Exhibit 10.1
Execution Copy
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is entered into as of
July 9, 2008, by and between FIRST ALLIED SECURITIES, INC., a New York
corporation, or one of its affiliates (the "Buyer"), FIRST MONTAUK SECURITIES
CORP. a New York corporation (the "Seller") and FIRST MONTAUK FINANCIAL CORP. a
New Jersey corporation (the "Parent").
RECITALS
A. Buyer desires to acquire from Seller, and Seller desires to transfer
to Buyer, certain assets of the Seller, including (i) the right to service
certain of Seller's customer accounts, and (ii) Seller's rights in, under and to
Seller's agreements with its independent contractor registered representatives,
all on the terms and subject to the conditions set forth in this Agreement.
B. The purchase described herein may be conducted by Buyer or one of
its Affiliates (as defined below).
C. The parties hereto desire to confirm their agreement and
understanding with respect to the transactions contemplated hereby.
AGREEMENT
In consideration of the mutual agreements, representations, warranties
and covenants set forth below, Buyer and Seller agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following terms shall have
the following meanings:
(a) "Accounts" means all of Seller's customer accounts of the Accepted Seller
Representatives.
(b) "Account Agreements" mean all of the contracts between the Seller and each
of the account holders setting forth the terms and conditions relating to the
Accounts.
(c) "Affiliate" means with respect to any Person, a Person directly or
indirectly controlling or controlled by or under common control with such
Person.
(d) "Closing" means the consummation of the transactions contemplated hereby.
(e) "Closing Date" means the date of the Closing.
(f) "Governmental Authorizations" means the permits, authorizations, consents or
approvals of any Governmental Entity which are a condition to the lawful
consummation of the transactions contemplated hereby, including, but not
limited to those required under, (A) the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder (the "Exchange
Act"), (B) state securities or "blue sky" laws, and (C) the Financial Industry
Regulatory Authority, Inc. ("FINRA").
(g) "Governmental Entity" means any court, or any federal, state, municipal or
other governmental authority, department, commission, board, agency or other
instrumentality (domestic or foreign), including regulated and self-regulated
entities existing under the authority of any federal, state, municipal or
other government, including without limitation, state securities regulatory
bodies, securities exchanges, the U.S. Securities and Exchange Commission
("SEC"), FINRA, the New York Stock Exchange, Inc. ("NYSE"), the NASDAQ Stock
Market, Inc. ("NASDAQ") and the Municipal Securities Rulemaking Board.
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(h) "Independent Contractor Representative Agreement" means (A) the Independent
Contractor Affiliate Agreements executed between the Seller and the owner or
manager of an individual office of Seller setting forth the terms and
conditions under which the owner or manager operates as an independent office
of the Seller; and (B) the FMSC Registered Representative Agreements executed
by the Seller and an individual Seller Representative setting forth the terms
and conditions under which a Seller Representative operates as an independent
contractor registered representative with the Seller. The forms of these
agreements have been provided to Buyer.
(i) "Knowledge" means with respect to any party, the actual knowledge of any
executive officer, director, general partner or managing member of such party
or any executive officer, director, general partner or managing member of an
affiliate of such party, and such knowledge as any of them would reasonably be
expected to have after reasonable inquiry.
(j) "Lien" means any mortgage, pledge, lien, security interest, option,
covenant, condition, restriction, encumbrance, charge or other third-party
claim of any kind.
(k) "Loss" means any claim, loss, obligation, liability, settlement payment,
award, judgment, fine, penalty, damage, deficiency, diminution of value,
royalty, interest and penalties, cost or expense, including reasonable
attorneys' fees and reasonable expenses of investigation and defense, or other
charge.
(l) "Material Adverse Effect" with respect to a Person means any event, change
or effect that is materially adverse to the condition (financial or
otherwise), properties, assets, liabilities, business, operations, or results
of operations, of such Person.
(m) "Person" means an individual, corporation, partnership, association, trust,
government or political subdivision or agent or instrumentality thereof, or
other entity or organization.
(n) "Production" means the aggregate commission and fee income for the trailing
twelve month period ended on the month end immediately prior to the date of
execution of this Agreement which was generated by the Closing Date
Representatives and credited to the Closing Date Representatives for the
purpose of computing their commission payout as reflected on the books and
records of Seller, including, without limitation, 12b-1 fees and any other
fees which Seller includes in its calculation of payout, provided such amount
does not have a 100% payout.
(o) "Seller Representatives" means registered representatives who are licensed
with Seller on the date hereof, as listed on Schedule 1.1(o) to this
Agreement, and any registered representatives who become licensed with Seller
after the date hereof.
(p) "Taxes" means all taxes, however denominated, including any interest,
penalties or other additions to tax that may become payable in respect
thereof, (i) imposed by any federal, territorial, state, local or foreign
government or any agency or political subdivision of any such government, for
which Buyer could become liable as transferee, or servicer of, or in
connection with, the Accounts or which could become a charge against or lien
on any of the Accounts, which taxes shall include, without limiting the
generality of the foregoing, all sales and use taxes, ad valorem taxes, excise
taxes, business license taxes, occupation taxes, real and personal property
taxes, stamp taxes, environmental taxes, real property gains taxes, transfer
taxes, income taxes, payroll and employee withholding taxes, unemployment
insurance contributions, social security taxes, and other governmental
charges, and other obligations of the same or of a similar nature to any of
the foregoing, which are required to be paid, withheld or collected, or (ii)
any liability for amounts referred to in (i) as a result of any obligations to
indemnify another person.
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(q) "Transfer" means the transfer by Seller to Buyer of (i) Seller's right to
service the Accepted Accounts, and (ii) Seller's rights in, to and under the
Closing Date Representative Agreements.
ARTICLE II
TRANSFER AND PURCHASE
2.1 Transfer of Purchased Assets. Subject to the terms and conditions of this
Agreement, on the Closing Date, Seller shall sell, transfer, assign, convey and
deliver to Buyer, and Buyer shall purchase from Seller, free and clear of all
Liens, all right, title and interest of Seller in, to and under the following
assets, as the same shall exist on the Closing Date (herein collectively called
the "Purchased Assets"):
(a) All of Seller's right, title and interest in and to service the Accepted
Accounts under the corresponding Account Agreements (the "Accepted Account
Agreements"). "Accepted Accounts" shall mean all Accounts, which are not as of
the Closing Date accompanied by customer complaints, litigation, regulatory
inquiry, unsecured deficits or partially unsecured deficits or being serviced
by the Penson Financial Services, Inc. All Accounts that are not Accepted
Accounts are referred to herein as "Rejected Accounts" and the Account
Agreements related thereto are referred to as the "Rejected Account
Agreements". Buyer shall be responsible for the costs associated with the
transfer of the Accepted Accounts from Seller to Buyer.
(b) All of Seller's right, title, and interest in and to all of the Independent
Contractor Representative Agreements between the Seller and the Closing Date
Representatives (the "Closing Date Representative Agreements"), whether or not
involved in the servicing of the Accepted Accounts, including all
registrations, licenses, permits, and applications therefor. "Closing Date
Representative" shall mean (i) any Accepted Seller Representative who becomes
licensed with (or otherwise becomes engaged by) the Buyer upon the Closing and
has not voluntarily resigned or terminated their relationship with Buyer prior
to the Second Payment Date (as defined below) and (ii) any Seller
Representative who becomes licensed and affiliated with Buyer or any affiliate
of Buyer after the date hereof and prior to the Closing Date and has not been
terminated for cause or voluntarily resigned or terminated his or her
relationship with Buyer prior to the Second Payment Date; provided, that Buyer
did not take or fail to take any action (including reducing his or her
commission payout rate) which directly caused or resulted in the resignation
of such Closing Date Representative or the termination of the Closing Date
Representative's relationship with Buyer. "Accepted Seller Representatives"
shall mean all Seller Representatives who are not as of the Closing Date
rejected by Buyer. All Seller Representatives who are not Accepted Seller
Representatives are referred to herein as "Rejected Seller Representatives"
and the Independent Contractor Representative Agreements related thereto are
referred to as the "Rejected Advisor Agreements." Within thirty (30) days of
the date of this Agreement, Buyer and Seller shall prepare and attach as
Schedule 2.1(b) a preliminary list of Accepted Seller Representatives, which
list shall show amount of Production for each Accepted Seller Representative.
However, Buyer shall have up until the actual Closing to reject any Seller
Representative. Buyer shall be responsible for the costs associated with the
transfer of the licenses of the Closing Date Representatives from Seller to
Buyer.
(c) All mailing lists, customer lists, subscriber lists, e-mail addresses
relating to the Accepted Accounts and the Closing Date Representatives;
(d) All commission and related receivables of Seller relating to any Closing
Date Representative where the Closing Date Representative has not been paid
his or her related commission;
(e) All books and records ledgers, files, documents, correspondence, lists,
reports, all agreements between Seller and any Person relating to the Accepted
Accounts and the Closing Date Representatives, the Closing Date Representative
Agreements, and other electronic or printed materials relating solely to the
Purchased Assets (including all data and other information stored on discs,
tapes or other media) of Seller (the "Transferred Records"); and
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(f) All loans (but excluding "forgivable loans") as of the Closing Date from
Seller to the Closing Date Representatives. Within thirty (30) days of the
date of this Agreement, Buyer and Seller shall attach as Schedule 2.1(f) a
preliminary list of such loans, which shall be updated as of the Closing Date.
2.2 Excluded Assets. Notwithstanding the provisions of Section 2.1, the
Purchased Assets shall not include the following (herein referred to as the
"Excluded Assets"):
(a) All cash (including any cash held at any clearing firm), bank deposits, cash
equivalents and securities of Seller;
(b) All commission and related receivables of Seller relating to Rejected Seller
Representatives and any Closing Date Representative where such Closing Date
Representative has been paid his or her related commission;
(c) All corporate minute books and stock transfer books and the corporate seal
of Seller;
(d) All contracts of Seller other than the Purchased Contracts;
(e) All of Seller's employee benefit agreements, plans or similar arrangements
maintained by Seller;
(f) The trade mark, trade name or right to use the trade mark or trade name
"Montauk Financial Group", and all registered trademarks listed on Schedule
2.2(f);
(g) All licenses and registrations of Seller issued by the SEC, FINRA and other
Governmental Entities; and
(h) All other assets of Seller that are not "Purchased Assets" as provided in
Section 2.1.
2.3 Purchased Contracts. On the Closing Date, Buyer shall deliver to Seller an
assumption agreement, in the form attached hereto as Exhibit A (the "Assumption
Agreement") pursuant to which Buyer shall assume and agree to perform only the
obligations under the Accepted Account Agreements and the Closing Date
Representative Agreements, (collectively, the "Purchased Contracts") due to be
performed after the Closing Date, and Buyer shall not be obligated to perform,
satisfy, pay or otherwise discharge any liabilities or obligations under the
Purchased Contracts (A) to the extent such liabilities and obligations, but for
a breach or default by Seller, would have been paid, performed or otherwise
discharged on or prior to the Closing Date or (B) to the extent such liabilities
and obligations arise out of any such breach or default.
2.4 Excluded Liabilities. Buyer shall not assume and shall not be liable for,
and Seller and its Affiliates and their respective direct or indirect
subsidiaries shall retain and remain solely liable for and obligated to
discharge, all of their debts, contracts, agreements, commitments, obligations
and other liabilities of any nature whatsoever, whether known or unknown,
accrued or not accrued, fixed or contingent, not expressly assumed by Buyer
pursuant to the Assumption Agreement (all such liabilities and obligations not
being assumed being herein called the "Excluded Liabilities"), including without
limitation, the following:
(a) Any liability for breaches of any and every applicable contract or any other
instrument, or purchase order or any liability for payments or amounts due
under any contract, agreement, lease, license, commitment or any other
instrument, contract, document or purchase order;
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(b) Any liability or obligation for Taxes attributable for any period, or
attributable to or imposed upon the Accounts for any period (or portion
thereof) through the Closing, including, without limitation, any Taxes
attributable to or arising from the transactions contemplated by this
Agreement;
(c) Any liability or obligation for or in respect of any loan, other
indebtedness for money borrowed, or account payable including any such
liabilities owed to Affiliates of Seller;
(d) Any liability or obligation arising as a result of any legal or equitable
action or judicial or administrative proceeding initiated at any time, to the
extent relating to any action or omission by or on behalf of Seller or any and
all of its Affiliates and their respective direct or indirect subsidiaries,
including, without limitation, any liability for violations of federal or
state securities or other laws; provided that with respect to any Closing Date
Representatives, or Accepted Account Agreement, Seller shall only have
responsibility for any liability or obligation arising from or relating to any
actions or failure to act on or prior to the Closing Date;
(e) Any liability or obligations relating to a Rejected Account or Rejected
Seller Representative Agreement;
(f) Any liability or obligation arising out of any "employee benefit plan," as
such term is defined by the Employee Retirement Income Security Act of 1974
("ERISA") or other employee benefit plans;
(g) Any liability or obligation for making payments of any kind (including as a
result of the Transfer or as a result of the termination of employment of
employees, or other claims arising out of the terms and conditions of
employment, or for vacation or severance pay or otherwise) to employees of
Seller, its Affiliates and their respective direct and indirect subsidiaries,
or in respect of payroll taxes for employees of Seller, its Affiliates and
their respective direct and indirect subsidiaries;
(h) Any liability or obligation for making payments of any kind with respect to
the Accounts, whether to customers or other third parties, where such
liability or obligation was incurred or arose prior to the Closing Date;
(i) Any liabilities or obligations in respect of any Excluded Assets; and
(j) Any liability or obligation of Seller incurred in connection with the making
or performance of this Agreement and the transactions contemplated hereby
including, but not limited to, any liability or obligation related to the
failure to secure any necessary Governmental Authorizations.
2.5 Purchase Price.
(a) The aggregate purchase price for the Purchased Assets (the "Purchase
Price") shall be an amount equal to thirty percent (30%) of the
Production, subject to adjustment as provided in Section 6.5(b). The
amount of Production shown for the Accepted Seller Representatives on
Schedule 2.1(b) is referred to herein as the "Estimated Production
Amount." Within thirty (30) days after the Closing Date, Seller and
Buyer shall adjust the Estimated Production Amount to account for any
Accepted Seller Representatives who do not become Closing Date
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Representatives, and shall adjust the amount further on the Second
Payment Date to account for the Accepted Seller Representatives who
became licensed or otherwise engaged with the Buyer on the Closing Date
but subsequently were terminated for cause or voluntarily resigned or
terminated his or her relationship with Buyer prior to the Second
Payment Date; provided, that Buyer did not take or fail to take any
action (including reducing his or her commission payout rate) which
directly caused or resulted in the resignation of such Closing Date
Representative or the termination of the Closing Date Representative's
relationship with Buyer.
(b) The Purchase Price shall be payable by Buyer to Seller (or its
designee), as follows:
(1) Within two (2) business days after the execution of this Agreement, the
Buyer shall pay to Seller, by wire transfer of immediate funds to an
account designated by Seller, a deposit of Two Hundred Fifty Thousand
Dollars ($250,000) (the "Prepayment Amount"), which shall be applied
toward the Purchase Price on the Closing Date. Seller shall refund to
Buyer the Prepayment Amount if this Agreement is terminated for any
reason other than due to Buyer's breach of this Agreement.
(2) On the Closing Date, Buyer shall deliver to Parent, for which Seller
shall accept as partial payment of the Purchase Price payment, an
amount equal to the outstanding balance, including principal and
accrued interest through the Closing Date, due under that certain
Secured Convertible Promissory Note, dated December 7, 2007 made by
Parent in favor of Buyer's Affiliate, AEFC FMFK Investment Corp. (the
"Convertible Note") by cancelling and delivering the Convertible Note
marked "cancelled" to Seller and Parent.
(3) On the thirtieth (30th) day following the Closing Date, an amount equal
to the lesser of Two Million Dollars ($2,000,000) or the balance of the
Purchase Price, by wire transfer of immediately available funds to an
account designated by Seller; and
(4) The balance of the Purchase Price, if any, by wire transfer of
immediately available funds to an account designated by Seller, on the
90th day after the Closing Date but in no event earlier than January
15, 2009 (the "Second Payment Date").
(c) Notwithstanding the foregoing, if (i) any Seller Representative becomes
licensed and affiliated with Buyer or any affiliate of Buyer after the
date hereof, and (ii) the Closing does not occur and such Seller
Representative does not return to the Seller within thirty (30) days of
the date of the termination of this Agreement, then Buyer shall pay to
Seller an amount equal to 30% of the Production attributable to each
such Seller Representative as reflected on Schedule 2.1(b) as follows:
(1) Such amount shall be first credited toward reducing the principal
amount of the Convertible Note and any interest thereon due and payable
to Buyer by Parent; and
(2) If the Convertible Note is paid in full, then such excess amount
shall be paid in cash by Buyer to Parent within five (5) business days
of the termination of this Agreement.
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2.6 Performance Bonus Pro-ration. Within three (3) days prior to the Closing
Date, the Buyer and Seller shall meet and mutually determine the amount of
potential performance based compensation each Accepted Seller Representative has
the right to be paid after the Closing Date under the Closing Date
Representative Agreements, if any, assuming such person achieves such
performance target after the Closing Date. The aggregate amount of such
performance bonuses actually earned by Closing Date Representatives and paid by
Buyer after the Closing Date is referred to herein as the "Performance Based
Compensation Amount." The Seller shall reimburse to Buyer an amount equal to the
Performance Based Compensation Amount multiplied by a fraction where (i) the
numerator is the number of days in the performance period that occurred on or
prior to the Closing Date and (ii) the denominator is the total number of days
in the performance period. The Buyer shall have the right to reduce the payment
due on the Second Payment Date for any amount owed but not reimbursed by Seller
under this Section 2.6.
2.7 No Successor. Seller acknowledges and represents that (i) Buyer is not
assuming any leases, commitments, obligations, or liabilities of any nature of
Seller other than the Purchased Contracts, (ii) Buyer will not employ any
employees of Seller (except as expressly provided herein), nor have any
corporate management, officers or directors or shareholders in common with
Seller, (iii) Seller is not receiving any equity in the Buyer nor any rights of
ownership or rights to participate in the profits of the Buyer, and (iv) nothing
contained herein or occurring as a result of the transactions contemplated
hereby shall deem Buyer a successor in interest to Seller.
ARTICLE III
CLOSING
3.1 Closing. Subject to the terms and conditions of this Agreement, the Closing
shall take place on such date, as soon as practicable after all conditions
precedent in Articles VII and VIII have been satisfied or waived, as the parties
may agree, at such place as shall be agreed upon by Buyer and Seller.
3.2 Buyer Closing Deliveries. Subject to fulfillment or waiver of the conditions
set forth in Article 7, at Closing, Buyer shall deliver to Seller all the
following:
(a) The Convertible Note, together with a certificate showing the aggregate
amount due there under;
(b) A certificate of good standing for Buyer issued as of a recent date by the
Secretary of State of the State of placeStateDelaware;
(c) A certificate of the Secretary of Buyer, dated as of the Closing Date, in
form and substance reasonably satisfactory to Seller, as to (i) the Articles
of Incorporation of Buyer; (ii) the by-laws of Buyer; (iii) the resolutions of
the Board of Directors of Buyer authorizing the execution and performance of
this Agreement and the contemplated transactions; and (iv) incumbency and
signatures of the officers of Buyer executing this Agreement and any ancillary
agreements;
(d) The Assumption Agreement duly executed by Buyer; and
(e) The certificate contemplated by Section 8.1, duly executed by an executive
officer of Buyer.
3.3 Seller's Deliveries Upon Closing
(a) A certificate of good standing of Seller issued as of a recent date by the
Secretary of State of the State of placeStateNew York;
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(b) A certificate of the Secretary of Seller, dated as of the Closing Date, in
form and substance reasonably satisfactory to Buyer, as to: (i) the Articles
of Incorporation of Seller; (ii) the By-laws of Seller; (iii) the resolutions
of the Board of Directors of Seller and its shareholder authorizing the
execution and performance of this Agreement and the contemplated transactions;
and (iv) incumbency and signatures of the officers of Seller executing this
Agreement and any ancillary agreements;
(c) A certificate of good standing of Parent issued as of a recent date by the
Secretary of State of the State of placeStateNew Jersey;
(d) A certificate of the Secretary of Parent, dated as of the Closing Date, in
form and substance reasonably satisfactory to Buyer, as to: (i) the Articles
of Incorporation of Parent, (ii) the By-laws of Parent; (iii) the resolutions
of the Board of Directors of Parent and its shareholders authorizing the
execution and performance of this Agreement and the contemplated transactions;
and (iv) incumbency and signatures of the officers of Parent executing this
Agreement and any ancillary agreements;
(e) An Instrument of Assignment, in the form attached hereto as Exhibit B, duly
executed by Seller;
(f) The Governmental Authorizations and Required Consents (as defined in Section
4.6 hereof);
(g) The certificate contemplated by Section 7.1(c), duly executed by the
authorized officer of Seller;
(h) Buyer shall have received a legal opinion from Becker & Poliakoff, LLP
("Becker Poliakoff"), legal counsel to Seller, dated the Closing Date, in a
form satisfactory to Buyer and its legal counsel; and
(i) Such other bills of sale, assignments and other instruments of transfer or
conveyance as Buyer may reasonably request or as may be otherwise necessary to
evidence and effect the sale, assignment, transfer, conveyance and delivery of
the Purchased Assets to Buyer.
In addition to the above deliveries, Seller shall take all
steps and actions as Buyer may reasonably request or as may otherwise be
necessary to put Buyer in actual possession or control of the Purchased Assets
or to effect the Transfer.
3.4 Post Closing Date Transactions.
(a) All income and expenses attributable to the servicing of the Accepted
Accounts and the activities of Closing Date Representatives accruing on or
after the Closing Date shall accrue to the accounts of the Buyer.
(b) If payments are received by the Buyer that are attributable to the servicing
of the Accepted Accounts and/or the activities of Closing Date Representatives
occurring prior to the Closing Date, and any Closing Date Representative has
been paid with respect to such income, Buyer shall promptly forward such
amounts to Seller.
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(c) If payments are received by the Seller that are attributable to the
servicing of the Accepted Accounts and/or the activities of Closing Date
Representatives occurring prior to the Closing Date, and any Closing Date
Representative has not been paid with respect to such income, Seller shall
promptly forward such amounts to Buyer, and Buyer shall be responsible for
making appropriate payment to the Closing Date Representative.
(d) If payments are received by the Seller from any source related to the
servicing of the Accepted Accounts (such as insurance premiums, commissions,
12(b)-1 trailers and the like) or the activities of Closing Date
Representatives for transactions with a trade date on or after the Closing
Date (except with respect to 12(b)-1 trail payments, for which the date of
payment shall apply, rather than the trade), Seller shall promptly forward
such amounts to Buyer.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLER
Each representation and warranty set forth below is qualified by any
exception or disclosures set forth in the Seller Disclosure Schedule attached
hereto, which exceptions specifically reference the Section(s) to be qualified.
In all other respects, each representation and warranty set out in this Article
IV is not qualified in any way whatsoever, will not merge on Closing or by
reason of the execution and delivery of any agreement, document or instrument at
the Closing, will remain in force on and after the Closing Date for such time as
the indemnity for the breach thereof shall survive as set forth in Sections 9.1.
Seller and Parent represent and warrant to Buyer as follows:
4.1 Organization, Standing and Power. Seller is a corporation duly organized,
validly existing and in good standing under the laws of placeStateNew York.
Parent is a corporation duly organized, validly existing and in good standing
under the laws of placeStateNew Jersey. Each of Parent and Seller has the
requisite corporate power and authority and all necessary permits,
authorizations, consents, and approvals of all Governmental Entities to own,
lease and operate its properties and to carry on its business as now being
conducted and as proposed to be conducted, except where the failure to have such
power, authority and governmental approvals would not, individually or in the
aggregate, have a Material Adverse Effect. Each of Parent and Seller is duly
qualified or licensed as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except for failures to be so qualified or licensed and
in good standing that would not, individually or in the aggregate, have a
Material Adverse Effect.
4.2 Authority. The execution and delivery of this Agreement (and all other
agreements and instruments contemplated under this Agreement) by each of Parent
and Seller, the performance by each of Parent and Seller of its obligations
hereunder and thereunder, and the consummation by each of Parent and Seller of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary action by the board of directors of each of Parent and Seller, and
will, by the Closing Date, be approved by the stockholders of Parent, and no
other act or proceeding on the part of or on behalf of Parent or Seller or its
respective shareholders is necessary to approve the execution and delivery of
this Agreement and such other agreements and instruments, the performance by
each of Parent and Seller of its obligations hereunder and thereunder and the
consummation of the transactions contemplated hereby and thereby. The signatory
officers of each of Parent and Seller have the power and authority to execute
and deliver this Agreement and all of the other agreements and instruments to be
executed and delivered by Parent and/or Seller pursuant hereto, to consummate
the transactions hereby and thereby contemplated and to take all other actions
required to be taken by Parent or Seller pursuant to the provisions hereof and
thereof.
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4.3 Execution and Binding Effect. This Agreement has been duly and validly
executed and delivered by each of Parent and Seller and constitutes, and the
other agreements and instruments to be executed and delivered by Parent and/or
Seller pursuant hereto, upon their execution and delivery by Parent and/or
Seller, will constitute (assuming, in each case, the due and valid
authorization, execution and delivery thereof by Buyer) legal, valid and binding
agreements of Seller, enforceable against Seller in accordance with their
respective terms, except as enforceability may be limited by bankruptcy,
insolvency, moratorium, or other laws affecting the enforcement of creditors'
rights generally or provisions limiting competition, and by equitable
principles.
4.4 Consents and Approvals of Governmental Entities. Other than the Governmental
Authorizations as set forth in Schedule 4.4, there is no requirement applicable
to the Seller or Parent to make any filing, declaration or registration with, or
to obtain any permit, authorization, consent or approval of, any Governmental
Entity as a condition to the lawful consummation by Seller or Parent of the
transactions contemplated by this Agreement and the other agreements and
instruments to be executed and delivered by Seller and/or Parent pursuant hereto
or the consummation by Seller and Parent of the transactions contemplated herein
or therein. Seller and Buyer acknowledge and agree that prior to the Closing,
FINRA will be notified of the Transfer and as a condition precedent to the
Closing, FINRA shall have approved the Transfer.
4.5 No Violation. Neither the execution, delivery and performance of this
Agreement and all of the other agreements and instruments to be executed and
delivered pursuant hereto, nor the consummation of the transactions contemplated
hereby or thereby, will, with or without the passage of time or the delivery of
notice or both, (a) conflict with, violate or result in any breach of the terms,
conditions or provisions of the Articles of Incorporation or Bylaws of Parent or
Seller or their Affiliates, (b) conflict with or result in a violation or breach
of, or constitute a default or require consent of any Person (or give rise to
any right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any contract, notice, bond, mortgage, indenture,
license, franchise, permit, agreement, lease or other instrument or obligation
to which Seller or Parent is a party or by which Seller or Parent or any of the
Accounts may be bound, (c) violate any statute, ordinance or law or any rule,
regulation, order, writ, injunction or decree of any Governmental Entity or
Regulator applicable to Parent or Seller or by which any properties or assets of
Seller or Parent may be bound, or (d) result in any cancellation of, or
obligation to repay, any grant, loan or other financial assistance received by
Seller or Parent from any Governmental Entity. No "bulk sales" legislation
applies to the transactions contemplated by this Agreement.
4.6 Consents. Schedule 4.6 sets forth each agreement, contract or other
instrument binding upon Seller or Parent requiring a consent as a result of the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby (including consents necessary to transfer
the Accepted Accounts and the Closing Date Representative Agreements to the
Buyer) (each a "Required Consent").
4.7 Filings; No Undisclosed Liabilities. Seller has filed all forms, reports,
schedules, statements and other documents required to be filed by it since
January 1, 2007 (as supplemented and amended) (collectively, the "Seller's
Reports"), with each Governmental Entity, including without limitation the SEC,
FINRA and the NYSE, each of which filings complied when filed in all material
respects with applicable requirements. All of the information contained in the
Seller's Reports was prepared from the books and records of the Seller regularly
maintained by management. None of the Seller's Reports contained at the time
filed any untrue statement of a material fact or omitted to state any material
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fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. There is no liability, indebtedness, obligation, expense, claim,
deficiency, guaranty or endorsement of any type, whether accrued, absolute,
contingent, matured, unmatured or other, with respect to any of the Accounts or
the Independent Contractor Representative Agreements.
4.8 Absence of Certain Changes. Seller has operated the Accounts in the ordinary
course consistent with past practice and Seller has complied in all material
respects with laws and regulations applicable to the Accounts, has not commenced
a lawsuit or other proceeding related to or involving the Accounts, and has not
assigned, sold or otherwise conveyed to any third party, any of the Accounts
prior to the Closing Date.
4.9 Accounts and Independent Contractor Registered Representative
Agreements Generally.
(a) Other than the Required Consents and the Governmental Approvals, no licenses
or other consents from, or payments to, any other Person are or will be
necessary for Buyer to service the Accounts or the Independent Contractor
Representative Agreements in the manner in which Seller has serviced the same.
(b) Seller has the complete and unrestricted power and the unqualified right to
sell, assign and deliver the right to service the Accounts and Seller's rights
under the Independent Contractor Representative Agreements to Buyer. Upon
consummation of the transactions contemplated by this Agreement, Buyer will
have acquired the right to service the Accepted Accounts and Seller's rights
under the Closing Date Representative Agreements free and clear of any Liens
and to Seller's Knowledge, there will exist no restriction on the use or
transfer of the right to service the Accepted Accounts and Seller's rights
under the Closing Date Representative Agreements. No Person other than Seller
has any right or interest in the right to service the Accounts and in Seller's
rights under the Independent Contractor Representative Agreements, including
the right to grant interests in the right to service the Accounts and the
Seller's rights under the Independent Contractor Representative Agreements to
third parties.
(c) To Seller's Knowledge, no restrictions will exist on Buyer's right to resell
the servicing of the Accepted Accounts or the rights under the Closing Date
Representative Agreements, nor will any such restrictions be imposed on Buyer
as a consequence of the transactions contemplated by this Agreement or by any
agreement referenced in this Agreement or otherwise.
(d) Except as occurs in the normal course of business (e.g. pending ACATS), the
Seller has not received a notice from any holder of an Account or Seller
Representative that such customer or registered representative intends to
transfer the servicing responsibility for his, her or its Account to an entity
other than Buyer.
4.10 Licenses and Permits. Seller holds all consents, approvals, registrations,
certifications, authorizations, permits and licenses of, and has made all
filings with, or notifications to, all Governmental Entities pursuant to
applicable requirements of such Governmental Entities applicable to the
servicing of the Accounts and/or any Independent Contractor Representative
Agreement. There is no investigation or inquiry to which Seller is a party or,
to Seller's knowledge, pending or threatened, relating to the Accounts and/or
any Independent Contractor Representative Agreement.
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4.11 Taxes. All Taxes have been or will be paid or properly accrued for by
Seller for all periods (or portions thereof) prior to and including the Closing
Date. Seller and any other person required to file returns or reports of Taxes
have duly and timely filed (or will file prior to the Closing Date) all returns
and reports of Taxes required to be filed prior to such date, and all such
returns and reports are true, correct, and complete. There are no liens for
Taxes on any of the Accepted Accounts. There are no pending or threatened
proceedings with respect to Taxes, and there are no outstanding waivers or
extensions of statutes of limitations with respect to assessments of Taxes.
4.12 Compliance with Law. The servicing of the Accounts by Seller and the
exercise of Seller's rights under the Independent Contractor Registered
Representative Agreements have been conducted in all material respects in
accordance with all applicable laws, regulations and other requirements of
Governmental Entities having jurisdiction over the same.
4.13 Litigation; Other Claims. Except as set forth in Schedule 4.13:
(a) There are no claims, actions, suits, inquiries, proceedings, or
investigations against Seller, or any of its officers, directors, shareholders
or registered representatives seeking monetary or other damages, which are
currently pending or, to Seller's Knowledge, threatened, at law or in equity
or before or by any Governmental Entity, or which challenge or seek to
prevent, enjoin, alter or materially delay any of the transactions
contemplated hereby, nor is Seller aware of any basis for such claims,
actions, suits, inquiries, proceedings, or investigations.
(b) There are no unresolved customer complaints or actions related to any of the
Accounts, nor are there any customer complaints or actions that are currently
pending or, to Seller's Knowledge, threatened, and Seller is not aware of any
basis for such complaints or actions other than those listed in Schedule 4.13.
Within thirty (30) days of the date of this Agreement, Seller shall prepare
Schedule 4.13 which shall include a list of customer complaints with respect
to Accepted Seller Representatives within the twelve (12) months prior to the
Closing Date, along with the details and a brief description thereof.
(c) No Governmental Entity has issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement.
4.14 Defaults. Seller is not in default under or with respect to any judgment,
order, writ, injunction or decree of any court or any Governmental Entity, which
could reasonably be expected to prevent or delay the Closing. There does not
exist any default by Seller or, to Seller's Knowledge, by any other Person, or
event that, with notice or lapse of time, or both, would constitute a default
under any agreement entered into by Seller, and no notices of breach thereof
have been received by Seller.
4.15 Schedules. All of the schedules attached hereto, including those describing
the Accounts and the Independent Contractor Representative Agreements are
complete and accurate.
4.16 Full Disclosure. Except as disclosed in this Agreement and the
Schedules and Exhibits hereto, Parent and Seller are not aware of any facts
pertaining to the Accounts or the Independent Contractor Representative
Agreements which affect the Accounts or Independent Contractor Representative
Agreements in an adverse manner or which will likely in the future affect the
Accounts or Independent Contractor Representative Agreements in an adverse
manner, including the existence of customer complaints, arbitration, litigation
of any sort, margin calls, unsecured deficits and the like, or regulatory
investigations or inquiries. Neither this Agreement nor any other agreement,
exhibit, schedule or certificate being entered into or delivered pursuant to
this Agreement contains any untrue statement of a material fact or omits to
state any material fact necessary in order to make the statements contained in
such document not misleading.
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4.16 Brokers and Finders. Neither the Seller, Parent, nor any of its respective
officers, directors or employees has employed any broker or finder or incurred
any liability for any brokerage fee, commission or finder's fee in connection
with the transactions contemplated by this Agreement.
4.17 Fair Consideration; Solvency; No Fraudulent Conveyance. The sale of the
Purchased Assets is made in exchange for fair and adequate consideration.
Neither Parent nor Seller (i) is insolvent or in liquidation, (ii) has
application or order made for its winding up or dissolution, (iii) passed or
taken steps to pass a resolution for its winding up or dissolution, (iv) has
become unable to pay its debts as and when they fall due, or (v) have had a
receiver, receiver and manager, administrator, liquidator, provisional
liquidator, official manager or administrator appointed to it or any of its
assets. Neither Parent nor Seller is entering into this Agreement or any of the
other agreements referenced in this Agreement with the intent to defraud, delay
or hinder its creditors and the consummation of the transactions contemplated by
this Agreement, and the other agreements referenced in this Agreement, will not
have any such effect. The transactions contemplated in this Agreement or any
agreements referenced in this Agreement will not constitute a fraudulent
conveyance, or otherwise give rise to any right of any creditor of Seller or
Parent to any of the Accounts or the Independent Contractor Representative
Agreements after the Closing.
4.18 Insurance. Schedule 4.18 lists all insurance policies and fidelity bonds
covering the Accepted Accounts and the Accepted Seller Representatives. Within
thirty (30) days of the date of this Agreement, Seller shall furnish to Buyer
Schedule 4.18A, which is a preliminary list of all claims made under such
policies within the twenty-four (24) months prior to the Closing Date. Except as
set forth on Schedule 4.18A, there is no claim by Seller pending under any of
such policies or bonds as to which coverage has been questioned, denied or
disputed by the underwriters of such policies and bonds. All premiums due and
payable under all such policies and bonds have been paid and Seller is otherwise
in material compliance with the terms of such policies and bonds (or other
policies and bonds providing substantially similar insurance coverage).
4.19 FINRA Member. Seller is a member of FINRA and is a broker-dealer registered
as such under the Exchange Act. Seller is in material compliance with all FINRA
rules and regulations applicable to Seller.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Each representation and warranty set forth below is qualified by any
exception or disclosures set forth in the Buyer Disclosure Schedule attached
hereto, which exceptions specifically reference the Section(s) to be qualified.
In all other respects, each representation and warranty set out in this Article
V is not qualified in any way whatsoever, will not merge on Closing or by reason
of the execution and delivery of any agreement, document or instrument at the
Closing, will remain in force on and after the Closing Date for such time as the
indemnity for the breach thereof shall survive as set forth in Section 9.2.
Buyer represents and warrants to Parent and Seller as follows:
5.1 Organization. Buyer is a corporation duly organized and validly existing and
in good standing under the laws of New York, and has full corporate power and
authority and the legal right to execute and deliver this Agreement and all of
the other agreements and instruments to be executed and delivered by Buyer
pursuant hereto, and to consummate the transactions contemplated hereby and
thereby.
5.2 Authority. The execution and delivery of this Agreement (and all other
agreements and instruments contemplated hereunder) by Buyer, the performance by
Buyer of its obligations hereunder and thereunder, and the consummation by Buyer
of the transactions contemplated hereby and thereby have been duly authorized by
all necessary action by the board of directors of Buyer, and no other act or
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proceeding on the part of Buyer or its shareholders is necessary to approve the
execution and delivery of this Agreement and such other agreements and
instruments, the performance by Buyer of its obligations hereunder and
thereunder and the consummation of the transactions contemplated hereby and
thereby. The signatory officers of Buyer have the power and authority to execute
and deliver this Agreement and all of the other agreements and instruments to be
executed and delivered by Buyer pursuant hereto, to consummate the transactions
hereby and thereby contemplated and to take all other actions required to be
taken by Buyer pursuant to the provisions hereof and thereof.
5.3 Execution and Binding Effect. This Agreement has been duly and validly
executed and delivered by Buyer and constitutes, and the other agreements and
instruments to be executed and delivered by Buyer pursuant hereto, upon their
execution and delivery by Buyer, will constitute (assuming, in each case, the
due and valid authorization, execution and delivery thereof by Seller and
Parent), legal, valid and binding agreements of Buyer, enforceable against Buyer
in accordance with their respective terms, except as enforceability may be
limited by bankruptcy, insolvency, moratorium, or other laws affecting the
enforcement of creditors' rights generally or provisions limiting competition,
and by equitable principles.
5.4 Consent and Approvals. Except for FINRA approval, there is no requirement
applicable to Buyer to make any filing, declaration or registration with, or to
obtain any permit, authorization, consent or approval of, any Governmental
Entity as a condition to the lawful consummation by Buyer of the transactions
contemplated by this Agreement and the other agreements and instruments to be
executed and delivered by Buyer pursuant hereto, the failure of making which
would have a Material Adverse Effect on the transactions contemplated hereby.
Buyer has obtained the preliminary consent, authorization or approval of its
clearing firm to which the Accepted Accounts will be transferred on the Closing
Date.
5.5 No Violation. Neither the execution, delivery and performance of this
Agreement and of all the other agreements and instruments to be executed and
delivered pursuant hereto, nor the consummation of the transactions contemplated
hereby or thereby, will, with or without the passage of time or the delivery of
notice or both, (a) conflict with, violate or result in any breach of the terms,
conditions or provisions of the Certificate of Incorporation or Bylaws of Buyer,
(b) conflict with or result in a violation or breach of, or constitute a default
or require consent of any Person (or give rise to any right of termination,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any notice, bond, mortgage, indenture, license, franchise, permit, agreement,
lease or other instrument or obligation to which Buyer is a party or by which
Buyer or any of its properties or assets may be bound, or (c) violate any
statute, ordinance or law or any rule, regulation, order, writ, injunction or
decree of any Governmental Entity applicable to Buyer or by which any of its
properties or assets may be bound.
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ARTICLE VI
COVENANTS
6.1 Access to Information.
(a) Prior and subsequent to the Closing, Parent and Seller will permit Buyer to
make a full and complete investigation of the Accounts and the Seller
Representatives, and to receive from Seller all information of Seller relating
to the Accounts, the Seller Representatives and the Independent Contractor
Representative Agreements. Without limiting this right, Parent and Seller will
give to Buyer and its accountants, legal counsel, and other representatives
full access, during normal business hours, at a mutually agreeable location
arranged in advance, to all of the books, records, files, documents,
properties, and contracts of Seller relating to the Accounts, the Seller
Representatives, and the Independent Contractor Representative Agreements and
allow Buyer and any such representatives to make copies thereof, all of which
shall be made available in an organized fashion and so as to facilitate an
orderly review, subject in each case to the terms and conditions of the
Confidentiality Agreement, dated as of November 2, 2007, executed by Buyer and
Seller. This Section 6.1 shall not affect or be deemed to modify any
representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the transactions contemplated by this
Agreement. Parent and Seller shall maintain and make available the information
and records specified in this Section 6.1(a) in the ordinary course of
Parent's and Seller's business and document retention policies in accordance
with applicable laws, rules and regulations, as if the transactions
contemplated by this Agreement had not occurred.
(b) At all times following the Closing, each party shall provide the other party
(at such other party's expense) with such reasonable assistance, including the
provision of available relevant records or other information and reasonable
access to and cooperation of any employees, as may be reasonably requested by
either of them in connection with the investigation and/or defense of a
customer complaint, claim, litigation or arbitration, or with any regulatory
inquiry, action or investigation, any preparation of any financial statement
or tax return, any audit or examination by any taxing authority, or any
judicial or administrative proceeding relating to liability for Taxes.
6.2 Third Party Consents. Parent, Seller and Buyer shall use commercially
reasonable efforts to obtain, within the applicable time periods required, all
Required Consents, waivers, permits, consents and approvals and to affect all
registrations, filings and notices with or to third parties (including, without
limitation, applicable clearing firms) or Governmental Entities which are
necessary to consummate the transactions contemplated by this Agreement.
6.3 Certain Notifications. At all times prior to the Closing, Parent and Buyer
shall promptly notify the other party in writing of the occurrence of any event
which will result, or has a reasonable prospect of resulting, in the failure to
satisfy any of the conditions specified in Articles VII or VIII of this
Agreement.
6.4 Best Efforts. Buyer, Parent and Seller shall use their best efforts (i) to
cause to be fulfilled and satisfied all of the conditions to Closing set forth
in Articles VII and VIII below, and (ii) to cause to be performed all of the
matters required of them under this Agreement as of the Closing.
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6.5 Seller's Handling of the Accounts Prior to Closing. During the period from
the date of this Agreement to the Closing Date, Seller will operate in its
ordinary and usual course, consistent with past practice, and will use all
reasonable best efforts to preserve intact all rights, privileges and other
authority relating to the Accounts and the Independent Contractor Representative
Agreements. Seller shall promptly notify Buyer of any event or occurrence or
emergency not in the ordinary course of business affecting the Accounts. Without
limiting the generality of the foregoing, and except as approved in writing by
Buyer in advance, prior to the Closing, Seller:
(a) will comply in all material respects with all laws, rules and regulations
applicable to the Accounts;
(b) will not increase a payout rate or make a similar financial arrangement
under any Independent Contractor Representative Agreement; provided, however,
that if Seller increases a payout rate or makes a similar financial
arrangement (with or without the consent of the Buyer) with respect to any
Closing Date Representative, the thirty percent (30%) multiplier used to
determine the Purchase Price as provided in Section 2.5 as related to the
Production of the impacted Closing Date Representative shall be decreased by
2% for each 1% increase in the payout rate, or portion thereof;
(c) will not assign, sell or otherwise convey to any third party, without
obtaining Buyer's prior written consent, and except in direct response to a
request for transfer to a third party without consideration, any of the
Accounts or the Independent Contractor Representative Agreements or any rights
therein prior to the Closing Date; and
(d) will not cancel or terminate any error and omission policies of insurance
covering the Seller Representatives.
6.6 Mailing of Transfer Notice. As soon as practicable, Seller will send a
response notice (the "Transfer Notice") to all Account customers, in a form that
is satisfactory to the Buyer and its counsel, notifying each customer that the
servicing of his, her or its account will be transferred to the Buyer effective
as of the Closing Date. Such Transfer Notice shall comply with federal and
applicable state law, and rules and regulations of each applicable Governmental
Entity, including without limitation FINRA and Regulation SP.
6.7 Tax Returns. Seller shall, to the extent that failure to do so could
adversely affect the Accepted Accounts following the Closing Date, (a) continue
to file in a timely manner all returns and reports relating to Taxes, and such
returns and reports shall be true, correct and complete and shall be subject to
the review and consent of Buyer, and (b) be responsible for and pay when due any
and all Taxes.
6.8 Post-Closing Access to Information. If, after the Closing Date, in order
properly to service the Accepted Accounts or the Closing Date Representative
Agreements or prepare documents or reports required to be filed with
Governmental Authorities or Buyer's financial statements, it is necessary that
Buyer obtain additional information within Seller's possession relating to
Purchased Assets not part of the Transferred Records, Seller will furnish or
cause its representatives to furnish such information to Buyer. Seller shall
maintain and make available the information and records specified in this
Section 6.8 for a period of six (6) years after the Closing Date.
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6.9 No Post-Closing Retention of Accounts or Independent Contractor
Representative Agreements. Seller agrees that, after the Closing Date, it shall
use its best efforts to effect the transfer of each Accepted Account of any
customer or any rights under the Closing Date Representative Agreements, unless
a customer requests the Seller to continue servicing such customer's Account or
does not execute the applicable Transfer Notice.
6.10 Post-Closing Retention of Copies. Upon the Closing, Seller agrees that it
shall not sell, assign, share, use in any manner inconsistent with the Transfer,
or divulge in any manner, any information regarding the Accepted Accounts or the
Closing Date Representative Agreements without Buyer's prior written consent, or
except as required by regulatory inquiry, subpoena, or an order of a court of
competent jurisdiction. Seller may retain and use copies of books and records
relating to the Accepted Accounts and the Closing Date Representative Agreements
as well as other documents required by law, rule or regulation to be kept by
Seller for the sole purpose of meeting Seller's regulatory responsibilities. The
Seller shall not be permitted to use books and records relating to the Accepted
Accounts or Closing Date Representative Agreements for any other reason.
6.11 Public Announcements. Parent and Seller shall not make any reports,
statements, releases or public disclosures concerning this Agreement (including
the exhibits and schedules hereto) and the transactions contemplated herein
unless Buyer agrees in advance and in writing thereto, including, but not
limited to, the text and timing of such disclosure; provided, however, that (i)
nothing contained herein shall prevent Parent or Seller at any time from
furnishing any required information to any Governmental Entity having
jurisdiction over the Seller, or (ii) a party may, without the prior consent of
the other party, issue a press release or make such other public statement as
required by law or FINRA if it has (a) used its reasonable best efforts to
consult with the other party and to obtain such party's consent but has been
unable to do so in a timely manner, and (b) faxed a copy of such release or
public statement to such other party at a reasonable time prior to issuing such
release or making such statement.
6.12 Post-Closing Actions. Subsequent to the Closing Date, Seller shall, from
time to time, execute and deliver, upon the request of Buyer, all such other and
further materials and documents and instruments of conveyance, transfer or
assignment as may reasonably be requested by Buyer to effect, record or verify
the sale of the Purchased Assets to, and vesting in Buyer, of Seller's right to
the Purchased Assets, including the right to service the Accepted Accounts, free
and clear of all Liens, in accordance with the terms of this Agreement. Seller
also agrees that, if reasonably requested by Buyer, it will cooperate with
Buyer, at Buyer's expense, in enforcing the terms of any agreements between
Seller and any third party involving the Accepted Account Agreements and the
Closing Date Representative Agreements.
6.13 Permits. Seller will reasonably assist Buyer in obtaining any licenses,
permits or authorizations that are not transferable but are required for
carrying on the Accepted Accounts or the Closing Date Representative Agreements.
6.14 Taxes. Seller shall be responsible for paying, shall promptly discharge
when due, and shall reimburse, indemnify and hold harmless Buyer from, any sales
or use, transfer, real property gains, excise, stamp, or other similar Taxes
arising from, imposed on or attributable to the transactions contemplated by
this Agreement.
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6.15 Non-Solicitation of Employees and Representatives.
(a) From the Closing Date and for a period of one (1) year thereafter (or the
termination date of this Agreement if there is no Closing pursuant to Section
11.1), each of the Parent, Seller and its respective Affiliates, officers,
directors employees, representatives and agents, shall not, directly or
indirectly, solicit, recruit or hire any employee, registered representative,
independent contractor, or investment advisor of Buyer, including after the
Closing Date, any Closing Date Representative, to work or conduct business
with or through, the Seller or any of its Affiliates. This provision is
intended to be read and interpreted broadly in favor of protecting the
valuable assets purchased by Buyer hereunder, and the Seller and its
Affiliates, officers, directors, employees, representatives and agents shall
be prohibited from enabling or facilitating for another, and from taking any
action whatsoever that might further, permit or allow the things that they are
prohibited from doing hereunder. Within thirty (30) days of the date of this
Agreement, Buyer and Seller shall agree on a list of Affiliates of Parent and
Seller (including officers and directors) who shall be subject to this Section
6.15(a). Parent and Seller shall use their best efforts to obtain
non-solicitation agreements executed by each subject person on or before the
Closing Date. Further, at the request of Buyer, Seller shall assign all of its
rights under any non-solicitation or similar restrictive agreement that it has
with each subject person.
(b) From the date of execution of this Agreement until the Closing Date, except
as expressly contemplated by this Agreement in furtherance of the Closing,
Buyer and its Affiliates, officers, directors employees, representatives and
agents shall not, directly or indirectly, solicit, recruit or hire any Seller
Representative to work or conduct business with or through, the Buyer or a
third party. If the transactions contemplated by this Agreement occur, for a
one year period after the Closing Date, Buyer and its Affiliates, officers,
directors employees, representatives and agents shall not, directly or
indirectly, solicit, recruit or hire any Rejected Seller Representative to
work or conduct business with or through, the Buyer or a third party. If this
Agreement is terminated for any reason pursuant to Section 11.1, and Seller
has paid the Convertible Note in full, and the Seller Termination Fee (as
defined in Section 11.1) if applicable, Buyer and its Affiliates, officers,
directors employees, representatives and agents shall not, directly or
indirectly, solicit, recruit or hire any Seller Representative to work or
conduct business with or through, the Buyer or a third party. This provision
is intended to be read and interpreted broadly in favor of protecting the
valuable assets of Seller hereunder, and the Buyer and its Affiliates,
officers, directors, employees, representatives and agents shall be prohibited
from enabling or facilitating for another, and from taking any action
whatsoever that might further, permit or allow the things that they are
prohibited from doing hereunder.
6.16 Non-Solicitation of Customers. From the Closing Date and for a period of
one year thereafter, each of the Parent, Seller and its respective Affiliates,
officers, directors, employees, representatives and agents shall not, directly
or indirectly, solicit, entice or induce any Customer to become a customer of
Parent, Seller, their respective Affiliates or any other person or entity, or to
cease doing business with Buyer, and each of Parent, Seller and their respective
Affiliates, officers, directors, employees, representatives and agents shall not
knowingly assist any person or entity in taking any such action. "Customer"
means any person, corporation, partnership, trust, division, business unit,
department, agency or other entity related to any of the Accepted Accounts or
which shall be or shall have been a customer of Buyer or shall be or shall have
been contacted by Buyer for the purpose of soliciting it to become a customer of
Buyer. This provision is intended to be read and interpreted broadly in favor of
protecting the valuable assets purchased by Buyer hereunder, and the Parent,
Seller and their respective Affiliates, officers, directors, employees,
representatives and agents shall be prohibited from enabling or facilitating for
another, and from taking any action whatsoever that might further, permit or
allow the things that they are prohibited from doing hereunder.
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6.17 Injunctive Relief. Each of Parent and Seller agrees that any breach of the
confidentiality and non-solicitation provisions of this Agreement by any of
Parent, Seller or its respective Affiliates will cause irreparable damage to
Buyer and that in the event of such breach Buyer shall have, in addition to any
and all remedies of law, the right to an injunction, specific performance or
other equitable relief to prevent the violation of the Parent's and Seller's
obligations hereunder. Nothing herein contained shall be construed as
prohibiting Buyer from pursuing any other remedy available for such breach or
threatened breach.
6.18 Employee Matters. Buyer shall have no obligation to hire any employees of
Seller. Buyer shall have no obligation with respect to payments of salary,
compensation, wages, health or similar benefits, commissions, bonuses (deferred
or otherwise), vacation pay, severance, stock or stock options or any other sums
or compensation whatsoever due to any employee of Seller, Parent or any of their
Affiliates for any period ending on or prior to the Closing Date. Seller and
Parent will be fully responsible for all amounts owing to all of their and their
Affiliates' employees. Notwithstanding the foregoing, Buyer shall consider
making offers for employment to those employees of Parent and Seller who it
reasonably deems necessary to service the Accepted Accounts and the Closing Date
Representatives. Any such persons who accept employment with Buyer will be new
hires for Buyer, and Buyer will not give any service credit for their terms of
employment with Seller or Parent.
6.19 No Other Bids. In consideration of the Buyer's incurrence of certain costs
and expenses in connection with the transactions contemplated hereby, until the
earlier to occur of (i) the Closing, or (ii) the termination of this Agreement
pursuant to its terms, Parent, Seller and their respective Affiliates shall not,
and each of Parent, Seller and their respective Affiliates shall not authorize
any of its or their respective officers, directors, employees or other
representatives (including without limitation attorneys, accountants, clearing
firms and correspondents) to directly or indirectly solicit, initiate, engage
in, continue or consummate negotiations with any other Person (other than Buyer
or its Affiliates) concerning the sale, transfer or other disposition of the
Accounts, Independent Contractor Registered Representative Agreement rights, or
any material assets of Seller, or the capital stock of, debt securities of, or
any other interest in Seller. Notwithstanding the foregoing, nothing shall
prohibit the Parent from (i) considering any unsolicited proposal to acquire any
material assets of Seller, or the capital stock of, debt securities, of, or any
other interest in Parent or Seller, if the Board of Directors of Parent
concludes in good faith (after consultation with its outside legal advisors)
that the failure to take such action would be inconsistent with its fiduciary
duties under applicable law, and (ii) terminating this Agreement in accordance
with Section 11.1(g) if the Board of Directors of Parent (after consultation
with its outside legal advisors and investment bankers) concludes that such
unsolicited proposal is a superior offer to the price terms set forth herein. If
negotiations or discussions are initiated in accordance with the preceding
sentence, Parent agrees that it will notify Buyer immediately and will from
time-to-time (or at any time at the request of Buyer) notify Buyer of the
progress thereof (including all current terms and any other information that
Buyer may from time-to-time request).
6.20 Confidentiality. Each of the Buyer, Parent and Seller shall keep all
proprietary information concerning the other party confidential and shall
disclose such information only to their respective employees and representatives
(including without limitation investment bankers, attorneys, accountants,
clearing firms and correspondents) who have a need to know such information in
connection with the transactions contemplated hereby. None of the parties shall
disclose to any Person the terms of or existence of this Agreement or the fact
that the parties are conducting negotiations, except with the prior written
approval of the other party. Notwithstanding the limitation set forth in this
Section 6.20, the parties may make such disclosure as required by law, rule or
regulation upon recommendation of legal counsel or by order of a court of
competent jurisdiction.
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6.21 Parent Proxy Statement; Stockholder Approval. As promptly as reasonably
practicable following the date hereof, Parent shall prepare and file with the
SEC a proxy statement (the "Proxy Statement"), and Parent shall use its
reasonable best efforts to respond as promptly as practicable to any comments of
the SEC or its staff with respect thereto and to cause the Proxy Statement to be
mailed to the stockholders of Parent's entitled to vote on the transactions
contemplated hereby. The Parent shall notify Buyer upon the receipt of any
comments from the SEC or its staff or any request from the SEC or its staff for
amendments or supplements to the Proxy Statement and shall provide Buyer with
copies of all correspondence between Parent and its representatives, on the one
hand, and the SEC and its staff, on the other hand. Notwithstanding the
foregoing, prior to filing or mailing the Proxy Statement (or any amendment or
supplement thereto) the Parent (i) shall provide Buyer an opportunity to review
and comment on such document or response and (ii) shall include in such document
or response all comments reasonably proposed by Buyer. In connection with the
foregoing, Parent shall call a meeting (the "Meeting") of the stockholders of
Parent entitled to vote to be held as soon as practicable for purposes of voting
upon the approval of the transactions contemplated by this Agreement and Parent
shall use its reasonable best efforts to solicit and obtain votes of the
stockholders of Parent entitled to vote in favor of the approval of this
Agreement. Parent's Board shall recommend approval of this Agreement by such
holders, unless Parent's Board determines in good faith after consultation with
outside legal counsel that withdrawal of its recommendation is required in order
for its directors to comply with their fiduciary duties under applicable law
6.22 Compliance with Securities Laws. Parent shall ensure that the Proxy
Statement and all amendments or supplements thereto (A) will comply in all
material respects with the provisions of the Exchange Act and any other
applicable statutory or regulatory requirements, and (B) will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements contained therein not
misleading; provided, however, in no event shall Parent be liable for any untrue
statement of a material fact or omission to state a material fact in the Proxy
Statement made in reliance upon, and in conformity with, written information
concerning Buyer specifically for use in the Proxy Statement.
6.23 Transition Meeting. Buyer will host a meeting (the "Transition Meeting")
with certain influential anticipated Closing Date Representatives whereby Buyer
and Seller will cooperatively showcase the products and services which will
become available to the Closing Date Representatives upon the Closing, or that
may otherwise be available to the Closing Date Representatives at an earlier
date. Buyer shall bear the cost of such a meeting, not to exceed One Hundred
Thousand Dollars ($100,000).
6.24 Convertible Note. The parties agree that any interest on the Convertible
Note shall continue to accrue but not be payable thereunder until the earlier of
the Closing or termination of this Agreement. In the event the Closing occurs,
all accrued and unpaid interest thereon from the date of execution of this
Agreement through the Closing Date shall be due and payable and credited in
accordance with the provisions of Section 2.5(b) of this Agreement.
ARTICLE VII
CONDITIONS TO BUYER'S OBLIGATIONS
The obligations of Buyer under this Agreement are subject to the
fulfillment, prior to or on the Closing Date, of each of the following
conditions, all or any of which may be waived by Buyer in writing, except as
otherwise provided by law:
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7.1 Representations and Warranties True; Performance; Certificate.
(a) The representations and warranties of Seller and Parent contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date with the same effect as though such representations and warranties had
been made or given again at and as of the Closing Date;
(b) Seller and Parent shall have performed and complied with all of their
respective agreements, covenants and conditions required by this Agreement to
be performed or complied with by them prior to or on the Closing Date; and
(c) Buyer shall have received a certificate, dated as of the Closing Date,
signed and verified by an officer of Seller and Parent certifying to the
matters set forth in Sections 7.1(a) and 7.1(b) above.
7.2 Consents. All Governmental Authorizations and Required Consents shall have
been obtained. Prior to the Closing, FINRA shall have been notified of the
Transfer and FINRA shall have raised no objection to such Transfer.
7.3 No Proceedings or Litigation.
(a) No preliminary or permanent injunction or other order shall have been issued
by any Governmental Entity or regulated or self-regulated body, nor shall any
statute, rule, regulation or executive order be promulgated or enacted by any
Governmental Entity, regulatory or self-regulatory body which prevents the
consummation of the transactions contemplated by this Agreement.
(b) No suit, action, claim, proceeding or investigation before any Governmental
Entity, regulatory or self-regulatory body shall have been threatened or
commenced against any of the parties, or any of their respective Affiliates,
associates, officers or directors, seeking to prevent the transactions
contemplated by this Agreement, including, without limitation, the sale of the
right to service the Accounts or asserting that the sale of right to service
the Accounts or the Seller's rights under the Independent Contractor
Representative Agreements would be illegal or create liability for damages or
which may have a Material Adverse Effect on the Buyer or right under this
Agreement.
7.4 Documents. This Agreement, the exhibits and schedules attached hereto, and
any other instruments of conveyance and transfer and all other documents to be
delivered by Seller or Parent at the Closing, including without limitation the
non-solicitation agreements referred to in Section 6.15(a) above, and all
actions of Seller and Parent required by this Agreement and the exhibit
agreements, or incidental thereto, and all related matters, shall be in form and
substance reasonably satisfactory to Buyer and Buyer's counsel.
7.5 Governmental Filings. The parties shall have made any required filing with
Governmental Entities in connection with this Agreement and the exhibit
agreements, and any approvals related thereto shall have been obtained or any
applicable waiting periods shall have expired. If a proceeding or review process
by a Governmental Entity is pending in which a decision is expected, Buyer shall
not be required to consummate the transactions contemplated by this Agreement
until such decision is reached or rendered, notwithstanding Buyer's legal
ability to consummate the transactions contemplated by this Agreement prior to
such decision being reached or rendered.
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7.6 No Material Adverse Change. There shall have been no change relating in any
way to the Accepted Accounts or the Closing Date Representative Agreements
whether individually or in the aggregate that might have a Material Adverse
Effect on the Buyer as of the Closing Date as compared with the date of this
Agreement, or its rights under this Agreement.
7.7 Transfer of Accepted Accounts to Buyer's Clearing Firm. All of the requisite
approvals and arrangements necessary to transfer the servicing of the Accepted
Accounts from National Financial Services, LLC to Pershing LLC shall have been
obtained and arranged by and among Buyer, Seller, National Financial Services,
LLC to Pershing LLC, and the Closing shall occur on the first business day after
the weekend that National Financial Services initiates the transfer of the
Acceptable Accounts to Pershing LLC.
7.8 Shareholder Approval. This Agreement and the transactions it contemplates
shall have been approved and adopted by such vote of the stockholders of Parent
entitled to vote thereon as is required to approve such transactions, and shall
have otherwise been approved as required by law and the charter documents of
Parent and Seller.
7.9 Requests for Account Transfer. Other than in the normal course of business,
the Seller shall not have received, nor have been made aware of, any request by
a customer to have his, her or its Account serviced by an entity other than the
Buyer, whether pursuant to the Transfer Notice or otherwise.
7.10 Closing Date Representatives' Production. The estimated aggregate
Production of the Closing Date Representatives shall be greater than Twelve
Million Two Hundred and Fifty Thousand Dollars ($12,250,000).
ARTICLE VIII
CONDITIONS TO SELLER'S OBLIGATIONS
The obligations of Parent and Seller under this Agreement are subject
to the fulfillment, prior to or on the Closing Date, of each of the following
conditions, all or any of which may be waived in writing by Seller, except as
otherwise provided by law:
8.1 Representations and Warranties True; Performance; Certificate.
(a) The representations and warranties of Buyer contained in this Agreement
shall be true and correct in all material respects as of the Closing Date with
the same effect as though such representations and warranties had been made or
given again at and as of the Closing Date;
(b) Buyer shall have performed and complied with all of its agreements,
covenants and conditions required by this Agreement to be performed or
complied with by it prior to or on the Closing Date;
(c) Seller shall have received a certificate, dated as of the Closing Date,
signed and verified by an officer of Buyer on behalf of Buyer certifying to
the matters set forth in Sections 8.1(a) and 8.1(b) above.
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8.2 No Proceeding or Litigation.
(a) No preliminary or permanent injunction or other order shall have been issued
by any Governmental Entity nor shall any statute, rule, regulation or
executive order be promulgated or enacted by any Governmental Entity which
prevents the consummation of the transactions contemplated by this Agreement.
(b) No suit, action, claim, proceeding or investigation before any Governmental
Entity shall have been commenced and be pending against any of the parties, or
any of their respective Affiliates, associates, officers or directors, seeking
to prevent the sale of the right to service the Accounts or asserting that the
sale of the right to service the Accounts or Seller's rights under the
Independent Contractor Representative Agreements would be illegal or create
liability for damages.
8.3 Documents. This Agreement, any other instruments of conveyance and transfer
and all other documents to be delivered by Buyer to Seller at the Closing and
all actions of Buyer required by this Agreement or incidental thereto, and all
related matters, shall be in form and substance reasonably satisfactory to
Seller and Seller's counsel.
8.4 Governmental Filings. The parties shall have made any filing required with
Governmental Entities, and any approvals shall have been obtained or any
applicable waiting periods shall have expired. If a proceeding or review process
by a Governmental Entity is pending in which a decision is expected, Seller
shall not be required to consummate the transactions contemplated by this
Agreement until such decision is reached or rendered, notwithstanding Seller's
legal ability to consummate the transactions contemplated by this Agreement
prior to such decision being reached or rendered.
ARTICLE IX
INDEMNIFICATION AND EXPENSES
9.1 Indemnification by Parent and Seller. Parent and Seller agree to indemnify
and hold harmless the Buyer, its parent, subsidiaries, other Affiliates,
directors, officers, employees and agents (the "Buyer Indemnitees") from and
against any and all Losses incurred by such Buyer Indemnitees in connection with
or arising from:
(a) Any breach by Seller or Parent of any of their covenants in this Agreement
or in any agreement ancillary hereto, or any failure of Seller or Parent to
perform any of its obligations in this Agreement or in any ancillary agreement
hereto;
(b) Any breach of any warranty or the inaccuracy of any representation of Seller
or Parent contained or referred to in this Agreement or any certificate
delivered by or on behalf of Parent or Seller pursuant hereto (disregarding
for purposes of this Section 9.1(b) any "material," "in all material
respects," or similar qualification contained in any such representation or
warranty or with respect thereto for purposes of calculating the amount of
Losses);
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(c) The failure to comply (either by Seller or Buyer) with any applicable bulk
sales law;
(d) The failure of a Seller to perform, satisfy or pay any Excluded Liability;
and
(e) Defending any Third Party Claim alleging the occurrence of facts or
circumstances or raising claims that, if assumed to be true, would entitle a
Buyer Indemnitee to indemnification hereunder.
The indemnification provided for in this Section 9.1 shall terminate
thirty-six (36) months after the Closing Date (and no claims shall be made by
the Buyer Indemnitees under this Section 9.1 thereafter), except that the
indemnification by Seller and Parent shall continue as to:
(f) the representations, warranties and covenants relating to title and the
failure of Seller to perform, satisfy or pay any Excluded Liabilities, as to
all of which no time limitation shall apply; and relating to Taxes as to which
the applicable statute of limitations shall apply; and
(g) any Loss of which any Buyer Indemnitee has notified Parent in accordance
with the requirements of Section 9.3 on or prior to the date such
indemnification would otherwise terminate in accordance with this Section 9.1,
as to which the obligation of Parent and Seller shall continue until the
liability of Parent and Seller shall have been determined pursuant to this
Article IX, and Parent and Seller shall have reimbursed all Buyer Indemnitees
for the full amount of such Loss in accordance with this Article IX.
9.2 Indemnification by Buyer. Buyer agrees to indemnify and hold harmless each
of Parent, Seller, and their respective Affiliates, and their directors,
officers, employees and agents (the "Seller Indemnitees") from and against any
and all Losses incurred by such Seller Indemnitee in connection with or arising
from:
(a) Any material breach by Buyer of any of its covenants or agreements in this
Agreement or any failure by Buyer to perform any of its obligations in this
Agreement;
(b) Any breach of any warranty or the inaccuracy of any representation of Buyer
contained or referred to in this Agreement or in any certificate delivered by
or on behalf of Buyer pursuant hereto (disregarding for purposes of this
Section 9.2(b) any "material," "in all material respects," or similar
qualification contained in any such representation or warranty or with respect
thereto for purposes of calculating Losses);
(c) The failure of Buyer to perform, satisfy or pay any Assumed Liability under
the Purchased Contracts; and
(d) Defending any Third Party Claim alleging the occurrence of facts or
circumstances or raising claims that, if assumed to be true, would entitle a
Buyer Indemnitee to indemnification hereunder.
The indemnification provided for in this Section 9.2 shall terminate
thirty-six (36) months after the Closing Date (and no claims shall be made by
Seller Indemnitees under this Section 9.2 thereafter), except that the
indemnification by Buyer shall continue as to:
(a) The failure of Buyer to perform, satisfy or pay any Assumed Liability under
the Purchased Contracts, as to all of which no time limitation shall apply; and
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(b) Any Loss of which a Seller Indemnitee has notified Buyer in accordance with
the requirements of Section 9.3 on or prior to the date such indemnification
would otherwise terminate in accordance with this Section 9.2, as to which the
obligation of Buyer shall continue until the liability of Buyer shall have been
determined pursuant to this Article IX, and Buyer shall have reimbursed all
Seller Indemnitees for the full amount of such Loss in accordance with this
Article IX.
9.3 Notice of Claims.
(a) Any Buyer Indemnitee or Seller Indemnitee (the "Indemnified Party") seeking
indemnification hereunder shall give to the party obligated to provide
indemnification to such Indemnified Party (the "Indemnitor") a notice (a
"Claim Notice") describing in reasonable detail the facts giving rise to any
claim for indemnification hereunder and shall include in such Claim Notice (if
then known) the amount or the method of computation of the amount of such
claim, and a reference to the provision of this Agreement or any agreement,
document or instrument executed pursuant hereto or in connection herewith upon
which such claim is based; provided, that a Claim Notice in respect of any
action at law or suit in equity by or against a third Person as to which
indemnification will be sought shall be given promptly after the action or
suit is commenced; provided, further, that failure to give such notice shall
not relieve the Indemnitor of its obligations hereunder except to the extent
it shall have been materially prejudiced by such failure.
(b) After the giving of any Claim Notice pursuant hereto, the amount of
indemnification to which an Indemnified Party shall be entitled under this
Article IX shall be determined: (i) by the written agreement between the
Indemnified Party and the Indemnitor; (ii) by a final judgment or decree of
any court of competent jurisdiction; or (iii) by an arbitration award entered
pursuant to Section 9.5. The judgment or decree of a court shall be deemed
final when the time for appeal, if any, shall have expired and no appeal shall
have been taken or when all appeals taken shall have been finally determined.
The Indemnified Party shall have the burden of proof in establishing the
amount of Loss suffered by it.
(c) If an Indemnified Party is entitled to indemnification hereunder, the
Indemnitor shall pay to the Indemnified Party the amount to which the
Indemnified Party is entitled promptly after the amount has been determined.
Buyer shall have the right to offset any such amount against any portion of
the Purchase Price not yet paid as of such date.
9.4 Third Person Claims.
(a) Promptly after the assertion by any third party of any claim against any
Indemnified Party (a "Third Party Claim") that, in the judgment of such
Indemnified Party, may result in the incurrence by such Indemnified Party of
Losses for which such Indemnified Party would be entitled to indemnification
pursuant to this Agreement, such Indemnified Party shall deliver to the
Indemnitor a Claim Notice; provided, that no delay on the part of the
Indemnified Party in notifying the Indemnitor shall relieve the Indemnitor of
any liability or obligations hereunder, except to the extent that the
Indemnitor has been materially prejudiced thereby, and then only to such
extent. The Indemnified Party shall have the right in its sole discretion to
conduct the defense of any such Third Party Claim; provided, that the
Indemnitor shall not be liable to indemnify any Indemnified Party for any
settlement of any such Third Party Claim effected without the prior written
consent of the Indemnitor, which consent shall not be unreasonably withheld,
conditioned or delayed. If any such action or claim is settled with the prior
written consent of the Indemnitor, or if there be a final judgment for the
plaintiff in any such action, the Indemnified Party shall be entitled to
indemnification for the amount of any Loss relating thereto. The Indemnified
Party shall consult with the Indemnifying Party in a reasonable manner at
reasonable times regarding the status of any Third Party Claim, including
regarding strategy, bona fide settlement offers or mediations and material
results of discovery and investigation.
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9.5 Resolution of Disputes; Remedies.
(a) Any dispute, controversy or claim arising out of or relating to this
Agreement or any contract or agreement entered into pursuant hereto or the
performance by the parties of its or their terms shall be settled by binding
arbitration conducted by FINRA, by a panel of three arbitrators, held in
Chicago, Illinois, under the rules then in effect of FINRA; provided, however,
if the amount in controversy is less than $100,000, the panel shall consist of
one arbitrator, and the parties shall request an expedited proceeding.
(b) The arbitrator(s) shall allow such discovery as the arbitrator(s) determine
appropriate under the circumstances and shall resolve the dispute as
expeditiously as practicable, and if reasonably practicable, within 120 days
after the selection of the arbitrator(s). The arbitrator(s) shall give the
parties written notice of the decision, with the reasons therefor set out, and
shall have 30 days thereafter to reconsider and modify such decision if any
party so requests within 10 days after the decision. Thereafter, the decision
of the arbitrator(s) shall be final, binding, and nonappealable with respect
to all persons, including (without limitation) persons who have failed or
refused to participate in the arbitration process.
(c) The arbitrator(s) shall have authority to award relief under legal or
equitable principles, including interim or preliminary relief, and to allocate
responsibility for the costs of the arbitration and to award recovery of
attorney's fees and expenses in such manner as is determined to be appropriate
by the arbitrator(s).
(d) Judgment upon the award rendered by the arbitrator(s) may be entered in any
court having in personal and subject matter jurisdiction. Seller and Buyer
hereby submit to the persona jurisdiction of the Federal and State courts in
placeCityChicago, StateIllinois, for the purpose of confirming any such award
and entering judgment thereon.
(e) All proceedings under this Section, and all evidence given or discovered
pursuant hereto, shall be maintained in confidence by all parties.
(f) The fact that the dispute resolution procedures specified in this Section
shall have been or may be invoked shall not excuse any party from performing
its obligations under this Agreement and during the pendency of any such
procedure all parties shall continue to perform their respective obligations
in good faith, subject to any rights to terminate this Agreement that may be
available to any party and to the right of setoff, which any party may
exercise pending resolution of any dispute, controversy or claim.
(g) The arbitration procedure in this Section 9.5 shall be the exclusive remedy
available to Buyer, Parent and Seller hereunder to resolve any claim,
controversy or dispute arising hereunder.
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ARTICLE X
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the consummation
of the transactions contemplated hereby and continue for such time as the
indemnity for the breach thereof shall survive as set forth in Article IX. All
covenants and obligations contained in this Agreement to be fully performed or
complied with at or prior to Closing shall not survive Closing. All covenants
and obligations contained in this Agreement to be performed or complied with
after Closing (and any right to indemnification for breach thereof) shall
survive for the periods specified therein, or if no such period is specified,
indefinitely.
ARTICLE XI
MISCELLANEOUS
11.1 Termination of Agreement. This Agreement may be terminated at any time
prior to the Closing Date:
(a) by mutual written consent of the parties hereto;
(b) by either of the parties hereto upon written notice to the other party if
the Closing Date shall not occur by December 31, 2008, unless such failure of
consummation shall be due to the failure of the party seeking to terminate to
perform or observe in all material respects the covenants and agreements hereof
to be performed or observed by such party;
(c) by either party (provided that the terminating party is not then in material
breach of any representation, warranty, covenant or other agreement contained in
this Agreement such that the conditions to the Closing of the transactions
contemplated hereby set forth in Article VII or VIII as applicable, would not be
satisfied as of the time of such breach) in the event of a material breach by
the other party of any representation, warranty or covenant contained in this
Agreement which cannot be or has not been cured within twenty (20) days after
the giving of written notice to the breaching party of such breach and which
breach would permit the terminating party to refuse to consummate the
transactions contemplated by this Agreement pursuant to the standard set forth
in Article VII or VIII, as applicable.
(d) by either of the parties hereto in the event that any stockholder approval
contemplated by Section 6.21 is not obtained at the Meeting, including any
adjournment or adjournments thereof;
(e) by the Buyer, if at any time prior to the stockholder approval contemplated
by Section 6.21, Seller's Board shall have (i) failed to make its recommendation
referred to in Section 6.21, (ii) withdrawn such recommendation, (iii) modified
or changed such recommendation in a manner materially adverse to the interests
of Buyer, or (iv) failed to reconfirm such recommendation following the receipt
of an inquiry or proposal of a type referred to in Section 6.19 within five
business days after a written request by Buyer to do so;
(f) by Seller or Buyer upon written notice to the other party if any
Governmental Entity shall have issued a final decision or order denying,
rejecting, restraining, enjoining or otherwise prohibiting the consummation of
the transactions contemplated by this Agreement; or
(g) by Seller, if the Board of Directors of Parent (after consultation with its
outside legal advisors and investment bankers) concludes that an unsolicited
proposal properly received and considered as contemplated by Section 6.19 is a
superior offer to the price terms set forth herein.
Termination of this Agreement under this Section 11.1 shall not release, or be
construed as so releasing, either party hereto from any liability or damage to
the other party hereto arising out of the breaching party's willful and material
breach of the warranties and representations made by it, or willful and material
failure in performance of any of its covenants, agreements, duties or
obligations arising hereunder, and the obligations under Sections 6.10, 6.19,
11.2 and 12.4 shall survive such termination.
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11.2 Termination Fees.
(a) In the event (i) Seller is not in breach of any representation or warranty
and has performed or observed in all material respects the covenants and
agreements hereof to be performed or observed by it and (ii) Seller terminates
this Agreement pursuant to Section 11.1(c), then (x) $500,000 of the principal
amount of the Convertible Note and any interest thereon shall be forgiven in
full and (y) the maturity date of the Convertible Note with respect to the
remaining outstanding principal amount of the Convertible Note shall be extended
from December 31, 2008 to December 31, 2009.
(b) In the event (i) Buyer is not in breach of any representation or warranty
and has performed or observed in all material respects the covenants and
agreements hereof to be performed or observed by it and (ii) either Buyer
terminates this Agreement pursuant to Section 11.1(c), Section 11.1(e), or
Seller terminates this Agreement pursuant to Section 11.1(g), then Seller shall
pay to Buyer an amount equal to the Seller Termination Fee.
(c) As used herein, the Seller Termination Fee shall equal the amount of TWO
HUNDRED FIFTY THOUSAND DOLLARS ($250,000), plus the amount of the expense
incurred by Buyer's Affiliate of hosting the Transition Meeting. The Seller
Termination Fee being the parties fair estimation of the damages to be suffered
by Buyer in such event, and not a penalty,
(d) In the event of any termination of this Agreement by either party other than
by Seller pursuant to Section 11.1(c) or by either party pursuant to Section
11.1(d) and (f), the Parent agrees that the Convertible Note shall become due
and payable on the later of thirty (30) days thereafter or December 31, 2008. In
the event of any termination of this Agreement by either party other than by
Seller pursuant to Section 11.1(c) Seller and/or Parent shall refund to Buyer
the Prepayment Amount as provided in Section 2.5(b)(1).
ARTICLE XII
MISCELLANEOUS AND GENERAL PROVISIONS
12.1 Amendments and Waivers. Any term of this Agreement may be amended or waived
only with the written consent of the parties or their respective successors and
assigns. Any amendment or waiver effected in accordance with this Section 12.1
shall be binding upon the parties and their respective successors and assigns.
12.2 Successors and Assigns; No Third Party Beneficiaries. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
12.3 No Successor in Interest. Nothing in this Agreement shall be construed to
imply that the Buyer is or will be a successor in interest to the Seller.
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12.4 Governing Law; Jurisdiction. THIS AGREEMENT AND ALL ACTS AND TRANSACTIONS
PURSUANT HERETO AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE
GOVERNED, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
ILLINOIS, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE
PARTIES TO THIS AGREEMENT CONSENTS TO THE EXCLUSIVE JURISDICTION AND VENUE OF
THE COURTS OF THE STATE AND FEDERAL COURTS OF placeCityCOOK COUNTY,
StateILLINOIS.
12.5 Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original and all of which together shall
constitute one instrument.
12.6 Titles and Subtitles. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
12.7 Notices. Any notice required or permitted by this Agreement shall be in
writing and shall be deemed sufficient upon receipt, when delivered personally
or by courier, overnight delivery service or confirmed facsimile, or forty-eight
(48) hours after being deposited in the regular mail as certified or registered
mail with postage prepaid, if such notice is addressed to the party to be
notified at such party's address or facsimile number as set forth below, or as
subsequently modified by written notice:
(a) if to Buyer:
First Allied Securities, Inc.
655 W. Broadway, 12th Floor
San Diego, CA 92101
Attn.: Rob Moses, General Counsel
with a copy to
Advanced Equities Financial Corp.
199 St. Nicholas Circle
Atlanta, GA 30327
Attn: Joel E. Marks
and a copy to
Advanced Equities Financial Corp.
311 South Wacker Drive, Suite 6150
Chicago, IL 60606
Attn.: Erhard R. Chorle
and a copy to
Shefsky & Froelich Ltd.
111 E. Wacker Drive, Suite 2800
Chicago, Illinois 60601
Attn: James R. Asmussen, Esq.
(b) if to Parent or Seller:
First Montauk Financial Corp.
First Montauk Securities, Inc.
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, NJ 07701
Attn.: Victor K. Kurylak, President & CEO
with a copy to:
Becker & Poliakoff, LLP
45 Broadway, 11th Floor
New York, New York 10006
Attn: Victor J. DiGioia, Esq.
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12.8 Severability. If one or more provisions of this Agreement are held to be
unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith, in order to maintain the intended effect of such
provision and the economic position enjoyed by each party as close as possible
to that under the provision rendered unenforceable. In the event that the
parties cannot reach a mutually agreeable and enforceable replacement for such
provision, then (i) the unenforceable portion of such provision shall be
excluded from this Agreement, (ii) the balance of the Agreement shall be
interpreted as if such provision were so excluded and (iii) the balance of the
Agreement shall be enforceable in accordance with its terms.
12.9 Entire Agreement. This Agreement and the documents referred to herein are
the mutual product of the parties hereto, and constitute the entire agreement
between such parties pertaining to the subject matter hereof and thereof, and
merges all prior negotiations and drafts of the parties with regard to the
transactions contemplated herein and therein. Any and all other written or oral
agreements existing between the parties hereto regarding such transactions.
12.10 Advice of Legal Counsel. Each party acknowledges and represents that, in
executing this Agreement, it has had the opportunity to seek advice as to its
legal rights from legal counsel and that the person signing on its behalf has
read and understood all of the terms and provisions of this Agreement. This
Agreement shall not be construed against any party by reason of the drafting or
preparation thereof.
12.11 Preparation of Schedules. The Seller and Buyer acknowledge that, (i)
anything to the contrary contained herein notwithstanding, no Schedules are
attached to this Agreement as of the date hereof and any reference to "the date
hereof" or "the date of this Agreement" shall mean the date on which the
Schedules are so mutually agreed. The Seller hereby agrees to deliver all
Schedules to this Agreement within ten (10) days after the date of this
Agreement, and Buyer agrees to respond with any suggested changes to the
Schedules within ten (10) days after the later of: (i) delivery of all the
Schedules, or (ii) delivery of all documents referenced in the Schedules;
provided, that, Buyer shall notify the Seller of any documents it would like to
review within five (5) days after delivery of the completed Schedules. The
Seller and Buyer shall use commercially reasonable efforts to agree upon and
attach to this Agreement final Schedules within five (5) days after Buyer has
suggested any changes pursuant to this Section 12.11. If the parties cannot
agree on the final form of the Disclosure Schedules within the ten-day period
described above, either party may terminate this Agreement.
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12.12 Expenses. Each party will bear their own respective costs and expenses in
connection with the transactions contemplated by this Agreement, including
attorneys' fees, accounting fees and other fees incurred in connection with the
consummation of the transactions contemplated herein, except that Buyer shall
pay all expenses related to the transfer of the Transferred Records. Each party
will bear their own respective costs and expenses if this Agreement is
terminated under Section 11.1.
12.13 Waivers related to the Note Purchase Agreement and the Convertible
Note.
(a) Convertible Note. Seller agrees to waive any rights it has under Sections 1
and 2 of the Convertible Note to draw down the balance of the $2,000,000
principal amount available under such Note.
(b) Note Purchase Agreement. Buyer agrees to waive any rights it has to require
Seller to issue the Contingent Warrant thereunder.
[Remainder of page intentionally left blank]
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This Agreement has been duly executed and delivered by the duly
authorized officers of Parent, Seller and Buyer as of the date first above
written.
FIRST ALLIED SECURITIES, INC.
By:
/s/ Gregg S. Glaser
-------------------------------------
Name: Gregg S. Glaser
Title: Vice President
FIRST MONTAUK SECURITIES CORP.
By:
/s/ Victor K. Kurylak
-------------------------------------
Name: Victor K. Kurylak
Title: President and Chief Executive Officer
FIRST MONTAUK FINANCIAL CORP.
By: /s/ Victor K. Kurylak
-------------------------------------
Name: Victor K. Kurylak
Title: President and Chief Executive Officer
32