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EXHIBIT 12(a)
PURCHASE AGREEMENT
among Paradox Holdings, Inc.
Financial West Group. Inc.,
and
Progressive Asset Management, Inc.
THIS AGREEMENT is made and entered into as of March 5, 1999, by and
among FINANCIAL WEST GROUP, INC., a California corporation ("FWG"), PARADOX
HOLDINGS, INC. (Paradox," and together with FWG "Buyers"), and PROGRESSIVE ASSET
MANAGEMENT, INC., a California corporation ("Seller"), with reference to the
following facts:
Recitals:
A. Seller is a securities broker-dealer member of the NASD and has
agreements with registered representatives who sell securities to members of the
public.
B. The parties desire to effect a transfer to FWG of certain of Seller's
registered representatives (the "Representatives") and customer accounts.
C. The Seller also desires to sell to Paradox shares of its Class B
Preferred Stock.
Agreement:
NOW, THEREFORE, in consideration of the premises and the mutual covenants,
representations, warranties and agreements herein contained, the Parties hereto
agree as follows:
ARTICLE 1
TRANSFER OF REPRESENTATIVES
1.1 Transfer and Purchase.
(a) On the Closing Date, subject to satisfaction of the conditions
contained herein, Seller shall sell, assign, transfer and convey to FWG, and FWG
shall purchase from Seller, all of the following:
(i) All of Seller's rights under the agreements between Seller and the
Representatives evidencing the Representatives' independent contractor status
with Seller.
(ii) copies or originals of all computer data, books, records, account
statements, correspondence and other data and documents of every nature relating
to the Representatives and their business, including, without limitation, all
NASD registration files, licensing files, complaint files and disciplinary
files; and
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(iii) customer accounts, including any data and documents relating
thereto which accounts will be transferred to FWG as reflected on the books of
CSC;
(b) (i) Seller shall cooperate with FWG and use its best efforts to cause
the Representatives to be transferred pursuant to the individual license
transfer program of the NASD, including all actions required with the CRD and
state regulators. Seller shall use its best efforts to cause each Representative
to deliver, prior to the Closing, a Form U-4 in which he or she agrees to the
transfer of FWG and to execute, prior to the Closing, a new independent
contractor agreement with FWG. Any such new agreement with FWG shall be in FWG's
standard form. Seller shall use its best efforts during the period commencing on
the date of this Agreement and ending on the Closing Date to preserve and
maintain, for the benefit of FWG, Seller's relationship with the
Representatives.
(ii) To the extent any Representative is a licensed insurance agent,
Seller shall also cooperate with FWG and use its best efforts to cause such
Representative to be contracted under the fixed insurance master general agent
agreements between FWG and insurance carriers.
(iii) Seller shall cooperate with FWG and use its best efforts to cause,
and shall cause, all accounts of the Representatives at Seller's clearing firm
to be modified to indicate that FWG shall be the introducing broker.
(c) FWG shall pay to Seller as consideration for transfer of the
Representatives and related items the sum equal to 2.5% of gross commission
revenue produced by the Representative for each month hereafter, provided,
however, the aggregate amount of such payments shall not exceed $875,000.
(d) Purchase Price shall be payable as follows: no later than the 10th day
of each month, FWG shall pay to Seller by check the amount due for the
immediately preceding month.
(e) Buyers expressly do not, and shall not, assume or be deemed to assume or
pay or agree to pay, under this Agreement or otherwise by reason of the
transactions contemplated hereby, any liability, obligation, commitment,
undertaking, expense or agreement of Seller of any nature whatsoever, whether
known or unknown or absolute or contingent. Without limiting the generality of
the foregoing, it is understood and agreed that neither Buyer is agreeing to
assume or pay, and shall not assume or pay, (i) any liability or obligation of
Seller to Seller's employees, including, without limitation, any such liability
or obligation in respect of wages, salaries, bonuses, accrued vacation or sick
pay or any liability under employee benefit plans, (ii) any obligation or
liability of, or claim against, Seller of any kind or nature whatsoever (A)
relating to commissions or other amounts payable to the Representatives earned
or incurred prior to the Closing Date, whether payable before or after the
Closing Date, (B) arising out of, associated with, or relating to, any facts or
circumstances regarding any customer account prior to the Closing.
(f) Seller acknowledges and agrees that FWG is not obligated to retain any
Representatives and such Person may be terminated for any reason and without
regard to the effect such
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termination may have on any payment due to Seller under the transactions
contemplated hereunder.
1.2 Paradox Guaranty. Effective at the Closing, Paradox hereby guarantees to
Seller payment of the Purchase Price, and Seller hereby agrees to seek recourse
for any portion of the Purchase Price first from Paradox if FWG is unable to
make payment of any portion of the Purchase Price due to net capital
requirements of any Governmental Authority.
ARTICLE 2
PURCHASE OF STOCK
2.1 Purchase. On the Closing Date, subject to satisfaction of the conditions
contained herein, Seller shall sell, transfer and issue to Paradox, and Paradox
shall purchase from Seller, 25,000 shares of Preferred Stock (the "Shares") for
$25,000 payable by check.
2.2 Certificate of Determination. Prior to the Closing, Seller shall file
with the California Secretary of State a Certificate of Determination in the
form of Exhibit A attached hereto.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyers as follows:
3.1 Organization and Qualification.
(a) Each Seller Entity is a corporation duly organized, validly existing
and in good standing under the laws of the State of its incorporation and has
the requisite corporate authority and power to carry on its business as it is
now being conducted.
3.2 Authority.
(a) Seller has all requisite corporate power and authority to enter into
and perform its obligations thereunder, and to consummate the transactions
contemplated thereby.
(b) No Governmental Approval is necessary in connection with the
execution and delivery or consummation by the Seller of the transactions
contemplated herein.
(c) Following the closing, ▇▇▇ will not engage in the retail securities
business.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYERS
Buyers represent and warrant to Seller as follows:
4.1 Organization, Standing and Power. Each Buyer is a corporation duly
organized, validly
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existing and in good standing under the laws of the State of its incorporation
and has the requisite corporate power to carry on its business as it is now
being conducted.
4.2 Authority.
(a) Each Buyer has all requisite corporate power and authority to enter
into this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Buyers and the consummation by Buyers of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
Buyers. This Agreement has been duly executed and delivered by Buyers and
constitutes a valid and binding obligation of Buyer, enforceable against Buyers
in accordance with its terms.
4.3 Investment Intent. Paradox is purchasing the Shares solely for
investment, with no present intention to resell the Shares. Paradox hereby
acknowledges that the Shares have not been registered pursuant to the Securities
Act and may not be transferred in the absence of such registration or an
exemption therefrom under the Securities Act.
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 Access to Information; Due Diligence.
(a)(i) Seller shall afford, and shall cause Seller's officers,
directors, employees and agents to afford, to Buyers and to the officers,
employees, agents and representatives of Buyers or Affiliates of buyers complete
access at all reasonable times to Seller Personnel and the properties, books,
records and contracts of each Seller Entity, and shall furnish Buyers all
financial, operating and other data and information as Buyers, through its
Affiliates, officers, employees, agents or representatives, may reasonably
request.
(ii) Buyer shall afford, and shall cause Buyer's officers, directors,
employees and agents to afford, to Sellers and to the officers, employees,
agents and representatives of Sellers or Affiliates of sellers complete access
at all reasonable times to Buyer Personnel and the properties, books, records
and contracts of each Buyer Entity, and shall furnish Seller all financial,
operating and other data and information as Sellers, through its Affiliates,
officers, employees, agents or representatives, may reasonably request.
(b) No investigation pursuant to Section 5.1(a) shall affect any
representations or warranties of the Parties herein or the conditions to the
obligations of the Parties hereto.
5.2 Additional Agreements. Subject to the terms and conditions of this
Agreement, each of the Parties agrees to use all reasonable efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable Law to consummate and make
effective the transactions contemplated by this Agreement. Without limiting the
foregoing, each Party will, as promptly as practicable, file or supply, or cause
to be filed or
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supplied, all applications, notifications and information required to be filed
or supplied by it pursuant to applicable Law in connection with this Agreement,
the purchase and transfer of the Rights and Information and the transfer of the
Representatives pursuant to this Agreement or the consummation of the other
transactions contemplated hereby.
5.3 Commissions and Fees.
(a) If Seller receives payment of any commissions or fees in connection
with any Products sold by or on account of FWG, or an Affiliate of FWG, or any
representative of FWG, or an Affiliate of FWG, subsequent to the Closing Date,
then Seller shall hold such commissions and fees in trust for the account of FWG
and shall promptly pay such commissions or fees to FWG.
(b) If FWG receives payment of any commissions or fees (except Other
Commissions) in connection with any Products sold by or on account of Seller or
any representative of Seller prior tot he Closing Date, then FWG shall hold such
commissions and fees in trust for the account of Seller and shall promptly pay
such commissions or fees to Seller.
(c) On the Closing Date Seller shall provide notice to all Product
sponsors regarding Other Commissions that all Other Commissions shall be paid to
FWG from and after the Closing.
5.4 Errors and Omissions Coverage. On the Closing Date, Seller shall
purchase errors and omissions tail insurance which shall have the coverage
mutually acceptable to FWG and Seller (which coverage shall be at least the same
coverage as the errors and omissions insurance currently maintained by Seller)
and which shall cover claims arising out of facts or circumstances relating to
any Transferred Representative prior to the Closing Date which are made during
the period commencing on the Closing Date and ending no earlier than six (6)
years after the Closing Date. FWG and its Affiliates, including Paradox, shall
be named as additional insureds for such tail insurance. Seller shall be
responsible for paying the premium for such tail insurance and shall make such
payment at the Closing. So long as Paradox is a shareholder of Seller, Seller
shall maintain errors and omissions insurance which shall have the coverage
mutually acceptable to Paradox and Seller.
ARTICLE 6
CLOSING
6.1 Closing. Unless this Agreement shall have been terminated, the closing
of the transactions contemplated by this Agreement (the "Closing") shall take
place within five (5) business days after all of the conditions set forth in
Article 8 (other than those conditions which are to be satisfied at the Closing)
have been satisfied. The Closing shall take place at a place mutually acceptable
to Buyers and Sellers. The date the Closing takes place is referred to herein as
the "Closing Date."
6.2 Deliveries at the Closing. At the Closing, the parties shall deliver the
following:
(a) All payments required to be paid to Seller at closing pursuant to
Section 2.1.
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(b) An agreement regarding the use of Seller's services by
Representatives and the use of Seller's name and service ▇▇▇▇ by FWG in the form
attached hereto as the "Agreement" executed by FWG.
(c) An opinion of counsel to Seller, dated the Closing Date, in a form
satisfactory to Buyers covering the matters set forth in Article 4 attached
hereto.
(d) Resolution of the Board of Directors of Seller authorizing the
execution, delivery and performance by Seller, certified by the corporate
secretary of Seller.
(g) A certificate for the shares registered in the name of Paradox.
(h) Certificate for the shares.
(i) List of Transferred Representatives.
(j) Associates Persons Payout Schedule.
(k) Clearing Schedule.
(l) Standstill and Restriction on Transfer Agreement.
(m) Use of Name Agreement.
ARTICLE 7
INDEMNIFICATION
7.1 Indemnification of Buyers.
(a) From and after the Closing, Seller shall indemnify and hold each
Buyer and its Affiliates, officers, directors, agents, successors and assigns
harmless from and against any Damages resulting from, arising out of or incurred
with respect to (i) a breach of any representation, warranty, covenant or
agreement of Seller contained in any Seller Document, subject to notice of a
claim being given to Seller with respect to the representations and warranties
made by Seller, or (ii) any events occurring or circumstances existing with
respect to Seller prior to or on the Closing Date or any acts or omissions of
Seller or any Company Personnel occurring prior to or on the Closing Date,
including, without limitation, claims relating to the sales of products or the
provision of advisory services prior to the Closing.
(b) In addition, Seller shall indemnify FWG and its Affiliates (other
than Paradox), officers, directors, agents, successors and assigns harmless from
and against any Damages resulting from. Arising out of or incurred with respect
to (i) any events occurring or circumstances existing with respect to Seller
after the Closing Date or any acts or omissions of Seller or any Company
personal occurring after the Closing Date, including, without limitation, claims
relating to the sales of products of the provision of advisory services after
the Closing, provided, however,
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Seller shall have no obligation to indemnify FWG for actions or omissions of the
Transferred Representatives occurring after the Closing, or (ii) any Retained
Liabilities.
7.2 Indemnification of Seller. From and after the Closing, Buyers shall
indemnify and hold Seller harmless from and against any Damages resulting from,
arising out of, or incurred with respect to a breach of any representation,
warranty, covenant or agreement by Buyer contained herein, subject to notice of
a claim being given to Buyer with respect to the representations and warranties
made by Buyers herein. In addition, FWG shall indemnify and hold Seller harmless
from and against any Damages resulting from, arising out of, or incurred with
respect to any and all events occurring or circumstances existing with respect
to the Purchased Rights and Information and/or the Transferred Representatives
after the Closing Date; provided, however, FWG shall have no obligation to
indemnify Seller for Damages relating to actions or omissions of shareholders or
actions or omissions of a Transferred Representative occurring at a time when
such Transferred Representative is not an independent contractor or employee of
FWG or an Affiliate of FWG; and provided further, however, FWG shall not have
any obligation to indemnify Seller for damages related to acts or omissions of
Transferred Representatives which occur prior to the Closing.
ARTICLE 8
OVER-RIDE COMPENSATION
8.1 With respect to commission revenue received by FWG through the efforts
of representatives or any additional representatives recruited to FWG after the
Closing, FWG will pay the customary pay out schedule to the registered
representatives and retain 4.75% for itself. The remaining revenues will be paid
to ▇▇▇ as an over-ride. FWG will also pay 2 1/2% to ▇▇▇ as the base payment
until $875,000 has been paid from the base payments. After that, FWG will make
no further base payments. FWG shall provide ▇▇▇ with a monthly commission
reconciliation statement calculating the foregoing amounts.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.
Paradox Holdings,
Financial West Group, Inc.
By ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Chief Executive Officer
Progressive Asset Management, Inc.
By ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇
Chief Executive Officer
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