rights and remedies of a secured
party under the Uniform Commercial Code, and all such rights and
remedies may be enforced partially, successively, alternatively or
concurrently, and any action by Lender to enforce any of its rights
and/or remedies shall not stop or prevent Lender from pursuing any other
right or remedy which it may have hereunder or by law.
6. Notices. Pledgor will promptly deliver to Lender all written
notices, and will promptly give Lender written notice of any other
notices received by it with respect to the Pledged Stock, and Lender
will promptly give like notice to Pledgor of any such notices received
by it or its nominee. Any notice given pursuant to this Agreement shall
be in writing and shall be deemed received upon (i) receipt of actual
notice by Pledgor or Lender, or (ii) five (5) business days after such
notice is deposited in the United States Mail, certified or registered
mail, return receipt requested with postage prepaid, and addressed as
follows:
To Lender:
Dorinco Reinsurance Company
0000 Xxxxx Xxxxxx
Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxxxxxx
(000) 000-0000
(000) 000-0000 (facsimile)
To Pledgor:
ACO Holdings, Inc.
c/o Hallmark Financial Services, Inc.
00000 Xxxxxx Xxxxxxx, Xxxxx 000
Xxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxxx
(000) 000-0000
(000) 000-0000 (facsimile)
Any party may from time to time change its address to which notices are
to be sent or delivered hereunder by giving prior written notice of such
change to the other party hereto as above provided.
7. Further Documents. Pledgor shall at any time, and from time to
time, upon the written request of Lender, execute and deliver such
further documents and do such further acts and things as Lender may
reasonably request to effect the purposes of this Agreement, including,
but not limited to, delivering to Lender upon the occurrence of an Event
of Default irrevocable proxies with respect to the Pledged Stock in a
form satisfactory to Lender. Until receipt thereof, this Agreement shall
constitute Pledgor's proxy to Lender or its nominee to vote all shares
of Pledged Stock then registered in Pledgor's name upon the occurrence
of an Event of Default.
8. Return of Pledged Stock. Upon the satisfaction in full of all
Obligations and the satisfaction of all additional costs and expenses of
Lender as provided herein, this Agreement shall terminate and Lender
shall deliver to Pledgor at Pledgor's expense, such of the Pledged Stock
as shall not have been sold or otherwise applied pursuant to this
Agreement.
9. Lender's Duties. Beyond the exercise of reasonable care to
assure the safe custody of the Pledged Stock while held hereunder,
Lender shall have no duty or liability to preserve any rights pertaining
thereto and shall be relieved of all responsibility for the Pledged
Stock upon surrendering it or tendering surrender of it to Pledgor.
10. Specific Performance. Pledgor acknowledges that a breach of
any of its covenants set forth in this Agreement may cause irreparable
injury to Lender; that Lender will have no adequate remedy at law with
respect to such breach; and that, as a consequence thereof, all of
Pledgor's covenants set forth in this Agreement shall be specifically
enforceable against Pledgor and Pledgor hereby waives, to the extent
such waiver is enforceable under law, and shall not assert, any defenses
against an action for specific performance of such covenants except for
a defense that no Event of Default has occurred.
11. No Waiver. No course of dealing between Pledgor and Lender,
nor any failure to exercise, nor any delay in exercising any right,
remedy, power or privilege of Lender hereunder or under any other Loan
Document shall operate as a waiver thereof nor shall any single or
partial exercise of any such right, remedy, power or privilege preclude
any other remedy or the further exercise thereof or the exercise of any
other right, remedy, power or privilege.
12. Prohibition of Indirect Action. Any act which Pledgor is
prohibited from doing hereunder or under any other Transaction Document
shall not be done or allowed to be done indirectly through an affiliate
thereof or by any other indirect means.
13. Expenses. Pledgor agrees to promptly pay all expenses, costs,
c h arges, fees and disbursements of any kind, type, nature and
description, including reasonable attorneys' fees and all court costs,
incurred by Lender in connection with the enforcement of this Agreement.
14. Severability. The provisions of this Agreement are severable,
and if any clause or provision of this Agreement shall be held invalid
or unenforceable in whole or in part in any jurisdiction, then such
invalidity or unenforceability shall affect only such clause or
provision or part thereof in such jurisdiction and shall not in any
manner affect such clause or provision in any other jurisdiction or any
other clause or provision in this Agreement.
15. Governing Law; Construction.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Michigan, except as to
matters covered by applicable Federal law or regulation.
(b) I n construing this Agreement, words of masculine,
feminine or neuter gender shall mean and include the correlative
words of the other genders, and words importing the singular number
shall mean and include the plural number, and vice versa. The term
" p e r s on" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization,
association, corporation, institution or other entity, or any
combination of any of the foregoing, as the context may require.
The headings in the paragraphs of this Agreement are inserted for
convenience of reference only and shall not constitute a part
hereof.
(c) No inference in favor of, or against, any party shall be
drawn from the fact that such party has drafted any portion of this
Agreement, each party having been represented by counsel of its
choice in connection with the negotiation and preparation of this
Agreement and the other Transaction Documents.
16. Sole Discretion of Lender. Whenever Lender's judgment, consent
or approval is required hereunder for any matter or Lender shall have an
option or election hereunder ("Decision Power"), such Decision Power
shall be exercised in the good faith, reasonable discretion of Lender.
Pledgor acknowledges that unless specifically limited herein, Lender is
entitled to exercise its Decision Power in a manner most beneficial to
it.
17. Amendments. This Agreement may be amended only by a written
instrument signed by all the parties hereto.
18. Conflict Among Provision. In the event of a conflict between
any provision of this Agreement and the provisions of any other
document, instrument or agreement which grants Lender a security
interest in all or any part of the Pledged Stock, the provisions of this
Agreement shall control.
19. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs,
administrators, personal and legal representatives, executors,
successors, transferees and assigns; provided, however, that Pledgor
shall not be permitted to assign any of its obligations hereunder.
20. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and shall be
binding upon any person executing the same (whether or not all intended
signatures hereon are obtained), and all of which together shall
constitute one and the same instrument.
21. Venue. Venue of any action brought pursuant to this Agreement
or any other Transaction Document shall, at the election of Lender, be
in (and, if any such action is originally brought in another venue, such
action shall, at the election of Lender, be transferred to) a state or
F e deral court of appropriate jurisdiction located in or having
jurisdiction over Midland County, Michigan. Each party to this
Agreement hereby waives any objection to the jurisdiction of or venue in
any such court and to the service of process described in the Michigan
or Federal Rules of Civil Procedure. Each party to this Agreement
hereby waives any right to claim that any such court is an inconvenient
forum or any similar defense.
22. NO SETOFF OR COUNTERCLAIM; WAIVER OF JURY TRIAL
(A) NO SETOFF OR COUNTERCLAIM OF ANY KIND CLAIMED BY PLEDGOR
SHALL STAND AS A DEFENSE TO THE JUDICIAL ENFORCEMENT OF THIS
AGREEMENT AGAINST PLEDGOR, IT BEING HEREBY SPECIFICALLY AGREED AND
STIPULATED THAT ANY SUCH SETOFF OR COUNTERCLAIM SHALL BE MAINTAINED
BY SEPARATE SUIT.
(B) LENDER AND PLEDGOR HEREBY AGREE TO TRIAL BY COURT AND
I R R EVOCABLY WAIVE JURY TRIAL IN ANY ACTION OR PROCEEDING
(INCLUDING, BUT NOT LIMITED TO, ANY COUNTERCLAIM) ARISING OUT OF OR
IN ANY WAY RELATED TO OR CONNECTED WITH THIS AGREEMENT OR ANY OTHER
TRANSACTION DOCUMENT, THE RELATIONSHIP CREATED THEREBY, OR THE
ORIGINATION, ADMINISTRATION OR ENFORCEMENT OF THE INDEBTEDNESS
EVIDENCED AND/OR SECURED BY THIS AGREEMENT OR ANY OTHER TRANSACTION
DOCUMENT.
IN WITNESS WHEREOF, the parties have executed this as of the
day and year first above written.
PLEDGOR:
ACO HOLDINGS, INC.
By:
Name: Xxxxx X. Xxxxxxx
Title: Executive Vice President
ATTEST:
By:
Xxxxxxx X. Xxxxxxx, Secretary
[CORPORATE SEAL]
EXHIBIT 1
PLEDGED STOCK
All of the issued and outstanding capital stock of
Hallmark Financial Corporation
