Exhibit 2.1

EXECUTION VERSION

 

MEMBERSHIP INTEREST PURCHASE AGREEMENT,

by and among

ANGIA HOLDINGS LLC, a New York limited liability company

SALOMON WHITNEY LLC, a New York limited liability company

and

SW AFFILIATED HOLDINGS LLC, a Nevada limited liability company

Dated as of June 14, 2021

 

 

 

 


 

TABLE OF CONTENTS

 

 

 

Page

Article I.

DEFINITIONS

1

Section 1.01

Specific Definitions

1

Section 1.02

Other Terms

1

Article II.

PURCHASE AND SALE OF THE UNITS

2

Section 2.01

Purchase and Sale

2

Section 2.02

Upon Signing

2

Section 2.03

Execution Date Net Capital Payment

2

Section 2.04

Closing Payment.

2

Section 2.05

Additional Actions

2

Section 2.06

Closing

4

Article III.

REPRESENTATIONS AND WARRANTIES OF THE SELLER

4

Section 3.01

Authority and Binding Effect

4

Section 3.02

Subsidiaries

4

Section 3.03

Capitalization

4

Section 3.04

No Violation; Consents and Approvals

5

Section 3.05

Financial Statements

5

Section 3.06

Personal Property

6

Section 3.07

Real Property

6

Section 3.08

Intellectual Property

7

Section 3.09

Litigation

8

Section 3.10

Employee Benefit Plans

8

Section 3.11

Taxes

8

Section 3.12

Contracts and Commitments

10

 


 

Section 3.13

Compliance with Laws

11

Section 3.14

Labor Matters

12

Section 3.15

Environmental Matters

12

Section 3.16

Clients and Suppliers

13

Section 3.17

Brokers

13

Section 3.18

Affiliate Transactions

13

Section 3.19

Undisclosed Liabilities

13

Section 3.20

Insurance

13

Section 3.21

Insolvency Proceedings

13

Section 3.22

Exclusivity of Representations

14

Article IV.

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

14

Section 4.01

Organization; Authority and Binding Effect

14

Section 4.02

No Violation; Consents and Approvals

14

Section 4.03

Litigation

15

Section 4.04

Investment Intent

15

Section 4.05

Brokers

15

Article V.

COVENANTS

15

Section 5.01

Interim Operations of the Company

15

Section 5.02

FINRA Related Covenants

17

Section 5.03

Access to Information; Confidentiality

18

Section 5.04

Books and Records; Post-Closing Payments

19

Section 5.05

Public Announcements

19

Section 5.06

Exclusivity

20

Section 5.07

Reasonable Best Efforts; Cooperation

20

 


 

Section 5.08

Non-Competition; Non-Solicitation

22

Article VI.

TAX MATTERS

23

Section 6.01

Tax Matters

23

Article VII.

SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND COVENANTS; INDEMNIFICATION

25

Section 7.01

Survival of Representations, Warranties, and Covenants.

25

Section 7.02

Indemnification by the Seller.

26

Section 7.03

Indemnification by the Purchaser.

27

Section 7.04

Indemnification Claim Procedures

27

Section 7.05

Claim Procedures for Other Persons

28

Section 7.06

Sole and Exclusive Remedy

29

Section 7.07

Net Recoveries.

29

Section 7.08

Adjustment to Purchase Price

29

Article VIII.

TERMINATION OF AGREEMENT

29

Section 8.01

Right to Terminate

29

Section 8.02

Effect of Termination

30

Article IX.

CONDITIONS TO CLOSING

30

Section 9.01

Conditions to Obligations of the Parties

30

Section 9.02

Conditions to Obligations of the Seller

30

Section 9.03

Conditions to Obligations of the Purchaser

31

Section 9.04

Frustration of Closing Conditions

31

Article X.

MISCELLANEOUS

32

Section 10.01

Further Assurances

32

Section 10.02

Notices

32

Section 10.03

Amendment, Modification, and Waiver

33

 


 

Section 10.04

Entire Agreement

33

Section 10.05

Severability

33

Section 10.06

Binding Effect; Assignment

34

Section 10.07

No Third-Party Beneficiaries

34

Section 10.08

Fees and Expenses; Transfer Taxes

34

Section 10.09

Counterparts; Electronic Signatures

34

Section 10.10

Interpretation; Construction

35

Section 10.11

Governing Law

35

Section 10.12

Specific Performance

36

 

 

 

 


 

MEMBERSHIP INTEREST PURCHASE AGREEMENT

This MEMBERSHIP INTEREST PURCHASE AGREEMENT (this “Agreement”), dated as of the 14th day of June, 2021 (the “Execution Date”), is made by and among Angia Holdings LLC, a New York limited liability company (the “Seller”); Salomon Whitney LLC, a New York limited liability company d/b/a SW Financial (the “Company”); and SW Affiliated Holdings LLC, a Nevada limited liability company (the “Purchaser”).

RECITALS

WHEREAS, the Company is registered with the U.S. Securities and Exchange Commission (“SEC”), as SEC #8-67688, and with the Financial Industry Regulatory Authority, Inc. (“FINRA”), having Central Registration Depository (“CRD”) #145012; and

WHEREAS, the Company is a “Broker-Dealer” (as defined and understood by FINRA), and licensed to conduct business in accordance with the Company’s membership agreement with FINRA (the “Membership Agreement”); and

WHEREAS, the Seller owns all the issued and outstanding limited liability company units (the “Units”) of the Company; and

WHEREAS, the Purchaser desires to purchase from the Seller, and the Seller desires to sell, transfer, and convey to the Purchaser, all of the Seller’s right, title, and interest in and to the Units (the “Purchased Units”), subject to the terms and conditions of this Agreement.

NOW, THEREFORE, in consideration of the foregoing and of the representations, warranties, covenants, and agreements hereinafter set forth, and for such other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows:

Article I.

DEFINITIONS

Section 1.01Specific Definitions.  As used in this Agreement, the terms identified on Exhibit A shall have the meanings set forth or referred to in Exhibit A.

Section 1.02Other Terms.  Other terms may be defined elsewhere in this Agreement and, unless otherwise indicated, shall have such meaning throughout this Agreement.

 

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Article II.

PURCHASE AND SALE OF THE UNITS

Section 2.01Purchase and Sale.  On the terms and subject to the conditions set forth herein, the Seller hereby agrees to sell, and the Purchaser hereby agrees to purchase, all right, title, and interest of the Seller in and to the Purchased Units, free and clear of all Liens, other than those arising under applicable federal or state securities laws.

Section 2.02Upon Signing.  Upon the Execution Date, (a) Purchaser shall pay the Initial Payment to Seller in the amount of $1,743,925 (One Million, Seven Hundred Forty-Three Thousand Dollars), (b) Purchaser shall pay the Deposit to Seller in the amount of $4,256,075 (Four Million, Two Hundred Fifty-Six Thousand, Seventy-Five Dollars), (c) Seller shall deliver to Purchaser an assignment of membership interest representing the Initial Units, duly executed by the Seller, (d) Seller shall place the Remaining Units in escrow with Charles M. O’Rourke, Esquire, counsel to Seller, in accordance with the terms and conditions set forth in an escrow agreement acceptable to Seller and Purchaser, (e) the Employment Agreements shall be duly executed by the parties thereto, and (f) Purchaser and Seller shall enter into the Operating Agreement.

Section 2.03Execution Date Net Capital Payment.   The Company shall prepare and file its FOCUS report for the month of the Execution Date in accordance with FINRA rules.  Within five days of the submission of the FOCUS report to the Purchaser, the Seller shall withdraw the amount of the Company’s net capital calculated and set forth on p. 3, line 10 in the FOCUS report.  

Section 2.04Closing Payment.  Purchaser shall pay the sum of $1,000,000 (One Million Dollars) to the Seller on or before December 31, 2021. For tax purposes, this income shall be attributable to the Purchaser and reflected on the Purchaser’s K‑1 for the subject year.   

Section 2.05Additional Actions.

(a)The Seller shall deliver to the Purchaser:

 

(i)

at the Closing, an assignment of membership interest representing the Remaining Units, duly executed by the Seller;

 

(ii)

on the Execution Date, a certificate prepared in accordance with Treasury Regulations promulgated under Sections 897 and 1445 of the Code, certifying that the Seller is not a foreign person, in form acceptable to Purchaser;

 

(iii)

on the Execution Date, the Articles of Organization of the Company, certified by the Secretary of State of the State of New York;

 

(iv)

at the Closing, the original limited liability company record books and membership interest record books of the Company to the extent that the books and records are not located at the premises of the Company;

 

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(v)

on the Execution Date, a good standing certificate for the Company from the Secretary of State of such entity’s jurisdiction of organization and from any jurisdiction required to be set forth on Section 3.02 of the Disclosure Schedule or Section 3.03 of the Disclosure Schedule;

 

(vi)

at the Closing, a certificate from an officer of the Company, given by him on behalf of the Company, and not in his individual capacity, to the effect that, with respect to the Company, the conditions set forth in Sections 9.03(a), 9.03(b) and 9.03(c) have been satisfied;

 

(vii)

on the Execution Date, a certificate of the Secretary or corollary executive officer of the Seller certifying (A) that attached thereto is a complete and correct copy of the resolutions adopted by the member(s) of the Seller, authorizing the execution, delivery and performance of all documents to which the Seller is party and the consummation of the transactions contemplated hereunder and thereunder and (B) the incumbency and specimen signature with respect to the officers of the Seller executing any such document, on behalf of the Seller;

 

(viii)

at the Closing, if requested by Purchaser, written resignations of the officers and members of the board of managers of the Company, in form reasonably acceptable to the Purchaser;

 

(ix)

at the Closing, the consents and approvals set forth on Section 2.03(b)(xi) of the Disclosure Schedule;

 

(x)

at the Closing, the Payoff Letters and any UCC termination statements or other releases as may be reasonably required to evidence the satisfaction of the Debt and the termination and release of all guarantees and liens relating to such Debt; and

 

(xi)

at the Closing, any and all other certificates, agreements, or instruments required under this Agreement.

 

(xii)

on the Execution Date, the finder’s fee payment of $500,000 shall be paid to BrokerDealerForSale.com, LLC, payable $400,000 by the Seller and $100,000 by the Purchaser.

(b)At the Closing, the Purchaser shall deliver to the Seller:

 

(i)

a certificate of the Secretary or corollary executive officer of Purchaser certifying (A) that attached thereto is a complete and such correct copy of the resolutions adopted by the sole member of Purchaser, authorizing the execution, delivery and performance of all documents to which Purchaser is party and the consummation of the transactions contemplated hereunder and thereunder and (B) the incumbency and specimen signature with respect to the officers of Purchaser executing any such document, on behalf of Purchaser; and

 

(ii)

any and all other certificates, agreements, or instruments required under this Agreement.

 

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(c)Notwithstanding any other provision of this Agreement, Purchaser and Seller shall be entitled to deduct and withhold from the cash otherwise deliverable under this Agreement, and from any other consideration otherwise paid or delivered in connection with the transactions contemplated by this Agreement, to any Person such amounts Purchaser and Seller are required to deduct and withhold with respect to any such deliveries and payments under the Code or any provision of applicable Law.  To the extent that amounts are so withheld by Purchaser or Seller, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Person in respect of which such deduction and withholding was made, and Purchaser or Seller shall disburse such withheld amounts to the applicable Tax Authority.

Section 2.06Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place via the offices of Clark Hill LLP, 1055 West Seventh Street, Ste. 2400, Los Angeles, CA 90017, on the third Business Day following the satisfaction or waiver of each of the conditions set forth in Article IX (other than those conditions that are to be satisfied at the Closing) (or on such other date or at such other time and place as the Seller and Purchaser mutually agree in writing) by exchange of the required documents by overnight courier, facsimile or pdf as agreed by the Purchaser and Seller.  The date upon which the Closing occurs is the “Closing Date”.  All proceedings to be taken and all documents to be executed and delivered by all parties at the Closing shall be deemed to have been taken and executed simultaneously and no proceedings shall be deemed to have been taken nor documents executed or delivered until all have been taken, executed, and delivered.

Article III.

REPRESENTATIONS AND WARRANTIES OF THE SELLER

The Seller represents and warrants to the Purchaser as set forth in this Article III, as of the Execution Date and as of the Closing Date.

Section 3.01Authority and Binding Effect. The Seller has all requisite power and authority to enter into this Agreement and the agreements contemplated by this Agreement to be entered into by the Seller at Closing (collectively, the “Seller Transaction Agreements”), and to consummate the transactions contemplated hereby and thereby. The execution, delivery, and performance by the Seller of this Agreement and the other Seller Transaction Agreements, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by all necessary action on the part of the Seller. This Agreement, and each Seller Transaction Agreement, has been duly executed and delivered by the Seller and constitutes a valid and binding obligation of the Seller, enforceable against the Seller in accordance with its terms, except as such enforceability may be limited by (a) applicable insolvency, bankruptcy, reorganization, moratorium, or other similar laws affecting creditors’ rights generally or (b) applicable equity principles (whether considered in a proceeding at law or in equity).

Section 3.02Subsidiaries.  The Company does not own and has not owned, directly or indirectly, of record or beneficially, any equity ownership interest in any other Person.  

Section 3.03Capitalization. The Seller owns all of the Units free and clear of any Liens. Except for the Units, there are no other equity securities of the Company issued, reserved for issuance, or outstanding and no outstanding options, warrants, convertible or exchangeable

 

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securities, subscriptions, rights (including any preemptive rights), equity appreciation rights, calls, or commitments of any character whatsoever to which the Company is a party or is bound requiring the issuance or sale of any equity interest in the Company.

 

Section 3.04No Violation; Consents and Approvals. Except as set forth in Section 3.04 of the Disclosure Schedule, the execution and delivery by the Seller of this Agreement does not, and the consummation of the transactions contemplated hereby and compliance with the terms hereof will not, (a) conflict with, or result in any violation of or default (or an event that, with notice or lapse of time or both, would constitute a default) under (i) any provision of the organizational documents of the Seller or the Company; (ii) any judgment, order, injunction, or decree (an “Order”) applicable to the Seller, the Company or their respective properties or assets; or (iii) any Law applicable to the Seller, the Company or their respective properties or assets; (b) give rise to any right of termination, cancellation, or acceleration under, or result in the creation of any Lien upon any of the properties of the Seller or the Company under, any Material Contract to which any of the Seller or the Company is a party as of the Execution Date; or (c) give rise to any right of termination, cancellation, or acceleration under, or result in the creation of any Lien upon the Units as of the Closing under, any Material Contract to which the Seller or any of the Company is a party as of the Execution Date.  Except as set forth in Section 3.04 of the Disclosure Schedule, no consent, approval, order, or authorization of, or registration, declaration, or filing with (“Governmental Approval”), any court, administrative agency, regulatory body, bureau, or commission or other governmental entity, authority, or instrumentality, whether domestic or foreign (and including, for the avoidance of doubt, the SEC and FINRA) (each, a “Governmental Authority”), is required to be obtained or made by or with respect to the Seller or the Company to consummate the transactions contemplated by this Agreement.

Section 3.05Financial Statements.

 

(a)

The Seller has delivered to the Purchaser: (a) the audited balance sheet of the Company as at December 31, 2020 and December 31, 2019, and the related statements of income, owners’ equity, and cash flows for each of the fiscal years ended on December 31, 2020 and December 31, 2019, including the notes thereto, together with the report thereon of the Company’s independent public accountants (collectively, the “Audited Financial Statements”); (b) the unaudited balance sheet of the Company as at March 31 2021, and the related statements of income, owners’ equity, and cash flows for the three (3) months then ended (collectively, the “Unaudited Financial Statements”); and (c) the internally prepared balance sheet of the Company as at April __, 2021, and the related internally prepared statements of income, changes in equity, and cash flows such month (collectively, the “Internally Prepared Financial Statements” and, together with the Audited Financial Statements and the Unaudited Financial Statements, the “Financial Statements”). The Financial Statements were prepared in accordance with the books and records of the Company, are true, correct and complete in all material respects and present fairly and accurately the financial condition and the results of operations of the Company as of the respective dates thereof.  The Financial Statements have been prepared in accordance with GAAP, consistently applied throughout and among the periods indicated, except that the unaudited statements exclude the footnote disclosures (none of which would, alone or in the aggregate, be materially adverse to the Business, operations, assets, liabilities, financial condition, operating results, value, cash flow or net worth of the Company), year-end adjustments and other presentation items required for GAAP.  

 

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(b)

The Company maintains accurate books and records reflecting its assets and liabilities and maintains adequate internal accounting controls that provide assurance in all material respects that (i) the Company maintains no off-the-book accounts or off-balance sheet arrangements, (ii) the assets of the Company are used only in accordance with the Company’s management directives, (iii) transactions are executed with management’s authorization; and (iv) transactions are recorded as necessary to permit preparation of the financial statements of the Company.

Section 3.06Personal Property.

 

(a)

Except as set forth in Section 3.06(a) of the Disclosure Schedule, the Company has good and valid title to all items of personal property owned by it, and a valid and enforceable right to use all tangible items of personal property leased by or licensed to it (collectively, the “Personal Property”), in each case, free and clear of all Liens, other than Permitted Liens.

 

(b)

All Personal Property necessary for the operation or conduct of the business of the Company is (i) in good operating condition and repair, normal wear and tear excepted, and (ii) adequate for the uses to which it is being put. Such Personal Property constitutes all of the tangible items of personal property for the Company to continue to conduct the Business following the Closing as it is being conducted currently.

Section 3.07Real Property.

 

(a)

As used in this Agreement, the term “Real Property” means real property and interests in real property owned or leased by or to the Company.  The Company does not now own, and has never owned, any Real Property.

 

(b)

The Seller has provided the Purchaser with true and correct copies of all leases (collectively, the “Leases”) with respect to any Real Property leased to or by any of the Company as of the Execution Date (the “Leased Real Property”), as well as any assignments, amendments, extensions, modifications, and renewals thereof. Every Lease is set forth on Section 3.07(b) of the Disclosure Schedule, indicating the parties thereto, the term thereof, the rent due under each such Lease, and the location of the property to which each such Lease applies.  Further, (i) each Lease is in full force and effect and constitutes legal, valid and binding obligations of the Company and has not been modified, amended, corrected, or restated, other than by those written amendments identified in Section 3.07(b) of the Disclosure Schedule; (ii) the Company is in actual possession of the premises under each Lease and is the sole lessee thereof; (iii) the Company has paid the rent set forth in each Lease on a current basis and there are no past-due amounts; (iv)  the Company is not in default under any Lease; (v) neither the Seller nor the Company has received notice from or given notice to any lessor claiming that such lessor or the Company is in default of any Lease; and (vi) all property Taxes or other Taxes for which the Company is responsible under each Lease have been paid and there are no past-due amounts.

 

 

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Section 3.08Intellectual Property.

 

(a)

Section 3.08(a) of the Disclosure Schedule contains a true and complete list of all Owned Intellectual Property registered before a Governmental Authority and Internet domain name registrations of the Company (collectively, the “Company Registered IP”), as well as all Owned Intellectual Property applied for before a Governmental Authority and all trade names of the Company. The Company exclusively owns all right, title, and interest in and to all Owned Intellectual Property, free and clear of all Liens, and has sufficient rights to use all other Intellectual Property used in or necessary for the conduct of its business as currently conducted. To the Seller’s Knowledge, no third party is infringing upon or misappropriating or violating any Owned Intellectual Property of the Company. The Company Registered IP is (i) subsisting and valid and enforceable; and (ii)(A) has not lapsed, expired, or been abandoned, and (B) is not the subject of any opposition, interference, cancellation, or other proceeding (other than routine office actions) before any Governmental Authority. All renewal fees and other maintenance fees with respect to the Registered IP have been paid.

 

(b)

Section 3.08(b) of the Disclosure Schedule contains a list of all Contracts (i) with respect to Owned Intellectual Property that is being licensed to any third party; (ii) pursuant to which a third party is licensing any Intellectual Property to the Company; (iii) whereby the Company is otherwise restricted in the ability to use, enforce, or disclose any Owned Intellectual Property, including settlement agreements; or (iv) providing for the development of any Intellectual Property, independently or jointly, by or for the Company, including any joint venture agreements (each, an “IP Agreement”), in each case excluding Contracts for software that is generally commercially available or subject to “shrink-wrap” or “click-through” license agreements, terms of use or service, or pre-installed in hardware in the ordinary course of business. Each IP Agreement is in full force and effect in all material respects with respect to the Company and, to the Seller’s Knowledge, the counterparty thereto and provides such rights to the Company as necessary for the Company’s use of the relevant software in the Business in the ordinary course of business. To the Seller’s Knowledge, no third party is infringing upon or misappropriating or violating any Intellectual Property being licensed to the Company pursuant to an IP Agreement.

 

(c)

Neither the Seller nor the Company has received a written notification that the Company or the conduct of the Business infringes, misappropriates, or violates, or during the past three (3) years, has infringed, misappropriated, or violated, the Intellectual Property rights of a third party. There is no charge, complaint, claim, demand, or notice to Seller or the Company that is pending alleging any interference, infringement, misappropriation, or violation.

 

(d)

The Company has taken reasonable steps to maintain the confidence of its trade secrets and other confidential information and to maintain and protect all Owned Intellectual Property. All current and former employees, contractors, and consultants of the Company, who have participated in the creation or development of any Owned Intellectual Property, have executed and delivered to the Company an agreement (i) providing for the non-disclosure by such person of any confidential information of the Company and (ii) acknowledging

 

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that such Owned Intellectual Property arising out of such person’s employment or engagement by the Company is owned by the Company. To the Seller’s Knowledge, no employee, contractor, or consultant is in violation of any such agreement.

 

Section 3.09Litigation. Except as set forth in Section 3.09 of the Disclosure Schedule, there have never been any, and as of the Execution Date, there are no, claims, actions, suits, or proceedings pending, or to the Seller’s Knowledge, investigations pending, or claims, actions, suits, proceedings, or investigations threatened in writing against the Seller, the Units, the Company or its assets, at law or in equity, by or before any Governmental Authority, or by or on behalf of any third party. Except as set forth in Section 3.09 of the Disclosure Schedule, the Company has not received any notice in writing that it or any of its assets is subject to any decree, order, or judgment, that alone, or in the aggregate, would be material.

Section 3.10Employee Benefit Plans.

 

(a)

For purposes of this Agreement, the term “Plans” means (i) all employee benefit plans as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974 and the regulations promulgated thereunder (collectively, “ERISA”); and (ii) all other pension, retirement, group insurance, severance pay, deferred compensation, excess or supplemental benefit, vacation, stock, stock option, equity-based compensation, phantom stock, fringe benefit, and incentive plans, programs, or arrangements that pertain to any employee, director, or officer of the Company and to which the Company is a sponsor or a party, by which the Company is bound, or to which the Company contributes. All Plans that are sponsored by the Company are hereinafter referred to as “Company Plans”.  All Company Plans as of the Execution Date are listed in Section 3.10(a) of the Disclosure Schedule.

 

(b)

Each Company Plan is in compliance in all material respects with its terms and with ERISA and other applicable Laws. As of the Execution Date, there are no actions, suits, or claims (other than routine, non-contested claims for benefits) pending, or, to the Seller’s Knowledge, threatened, against the Company Plans.

 

(c)

No Company maintains, contributes to, or sponsors any pension plan (as defined in Section 3(2) of ERISA) that is subject to Title IV of ERISA.

Section 3.11Taxes. Except as set forth in Section 3.11 of the Disclosure Schedule, and further lettered or numbered to correspond to the following paragraphs necessitating such disclosure:

 

(a)

The Company has duly and timely filed each Tax Return required to be filed with any Tax Authority (or has timely and properly filed valid extensions of time with respect to the filing thereof) and Seller has duly and timely filed each Tax Return required to be filed with any Tax Authority by the Seller that includes or is based upon the assets, operations, ownership, or activities of the Company, including any consolidated, combined, unitary, fiscal unity, or similar Tax Return that includes or is based upon the assets, operations, ownership, or activities of the Company (or the Seller has timely and properly filed valid extensions of time with respect to the filing thereof). All such Tax Returns are true, correct,

 

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and complete. There is no investigation or other proceeding pending, threatened, or expected to be commenced by any Tax Authority for any jurisdiction where the Company does not file Tax Returns with respect to a given Tax that may lead to an assertion by such Tax Authority that the Company is or may be subject to a given Tax in such jurisdiction, and there is no meritorious basis for such an investigation or other proceedings that would result in any such assessment. There are no Liens for Taxes upon the assets of the Company, except for Permitted Liens.

 

(b)

All Taxes owing with respect to the assets, ownership, operations, and activities of the Company (whether or not shown on any Tax Return) have been paid, and as of the Closing Date will have been paid, and all Taxes required to have been withheld and remitted in connection with amounts paid or owing to any employee, independent contractor, creditor, shareholder, or other party have been, and as of the Closing Date will have been, withheld and timely remitted to the appropriate Tax Authority.

 

(c)

In the past three (3) years there have been no, and there are no pending, threatened, or proposed audits, assessments, or claims from any Tax Authority for deficiencies, penalties, or interest against the Company or any of its assets, operations, or activities as of the Execution Date or as of the Closing Date, and there is no basis for any such audit, assessment, or claim. There are no pending claims for refund of any Tax of the Company (including refunds of Taxes allocable to the Company or with respect to consolidated, combined, unitary, fiscal unity, or similar Tax Returns).

 

(d)

The Financial Statements reflect an adequate reserve (excluding any reserve for deferred Taxes) for all Taxes payable by the Company for any Tax period (or portion thereof) ending on or before the Closing Date that have accrued through the date thereof, and such reserve reflects all Taxes payable by the Company for all Tax periods (or portions thereof) ending on or before the Closing Date.

 

(e)

Each asset with respect to which the Company claims depreciation, amortization, or similar expense for Tax purposes is owned for Tax purposes by the Company under Applicable Tax Law. The Company does not own, directly or indirectly, any interest in any entity classified as a partnership for United States federal income Tax purposes.

 

(f)

There are no outstanding rulings of, or requests for rulings with, any Tax Authority expressly addressed to the Company (or to an Affiliate of the Company) that are, or if issued would be, binding upon the Company for any Post-Closing Period.

 

(g)

Neither the Company, nor the Seller with respect to the Company, has, in a manner that would be binding on the Company or for any Post- Closing Period, (i) executed, become subject to, or entered into any closing agreement pursuant to Section 7121 of the Code or any similar or predecessor provision thereof under the Code or other Applicable Tax Law; (ii) agreed to any extension of time with respect to the filing of any Tax Return of the Company (including any Tax Return that includes or is based upon their respective assets, ownership, operations, or activities), the payment of any Taxes of the Company, or any limitation period regarding the assessment of any such Taxes; or (iii) received approval to

 

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make or agreed to a change in accounting method or has any application pending with any Tax Authority requesting permission for any such change.

 

 

(h)

As to each year or period for which the statute of limitations for assessments has not yet expired as to a given Tax, the Company is not (i) a member of an affiliated, consolidated, unitary, fiscal unity, combined, or similar Tax group that files a consolidated unitary, combined, or similar Tax Return for purposes of that Tax; or (ii) a party to any Tax allocation, Tax sharing, or Tax reimbursement agreement or arrangement with any Person.

 

(i)

No item of income or gain reported for financial purposes in any Pre-Closing Period is required to be included in taxable income for a Post-Closing Period.

 

(j)

The Company will not have any taxable income or gain as a result of prior intercompany transactions that have been deferred and that will be taxed as a result of the changes in ownership contemplated by this Agreement.

 

(k)

None of the assets of the Company is (i) required to be or is being depreciated under the alternative depreciation system under Section 168(g)(2) of the Code, or (ii) is subject to Section 168(f) of the Code. None of the assets of the Company is property that the Purchaser or the Company will be required to treat as “tax exempt use property” within the meaning of Section 168(h)(1) of the Code.

 

(l)

There is no contract, agreement, plan, or arrangement covering any individual or entity treated as an individual included in the business or assets of the Company that, individually or collectively, could give rise to the payment by the Company or the Purchaser or its Affiliates, of an amount that would not be deductible by reason of Section 280G of the Code or similar provisions under other Applicable Tax Laws.

 

(m)

Section 197(f)(9) of the Code will not cause any Section 197 intangible of the Company not to be an amortizable Section 197 intangible as a result of the Transaction.

 

(n)

The Company has not constituted either a “distributing corporation” or a “controlled corporation” in a distribution of stock that was purported or intended to be governed in whole or in part by Section 355 or Section 361 of the Code.

Section 3.12Contracts and Commitments.  Section 3.12 of the Disclosure Schedule sets forth a list of all of the following agreements, contracts, and commitments (each, a “Contract”), in effect as of the Execution Date, to which the Company is a party or by which such entity or its assets are bound and, in each case, where there are still remaining obligations on the part of any party thereto (each, a “Material Contract”):

 

 

(a)

employment agreements or severance agreements or employee termination arrangements that are not terminable at will by the Company without penalty;

 

(b)

any change of control agreements with employees of the Company;

 

(c)

the Leases;

 

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(d)

Contracts containing any covenant materially limiting the ability of the Company to engage in any material line of business or to compete with any business or Person;

 

(e)

Contracts with the Seller or any Affiliate of the Seller that are not terminable at will;

 

(f)

Contracts under which the Company has borrowed or loaned money, or any note, bond, indenture, mortgage, installment obligation, or other evidence of indebtedness for borrowed or loaned money or any guarantee of such indebtedness;

 

(g)

personal property leased to or from the Company;

 

(h)

guaranties, suretyships, or other contingent agreements of the Company;

 

(i)

Contracts relating to capital expenditures with respect to the Company;

 

(j)

Contracts relating to the acquisition or disposition of material assets (other than in the ordinary course of business) or a material portion of the capital stock of any business enterprise;

 

(k)

Contracts with a Material Customer or Material Supplier;

 

(l)

Contracts (other than those covered by clause (a) through (k) above) pursuant to which (whether in a single Contract or via a series of related Contracts) the Company will receive or pay in excess of $25,000.00 over any twelve (12)- month period.

The Seller has made available to the Purchaser a copy of each written Material Contract and has provided to Purchaser a written summary of the material terms of any unwritten Material Contract. As of the Execution Date, with respect to all Material Contracts, neither the Company nor, to the Seller’s Knowledge, any other party to any such Material Contract is in material breach thereof or material default thereunder and, to the Seller’s Knowledge, there does not exist any event that, with the giving of notice or the lapse of time or both, would constitute such a material breach or material default, except for such breaches, defaults, and events as to which requisite waivers or consents have been obtained.

Section 3.13Compliance with Laws. Except as set forth in Section 3.13 of the Disclosure Schedule the Company is in compliance in all material respects with all applicable Laws and all Orders of, and agreements with, any Governmental Authority applicable to it.  As of the Execution Date, the Company has and is in good standing with respect to all permits, certificates, licenses, approvals, certifications, accreditations, and other authorizations (collectively, “Permits”) required under applicable Law or necessary in connection with the conduct of the Business as currently conducted, all of which Permits are set forth in Section 3.13 of the Disclosure Schedule.  The Purchaser’s acquisition of Units will not result in the termination or loss of good standing under any Permit.

 

Section 3.14Labor Matters. Except as set forth in Section 3.14 of the Disclosure Schedule, no charge or complaint of employment discrimination or other similar charge or complaint has been filed against the Company during the last year, or is pending or, to the Seller’s Knowledge, threatened. The Company is not a party to or bound by any collective bargaining

 

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agreement. There is no material labor dispute, grievance, or unfair labor practice charge, or, to the Seller’s Knowledge, union organizational activity pending with respect to the Company, nor, to the Seller’s Knowledge, is any material labor dispute, grievance, or unfair labor practice charge threatened against the Company. The Company is in compliance with all applicable Laws relating to labor, labor relations, or employment.

Section 3.15Environmental Matters. Except as set forth in Section 3.15 of the Disclosure Schedule (i) the Company is, and for the past five (5) years has been, in material compliance with all Environmental Laws; (ii) each parcel of the Leased Real Property, during the period it was leased by the Company, has been maintained by the Company in compliance with all applicable Environmental Laws; (iii) the Company possesses all material Permits required by Environmental Law for the operation of the Business, which Permits are set forth on Section 3.15 of the Disclosure Schedule, and is, and for the past five (5) years has been, in material compliance with the terms of such Permits, all of which are in full force and effect as of the Execution Date; (iv) there are no claims pending or threatened against the Company under or relating to Environmental Laws; (v) there is no Environmental Condition at any Leased Real Property; (vi) there has been no Release of Hazardous Material at, on, under, from or impacting the Leased Real Property or any other real property currently or formerly owned, operated or leased by the Company, nor is there present on or under the Leased Real Property or any other real property currently or formerly owned, operated or leased by the Company any Hazardous Material, in each case in a quantity or condition that would either (A) require notification, investigation, or cleanup under Environmental Law, or (B) would reasonably be expected to result in material liability to the Company; (vii) the Company has not stored or used Hazardous Materials except in compliance with Environmental Laws; (viii) the Company has not disposed of, arranged for the disposal of, or treated Hazardous Materials except in material compliance with Environmental Laws and the Company has not been notified by a Governmental Authority or third party that the Company is alleged to be liable for any such disposal of, arranging for the disposal of, or treatment of Hazardous Materials; (ix) the Company has made available complete and accurate copies of all environmental assessments, reports, audits and other material documents in their possession, custody or control that relate to any Releases, compliance with Environmental Laws, or the environmental condition of any Leased Real Property; (x) the Company has not assumed, contractually or by operation of applicable Law, any Liabilities or obligations under any Environmental Laws.

Section 3.16Clients and Suppliers.

 

(a)

Section 3.16(a) of the Disclosure Schedule sets forth the twenty (20) clients from whom the Company received the greatest amount of revenue during the twelve (12)-month period ended December 31, 2020 (each, a “Material Customer”).  No Material Customer has notified the Company or Seller that it has cancelled, or intends to cancel, its relationship with the Company.

 

(b)

Section 3.16(b) of the Disclosure Schedule sets forth the twenty (20) suppliers to whom the Company incurred the greatest amount of expenditures (by dollar volume) during the twelve (12)-month period ended December 31, 2020 (each, a “Material Supplier”). No Material Supplier has notified the Company or Seller that it has cancelled, or intends to cancel, its relationship with the Company.

 

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Section 3.17Brokers.  Except as set forth in Section 3.17 of the Disclosure Schedule, no broker, finder, or financial advisor or other Person is entitled to any brokerage fees, commissions, finders’ fees, or financial advisory fees in connection with the transactions contemplated by this Agreement reason of any action taken by the Seller, the Company, or any of their respective Representatives.

Section 3.18Affiliate Transactions. Except as set forth in Section 3.18 of the Disclosure Schedule, neither Seller, nor any officer or director of the Company, is a party to any transaction with the Company other than transactions in the ordinary course of business consistent with past practice between any such Person and the Company relating to such Person’s employment.

Section 3.19Undisclosed Liabilities. As of the Execution Date, there is no, and no set of circumstances exists that is reasonably likely to give rise to any, liability, debt or obligation of, or claim against the Company of a type that is required to be reflected or reserved for on a balance sheet prepared in accordance with GAAP, except for liabilities and obligations (a) reflected or reserved for on the Financial Statements; or (b) that have arisen since December 31, 2020, in the ordinary course of the operation of the Business (other than liabilities for breach of contract or violation of applicable Law), none of which is material. )  The Company is not a guarantor nor is otherwise liable for any obligation (including indebtedness) of any other Person.  

Section 3.20Insurance. Section 3.20 of the Disclosure Schedule contains a description of each insurance policy maintained by the Company with respect to its properties, assets, Business, and personnel as of the Execution Date. All such policies are legal, valid, binding, and in full force and effect, and neither the Company nor Seller has received written notice of cancellation, non-renewal, disallowance, or material reduction in coverage with respect to any such policy.  Each such insurance policy provides coverage that is commercially reasonable based upon the nature of the Company’s business, is in full force and effect and shall remain in full force and effect in accordance with its terms immediately following the Closing, and has not been subject to any lapse in coverage.

Section 3.21Insolvency Proceedings.  None of the Company, the Seller, or any of the Units is the subject of any pending, rendered or, to the Seller’s Knowledge, threatened insolvency proceedings of any character.  Neither the Company nor the Seller has made an assignment for the benefit of creditors or taken any action with a view to or that would constitute a valid basis for the institution of any such insolvency proceedings.  Neither the Company nor the Seller is insolvent and will not become insolvent as a result of entering into this Agreement.

 

Section 3.22Exclusivity of Representations. No representation or warranty or other statement made by the Seller in this Agreement or any other schedule, exhibit, instrument, or agreement to be delivered pursuant to this Agreement, contains any untrue statement of material fact or omits to state a material fact necessary to make the statements in this Agreement or therein, in light of the circumstances in which they were made, not misleading.

 

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Article IV.

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

The Purchaser represents and warrants to the Seller as set forth in this Article IV, as of the Execution Date and as of the Closing Date.

Section 4.01Organization; Authority and Binding Effect. The Purchaser is a corporation, validly existing and subsisting under the laws of the State of Nevada. The Purchaser has all requisite power and authority, and all approvals of Governmental Authorities, licenses, and Permits necessary, to enter into this Agreement and the agreements contemplated by this Agreement to be entered into by it at Closing (collectively, the “Purchaser Transaction Agreements”), and to consummate the transactions contemplated hereby and thereby. The execution, delivery, and performance by the Purchaser of this Agreement and the other Purchaser Transaction Agreements, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by all necessary action on the part of the Purchaser. This Agreement and each Purchaser Transaction Agreement has been duly executed and delivered by the Purchaser and constitutes a valid and binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms, except as such enforceability may be limited by (i) applicable insolvency, bankruptcy, reorganization, moratorium, or other similar laws affecting creditors’ rights generally or (ii) applicable equitable principles (whether considered in a proceeding at law or in equity).

Section 4.02No Violation; Consents and Approvals. The execution and delivery by the Purchaser of this Agreement and each Purchaser Transaction Agreement do not, and the consummation of the transactions contemplated hereby and thereby, and compliance with the terms hereof and thereof, will not conflict with, or result in any violation of or default under, (a) any provision of the organizational documents of the Purchaser; (b) any Order or Law applicable to the Purchaser, or the property or assets of the Purchaser; or (c) any contracts to which the Purchaser is a party, or by which the Purchaser, or its assets may be bound. Except as set forth in Section 4.02 of the Disclosure Schedule, no Governmental Approval is required to be obtained or made by or with respect to the Purchaser or its Affiliates in connection with the execution and delivery of this Agreement and each Purchaser Transaction Agreement, or the consummation by the Purchaser of the transactions contemplated hereby and thereby.

Section 4.03Litigation. There are no Actions pending or, to the Purchaser’s Knowledge, threatened against or affecting the Purchaser or its respective properties or assets, at law or in equity, by or before any Governmental Authority, or by or on behalf of any third party, that, if adversely determined, would materially impair the Purchaser’s ability to consummate the transactions contemplated hereby, and there are no outstanding Orders, affecting the Purchaser or its properties or assets, at law or in equity, that would materially impair the Purchaser’s ability to consummate the transactions contemplated by this Agreement.

Section 4.04Investment Intent. The Purchaser is acquiring the Units for investment purposes only and not with a view toward, or for sale in connection with, any distribution thereof in violation of federal, state, or other securities laws.

 

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Section 4.05Brokers. Except as set forth in Section 4.05 of the Disclosure Schedule No broker, finder, or financial advisor or other Person is entitled to any brokerage fees, commissions, finders’ fees, or financial advisory fees in connection with the transactions contemplated by this Agreement by reason of any action taken by the Purchaser or any of its Representatives.

Article V.

COVENANTS

Section 5.01Interim Operations of the Company.  From the Execution Date until the Closing Date or the earlier termination of this Agreement, (i) the Company shall conduct the Business in the ordinary course consistent with past practice, including by using commercially reasonably efforts to maintain and preserve in all material respects the Company’s goodwill and business organization, assets, and properties and to preserve intact business relationships with material clients, suppliers and others having business dealings with the Company and (ii) except as expressly contemplated by this Agreement, unless the Purchaser has previously consented thereto, the Company shall not:

 

(a)

(i) incur any Debt or issue any long-term debt securities or assume, guarantee or endorse such obligations of any other Person, except for Debt incurred in the ordinary course of business consistent with past practice using lines of credit existing on the Execution Date or (ii) make any loans, capital contributions or advances to, or guarantees for the benefit of, or any investment in, any Person (except to employees for the reimbursement of expenses);

 

(b)

(i) acquire, sell, license (other than the grant of non-exclusive licenses to customers in the ordinary course of business consistent with past practice), transfer, abandon, allow to lapse, or otherwise dispose of, any material property or assets (including Intellectual Property), (ii) mortgage or encumber any property or assets (including Intellectual Property) other than Permitted Liens, or (iii) cancel any material debts owed to or claims held by the Company;

 

(c)

disclose any Trade Secrets or other confidential information of the Company (other than pursuant to a written confidentiality agreement entered into in the ordinary course of business with reasonable protections of such Trade Secrets and other confidential information);

 

(d)

enter into, amend, or waive any rights under or terminate any Contract that would constitute a Material Contract, except in the ordinary course of business consistent with past practice;

 

(e)

enter into any Contracts with any Related Persons, except to the extent required by Law or any existing Contracts;

 

(f)

enter any transaction outside of the ordinary course of business;

 

(g)

(i) enter into, adopt, amend or terminate any Employee Plan or other Contract, program, policy or arrangement that would be an Employee Plan if in effect on the Execution Date, except to the extent required by Law (ii) increase or accelerate or commit to accelerate the funding, payment or vesting of the compensation or benefits provided under any Employee

 

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Plan or any other benefit or compensation plan, agreement, Contract, program, policy or arrangement that would be an Employee Plan if in effect on the Execution Date, (iii) grant or announce any cash or equity or equity-based incentive awards, bonus, severance, or similar compensation or any increase in the salaries, bonuses, or other compensation and benefits payable to any of the current or former employees, officers, managers, directors, or other service providers of the Company, (iv) hire or otherwise enter into any employment or consulting agreement or arrangement with any current or former employees, officers, managers, directors, or other service providers of the Company, whose compensation would exceed, on an annualized basis, $100,000, or (v) terminate any current or former employees, officers, manager, directors or other service providers of the Company other than for cause, whose compensation would exceed, on an annualized basis, $100,000;

 

(h)

implement or announce any employee layoffs that could implicate the WARN Act;

 

(i)

except as required by applicable Law, (i) enter into, modify, extend, or terminate any collective bargaining agreement or other Contract with any labor union, works council, or other labor organization or (ii) recognize or certify any labor union, works council, or other labor organization, or group of employees, as the bargaining representative for any employees of the Company;

 

(j)

make any material change to its accounting methods, principles or practices, except as may be required by GAAP;

 

(k)

make or change any material Tax election, file any material amended Tax Return, enter into any “closing agreement” within the meaning of Section 7121 of the Code or settle or compromise any Tax proceeding with respect to a material amount of the Taxes, surrender or abandon any right to claim a material Tax refund, consent to any extension or waiver of the statute of limitations applicable to any material Tax claim or assessment, fail to pay any material Tax when due and payable (including estimated Taxes), or incur any material Taxes outside the ordinary course of business;

 

(l)

make any amendment to its Organizational Documents;

 

(m)

declare or pay any dividends or distributions (whether cash, in kind, or any other form of payment);

 

(n)

withdraw or remove any cash from any Company bank account, other than as required for the payment of ordinary course business expenses, provided that no such expenses are payable to Seller or any of its Affiliates;

 

(o)

purchase, redeem, retire, or otherwise acquire any of its shares or other equity interests or redeem any of its Debt;

 

(p)

issue or sell any units or options, or issue or sell any securities convertible into, warrants or other rights to purchase, any units or other equity interest of the Company, combine or subdivide the units or other equity interest of the Company, or effect any recapitalization, reclassification, equity split, or like change in its capitalization;

 

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(q)

adopt a plan or complete or partial liquidation, dissolution, merger, consolidation, restricting, recapitalization or other reorganization or merge or consolidate the Company with any other Person;

 

(r)

acquire the equity interests or material assets of any other Person;

 

(s)

incur any capital expenditure in excess of $50,000 individually or $100,000 in the aggregate;

 

(t)

initiate, compromise or settle any material Proceeding that would reasonably be expected to involve amounts in dispute in excess of $25,000, or that results in the imposition of any equitable relief or material non-monetary continuing obligations on the Company;

 

(u)

cancel or terminate or materially modify or amend any current insurance policies of the Company or allow any of the coverage thereunder to lapse, unless simultaneously with such termination, cancellation, or lapse, replacement policies providing coverage equal to or greater than the coverage under the canceled, terminated, or lapsed policies for substantially similar premiums are in full force and effect; and

 

(v)

agree in writing to do any of the foregoing.

Section 5.02FINRA Related Covenants. In addition to the covenants set forth in Section 5.01, from the Execution Date until the Closing Date or the earlier termination of this Agreement:

 

(a)

the Company shall continue to operate as a FINRA Broker-Dealer with capital not less than the amount necessary to meet the Company’s minimum Net Capital Requirement (as defined by FINRA), pursuant to the Company’s Membership Agreement;

 

(b)

until the FINRA Final Approval, the Current Principal(s) shall remain the only designated principals and managers of the Company;

 

(c)

Seller shall immediately provide written notice to Purchaser if the Company anticipates falling below the minimum Net Capital Requirement and the reasons therefore;

 

(d)

In the event Seller provides the written notice described in Section 5.02(c) above, the Purchaser shall deposit such amounts needed to maintain the Company’s required minimum Net Capital Requirement without issuance of any equity or additional Membership Interest for doing so;

 

(e)

Seller shall immediately provide written notice to Purchaser in the event of any client, customer, or third-party complaint, claim, litigation, arbitration, administrative proceeding, or lawsuit filed or threatened or anticipated, verbally or in writing, against the Company; and

 

(f)

Seller and the Company shall maintain the Company in good standing as a duly registered limited liability company under applicable Law and as a registered broker-dealer with FINRA.

 

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Section 5.03Access to Information; Confidentiality.

 

(a)

From the Execution Date until the Closing Date or the earlier termination of this Agreement, and subject to applicable Law, Seller shall cause the Company to give Purchaser and its counsel, financial advisors, financing sources, auditors and other representatives, upon reasonable notice to the Seller, reasonable access, during normal business hours and in such a manner as not to interfere with the normal operations of the Company, to the assets, properties, books, records, agreements and such senior personnel and management as Seller may authorize (which authorization shall not be unreasonably withheld, conditioned or delayed), including for purposes of post-integration planning and discussions regarding employee communications, of the Company and permit Purchaser  to make such inspections as it may reasonably require and to furnish Purchaser during such period with all such information relating to the Company as Purchaser may from time to time reasonably request.

 

(b)

Any information provided to or obtained by the Purchaser pursuant to paragraph (a) above will be subject to the Confidentiality Agreement, dated December 17, 2020 by and between Purchaser and the Company (the “Confidentiality Agreement”), and must be held by Purchaser in accordance with and be subject to the terms of the Confidentiality Agreement.

 

(c)

Seller shall treat and hold as confidential all Confidential Information. Seller shall promptly deliver to Purchaser, at the request of Purchaser, all tangible embodiments (and all copies) of the Confidential Information in Seller’s possession or under Seller’s control.  In the event that Seller is requested or required (by oral question or request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand, or similar process) to disclose any Confidential Information, Seller shall notify Purchaser promptly of the request or requirement so that Purchaser may seek an appropriate protective order or waive compliance with the provisions of this Section 5.04(c).  If, in the absence of a protective order or the receipt of a waiver hereunder, any Seller is, on the advice of counsel, compelled to disclose any Confidential Information to any tribunal, such Seller may disclose the Confidential Information to the tribunal; provided, that, Seller shall, at Purchaser’s cost, use its commercially reasonable efforts to obtain an order or other assurance that confidential treatment shall be accorded to such portion of the Confidential Information required to be disclosed.  Seller acknowledges and agrees that in the event of a breach by Seller of the provisions of this Section 5.04(c), monetary damages shall not constitute a sufficient remedy.  Consequently, in the event of any such breach or potential breach by Seller or the Company, Purchaser, and/or its successors or assigns may, in addition to other rights and remedies existing in its favor, apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions of this Section 5.04(c), in each case without the requirement of posting a bond or proving actual damages.  

 

Section 5.04Books and Records; Post-Closing Payments.

 

(a)

Purchaser shall, and shall use reasonable efforts to cause the Company to, in accordance with its document retention practices, retain all books, records, and other documents in its possession that pertain to the Company and the Business.  In order to facilitate the

 

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resolution of any claims made against or incurred by Seller relating to the period prior to the Closing (other than claims initiated by Seller, on the one hand, against a Purchaser Indemnified Party, on the other hand), for a period of six (6) years after the Closing, Purchaser shall make such books and records available to Seller for inspection and copying, at the expense of Seller, during normal business hours, upon reasonable written request and notice from Seller.

 

(b)

After the Closing, unless otherwise consented to in writing by Purchaser, Seller hereby agrees that it shall not access any electronic or internet-based data room maintained for or related to this Agreement and the Transactions and Seller shall relinquish and return to the Company any and all usernames, passwords, and passcodes maintained with respect thereto.  Promptly following the Closing, Seller shall provide Purchaser with a CD-ROM or USB of the contents of the data room that were provided by Seller to Purchaser as of the Closing.

 

(c)

For the avoidance of doubt, in the event that Seller’s receipt, following the Closing, of any payment under this Agreement, results in any obligation on Seller’s part to pay any advisor or other third party any portion of such payment, Seller agrees that it will promptly cause such payment to be made, and acknowledges that Purchaser shall have no liability or obligations in connection therewith.

Section 5.05Public Announcements. Seller shall not make any public announcement, press release, or other communication (whether via press, website, social media or otherwise) regarding this Agreement, the Transaction and the terms hereof, without the express prior written consent of Purchaser, and in the event of such express written consent of Purchaser, any such public announcement, press release or communication shall be as mutually agreed to between Purchaser and Seller.  Purchaser and Seller shall work cooperatively in drafting a joint press release to be issued upon the Closing.

 

Section 5.06Exclusivity.  From the Execution Date until the Closing or the earlier termination of this Agreement, the Seller will not, and will cause the Company not to, nor will Seller or the Company authorize or permit any of its or its Affiliates’ representatives, officers, directors, managers, employees or advisors (each a “Representative”, and collectively, the “Representatives”) to:  (a) initiate, solicit, discuss, entertain, accept or negotiate any inquiry, proposal or offer to acquire the Company or any material portion of its assets (whether by merger, consolidation, purchase or issuance of equity securities, purchase of assets tender offer) or any other structured transaction with a similar result) (an “Acquisition Proposal”), other than with the Purchaser and its Affiliates and Representatives; (b) furnish or disclose any non-public information to any Person, other than to the Purchaser and its Affiliates and Representatives, in connection with an Acquisition Proposal, except as may be required by applicable Law; or (c) enter into any agreement regarding an Acquisition Proposal, other than with the Purchaser and its Affiliates and Representatives. The Company and the Seller agree not to waive any rights under, and not to modify or amend, any confidentiality, non-disclosure or other similar agreements with any Person (other than Purchaser and its Affiliates and Representatives) that has received confidential information of the Company in connection with any Acquisition Proposal.

 

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Section 5.07Reasonable Best Efforts; Cooperation.

 

(a)

Subject to the terms and subject to the conditions set forth in this Agreement, each of the parties hereto agrees to use reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties hereto in doing, all things necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement and to obtain satisfaction or waiver of the conditions precedent to the consummation of the transactions contemplated hereby, including, subject to Section 5.08(b), obtaining all of the necessary actions or nonactions, authorizations, Permits, waivers, consents and approvals from Governmental Authorities and the making of all filings and the taking of all steps as may be necessary to obtain an approval or waiver from, or to avoid an Action by, any Governmental Authority, obtaining the necessary consents from third parties agreed upon by the Purchaser and the Seller to be pursued, defending any Action challenging this Agreement or the consummation of the transactions contemplated hereby, including seeking to have any stay, temporary restraining order, or injunction entered by any Governmental Authority vacated or reversed, and  the execution and delivery of any additional instruments necessary to consummate the transactions contemplated by, and to carry out fully the purposes of, this Agreement.

 

(b)

The Parties acknowledge and agree that the Transaction is subject to the prior notification to, and approval of, FINRA under FINRA Rule 1017.  Upon execution of this Agreement, Seller shall promptly send to FINRA a letter informing FINRA of its intent to sell the Company to Purchaser.  Said letter is not deemed to be the Rule 1017 CMA filing notice as required by FINRA.  Additionally, Seller shall register a representative as designated by Purchaser to create and submit the CMA filing via the Company’s gateway system. This may include registering a Purchaser-designated compliance professional as the Company’s Super Account Administrator (“SAA”).  Within thirty (30) days of executing this Agreement, Purchaser shall prepare, and Seller shall submit to FINRA, under Rule 1017, a package as required by FINRA for the change in ownership of the Company (“FINRA Notification”), with all costs and fees associated with the FINRA Notification to be borne 50% by Purchaser and 50% by Seller. Furthermore, upon execution of this Agreement, Seller shall designate as SAA, a duly qualified representative of the Purchaser, namely Compliance Exchange Group, LLC, so that Purchaser may prepare and submit the CMA. The Seller shall fully cooperate, and shall cause the Company to fully cooperate, with Purchaser’s efforts in making the FINRA Notification and any and all notification, consent, and/or approval processes with any Governmental Authority, including, but not limited to, Purchaser’s efforts to obtain FINRA Final Approval.  The Seller agrees to communicate with, and/or provide FINRA Notification, and FINRA Correspondence, as well as notification of the CMA to Governmental Authorities as required by, at the direction of, and to the sole and absolute satisfaction of Purchaser.  The Seller and the Purchaser agree to provide any documentation or information requested of each of them by Governmental Authorities, and to make any filings reasonably required by a Governmental Authority in connection with obtaining the FINRA Final Approval.

 

 

(c)

In the event that FINRA gives the Company or Purchaser notice (whether verbal or written) requesting that the CMA be withdrawn, or of its intent to reject the CMA, or any of its

 

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conditions, including but not limited to ownership or management changes, or if FINRA fails to provide (such failure to be evidenced by written notification), FINRA Final Approval (such withdrawal request, notice of rejection, or failure to provide FINRA Final Approval, the Failure Notice), the Purchaser shall retain the right, at its sole discretion, to exercise any of the following options:

 

(i)

The Purchaser may elect to continue pursuit of FINRA Final Approval through filing a written request for review of FINRA's decision on the CMA and/or of Failure Notice (an “Appeal”) with FINRA, a higher body, or any other body of jurisdiction deemed to be, in the judgment of Purchaser, an appropriate body for such Appeal. If the Purchaser elects to file an Appeal, Seller shall continue to comply with the terms and conditions as set forth in this Agreement, until the Company receives FINRA Final Approval or rejection upon the filling of such Appeal.

 

(ii)

The Purchaser may elect to continue the Company’s pursuit of FINRA Final Approval through re-filing an updated or new version of the CMA (the “Re-Filing”). The Re-Filing shall reflect ownership, management and/or other changes to the CMA, as determined by Purchaser or Purchaser’s consultant, to affect FINRA Final Approval.  Should Purchaser elect Re-Filing, and provided such Re-Filing is in the form of a new CMA, Seller shall continue to comply with the terms and conditions as set forth in this Agreement, until the Company receives FINRA Final Approval or rejection upon the filling of such Re-Filing.

 

(iii)

The Purchaser may elect to terminate this Agreement in accordance with the provisions of Article VIII, including without limitation, Section 8.02(b).

 

(d)

In the event of elections described within this Section 5.07(c)(i) and (ii), which may be made as many times as Purchaser may elect, in its discretion, this Agreement shall continue in full force and effect in accordance with its terms.

Section 5.08Non-Competition; Non-Solicitation.

 

(a)

Other than to own Units in the Company and for so long as Purchaser or an Affiliate of Purchaser owns units in the Company, during the Restricted Period:

 

(i)

The Seller shall not, directly or indirectly, engage, invest in, own, manage, operate, finance, control, advise, render services to, guarantee the obligations of, be employed by, be associated with, or in any manner be connected with any Person engaged in the Business within the Territory, directly or indirectly, whether as an officer, director, shareholder, owner, co-owner, Affiliate, partner, agent, representative, consultant, independent contractor or advisor, or otherwise render services or advice to, guarantee any obligation of, or acquire or hold (of record, beneficially or otherwise) any direct or indirect interest in such a Person; provided, however, that the Seller may acquire or otherwise own less than 1% of the outstanding capital stock of a Person that is listed on any national securities exchange.

 

(ii)

The Seller shall not, directly or indirectly, (A) cause, induce, or attempt to cause or induce any employee, agent, or independent contractor of the Purchaser, the Company,

 

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or any Affiliates of any of the foregoing to terminate such relationship; (B) in any way interfere with the relationship among the Purchaser, the Company, or any Affiliates of any of the foregoing and any of their respective employees, agents, or independent contractors; or (C) hire, retain, employ, or otherwise engage or attempt to hire, retain, employ, or otherwise engage as an employee, independent contractor, or otherwise, any employee, agent, or independent contractor of the Purchaser, the Company, or any Affiliates of any of the foregoing.

 

(iii)

The Seller shall not, directly or indirectly, (A) solicit, induce, or otherwise cause, or attempt to solicit, induce, or otherwise cause, any customer, supplier or other business relation of the Purchaser, the Company, or any Affiliates of any of the foregoing, or any prospective customer, supplier or other business relation that has been contacted or targeted for contact by the Company on or before the Closing Date, to (1) terminate, curtail, or otherwise modify its relationship with the Purchaser, a Company, or any Affiliates of any of the foregoing, or (2) engage in business with a competitor of the Purchaser, the Company, or any Affiliates of any of the foregoing; or (B) interfere in any way with the relationship among the Purchaser, the Company, or any Affiliates of any of the foregoing and any of their respective customers, suppliers, or other business relations, or any such prospective customers, suppliers or other business relations.

 

(b)

The Seller agrees that this Section 5.0809, including the provisions relating to duration, geographical area, and scope, is reasonable and necessary to protect and preserve the legitimate business interests of the Purchaser and the Company and the value of the Units and the Company, and to prevent an unfair advantage from being conferred on the Seller.

 

(c)

If any provision of this Section 5.08 would be held to be excessively broad as to duration, geographical area, scope, activity, or subject, for any reason, such provision shall be modified, by limiting and reducing it, to be enforceable to the extent allowed by applicable Law.

 

(d)

The Seller acknowledges that any breach of this Section 5.08would result in serious and irreparable injury to the Purchaser, the Purchaser could not be adequately compensated by monetary damages alone, and the Purchaser’s remedy at law would not be adequate. Therefore, the Seller acknowledges and agrees that, in the event of a breach by the Seller, the Purchaser shall be entitled, in addition to any other remedy at law or in equity to which the Purchaser may be entitled, to equitable relief against the Seller, including temporary restraining orders and preliminary and permanent injunctions to restrain the Seller from such breach and to compel compliance with the obligations of the Seller, and the Seller waives the posting of a bond or undertaking as a condition to such relief.

Article VI.

TAX MATTERS

Section 6.01Tax Matters.

 

(a)

Pre-Closing Income Tax Returns.  The Seller will prepare or cause to be prepared and timely file or cause to be timely filed all income Tax Returns for the Company for all

 

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periods ending on or prior to the Closing Date that are to be filed after the Closing Date (the “Seller’s Returns”).  Any such Seller’s Return shall be prepared in a manner consistent with the prior Tax Returns of the Company, unless otherwise required by applicable Law and without a change of any election or any accounting method.  No later than twenty (20) days prior to the due date (including extensions) of any Seller’s Return, the Seller will deliver or cause to be delivered to Purchaser such Seller’s Return (together with schedules, statements and, to the extent requested by Purchaser, supporting documentation) and will permit Purchaser to review and comment on such Seller’s Return and will consider in good faith such revisions to such Seller’s Return as are reasonably requested by Purchaser within such twenty (20)-day period.  The Seller will timely pay to the appropriate Taxing Authority any and all Taxes shown as due on such Seller’s Return to the extent such Taxes were not included as a liability in the calculation of Actual Net Working Capital.  The costs, fees and expenses related to the preparation of all Seller’s Returns will be estimated and accrued as a liability of the Company for purposes of calculating Net Working Capital and the amount estimated and accrued will be borne by the Seller.

 

(b)

Other Tax Returns.  Purchaser will prepare or cause to be prepared all other Tax Returns of the Company for any Pre-Closing Period and Straddle Period, other than the Sellers’ Returns (the “Purchaser’s Return”).  The Purchaser’s Return relating solely to a Pre-Closing Period shall be prepared in a manner consistent with the prior Tax Returns of the Company unless otherwise required by applicable Law and without a change of any election or any accounting method.  No later than twenty (20) days prior to the due date (including extensions) of the Purchaser’s Return, Purchaser will deliver or cause to be delivered to the Seller such Purchaser’s Return (together with schedules, statements and, to the extent requested by the Seller, supporting documentation) and will permit the Seller to review and comment on such Purchaser’s Return and will consider in good faith such revisions to such Purchaser’s Return as are reasonably requested by the Seller.  The Seller will timely (but in no event later than five (5) days prior to the due date of any such Purchaser’s Return) pay to Purchaser any and all Taxes shown as due on such Purchaser’s Returns that are for and related to the Pre-Closing Period to the extent such Taxes were not included as a liability in the calculation of Actual Net Working Capital.  In the case of a Straddle Period, the amount of Taxes constituting Taxes for and related to the Pre-Closing Period shall be determined: (i) in the case of Taxes based upon or related to income, sales, receipts or payroll, based on an interim closing of the books as of the close of business on the Closing Date; and (ii) in the case of all other Taxes, based on the amount of such Tax for the entire Tax Period multiplied by a fraction the numerator of which is the number of days in the Tax Period ending on the Closing Date and the denominator of which is the number of days in the entire Tax Period. The costs, fees and expenses related to the preparation of such Tax Returns relating (i) solely to a Pre-Closing Period will be paid by the Seller, and (z) to a Straddle Period will be paid 50% by Purchaser and 50% by Seller.

 

 

(c)

Tax Sharing Agreements.  The Seller will cause all Tax Sharing Agreements or similar agreements with respect to or involving the Company to be terminated as of the Closing Date and, after the Closing Date, the Company will not be bound thereby or have any liability thereunder.

 

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(d)

Conduct of Audits and Other Procedural Matters.  In the event that Purchaser, the Company or their respective representatives or Affiliates receives notice of any Tax claim, audit, investigation, examination, or other proceeding or self-assessment concerning Taxes (a Tax Proceeding”) with respect to which the Seller may have liability, the party in receipt of such notice shall promptly notify the Seller of such matter in writing, provided that failure to comply with this provision shall not affect a party’s right to indemnification hereunder except to the extent such failure materially and adversely affects a party’s liability for Taxes, or ability to participate in or challenge such Tax Proceeding.  The Seller shall have the right to represent the Company in any Tax Proceeding relating solely to a Pre-Closing Period, and, at its own expense, to employ counsel of its choice.  Notwithstanding the foregoing, the Seller (i) shall not settle any claim for Taxes without the prior written consent of Purchaser, which consent shall not be unreasonably withheld, delayed, denied, or conditioned, (ii) shall keep Purchaser reasonably informed regarding the progress and substantive aspects of such Tax Proceedings, including providing Purchaser with all substantive materials relating to such Tax Proceedings received from the relevant Taxing Authority and all substantive written materials submitted to such Taxing Authority by the Seller, and (iii) shall give Purchaser the opportunity to participate in the defense of such Tax Proceedings at Purchaser’s own expense.  Purchaser shall be entitled to represent the Company in any Tax Proceeding relating to any Straddle Period and any other Tax Proceeding for which the Seller is not representing the Company; provided, however, the Seller shall be entitled to participate at its expense in the defense of any claim for Taxes for and related to the Pre-Closing Period for such Straddle Period.  Neither Purchaser, the Company nor their respective Representatives or Affiliates shall be entitled to settle any claim for Taxes for and related to the Pre-Closing Period with respect to a Straddle Period or any claim that would otherwise affect the liability of the Seller for Taxes without, in each case, the prior written consent of the Seller, which consent shall not be unreasonably withheld, delayed, denied or conditioned.

 

 

(e)

Cooperation. The parties hereto shall cooperate fully, as and to the extent reasonably requested by any other such party, in connection with (i) the preparation and filing of all Tax Returns of the Company; and (ii) any Tax Proceeding.  Such cooperation shall include making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder.  Each party hereto agrees, upon request, to use its commercially reasonable efforts to obtain any certificate or other document from any Taxing Authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including any Transfer Taxes).

 

(f)

Tax Refunds. Seller will be entitled to any Tax refund that is received by Purchaser or the Company that arises in respect of a Pre-Closing Period, except to the extent any such refund (i) was included in the calculation of Actual Net Working Capital, as finally determined, or (ii) arises as the result of a carryback of a loss or other Tax benefit from a Tax period (or portion thereof) beginning on or after the Closing Date.  Purchaser shall pay to the Seller any such refund net of (i) any Taxes of Purchaser and its Affiliates (including the Company) attributable to the receipt of such refund, and (ii) any costs and expenses incurred by Purchaser and its Affiliates (including the Company) in obtaining any such refund.  In the event any Tax refund is subsequently disallowed or determined to be an amount less than the amount taken into account to make a payment pursuant to this Section

 

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6.01(f) by a Taxing Authority, the Seller shall promptly return such excess to Purchaser, the Company, or any of their respective Affiliates, along with any applicable interest and penalties.

Article VII.

SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND COVENANTS; INDEMNIFICATION

Section 7.01Survival of Representations, Warranties, and Covenants.  The representations and warranties of the parties hereto contained in this Agreement and any certificate or other document provided hereunder or thereunder will survive in full force and effect until the expiration of the applicable statute of limitations underlying any such claim (the “Survival Expiration Date”). In no event shall the obligations to indemnify hereunder for any claim made extend beyond six years from the Closing Date and said six year anniversary date shall constitute a final date of repose.

Section 7.02Indemnification by the Seller.

(a)Subject to the limitations set forth herein, including time limitations set forth in Section 7.01 above, following the Closing, the Seller shall indemnify and defend the Purchaser and its officers, directors, partners, employees, agents, and affiliates (collectively the “Purchaser Indemnified Parties”) against, and shall hold the Purchaser Indemnified Parties harmless from, any loss, liability, claim, charge, action, suit, proceeding, assessed interest, damage or penalty (collectively “Losses”) resulting from, arising out of or incurred by the Purchaser Indemnified Parties in connection with:

(i)any breach of any representation or warranty on the part of the Seller or the Company contained in this Agreement; and

(ii)any breach of any covenant or agreement on the part of the Seller or the Company contained in this Agreement; and

(iii)any statement, document, certificate or information provided by the Seller to the Company for inclusion in the Company’s 1017 application with FINRA; and

(iv)Losses, including settlements of actions and claims, arising prior to the Closing Date and made prior to the earlier of the Survival Expiration Date or the final date of repose above stated, to the extent not covered by insurance or other third-party indemnification agreements set forth in Section 7.02(b), subject to the following limitations:

(a)A.The aggregate indemnification liability of Seller under this Section 7.02 shall not exceed $3,500,000; and

(b)B.Notwithstanding anything in this Agreement to the contrary, any Losses shall first be paid by the Company up to the amount of $500,000 and then any excess thereafter up to the $3,500,000 aggregate indemnification liability shall be paid by the Seller.

 

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(v)The Purchaser Indemnified Parties acknowledge and agree that, should the Closing Date occur, its sole and exclusive remedy with respect to any and all matters arising out of, relating to or connected with this Agreement, the Company and its assets and liabilities, the transactions contemplated hereby and the Purchased Units shall be pursuant to the indemnification provisions set forth in this Article VII.  

(b)Condition precedent to indemnification obligations by the Company and the Seller. The Purchaser and the Company agree that the order and conditions of payment of Losses will be as follows:

(i)Coverage amounts provided by E&O, D&O and Fidelity Bond insurance policies; and

(ii)Amounts secured pursuant to Registered representative agreements and third-party indemnification provisions; and

(iii)Amounts secured pursuant to Contribution agreements with registered representatives whether in accordance with a registered representative/independent contractor agreements or otherwise such as a reduction in future payout.  

Section 7.03Indemnification by the Purchaser.  Subject to the limitations set forth herein, including time limitations set forth in Section 7.01 above, following the Closing, the Purchaser shall indemnify and defend the Seller against, and shall hold the Seller harmless from, any Losses resulting from, arising out of or incurred by the Seller in connection with:

(i)any breach of any representation or warranty on the part of the Purchaser contained in this Agreement;

(ii)any breach of any covenant or agreement of the Purchaser contained in this Agreement; and

(iii)any statement, document, certificate or information provided by the Purchaser to the Company for inclusion in the Company’s 1017 application with FINRA.

(iv)Notwithstanding anything in this Agreement to the contrary, the Purchaser’s aggregate indemnification liability under this Section 7.03 shall not exceed $1,000,000.

Section 7.04Indemnification Claim Procedures.

 

(a)

If, at any time prior to expiration of the applicable Survival Expiration Date, a Purchaser Indemnified Party believes that it is entitled to indemnification for any Purchaser Claim, the Purchaser shall deliver a notice (a “Claim Notice”) to the Seller specifying facts constituting the basis for such Purchaser Claim and the amount sought to be recovered (the “Purchaser Claimed Amount”). From the date that the Claim Notice is received by the Seller, the Seller shall have fifteen (15)-days to deliver to the Purchaser a notice disputing the Purchaser Claim described in the Claim Notice and specifying why the Purchaser should not be entitled to the Purchaser Claimed Amount (a “Dispute Notice”). If the Purchaser does not receive a Dispute Notice within such fifteen (15) day period, the

 

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Purchaser may recover the Purchaser Claimed Amount pursuant to Section 7.02(a)(v). If the Seller has timely provided a Dispute Notice, the parties shall negotiate in good faith to resolve such Purchaser Claim. If no resolution is reached within fifteen (15)-days of the commencement of such negotiations, then either of such parties may commence an action against the other party (including a declaratory judgment action) in a court of competent jurisdiction, and the parties shall abide by a final, non-appealable court order resulting from such action or proceeding (a “Distribution Directive”). The parties acknowledge that there may be multiple Claim Notices given by the Purchaser prior to expiration of the applicable Survival Expiration Date.

 

(b)

If, at any time prior to expiration of the applicable Survival Expiration Date, a Seller Indemnified Party believes that it is entitled to indemnification for any Seller Claim, the Seller shall deliver a Claim Notice to the Purchaser specifying facts constituting the basis for such Seller Claim and the amount sought to be recovered from the Purchaser (the “Seller Claimed Amount”). From the date that the Claim Notice is received by the Purchaser, the Purchaser shall have fifteen (15) days to deliver to the Seller a Dispute Notice. If the Seller does not receive a Dispute Notice within such fifteen (15) day period, the Seller may recover the Seller Claimed Amount from directly from the Purchaser. If the Seller has timely provided a Dispute Notice, the parties shall negotiate in good faith to resolve such Seller Claim. If no resolution is reached within fifteen (15) days of the commencement of such negotiations, then either of such parties may commence an action against the other party (including a declaratory judgment action) in a court of competent jurisdiction, and the parties shall abide by a Distribution Directive. The parties acknowledge that there may be multiple Claim Notices given by the Seller prior to expiration of the applicable Survival Expiration Date.

 

Section 7.05Claim Procedures for Other Persons. If any Action is commenced or threatened that may give rise to a claim for indemnification that is not otherwise governed by Section 7.04 (an “Indemnification Claim”) by any Person entitled to indemnification under this Agreement (each, an “Indemnified Party”), then such Indemnified Party will promptly give notice to the Indemnifying Party. Failure to notify the Indemnifying Party will not relieve the Indemnifying Party of any liability that it may have to the Indemnified Party, except to the extent the defense of such Action is materially prejudiced by the Indemnified Party’s failure to give such notice. The Indemnifying Party shall have twenty (20) days from the delivery of the Claim Notice to notify the Indemnified Party in writing (i) whether or not the Indemnifying Party disputes its liability to the Indemnified Party with respect to such Claim and (ii) whether or not the Indemnifying Party elects to defend the Indemnified Party against such Indemnification Claim; provided, however, that the Seller and/or Member as the Indemnifying Party shall not be permitted to elect to defend the Indemnification Claim: (A) if the applicable third party claimant is a then-current customer of the Purchaser, the Company or one of their respective Affiliates; (B) if the applicable third party claimant alleges fraud; (C) there is material conflict of interest between the Indemnifying Party and the Indemnified Party in the conduct of such defense; (D) the third party claim is criminal in nature; (E) the third party claim seeks solely injunctive relief or other equitable remedies against the Indemnified Party; and/or (F) if the Indemnifying Party disputes its liability.  The Indemnifying Party shall not approve the entry of any judgment or enter into any settlement or compromise with respect to the Indemnification Claim without the Indemnified Party’s prior written approval (which shall not be unreasonably withheld, delayed, denied, or conditioned),

 

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unless the terms of such settlement provide for a complete release of the claims that are the subject of such Action in favor of the Indemnified Party. If the Indemnified Party gives an Indemnifying Party notice of an Indemnification Claim and the Indemnifying Party does not, within thirty (30) days after such notice is given, give notice to the Indemnified Party of its election to assume the defense of the Action or Actions subject to such Indemnification Claim, then the Indemnified Party may conduct the defense of such Action; provided, however, that the Indemnified Party will not agree to the entry of any judgment or enter into any settlement or compromise with respect to the Action or Actions subject to any such Indemnification Claim without the prior written consent of the Indemnifying Party, such consent not to be unreasonably withheld, delayed, denied, or conditioned. A claim for any matter not involving a third party may be asserted by written notice to the party from whom indemnification is sought; provided, however, that any assertion of an Indemnification Claim shall be subject to the limitations as to time set forth in this Agreement.

 

Section 7.06Sole and Exclusive Remedy. Following the Closing, except in respect of fraud, the indemnification provisions contained in this Article VII will constitute the sole and exclusive recourse and remedy of the parties with respect to any claim arising from this Agreement or the transactions contemplated hereby (including Purchaser Claims and Seller Claims), whether by contract, tort, or otherwise. Notwithstanding the foregoing, the provisions of this Article VII will not restrict the right of any party to seek specific performance or other equitable remedies in connection with any breach of any of the covenants contained in this Agreement.

Section 7.07Net Recoveries. The amount of any Damages for which indemnification shall be available pursuant to this ARTICLE VII shall be reduced by any proceeds actually received from a third party insurer or any other third party by an Indemnified Party in connection with the matter giving rise to such Damages (net of the amount of costs and expenses (including reasonable attorneys’ fees) of recovery or collection thereof and any applicable deductibles, retentions or similar costs or payments or increased premiums) (“Net Recoveries”). If an Indemnified Party or any of its Affiliates actually receives a Net Recovery with respect to any Damages after an Indemnifying Party has actually made a payment to such Indemnified Party or its Affiliates with respect to such Damages, such Indemnified Party shall promptly pay over to the Indemnifying Party that amount, if any, that such Indemnifying Party would not have been required to pay to such Indemnified Party or its Affiliate if such Net Recovery had been received prior to such payment by the Indemnifying Party.

Section 7.08Adjustment to Purchase Price. Any payment made pursuant to this ARTICLE VII shall be treated to the extent permitted under Applicable Tax Law as adjustments to the Purchase Price for all Tax purposes, and to the extent not so permitted, the amount of any such payment shall be increased to take into account the Tax, if any, resulting from the receipt of such payment.

Article VIII.

TERMINATION OF AGREEMENT

Section 8.01Right to Terminate.  Notwithstanding any other provision of this Agreement, this Agreement may be terminated at any time prior to the Closing Date:

 

(a)

by the mutual written consent of the Purchaser and the Seller;

 

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(b)

by the Purchaser, upon written notice to the Seller, if the transactions contemplated by this Agreement have not been consummated on or prior to December 31, 2021;

 

(c)

by the Purchaser, upon written notice to the Seller, if (i) a Governmental Authority of competent jurisdiction and existing in a jurisdiction in which the Company does business, has issued an Order permanently enjoining or otherwise prohibiting the consummation of the transactions contemplated by this Agreement, and such Order has become final and non-appealable, or (ii) FINRA has advised that FINRA Final Approval will not be issued.

Section 8.02Effect of Termination.  

 

(a)

In the event of termination of this Agreement pursuant to Section 8.01 (the “Termination”), the remaining obligations of this Agreement will become void and have no effect, without any liability or obligation on the part of the Purchaser or the Seller (or any of their directors, officers, employees, agents, legal and financial advisors, or other Representatives), other than the provisions of Section 5.02(b), Section 5.04, this Section 8.02, and Article X which will survive any termination of this Agreement; provided, however, that nothing herein will relieve any party from any liability for any pre-termination breach by such party of its covenants or agreements set forth in this Agreement.

 

(b)

Upon the Termination, Purchaser and Seller agree that they will promptly work together to cause the Company to be marketed and sold to a third party, and that upon the consummation of such sale transaction, the proceeds therefrom, net of Transaction Expenses which shall be allocated as between Purchaser and Seller in accordance with their respective ownership interests in the Company, shall be paid as follows: (i) the first One Million Two Hundred Fifty Thousand Dollars ($1,250,000) of consideration paid by the third-party purchaser shall be paid to Seller, provided that if Seller has received a payment under Section 5.08, then the amount of the payment to be made to under this Section 8.02(b)(i) shall be reduced on a dollar for dollar basis by the amount paid to Seller under Section 5.08, and (ii) all amounts in excess of the amount payable to Seller pursuant to Section 8.02(b)(i) shall be paid to Purchaser, in each case in immediately available funds.  

Article IX.

CONDITIONS TO CLOSING

Section 9.01Conditions to Obligations of the Parties.  The respective obligations of the Seller and the Purchaser to consummate the transactions contemplated by this Agreement are subject to the satisfaction or waiver (if permitted by applicable Law) at or prior to the Closing of each of the following conditions:

 

(a)

None of the parties hereto will be subject to any Order, statute, rule, regulation, consent, decree, judgement or injunction of a court of competent jurisdiction that prohibits the consummation of the transactions contemplated by this Agreement; and

 

(b)

FINRA Final Approval shall have been received.

 

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Section 9.02Conditions to Obligations of the Seller.  The obligations of the Seller to consummate the transactions contemplated by this Agreement are subject to the satisfaction or waiver (if permitted by applicable Law) at or prior to the Closing of each of the following additional conditions:

 

(a)

The representations and warranties of the Purchaser set forth in this Agreement will be true and correct in all respects (provided that any representation or warranty of the Purchaser contained herein that is subject to a materiality, material adverse effect or similar qualification will not be so qualified for purposes of determining the existence of any breach thereof on the part of the Purchaser), as of the Execution Date and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties speak as of an earlier date), except for such breaches that would not, individually or in the aggregate with any other breaches on the part of the Purchaser, materially and adversely affect the ability of the Purchaser to consummate the transactions contemplated by this Agreement;

 

(b)

Each of the agreements and covenants of the Purchaser to be performed and complied with by the Purchaser pursuant to this Agreement prior to the Closing Date will have been duly performed and complied with in all material respects; and

 

(c)

The Purchaser will have delivered to the Seller the items required by Section 2.03(c) of this Agreement.

Section 9.03Conditions to Obligations of the Purchaser.  The obligations of the Purchaser to consummate the transactions contemplated by this Agreement are subject to the satisfaction or waiver (if permitted by applicable Law) at or prior to the Closing of each of the following conditions:

 

(a)

(i) The representations and warranties by the Seller set forth in this Agreement (other than the Fundamental Representations) will be true and correct in all respects (provided that any representation or warranty by the Seller contained herein that is subject to a materiality, material adverse effect or similar qualification will not be so qualified for purposes of determining the existence of any breach thereof on the part of the Seller) as of the Execution Date and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties speak as of an earlier date), except for such breaches that would not, individually or in the aggregate with any other breaches on the part of the Seller, reasonably be expected to have a material adverse effect, and (ii) Fundamental Representations shall be true and correct in all respects (other than de minimis inaccuracies) as of the Execution Date and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties speak as of an earlier date);

 

(b)

Each of the agreements and covenants to be performed and complied with by the Seller pursuant to this Agreement prior to or as of the Closing Date will have been duly performed and complied with in all material respects;

 

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(c)

Since the Execution Date, there shall not have occurred any event, change, development, effect, state of facts or condition that has had or would reasonably be expected to have, individually or in the aggregate, a material adverse effect; and

 

(d)

The Seller will have delivered to the Purchaser the items required by Section 2.03(b) of this Agreement.

Section 9.04Frustration of Closing Conditions.  Neither the Purchaser nor the Seller may rely on the failure of any condition set forth in Section 9.01, Section 9.02 or Section 9.03, as the case may be, to be satisfied if such failure was caused by such party’s failure to comply with its obligations to consummate the transactions contemplated by this Agreement.

 

Article X.

MISCELLANEOUS

Section 10.01Further Assurances. From time to time after the Closing Date, at the request of any party hereto and at the expense of the party so requesting, the other parties hereto shall execute and deliver to such requesting party such documents and take such other actions as such requesting party may reasonably request in order to consummate the transactions contemplated by this Agreement.

Section 10.02Notices. All notices, requests, demands, waivers, and communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if delivered (i) by hand (including by reputable overnight courier), or (ii) by electronic mail (subject to non-automated confirmation of receipt):

 

(a)

If to the Purchaser or, after the Closing, the Company, to:

 

Address:

 

325 Warm Springs Road, Ste. 102

 

 

Las Vegas, NV 89119

Attention:

 

Eric Althofer, Chief Operating Officer

Email:

 

ealthofer@liveventures.com

 

 

 

With a mandatory copy, which shall not constitute notice, to:

 

Address:

 

Clark Hill LLP

 

 

1055 West Seventh Street, Ste. 2400

 

 

Los Angeles, CA 90017

 

 

Attention:  Randy Katz, Esq.

 

 

Email:rkatz@clarkhill.com

 

 

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(b)

If to Seller or, before the Closing, the Company to:

 

Address:

 

1295 Walt Whitman Road, Suite A

 

 

Melville, NY 11747

 

 

 

Attention:

 

Thomas Diamante

Email:

 

t.diamante@verizon.net

 

Attention:

 

Lawrence Zelin

Email:

 

larryzelin@yahoo.com

 

 

 

With a mandatory copy, which shall not constitute notice, to:

 

 

 

Address:

 

2 Swenson Drive

 

 

Woodbury, NY 11797

 

 

 

Attention:

 

Charles M. O’Rourke, Esq.

Email:

 

cor@corlawyer.com

 

or to such other Person or address as any party shall specify by notice in writing to the other party. All such notices, requests, demands, waivers, and communications shall be deemed to have been given (i) on the date on which so hand-delivered; (ii) on the third Business Day following the date on which so mailed; (iii) on the Business Day following the date on which deposited with a reputable overnight courier service;  and (iv) on the date on which so e-mailed and confirmed.

Section 10.03Amendment, Modification, and Waiver. This Agreement may be amended, modified, or supplemented at any time by written agreement of all parties hereto. Any failure of the Seller to comply with any term or provision of this Agreement may be waived by the Purchaser, and any failure of the Purchaser to comply with any term or provision of this Agreement may be waived by the Seller, at any time by an instrument in writing signed by or on behalf of such other party, but such waiver shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure to comply.

Section 10.04Entire Agreement. This Agreement, the Disclosure Schedule, and the exhibits, schedules, and other documents referred to herein or contemplated hereby that form a part hereof contain the entire understanding of the parties hereto with respect to the subject matter hereof.  This Agreement supersedes all prior agreements and understandings, oral and written, with respect to its subject matter.

Section 10.05Severability. Should any provision of this Agreement for any reason be declared invalid or unenforceable, such decision shall not affect the validity or enforceability of any of the other provisions of this Agreement, which other provisions shall remain in full force and effect and the application of such invalid or unenforceable provision to Persons or circumstances other than those as to which it is held invalid or unenforceable shall be valid and be enforced to the fullest extent permitted by applicable Law. If a final judgment of a court of competent jurisdiction declares that any term or provision of this Agreement is invalid or

 

32


 

unenforceable, the parties hereto agree that the court making such determination shall have the power to limit such term or provision, to delete specific words or phrases, or to replace such term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and that this Agreement shall be valid and enforceable as so modified.

 

Section 10.06Binding Effect; Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, successors, and permitted assigns, but except as contemplated herein, neither this Agreement nor any of the rights, interests, or obligations hereunder shall be assigned, directly or indirectly, by any party without the prior written consent of the other parties hereto, except that the Purchaser may assign or delegate all or any portion of its rights, obligations, or liabilities under this Agreement in whole or in part to its lenders as collateral security or to an Affiliate, provided, that no such assignment shall relieve the Purchaser of its obligations hereunder.  Any attempted assignment or delegation in contravention of this Section 10.06 shall be null and void.

 

Section 10.07No Third-Party Beneficiaries. Except as provided in Article VII, this Agreement is not intended and shall not be deemed to confer upon or give any Person except the parties hereto and their respective successors and permitted assigns any remedy, claim, liability, reimbursement, cause of action, or other right under or by reason of this Agreement.

Section 10.08Fees and Expenses; Transfer Taxes.

 

(a)

Except as set forth herein, each party hereto shall pay all fees and expenses incurred by it or on its behalf in connection with this Agreement and the consummation of the transactions contemplated hereby.

 

(b)

Relative to Compliance Exchange Group, LLC (“CXG”), (i) the Seller and the Purchaser shall each pay 50% of all fees and expenses of CXG in connection with the FINRA submission described in Section 5.07(b) and, (ii) the Purchaser shall pay any ongoing monthly fees payable to CXG.

 

(c)

The Seller shall pay all applicable sales, transfer, recording, deed, stamp, franchise, and other similar taxes resulting from the consummation of the transactions contemplated by this Agreement and the other agreements contemplated hereby, and the Purchaser shall, with the Seller’s cooperation or assistance, to the extent necessary, file all Tax Returns related hereto and thereto.

Section 10.09Counterparts; Electronic Signatures. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. A signed copy of this Agreement delivered by email, or other electronic transmission, shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.

Section 10.10Interpretation; Construction. The article and section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties, and shall not in any way affect the meaning or interpretation of this Agreement. As used

 

33


 

in this Agreement, the term “Person” means and includes an individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an unincorporated organization, and a government or any department or agency thereof. As used in this Agreement, the term “Affiliate” has the meaning set forth in Rule 12b-2 of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934, as amended. Unless the context expressly requires otherwise: (a) the words “hereof,” “herein,” and “hereunder,” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement; (b) words defined in the singular shall have a comparable meaning when used in the plural, and vice versa; (c) “Dollars” and “$” mean U.S. dollars; (d) references herein to a specific Article, Section, or Exhibit shall refer, respectively, to an Article, a Section or an Exhibit of this Agreement; (e) wherever the word “include,” “includes,” or “including” is used in this Agreement, it shall be deemed to be followed by the words “without limitation”; (f) references herein to any Law shall be deemed to refer to such Law as amended, reenacted, supplemented, or superseded in whole or in part and in effect from time to time and also to all rules and regulations promulgated thereunder; (g) references herein to any contract mean such contract as amended, supplemented, or modified (including any waiver thereto) in accordance with the terms thereof; (h) each accounting term not otherwise defined in this Agreement assigned to it in accordance with GAAP; and (i) whenever this Agreement refers to a number of days, such shall refer to calendar days, unless such reference is specifically to “Business Days.”

 

(a)

Each of the parties acknowledges that it has been represented by independent counsel of its choice throughout all negotiations that have preceded the execution of this Agreement. The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise, or rule of strict construction applied, favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. Accordingly, any rule of law or any legal decision that would require interpretation of any ambiguities in this Agreement against the party that drafted it is of no application and is hereby expressly waived by the parties hereto.

Section 10.11Governing Law. This Agreement shall be governed by the laws of the State of New York, excluding choice of law principles of that or any other jurisdiction that would require the application of the laws of a jurisdiction other than the State of New York.  The Purchaser and the Seller hereby agree and consent to be subject to the exclusive jurisdiction of the state and federal courts in the State of New York, and hereby waive the right to assert the lack of personal or subject matter jurisdiction or improper venue in connection with any such suit, action or other proceeding. In furtherance of the foregoing, each of the parties (i) waives the defense of inconvenient forum, (ii) agrees not to commence any suit, action or other proceeding arising out of this Agreement or any transactions contemplated hereby other than in any such court, and (iii) agrees that a final judgment in any such suit, action or other proceeding shall be conclusive and may be enforced in other jurisdictions by suit or judgment or in any other manner provided by applicable Law. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT SUCH PARTIES MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY SUIT OR ACTION ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HEREBY CERTIFIES THAT NEITHER IT NOR ANY OF ITS REPRESENTATIVES HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT IT WOULD NOT SEEK TO

 

34


 

ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL. FURTHER, EACH PARTY ACKNOWLEDGES THAT THE OTHER PARTY RELIED ON THIS WAIVER OF RIGHT TO JURY TRIAL AS A MATERIAL INDUCEMENT TO ENTER INTO THIS AGREEMENT.

 

Section 10.12Specific Performance. The parties hereby acknowledge and agree that the failure of any party to this Agreement to perform its agreements and covenants hereunder will cause irreparable injury to the other parties to this Agreement for which monetary damages, even if available, will not be an adequate remedy. Accordingly, each of the parties hereby consents to the granting of equitable relief (including specific performance and injunctive relief) by any court of competent jurisdiction to enforce any party’s obligations hereunder. The parties further agree to waive any requirement for the securing or posting of any bond in connection with the obtaining of any such equitable relief and that this Section 10.12 is without prejudice to any other rights that the parties hereto may have for any failure to perform this Agreement.

 

35


 

[Remainder of page intentionally left blank.]

 

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

 

 

COMPANY

 

 

 

SALOMON WHITNEY LLC

 

 

 

 

 

 

By:

 

/s/ Thomas Diamante

 

 

THOMAS DIAMANTE, CEO

 

 

 

 

 

 

SELLER

 

 

 

ANGIA HOLDINGS LLC

 

 

 

 

 

 

By:

 

/s/ Thomas Diamante

 

 

THOMAS DIAMANTE, Managing Director

 

 

 

 

 

 

By:

 

/s/ Lawrence Zelin

 

 

LAWRENCE ZELIN, Managing Director

 

 

 

 

 

 

PURCHASER

 

 

 

SW AFFILIATED HOLDINGS LLC

 

 

 

 

 

 

By:

 

/s/ Jon Isaac

 

 

JON ISAAC, CEO

 

 

 

 

[Signature Page to Membership Interest Purchase Agreement]


 

EXHIBIT A

DEFINITIONS

Action” means any claim, action, suit, audit, assessment, arbitration, demand or inquiry, or any proceeding or investigation, by or before any Governmental Authority.

Affiliate” has the meaning set forth in Section 10.10(a).

Agreement” has the meaning set forth in the preamble of this Agreement.

Applicable Tax Law” means any Law of any nation, state, region, province, locality, municipality, or other jurisdiction relating to Taxes, including regulations and other official pronouncements of any Governmental Authority or political subdivision of such jurisdiction charged with interpreting such Laws.

Audited Financial Statements” has the meaning set forth in Section 3.05(a).

Business Day” means any day other than a Saturday, a Sunday, or a day on which banks in Las Vegas, Nevada are authorized or obligated by law or executive order to close.

Business” means providing financial planning and investment advisory services, and operating as a broker-dealer registered with the SEC and with FINRA.

Cash” means all cash (including, for the avoidance of doubt, restricted cash) and cash equivalents (including marketable securities and short term investments) of the Company calculated in accordance with the Company Accounting Methodology, but shall not include the Undistributed Capital.

Claim Notice” has the meaning set forth in Section 7.03(a).

Closing” has the meaning set forth in Section 2.04.

Closing Date” has the meaning set forth in Section 2.04.

Closing Payment” means an amount equal to the Final Payment, less any amounts required to be paid by Purchaser on behalf of the Company or the Seller in accordance with Section 2.05.

CMA” means the Continuing Membership Application, submitted to FINRA by the Company, on behalf of the Purchaser, in accordance with the terms and conditions of this Agreement.

Code” means the Internal Revenue Code of 1986, as amended from time to time.

Company” has the meaning set forth in the preamble.

 


 

Company Accounting Methodology” means the methods and practices utilized in preparing the Financial Statements, applied on a consistent basis, using consistent estimation methodologies and judgments, and with consistent classifications.

Company Plans” has the meeting set forth in Section 3.10(a).

Company Registered IP” has the meaning set forth in Section 3.08(a).

Confidential Information” means any confidential or proprietary information concerning the Company or any of its members, Affiliates, or its or their business, employees, financial information, marketing, products, or services, including information provided in connection with this Agreement (including the schedules, exhibits and ancillary documents delivered herewith), the existence of this Agreement and the terms and conditions of this Agreement, the Transaction and the Business and affairs of the Company that is not already generally available to the public; provided, however, that “Confidential Information” shall not include information that the receiving party can establish by clear and convincing written evidence: (i) was independently developed by the receiving party without use of or reference to any Confidential Information belonging to the disclosing party; (ii) was acquired by the receiving party from a third party having the legal right to furnish same to the receiving party and not otherwise bound by confidentiality undertakings covering such information; (iii) was at the time in question (whether at disclosure or thereafter) generally known by or available to the public through no fault of the receiving party; or (iv) is required to be disclosed by the written order of a court or other Governmental Authority; provided, that the receiving party shall provide prompt written notice to the disclosing party so that the disclosing party may have time to take action to oppose or limit such order, and the receiving party shall provide reasonable cooperation to the disclosing party in furtherance of any such actions taken by the disclosing party; provided, further, that in the absence of a protective order, the disclosure shall be limited to that information that is required by Law to be disclosed, all in the manner set forth in Section 5.04(c).

Confidentiality Agreement” has the meaning set forth in Section 5.03(b).

CRD” has the meaning set forth in the recitals to this Agreement.

Current Principals” means the direct and indirect principals set forth in the FINRA BrokerCheck® Report attached hereto as Exhibit B, with their current roles and responsibilities denoted through the Company’s registration with FINRA.

Damages” means all losses, damages, liabilities, costs, and expenses, including, without limitation, interest, penalties, and remediation and investigation expenses and reasonable attorneys’, consultants’ and other professional fees and expenses, including any reasonably foreseeable consequential, diminution in value or other damages paid or incurred by any party. Notwithstanding the foregoing, Damages shall exclude punitive damages (unless payable to a third party) and speculative or remote damages.

Debt” means, without duplication, all liabilities and obligations of the Company for (i) borrowed money; (ii) notes, bonds, debentures, hedging and swap arrangements, or other similar instruments; (iii) capital leases, conditional sale or other title retention agreements with respect to property acquired; (iv) any obligations with respect to letters of credit, bankers acceptances, or

 


 

similar credit transactions (other than any undrawn amount in respect of such letters of credit or similar credit transactions); (v) direct or indirect guarantees of Debt of the type referred to in clauses (i) through (iv) above to other Persons; and (vi) all accrued interest, premiums, penalties, redemption costs, and other charges in respect of each of the foregoing in clauses (i) through (v) above, in each case if and to the extent that any of the foregoing would appear as a liability on a balance sheet prepared in accordance with the Company Accounting Methodology.

Deposit” means $4,257,075 (Four Million, Two Hundred Fifty-Seven Thousand Dollars), which amount shall be non-refundable.

Disclosure Schedule” means the disclosure schedule delivered by the Seller to the Purchaser simultaneously with the execution of this Agreement.

Dispute Notice” has the meaning set forth in Section 7.03(a).

Distribution Directive” has the meaning set forth in Section 7.03(a).

Effective Time” means 12:01 a.m. Eastern Time on the Closing Date.

Employment Agreements” means the employment agreements between the Company and Thomas Diamante, and between the Company and Larry Zelin, in the form attached to this Agreement as Exhibit C.

Environmental Condition” means the presence of any Hazardous Materials, including without limitation any pollution, contamination or damage to natural resources or the environment, caused by or relating to the use, manufacture, production, importation, refinement, processing, emission, handling, storage, treatment, recycling, generation, transportation, release, spilling, leaching, pumping, pouring, emptying, discharging, injection, escaping, disposal, dumping or threatened release of Hazardous Materials by the Company or any other Person, in each case in a quantity or condition that would either (i) require notification, investigation, or clean up under Environmental Law, or (ii) would reasonably be expected to result in material liability to the Company. With respect to claims by employees or other third parties, Environmental Condition will also include the exposure of Persons to Hazardous Materials in excess of permitted amounts.

Environmental Laws” means all laws, Permits and governmental agreements relating to pollution or protection of human health, safety or the environment, including Laws relating to Releases or threatened Releases of Hazardous Materials into the indoor or outdoor environment (including ambient air, surface water, groundwater, land, surface, and subsurface strata) or otherwise relating to the use, manufacture, production, importation, refinement, processing, emission, handling, storage, treatment, recycling, generation, transportation, release, spilling, leaching, pumping, pouring, emptying, discharging, injection, escaping, disposal, dumping or threatened release of Hazardous Materials, and all laws and regulations with regard to record keeping, notification, disclosure and reporting requirements respecting Hazardous Materials.   Environmental Laws include any laws relating to natural resources, pollution, protection of human health or the environment, or actual or threatened releases, discharges, or emissions into the environment or within structures.

 


 

ERISA” has the meaning set forth in Section 3.10(a).

Excluded Liabilities” means (a)  all Taxes and Tax obligations for and related to the Pre-Closing Period including, without limitation, any breach of Section 3.11; (b)  any claim by Person(s) who were holders of equity securities of the Company prior to the Closing arising out of the sale, purchase, termination, cancellation, expiration, redemption or conversion of any Company equity securities, including options, stock or any other securities of the Company; (c) any unpaid Transaction Expenses; (d) any matter disclosed or required to be disclosed on Schedule 3.09 of the Disclosure Schedule and any matter asserted after the Closing which, if asserted prior to the Closing, would have been required to be set forth in Section 3.09 of the Disclosure Schedule.

Execution Date” has the meaning set forth in the preamble of this Agreement.

Failure Notice” has the meaning set forth in Section 5.07(c).

Final Payment” means $1,000,000 (One Million Dollars).

Financial Statements” has the meaning set forth in Section 3.05(a).

FINRA” has the meaning set forth in the recitals to this Agreement.

FINRA Correspondence” means any and all correspondence required by FINRA, and/or between FINRA and the Company, to support and obtain FINRA Final Approval.  FINRA Correspondence shall include, but not be limited to, (i) Purchaser’s access to and utilization of the Company’s CRD account and FINRA Firm Portal, (ii) the Seller’s prompt answering, under the direction and to the sole satisfaction of Purchaser, of any questions or requests for information posed to the Company by FINRA, and (iii) the CMA and any or all other correspondence between FINRA and Seller that Purchaser deems appropriate for FINRA Final Approval.

FINRA Final Approval” shall mean FINRA’s issuance to the Company, and the Company’s receipt of, the new, final, written, unqualified and non-contingent Membership Agreement, in accordance with the CMA, which new Membership Agreement shall reflect FINRA’s acceptance of both ownership and management changes as described within the submitted CMA.

FINRA Notification” has the meaning set forth in Section 5.08(b).

Fundamental Representations” has the meaning set forth in Section 7.01.

GAAP” means generally accepted accounting principles in the United States.

Governmental Approval” has the meaning set forth in Section 3.04.

Governmental Authority” has the meaning set forth in Section 3.04.

 


 

Hazardous Material” means any waste, gas, liquid, or other substance or material  that is designated, listed or defined as a “hazardous substance,” “pollutant,” “contaminant,” “hazardous waste,” “regulated substance,” “hazardous chemical,” or “toxic chemical” (or by any similar term) under any Environmental Law, or any other material regulated, or that could result in the imposition of liability or responsibility, under any Environmental Law, including petroleum products, petroleum byproducts, petroleum breakdown products, waste oil, crude oil, urea formaldehyde, chlorinated solvents, volatile organic compounds, polychlorinated biphenyls or asbestos.

Indemnification Claim” has the meaning set forth in Section 7.04.

Indemnified Party” has the meaning set forth in Section 7.04.

Indemnifying Party” means the party required to provide indemnification pursuant to Article VII.

Information Technology” means computers, computer systems, servers, workstations, databases, and software programs.

Initial Payment” means $1,743,925 (One Million, Seven Hundred Forty-Three Thousand Dollars).

Initial Units” means 24.9% of the Units owned by Seller immediately prior to the execution of this Agreement.

Internally Prepared Financial Statements” has the meaning set forth in Section 3.05(a).

Intellectual Property” means all (a) patents, and all registrations and applications therefor; (b) trademarks, service marks, trade names, logos, and all registrations and applications therefor; (c) copyrights, and all registrations and applications therefor; and (d) internet domain names and all registrations therefor.

IP Agreement” has the meaning set forth in Section 3.08(b).

Law” means any law (including common law), act, Order, writ, decree, rule, statute, code, ordinance or regulation enacted, adopted, promulgated or applied by any Governmental Authority.

Leased Real Property” has the meaning set forth in Section 3.07(b).

Leases” has the meaning set forth in Section 3.07(b).

Liens” means, with respect to any specified asset, any and all liens, claims, encumbrances, options, pledges, security interests, mortgages, deed of trusts, charges, easements, or encroachments thereon except for Permitted Liens.

Material Contract” has the meaning set forth in Section 3.12.

 


 

Material Customer” has the meaning set forth in Section 3.16.

Material Supplier” has the meaning set forth in Section 3.16.

Membership Agreement” has the meaning set forth in the recitals to this Agreement.

Operating Agreement” means the limited liability company operating agreement of the Company, to be dated as of the Execution Date, between Seller and Purchaser, in the form attached to this Agreement as Exhibit D.

Order” has the meaning set forth in Section 3.04.

Owned Intellectual Property” means any and all Intellectual Property owned by the Company and used in the operation of the Business as currently conducted, including the Company Registered IP.

Payoff Letters” means the letters in a commercially reasonable form provided by the lenders or other holders of Debt in connection with the repayment of Debt.

Permits” has the meaning set forth in Section 3.13.

Permitted Liens” means (i) statutory Liens or other Liens arising by operation of law securing payments not yet due or that are being contested in good faith, including Liens of warehousemen, mechanics, suppliers, materialmen and repairmen; (ii) Liens for Taxes not yet due and payable or for current Taxes that may thereafter be paid without penalty or that are being contested in good faith and by appropriate proceedings; and (iii) Liens reflected or reserved against or otherwise disclosed on the Financial Statements or notes thereto or securing liabilities reflected on the Financial Statements or notes thereto.

Person” has the meaning set forth in Section 10.10(a).

Personal Property” has the meaning set forth in Section 3.06(a).

Plans” has the meaning set forth in Section 3.10(a).

Post-Closing Period” means, with respect to the Company, any Tax Period commencing after the Closing Date and the portion of any Straddle Period commencing after the Closing Date.

Pre-Closing Period” means, with respect to the Company, any Tax Period ending on or before the Closing Date and the portion of any Straddle Period ending on the Closing Date.

Purchase Price” means an amount equal to the sum of (i) the Initial Payment, (ii) the Deposit, and (iii) the Final Payment.

Purchased Units” has the meaning set forth in the recitals to this Agreement.

Purchaser Claimed Amount” has the meaning set forth in Section 7.03(a).

 


 

Purchaser Claims” has the meaning set forth in Section 7.02(a).

Purchaser Indemnified Parties” has the meaning set forth in Section 7.02(a).

Purchaser Transaction Agreements” has the meaning set forth in Section 4.01.

Purchaser” has the meaning set forth in the preamble of this Agreement.

Purchaser’s Returns” has the meaning set forth in Section 6.01(b).

Real Property” has the meaning set forth in Section 3.07(a).

Release” means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, or disposing into the environment (including the abandonment or discarding of barrels, containers, and other closed receptacles containing any hazardous substance or pollutant or contaminant).

Remaining Units” means all of the Purchased Units, other than the Initial Units.

Representatives” has the meaning set forth in Section 5.06.

Restricted Period” means the period commencing on the Closing Date and ending on the date that is five (5) years following the Closing Date.

SEC” has the meaning set forth in the recitals to this Agreement.

Seller” has the meaning set forth in the preamble to this Agreement.

Seller Claimed Amount” has the meaning set forth in Section 7.03(b).

Seller Claims” has the meaning set forth in Section 7.02(b).

Seller Indemnified Parties” has the meaning set forth in Section 7.02(b).

Seller Plans” has the meeting set forth in Section 3.10(a).

Seller Transaction Agreements” has the meaning set forth in Section 3.01.

Sellers’ Knowledge” or words of similar effect means the actual knowledge, after reasonable inquiry (knowledge for the avoidance of doubt shall include such inquiry that a prudent business person would have made to gain reasonable understanding and determination of the accuracy of such fact or matter), of any of the following individuals: Thomas Diamante and Larry Zelin.

Seller’s Returns” has the meaning set forth in Section 6.01(a).

Straddle Period” means, with respect to the Company, any Tax Period that begins before and ends after the Closing Date.

 


 

Special Representations” has the meaning set forth in Section 7.01.

Survival Expiration Date” has the meaning set forth in Section 7.01.

Tax” or “Taxes” means any income, corporation, gross receipts, profits, gains, built-in gains, capital stock, capital duty, franchise, withholding, social security (including any social security charge or premium), payroll, employment, unemployment, disability, property, wealth, welfare, stamp, excise, occupation, sales, use, transfer, value added, alternative minimum, estimated, or other similar tax (including any fee, assessment, or other charge in the nature of or in lieu of any tax) imposed by any governmental entity (whether national, local, municipal, or otherwise) or political subdivision thereof, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing, and including any transferee or secondary liability in respect of any tax (whether by Law, contractual agreement, or otherwise) and any liability in respect of any tax as a result of being a member of any affiliated, consolidated, combined, unitary, or similar group.

Tax Authority” means, with respect to any Tax, the Governmental Authority or political subdivision thereof that imposes such Tax, and the agency (if any) charged with the collection of such Taxes for such Governmental Authority or subdivision, including any governmental or quasi-governmental entity or agency that imposes, or is charged with collecting, social security or similar charges or premiums.

Tax Period” means, with respect to any Tax, the period for which the Tax is reported as provided under Applicable Tax Laws.

Tax Proceeding” has the meaning set forth in Section 6.01(a).

Tax Return” means, with respect to any Tax, any information return with respect to such Tax, any report, statement, declaration, or document required to be filed under the Applicable Tax Law in respect of such Tax, any claims for refund of Taxes paid, and any amendment or supplements to any of the foregoing.

Termination” has the meaning set forth in Section 8.02(a).

Territory” means (a) within the State of New York, (b) within the State of Florida, or (c) within a radius of fifty (50) miles from any location from which the Company operates as of the Closing Date or during the Restricted Period.

Transaction Expenses” means an amount in cash equal to, as of immediately prior to the Closing, the sum of (i) the outstanding fees and expenses of the Seller’s and the Company’s counsel and accountants incurred by the Sellers and the Company on or prior to the Closing Date in connection with the transactions contemplated by this Agreement, (ii) any amounts due and payable to any broker or consultant on behalf of the Sellers or the Company in connection with the transactions contemplated by this Agreement, and (iii) all other outstanding fees and expenses incurred by the Sellers and the Company on or prior to the Closing Date in connection with the transactions contemplated by this Agreement. Except as expressly set forth in this Agreement, all Transaction Expenses shall be the responsibility of the Seller, and not the Company or the Purchaser.

 


 

Transaction” means the purchase and sale of the Purchased Units under this Agreement.

Units” has the meaning set forth in the recitals to this Agreement.

 

 


EXECUTION VERSION

EXHIBIT B

FINRA BrokerCheck® Report

 

 

 

 


 

BrokerCheck Report

SW FINANCIAL

CRD# 145012

 

 

 

Section Title

Page(s)

 

 

Report Summary

1

 

 

Firm Profile

2 - 7

 

 

Firm History

8

 

 

Firm Operations

9 - 14

 

 

Disclosure Events

15

 

 


 

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SW FINANCIAL

CRD# 145012

SEC# 8-6768

 

Report Summary for this Firm

 

This report summary provides an overview of the brokerage firm. Additional information for this firm can be found in the detailed report.

 

Firm Profile

 

Disclosure Events

 

 

 

 

 

Main Office Location

1295 WALT WHITMAN RD. SUITE A

MELVILLE, NY 11747

Regulated by FINRA Long Island Office

Mailing Address

1295 WALT WHITMAN RD. SUITE A

MELVILLE, NY 11747

Business Telephone Number

(631) 482-1150

 

 

This firm is classified as a limited liability company

 

This firm was formed in New York on 06/11/2007. Its fiscal year ends in December.

 

 

 

 

Brokerage firms are required to disclose certain criminal matters, regulatory actions, civil judicial proceedings and financial matters in which the firm or one of its control affiliates has been involved.

 

 

 

Firm History

 

 

 

Information relating to the brokerage firm's history such as other business names and successions (e.g., mergers, acquisitions) can be found in the detailed report.

 

Are there events disclosed about this film?                Yes

 

 

 

The following types of disclosures have been reported:

 

Firm Operations

 

Type

Count

 

 

 

 

 

This firm is registered with:

 

Regulatory Event

4

 

 

 

 

 

 

   the SEC

 

Arbitration

1

 

   1 Self-Regulatory Organization

 

 

 

 

   53 U.S. states and territories

 

 

 

 

 

 

 

 

 

Is this brokerage firm currently suspended with any regulator?        No

 

 

 

 

 

 

 

 

This firm conducts 12 types of businesses.

 

 

 

 

 

 

 

This firm is not affiliated with any financial or investment institutions.

 

 

 

 

 

 

 

This firm has referral or financial arrangements with other brokers or dealers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

©2021 FINRA. All rights reserved.     Report about WS FINANCIAL

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Firm Profile

This firm is classified as a limited liability company.

This firm was formed in New York on 06/11/2007.

Its fiscal year ends in December.

 

Firm Names and Locations

This section provides the brokerage firm's full legal name, "Doing Business As" name, business and mailing addresses, telephone number, and any alternate name by which the firm conducts business and where such name is used.

 

SALOMON WHITNEY LLC

Doing business as SW FINANCIAL

CRD#      145012

SEC#      8-67688

 

Main Office Location

1295 WALT WHITMAN RD.

SUITE A

MELVILLE, NY 11747

Regulated by FINRA Long Island Office

 

Mailing Address

1295 WALT WHITMAN RD.

SUITE A

MELVILLE, NY 11747

 

Business Telephone Number

(631) 482-1150

 

Other Names of this Firm

 

Name

Where is it used

 

 

SW FINANCIAL

AK, AL, AR, AZ, CA,

CO, CT, DC, DE, FL,

GA, HI, IA, ID, IL, IN,

KS, KY, LA, MA, MD,

ME, MI, MN, MO,

MS, MT, NC, ND, NE,

NH, NJ, NM, NV, NY,

OH, OK, OR, PA, PR,

RI, SC, SD, TN, TX,

UT, VA, VI, VT, WA, WI, WV, WY

 

 

©2021 FINRA. All rights reserved.     Report about WS FINANCIAL

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This section provides information relating to all direct owners and executive officers of the brokerage firm.

 

Direct Owners and Executive Officers

 

Legal Name & CRD# (if any):

Is this a domestic or foreign entity or an individual?

Position

Position Start Date

Percentage of Ownership

Does this owner direct the management or policies of the firm?

Is this a public reporting company?

ANGIA HOLDINGS, LLC

Domestic Entity

100% OWNER/SOLE MEMBER

06/2007

75% or more

Yes

 

No

 

Legal Name & CRD# (if any):

Is this a domestic or foreign entity or an individual?

Position

Position Start Date

Percentage of Ownership

Does this owner direct the management or policies of the firm?

Is this a public reporting company?

 

BOYLE, BRUCE

1796066

Individual

CCO

11/2019

Less than 5%

Yes

 

No

 

 

Legal Name & CRD# (if any):

 

Is this a domestic or foreign entity or an individual?

Position

Position Start Date

Percentage of Ownership

Does this owner direct the management or policies of the firm?

Is this a public reporting company?

DIAMANTE, THOMAS

1645257

Individual

CEO

06/2007

Less than 5%

 

Yes

No

 

 

©2021 FINRA. All rights reserved.     Report about WS FINANCIAL

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Legal Name & CRD# (if any):

 

Is this a domestic or foreign entity or an individual?

Position

Position Start Date

Percentage of Ownership

Does this owner direct the management or policies of the firm?

Is this a public reporting company?

ZELIN, LAWRENCE ARNOLD

1655034

Individual

 

CFO

01/2016

Less than 5%

Yes

 

No

 

 

 

©2021 FINRA. All rights reserved.     Report about WS FINANCIAL

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This section provides information relating to any indirect owners of the brokerage firm.

 

Indirect Owners

 

 

Legal Name & CRD# (if any):

 

Is this a domestic or foreign entity or an individual?

Company through which indirect ownership is established

Relationship to Direct Owner

Relationship Established

Percentage of Ownership

Does this owner direct the management or policies of the firm?

Is this a public reporting company?

DIAMANTE, THOMAS

1645257

Individual

TJD CAPITAL, LLC

OWNER

12/2017

75% or more

Yes

 

No

 

Legal Name & CRD# (if any):

 

Is this a domestic or foreign entity or an individual?

Company through which indirect ownership is established

Relationship to Direct Owner

Relationship Established

Percentage of Ownership

Does this owner direct the management or policies of the firm?

Is this a public reporting company?

ZELIN, LAWRENCE ARNOLD

1655034

Individual

WOODBURY CAPITAL

OWNER

2/2017

75% or more

Yes

No

 

Legal Name & CRD# (if any):

Is this a domestic or foreign entity or an individual?

Company through which indirect ownership is established

Relationship to Direct Owner

Relationship Established

Percentage of Ownership

Does this owner direct the management or policies of the firm?

Is this a public reporting company?

TJD CAPITAL, LLC

Domestic Entity

ANGIA HOLDINGS, LLC

 

OWNER

12/2017

50% but less than 75%

No

No

 

 

 

 

 

©2021 FINRA. All rights reserved.     Report about WS FINANCIAL

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Legal Name & CRD# (if any):

Is this a domestic or foreign entity or an individual?

Company through which indirect ownership is established

Relationship to Direct Owner

Relationship Established

Percentage of Ownership

Does this owner direct the management or policies of the firm?

Is this a public reporting company?

WOODBURY CAPITAL, INC

Domestic Entity

ANGIA HOLDINGS, LLC

 

OWNER

12/2017

25% but less than 50%

No

No

 

 

 

 

 

Firm History

 

 

This section provides information relating to any successions (e.g., mergers, acquisitions) involving the firm.

 

No information reported.

 

 

 

 

 

 

©2021 FINRA. All rights reserved.     Report about WS FINANCIAL

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Registrations

This section provides information about the regulators (Securities and Exchange Commission (SEC), self-regulatory organizations (SROs), and U.S. states and territories) with which the brokerage firm is currently registered and licensed, the date the license became effective, and certain information about the firm's SEC registration.

This firm is currently registered with the SEC, 1 SRO and 53 U.S. states and territories.

 

Federal Regulator

Status

Date Effective

SEC

Approved

01/24/2008

 

 

 

SEC Registration Questions

This firm is registered with the SEC as:

A broker-dealer:      Yes

A broker-dealer and government securities broker or dealer:      Yes

A government securities broker or dealer only:      No

This firm has ceased activity as a government securities broker or dealer:    No

 

Self-Regulatory Organization

Status

Date Effective

FINRA

Approved

01/24/2008

 

©2021 FINRA. All rights reserved.     Report about WS FINANCIAL

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Registrations (continued)

U.S. States &
Territories

Status

Date Effective

 

U.S. States &
Territories

Status

Date Effective

 

 

 

 

 

 

 

 

 

Alabama

Approved

10/30/2008

 

North Carolina

Approved

05/07/2008

 

Alaska

Approved

01/04/2011

 

North Dakota

Approved

04/12/2011

 

Arizona

Approved

10/10/2008

 

Ohio

Approved

07/23/2008

 

Arkansas

Approved

02/18/2011

 

Oklahoma

Approved

04/30/2008

 

California

Approved

02/11/2008

 

Oregon

Approved

10/14/2008

 

Colorado

Approved

09/22/2008

 

Pennsylvania

Approved

07/14/2008

 

Connecticut

Approved

04/09/2008

 

Puerto Rico

Approved

05/05/2010

 

Delaware

Approved

05/05/2011

 

Rhode Island

Approved

02/15/2011

 

District of Columbia

Approved

10/30/2008

 

South Carolina

Approved

10/22/2008

 

Florida

Approved

04/09/2008

 

South Dakota

Approved

01/10/2011

 

Georgia

Approved

10/02/2008

 

Tennessee

Approved

01/07/2009

 

Hawaii

Approved

02/22/2011

 

Texas

Approved

10/06/2008

 

Idaho

Approved

06/15/2009

 

Utah

Approved

09/15/2008

 

Illinois

Approved

10/17/2008

 

Vermont

Approved

02/17/2011

 

Indiana

Approved

12/01/2008

 

Virgin Islands

Approved

03/08/2011

 

Iowa

Approved

10/10/2008

 

Virginia

Approved

09/15/2008

 

Kansas

Approved

10/24/2008

 

Washington

Approved

04/25/2008

 

Kentucky

Approved

09/22/2008

 

West Virginia

Approved

10/21/2008

 

Louisiana

Approved

09/29/2008

 

Wisconsin

Approved

06/30/2008

 

Maine

Approved

03/30/2011

 

Wyoming

Approved

03/22/2010

 

Maryland

Approved

05/13/2008

 

 

 

 

 

Massachusetts

Approved

02/15/2008

 

 

 

 

 

Michigan

Approved

07/18/2008

 

 

 

 

 

Minnesota

Approved

04/28/2008

 

 

 

 

 

Mississippi

Approved

09/12/2008

 

 

 

 

 

Missouri

Approved

07/31/2008

 

 

 

 

 

Montana

Approved

10/15/2008

 

 

 

 

 

Nebraska

Approved

10/08/2008

 

 

 

 

 

Nevada

Approved

10/14/2008

 

 

 

 

 

New Hampshire

Approved

04/04/2008

 

 

 

 

 

New Jersey

Approved

04/21/2008

 

 

 

 

 

New Mexico

Approved

03/01/2011

 

 

 

 

 

New York

Approved

01/30/2008

 

 

 

 

 

 

 

©2021 FINRA. All rights reserved.     Report about WS FINANCIAL

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Types of Business

 

This section provides the types of business, including non-securities business, the brokerage firm is engaged in or expects to be engaged in.

This firm currently conducts 12 types of businesses.

Types of Business

 

Broker or dealer retailing corporate equity securities over-the-counter

 

Broker or dealer selling corporate debt securities

 

Underwriter or selling group participant (corporate securities other than mutual funds)

 

Mutual fund retailer

 

U S. government securities broker

 

Municipal securities broker

 

Broker or dealer selling variable life insurance or annuities

 

Solicitor of time deposits in a financial institution

 

Put and call broker or dealer or option writer

 

Non-exchange member arranging for transactions in listed securities by exchange member

 

Private placements of securities

 

Other - THE APPLICANT EXPECTS TO OFFER CORPORATE FINANCE CONSULTING THAT MAY INCLUDE FROM TIME TO TIME CONSULTATION REGARDING MERGERS AND/OR ACQUISITIONS. THE FIRM DISTRIBUTES THIRD PARTY RESEARCH.

 

THE APPLICANT EXPECTS TO EFFECT SECURITIES TRANSACTIONS INVOLVING REGISTERED AND UNREGISTERED (PRIVATE), UNLISTED REAL ESTATE INVESTMENT TRUSTS ("REITS")

 

Other Types of Business

This firm does not effect transactions in commodities, commodity futures, or commodity options.

This firm does engage in other non-securities business.

 

Non-Securities Business Description:

THE APPLICANT EXPECTS TO OFFER CORPORATE FINANCE CONSULTING THAT MAY INCLUDE FROM TIME TO TIME CONSULTATION REGARDING MERGERS AND/OR ACQUISITIONS.

 

 

 

©2021 FINRA. All rights reserved.     Report about WS FINANCIAL

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Clearing Arrangements

This firm does not hold or maintain funds or securities or provide clearing services for other broker-dealer(s).

 

Introducing Arrangements

 

This firm does refer or introduce customers to other brokers and dealers.

 

Name:

CRD #:

Business Address:

 

 

Effective Date:

Description:

AXOS CLEARING LLC

117176

1200 LANDMARK CENTER
1299 FARNAM STREET-SUITE 800
OMAHA, NE 68102-1916

12/31/2015

THE FIRM CLEARS ITS BUSINESS ON A FULLY-DISCLOSED BASIS WITH THE ABOVE NAMED ENTITY.

 

 

 

 

 

 

©2021 FINRA. All rights reserved.     Report about WS FINANCIAL

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Industry Arrangements

 

This firm does have books or records maintained by a third party.

 

Name:

CRD #:

Business Address:

 

 

Effective Date:

Description:

AXOS CLEARING LLC

117176

1200 LANDMARK CENTER
1299 FARNAM STREET-SUITE 800
OMAHA, NE 68102-1916

12/31/2015

THE FIRM CLEARS ITS BUSINESS ON A FULLY-DISCLOSED BASIS WITH THE ABOVE NAMED ENTITY.

 

 

 

 

This firm does not have accounts, funds, or securities maintained by a third party.

This firm does have customer accounts, funds, or securities maintained by a third party.

 

Name:

CRD #:

Business Address:

 

 

Effective Date:

Description:

AXOS CLEARING LLC

117176

1200 LANDMARK CENTER
1299 FARNAM STREET-SUITE 800
OMAHA, NE 68102-1916

12/31/2015

THE FIRM CLEARS ITS BUSINESS ON A FULLY-DISCLOSED BASIS WITH THE ABOVE NAMED ENTITY.

 

 

 

 

Control Persons/Financing

This firm does not have individuals who control its management or policies through agreement.

This firm does not have individuals who wholly or partly finance the firm's business.

 

 

 

©2021 FINRA. All rights reserved.     Report about WS FINANCIAL

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Organization Affiliates

 

This section provides information on control relationships the firm has with other firms in the securities, investment advisory, or banking business.

 

 

This firm is not, directly or indirectly:

    in control of

    controlled by

    or under common control with the following partnerships, corporations, or other organizations engaged in the securities or investment advisory business.

 

This firm is not directly or indirectly, controlled by the following:

    bank holding company

    national bank

    state member bank of the Federal Reserve System

    state non-member bank

    savings bank or association

    credit union

    or foreign bank

 

 

Disclosure Events

 

 

All firms registered to sell securities or provide investment advice are required to disclose regulatory actions, criminal or civil judicial proceedings, and certain financial matters in which the firm or one of its control affiliates has been involved. For your convenience, below is a matrix of the number and status of disclosure events involving this brokerage firm or one of its control affiliates. Further information regarding these events can be found in the subsequent pages of this report.

 

 

 

 

 

 

 

Pending

Final

On Appeal

 

Event

0

4

0

 

Arbitration

N/A

1

N/A

 

 

 

©2021 FINRA. All rights reserved.     Report about WS FINANCIAL

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Disclosure Event Details

What you should know about reported disclosure events:

 

1

BrokerCheck provides details for any disclosure event that was reported in CRD. It also includes summary information regarding FINRA arbitration awards in cases where the brokerage firm was named as a respondent.

 

2

Certain thresholds must be met before an event is reported to CRD, for example:

 

O

A law enforcement agency must file formal charges before a brokerage firm is required to disclose a particular criminal event.

 

3

Disclosure events in BrokerCheck reports come from different sources:

 

O

Disclosure events for this brokerage firm were reported by the firm and/or regulators. When the firm and a regulator report information for the same event, both versions of the event will appear in the BrokerCheck report. The different versions will be separated by a solid line with the reporting source labeled.

 

4

There are different statuses and dispositions for disclosure events:

 

O

A disclosure event may have a status of pending, on appeal, or final.

 

§

A "pending" event involves allegations that have not been proven or formally adjudicated.

 

§

An event that is "on appeal" involves allegations that have been adjudicated but are currently being appealed.

 

§

A "final" event has been concluded and its resolution is not subject to change.

 

O

A final event generally has a disposition of adjudicated, settled or otherwise resolved.

 

§

An "adjudicated" matter includes a disposition by (1) a court of law in a criminal or civil matter, or (2) an administrative panel in an action brought by a regulator that is contested by the party charged with some alleged wrongdoing.

 

§

A "settled" matter generally involves an agreement by the parties to resolve the matter. Please note that firms may choose to settle customer disputes or regulatory matters for business or other reasons.

 

§

A "resolved" matter usually involves no payment to the customer and no finding of wrongdoing on the part of the individual broker. Such matters generally involve customer disputes.

 

5

You may wish to contact the brokerage firm to obtain further information regarding any of the disclosure events contained in this BrokerCheck report.

 

Regulatory - Final

 

This type of disclosure event involves (1) a final, formal proceeding initiated by a regulatory authority (e.g., a state securities agency, self-regulatory organization, federal regulator such as the U.S. Securities and Exchange Commission, foreign financial regulatory body) for a violation of investment-related rules or regulations; or (2) a revocation or suspension of the authority of a brokerage firm or its control affiliate to act as an attorney, accountant or federal contractor.

 

Disclosure 1 of 4

0

 

Reporting Source:

N/A

 

Current Status:

Final

 

 

 

©2021 FINRA. All rights reserved.     Report about WS FINANCIAL

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©2021 FINRA. All rights reserved.     Report about WS FINANCIAL

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Allegations:

WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTED

TO THE SANCTIONS AND TO THE ENTRY OF FINDINGS THAT IT FAILED TO ESTABLISH AND MAINTAIN A SUPERVISORY SYSTEM, AND ESTABLISH, MAINTAIN AND ENFORCE WRITTEN SUPERVISORY PROCEDURES (WSPS), REASONABLY DESIGNED TO SUPERVISE REPRESENTATIVES' MUTUAL FUND RECOMMENDATIONS. THE FINDINGS STATED THAT BASED ON UNSUITABLE RECOMMENDATIONS MADE BY THE FIRM'S REPRESENTATIVE TO A CUSTOMER, A SENIOR INVESTOR, THE CUSTOMER SOLD MUTUAL FUNDS HELD IN HIS IRA ACCOUNT AT THE FIRM AND USED THE PROCEEDS, TOTALING APPROXIMATELY $865,000, TO PURCHASE CLASS A SHARES OF 14 DIFFERENT MUTUAL FUNDS FROM 12 DIFFERENT FUND FAMILIES. THE RECOMMENDATION TO SWITCH TO NEW MUTUAL FUNDS WAS UNSUITABLE BECAUSE THE NEW MUTUAL FUNDS' WERE NOT CONSISTENT WITH THE CUSTOMER'S INVESTMENT OBJECTIVES OF CAPITAL PRESERVATION, THE CLASS A SHARES WERE NOT CONSISTENT WITH THE CUSTOMER'S SHORTER INVESTMENT HORIZON, AND BY PURCHASING MUTUAL FUNDS FROM DIFFERENT MUTUAL FUND FAMILIES, THE CUSTOMER DID NOT RECEIVE ALL AVAILABLE BREAKPOINT DISCOUNTS. FURTHER, THE FIRM DESIGNATED AN INDIVIDUAL AS THE PRINCIPAL RESPONSIBLE FOR THE SUPERVISION OF REPRESENTATIVES' MUTUAL FUND RECOMMENDATIONS. HOWEVER, THIS INDIVIDUAL LACKED A REASONABLE UNDERSTANDING OF MUTUAL FUNDS SO THAT HE WILL PROPERLY DISCHARGE HIS SUPERVISORY RESPONSIBILITIES. AS A RESULT, WHILE REVIEWING THE REPRESENTATIVE'S RECOMMENDATIONS TO THE CUSTOMER, THE FIRM, THROUGH ITS DESIGNATED PRINCIPAL, FAILED TO CONSIDER AND ENSURE THAT THE INVESTMENT OBJECTIVES OF THE NEW MUTUAL FUNDS WERE CONSISTENT WITH THE CUSTOMER'S INVESTMENT OBJECTIVE, THE CLASS A SHARES WERE APPROPRIATE FOR HIS SHORT-TERM INVESTMENT HORIZON AND HE RECEIVED THE BENEFIT OF AVAILABLE BREAKPOINT DISCOUNTS. THE FIRM FAILED TO ENSURE THAT MUTUAL FUND SWITCH LETTERS SENT BY THE REPRESENTATIVE TO THE CUSTOMER INCLUDED CRITICAL INFORMATION, INCLUDING THE AMOUNT OF THE SALES CHARGES FOR THE NEW MUTUAL FUNDS. THE FINDINGS ALSO STATED THAT THE FIRM FAILED TO INSTITUTE AND ENFORCE PROCEDURES TO ENSURE THAT ITS

REPRESENTATIVES DID NOT CONTACT INDIVIDUALS LISTED ON THE FIRM'S DO-NOT-CALL REGISTRY AND THE NATIONAL DO-NOT-CALL REGISTRY. AS PART OF ITS BUSINESS, THE FIRM'S REGISTERED REPRESENTATIVES MADE COLD CALLS TO PROSPECTIVE CUSTOMERS. HOWEVER, THE FIRM DID NOT PROVIDE ANY TELEMARKETING TRAINING TO ITS REGISTERED REPRESENTATIVES. THE FIRM'S REPRESENTATIVES PLACED CALLS OUTSIDE OF THE PERMISSIBLE HOURS AND TO PHONE NUMBERS THAT WERE ON THE FIRM'S DO-NOT-CALL LIST. NEVERTHELESS, THE FIRM HAS SUBSCRIBED TO THE NATIONAL DO-NOT-CALL REGISTRY AND HAS IMPLEMENTED AN AUTOMATED SYSTEM FOR CALL BLOCKING TO PREVENT CALLS FROM BEING MAKE TO NUMBERS ON THE FIRM'S AND THE NATIONAL DO-NOT-CALL LISTS.

 

Initiated By:

FINRA

 

Date Initiated:

02/27/2018

 

Docket/Case Number:

2015043645102

 

Principal Product Type:

Mutual Found(s)

 

Other Product Type(s):

 

 

Principal Sanction(s)/Relief Sought:

 

 

Other Sanction(s)/Relief Sought:

 

 

Resolution:

Acceptance, Waiver & Consent(AWC)

 

Resolution Date:

02/27/2018

 

Does the order constitute a final order based on violations of any laws or regulations that prohibit fraudulent, manipulative, or deceptive conduct?

No

 

 

Sanctions Ordered:

Censure

Monetary/Fine $35,000.00
Disgorgement/Restitution

 

Other Sanctions Ordered:

UNDERTAKING

 

Sanction Details:

THE FIRM WAS CENSURED, FINED $35,000, ORDERED TO PAY $49,687.44, PLUS INTEREST, IN RESTITUTION TO A CUSTOMER AND REQUIRED TO REVIEW AND REVISE ITS SYSTEMS AND PROCEDURES (WRITTEN AND OTHERWISE) REGARDING THE SUPERVISION OF MUTUAL FUND TRANSACTIONS AND TELEMARKETING ACTIVITIES TO ENSURE THAT ITS SYSTEMS AND PROCEDURES ARE REASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITH ALL SECURITIES LAWS, REGULATIONS AND FINRA RULES. 3/10/2020 FINE PAID IN FULL.

 

 

 

 

Regulator Statement

FINES PAID IN FULL ON MARCH 30, 2020.

 

 

©2021 FINRA. All rights reserved.     Report about WS FINANCIAL

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Reporting Source:

Current Status:

Firm

Final

 

 

©2021 FINRA. All rights reserved.     Report about WS FINANCIAL

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Allegations:

WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTED

TO THE SANCTIONS AND TO THE ENTRY OF FINDINGS THAT IT FAILED TO ESTABLISH AND MAINTAIN A SUPERVISORY SYSTEM, AND ESTABLISH, MAINTAIN AND ENFORCE WRITTEN SUPERVISORY PROCEDURES (WSPS), REASONABLY DESIGNED TO SUPERVISE REPRESENTATIVES' MUTUAL FUND RECOMMENDATIONS. THE FINDINGS STATED THAT BASED ON UNSUITABLE RECOMMENDATIONS MADE BY THE FIRM'S REPRESENTATIVE TO A CUSTOMER, A SENIOR INVESTOR, THE CUSTOMER SOLD MUTUAL FUNDS HELD IN HIS IRA ACCOUNT AT THE FIRM AND USED THE PROCEEDS, TOTALING APPROXIMATELY $865,000, TO PURCHASE CLASS A SHARES OF 14 DIFFERENT MUTUAL FUNDS FROM 12 DIFFERENT FUND FAMILIES. THE RECOMMENDATION TO SWITCH TO NEW MUTUAL FUNDS WAS UNSUITABLE BECAUSE THE NEW MUTUAL FUNDS' WERE NOT CONSISTENT WITH THE CUSTOMER'S INVESTMENT OBJECTIVES OF CAPITAL PRESERVATION, THE CLASS A SHARES WERE NOT CONSISTENT WITH THE CUSTOMER'S SHORTER INVESTMENT HORIZON, AND BY PURCHASING MUTUAL FUNDS FROM DIFFERENT MUTUAL FUND FAMILIES, THE CUSTOMER DID NOT RECEIVE ALL AVAILABLE BREAKPOINT DISCOUNTS. FURTHER, THE FIRM DESIGNATED AN INDIVIDUAL AS THE PRINCIPAL RESPONSIBLE FOR THE SUPERVISION OF REPRESENTATIVES' MUTUAL FUND RECOMMENDATIONS. HOWEVER, THIS INDIVIDUAL LACKED A REASONABLE UNDERSTANDING OF MUTUAL FUNDS SO THAT HE WILL PROPERLY DISCHARGE HIS SUPERVISORY RESPONSIBILITIES. AS A RESULT, WHILE REVIEWING THE REPRESENTATIVE'S RECOMMENDATIONS TO THE CUSTOMER, THE FIRM, THROUGH ITS DESIGNATED PRINCIPAL, FAILED TO CONSIDER AND ENSURE THAT THE INVESTMENT OBJECTIVES OF THE NEW MUTUAL FUNDS WERE CONSISTENT WITH THE CUSTOMER'S INVESTMENT OBJECTIVE, THE CLASS A SHARES WERE APPROPRIATE FOR HIS SHORT-TERM INVESTMENT HORIZON AND HE RECEIVED THE BENEFIT OF AVAILABLE BREAKPOINT DISCOUNTS. THE FIRM FAILED TO ENSURE THAT MUTUAL FUND SWITCH LETTERS SENT BY THE REPRESENTATIVE TO THE CUSTOMER INCLUDED CRITICAL INFORMATION, INCLUDING THE AMOUNT OF THE SALES CHARGES FOR THE NEW MUTUAL FUNDS. THE FINDINGS ALSO STATED THAT THE FIRM FAILED TO INSTITUTE AND ENFORCE PROCEDURES TO ENSURE THAT ITS REPRESENTATIVES DID NOT CONTACT INDIVIDUALS LISTED ON THE FIRM'S DO-NOT-CALL REGISTRY AND THE NATIONAL DO-NOT-CALL REGISTRY. AS PART OF ITS BUSINESS, THE FIRM'S REGISTERED REPRESENTATIVES MADE COLD CALLS TO PROSPECTIVE CUSTOMERS. HOWEVER, THE FIRM DID NOT PROVIDE ANY TELEMARKETING TRAINING

TO ITS REGISTERED REPRESENTATIVES. THE FIRM'S REPRESENTATIVES PLACED CALLS OUTSIDE OF THE PERMISSIBLE HOURS AND TO PHONE NUMBERS THAT WERE ON THE FIRM'S DO-NOT-CALL LIST. NEVERTHELESS, THE FIRM HAS SUBSCRIBED TO THE NATIONAL DO-NOT-CALL REGISTRY AND HAS IMPLEMENTED AN AUTOMATED SYSTEM FOR CALL BLOCKING TO PREVENT CALLS FROM BEING MAKE TO NUMBERS ON THE FIRM'S AND THE NATIONAL DO-NOT-CALL LISTS.

 

Initiated By:

FINRA

 

Date Initiated:

02/27/2018

 

Docket/Case Number:

2015043645102

 

Principal Product Type:

Mutual Fund(s)

 

Other Product Type(s):

 

 

Principal Sanction(s)/Relief Sought:

 

 

Other Sanction(s)/Relief Sought:

 

 

Resolution:

Acceptance, Waiver & Consent(AWC)

 

Resolution Date:

02/27/2018

 

Sanctions Ordered:

Censure

Monetary/Fine $35,000.00
Disgorgement/Restitution

 

Other Sanctions Ordered:

 

 

Sanction Details:

THE FIRM WAS CENSURED, FINED $35,000, ORDERED TO PAY $49,687.44, PLUS INTEREST, IN RESTITUTION TO A CUSTOMER AND REQUIRED TO REVIEW AND REVISE ITS SYSTEMS AND PROCEDURES (WRITTEN AND OTHERWISE) REGARDING THE SUPERVISION OF MUTUAL FUND TRANSACTIONS AND TELEMARKETING ACTIVITIES TO ENSURE THAT ITS SYSTEMS AND PROCEDURES ARE REASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITH ALL SECURITIES LAWS, REGULATIONS AND FINRA RULES.

 

 

 

 

Disclosure 2 of 4

 

 

Reporting Source:

Regulator

 

Current Status:

Final

 

 

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Allegations:

WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTED TO THE SANCTIONS AND TO THE ENTRY OF FINDINGS THAT IT FAILED TO ESTABLISH AND MAINTAIN A SUPERVISORY SYSTEM, INCLUDING WRITTEN PROCEDURES, REASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITH RULES IN CONNECTION WITH THE SALE OF NON-TRADITIONAL EXCHANGE-TRADED FUNDS (ETFS) TO CERTAIN RETAIL BROKERAGE CUSTOMERS AND FAILED TO PROVIDE ADEQUATE FORMAL TRAINING AND GUIDANCE TO ITS REGISTERED REPRESENTATIVES AND SUPERVISORS REGARDING NON-TRADITIONAL ETFS. THE FINDINGS STATED THAT THE FIRM RELIED ON ITS GENERAL SUPERVISORY

PROCEDURES TO SUPERVISE TRANSACTIONS IN NON-TRADITIONAL ETFS. HOWEVER, THE GENERAL SUPERVISORY SYSTEM THE FIRM HAD IN PLACE WAS NOT SUFFICIENTLY TAILORED TO ADDRESS THE UNIQUE FEATURES AND RISKS INVOLVED WITH THESE PRODUCTS. THE FIRM DID NOT CREATE A PROCEDURE TO ADDRESS THE RISKS ASSOCIATED WITH LONGER-TERM HOLDING PERIODS IN NON-TRADITIONAL ETFS. THE FINDINGS ALSO STATED THAT THE FIRM FAILED TO PROVIDE ADEQUATE FORMAL TRAINING TO REGISTERED REPRESENTATIVES AND SUPERVISORS REGARDING THE FEATURES, RISKS, AND CHARACTERISTICS OF NON- TRADITIONAL ETFS. THE FINDINGS ALSO INCLUDED THAT THE FIRM MADE UNSUITABLE RECOMMENDATIONS REGARDING NON-TRADITIONAL ETFS. THE FIRM FAILED TO PERFORM AN ADEQUATE REASONABLE BASIS SUITABILITY ANALYSIS OF NON-TRADITIONAL ETFS TO UNDERSTAND THE RISKS AND FEATURES ASSOCIATED WITH THE PRODUCT BEFORE OFFERING THE PRODUCT FOR SALE TO ITS RETAIL BROKERAGE CUSTOMERS. THE FIRM ALSO FAILED TO RE-EVALUATE THE SUITABILITY OF THESE PRODUCTS THROUGHOUT THE RELEVANT PERIOD, NOTWITHSTANDING THE RISKS OF NON-TRADITIONAL ETFS SUCH AS THE RISKS ASSOCIATED WITH A DAILY RESET, LEVERAGE AND COMPOUNDING.

 

Initiated By:

FINRA

 

Date Initiated:

04/30/2014

 

Docket/Case Number:

2010022290801

 

Principal Product Type:

Other

 

Other Product Type(s):

NON-TRADITIONAL EXCHANGE-TRADED FUNDS

 

Principal Sanction(s)/Relief Sought:

Other

 

Other Sanction(s)/Relief Sought:

N/A

 

Resolution:

Acceptance, Waiver & Consent(AWC)

 

Resolution Date:

04/30/2014

 

Does the order constitute a final order based on violations of any laws or regulations that prohibit fraudulent, manipulative, or deceptive conduct?

No

 

Sanctions Ordered:

Censure

Monetary/Fine $30,000.00

 

Other Sanctions Ordered:

 

 

Sanction Details:

SEE ABOVE

 

Regulator Statement

FINE PAID IN FULL ON MAY 12, 2014

 

 

 

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Reporting Source:

Firm

 

Current Status:

Final

 

Allegations:

WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTED TO THE SANCTIONS AND TO THE ENTRY OF FINDINGS THAT IT FAILED TO ESTABLISH AND MAINTAIN A SUPERVISORYSYSTEM, INCLUDING WRITTEN PROCEDURES, REASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITH RULES IN CONNECTION WITH THE SALE OF NON- TRADITIONAL EXCHANGE-TRADED FUNDS (ETFS) TO CERTAIN RETAIL BROKERAGE CUSTOMERS AND FAILED TO PROVIDE ADEQUATE FORMAL TRAINING AND GUIDANCE TO ITS REGISTERED REPRESENTATIVES AND SUPERVISORS REGARDING NON-TRADITIONAL ETFS. THE FINDINGS STATED THAT THE FIRM RELIED ON ITS GENERAL SUPERVISORY PROCEDURES TO SUPERVISE TRANSACTIONS IN NON- TRADITIONAL ETFS. HOWEVER, THE GENERAL SUPERVISORY SYSTEM THE FIRM HAD IN PLACE WAS NOT SUFFICIENTLY TAILORED TO ADDRESS THE UNIQUE FEATURES AND RISKS INVOLVED WITH THESE PRODUCTS. THE FIRM DID NOT CREATE A PROCEDURE TO ADDRESS THE RISKS ASSOCIATED WITH LONGER-TERM HOLDING PERIODS IN NON-TRADITIONAL ETFS. THE FINDINGS ALSO STATED THAT THE FIRM FAILED TO PROVIDE ADEQUATE FORMAL TRAINING TO REGISTERED REPRESENTATIVES AND SUPERVISORS REGARDING THE FEATURES, RISKS, AND CHARACTERISTICS OF NON-TRADITIONAL ETFS. THE FINDINGS ALSO INCLUDED THAT THE FIRM MADE UNSUITABLE RECOMMENDATIONS REGARDING NON-TRADITIONAL ETFS. THE FIRM FAILED TO PERFORM AN ADEQUATE REASONABLE BASIS SUITABILITY ANALYSIS OF NON-TRADITIONAL ETFS TO UNDERSTAND THE RISKS AND FEATURES ASSOCIATED WITH THE PRODUCT BEFORE OFFERING THE PRODUCT FOR SALE TO ITS RETAIL BROKERAGE CUSTOMERS. THE FIRM ALSO FAILED TO RE-EVALUATE THE SUITABILITY OF THESE PRODUCTS THROUGHOUT THE RELEVANT PERIOD, NOTWITHSTANDING THE RISKS OF NONTRADITIONAL ETFS SUCH AS THE RISKS ASSOCIATED WITH A DAILY RESET, LEVERAGE AND COMPOUNDING.

 

Initiated By:

FINRA

 

 

 

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Date Initiated:

04/30/2014

 

Docket/Case Number:

2010022290801

 

Principal Product Type:

Other

 

Other Product Type(s):

NON-TRADITIONAL EXCHANGE-TRADED FUNDS

 

Principal Sanction(s)/Relief Sought:

Other

 

Other Sanction(s)/Relief Sought:

N/A

 

Resolution:

Acceptance, Waiver & Consent(AWC)

 

Resolution Date:

04/30/2014

 

Sanctions Ordered:

Censure

Monetary/Fine $30,000.00

 

Other Sanctions Ordered:

 

 

Sanction Details:

SEE ABOVE

 

 

 

 

Disclosure 3 of 4

 

 

Reporting Source:

Regulator

 

Current Status:

Final

 

Allegations:

SECURITIES EXCHANGE ACT RULE 10B-10, FINRA RULE 2010, NASD RULE 2110 AND 2430: FROM AT LEAST JULY 2008 TO PRESENT, THE MEMBER FIRM CHARGED ITS CUSTOMERS AS MUCH AS $69.95 AS A SEPARATE HANDLING FEE IN ADDITION TO THE COMMISSION ON EACH TRANSACTION PLACED AT THE FIRM. THE FEE WAS DESIGNED PRIMARILY TO SERVE AS A SOURCE OF ADDITIONAL TRANSACTION BASED REMUNERATION OR REVENUE TO THE FIRM, IN THE SAME MANNER AS A COMMISSION, RATHER THAN TO COVER ANY DIRECT HANDLING-RELATED SERVICES PERFORMED BY THE FIRM OR HANDING-RELATED EXPENSES INCURRED BY THE FIRM IN CONNECTION WITH THE TRANSACTIONS. NEVERTHELESS, THE FIRM IMPROPERLY AND INACCURATELY CHARACTERIZED THE FEE AS ATTRIBUTABLE TO HANDLING. BY DESIGNATING THE CHARGE AS A HANDLING FEE ON CUSTOMER TRADE CONFIRMATIONS, THE FIRM UNDERSTATED THE AMOUNT OF THE TOTAL COMMISSIONS CHARGED BY THE FIRM AND MISSTATED THE PURPOSE OF THE HANDING FEE.

 

Initiated By:

FINRA

 

Date Initiated:

09/07/2011

 

 

 

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Docket/Case Number:

2010022181901

 

Principal Product Type:

No Product

 

Other Product Type(s):

 

 

Principal Sanction(s)/Relief Sought:

Other

 

Other Sanction(s)/Relief Sought:

N/A

 

Resolution:

Acceptance, Waiver & Consent(AWC)

 

Resolution Date:

09/07/2011

 

Does the order constitute a final order based on violations of any laws or regulations that prohibit fraudulent, manipulative, or deceptive conduct?

No

 

Sanctions Ordered:

Censure

Monetary/Fine $60,000.00

 

Other Sanctions Ordered:

UNDERTAKINGS - IMPLEMENT CORRECTIVE ACTION TO REMEDY THE HANDLING FEE-RELATED VIOLATIONS. SUCH CORRECTIVE ACTION SHALL INCLUDE, BUT NOT BE LIMITED TO: (1) IDENTIFYING AS COMMISSIONS OR MARK-UPS (MARK-DOWNS), ALL TRANSACTION-BASED REMUNERATION, AND ANY OTHER FEES WHICH DO NOT CONSTITUTE REASONABLE FEES; (2) FOR ANY CHARGES OR FEES FOR SERVICES, FULLY AND ACCURATELY DISCLOSING ON CONFIRMATIONS, THE SPECIFIC SERVICE PERFORMED OR TO BE PERFORMED OR THE SPECIFIC USE, AND THE AMOUNT OF THE FEE PAID OR TO BE PAID IN CONNECTION WITH EACH SERVICE OR USE, AND RETAINING DETAILED RECORDS TO SUBSTANTIATE SUCH SERVICES AND USES AND THE FEE AMOUNTS; AND (3) REVISING THE FIRM'S WRITTEN SUPERVISORY PROCEDURES AND PROVIDE TRAINING TO ADDRESS THIS UNDERTAKING RELATED TO TRANSACTION-BASED REMUNERATION, REASONABLE FEES, THEIR APPROPRIATE DISCLOSURE TO CUSTOMERS, AND RETENTION OF RELATED RECORDS.

 

Sanction Details:

WITHOUT ADMITTING OR DENYING THE FINDINGS THE FIRM CONSENTEDTO TH E DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS, THEREFORE THE FIRM IS CENSURED, FINED $60,000, AND REQUIRED TO CERTIFY THAT THE FIRM HAS IMPLEMENTED CORRECTIVE ACTION TO REMEDY THE HANDLING FEE-RELATED VIOLATIONS. FINE PAID IN FULL ON SEPTEMBER 3, 2014.

 

Reporting Source:

Firm

 

Current Status:

Final

 

 

 

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Allegations:

SECURITIES EXCHANGE ACT RULE 10B-10, FINRA RULE 2010, NASD RULE 2110 AND 2430: FROM AT LEAST JULY 2008 TO PRESENT, THE MEMBER FIRM CHARGED ITS CUSTOMERS AS MUCH AS $69.95 AS A SEPARATE HANDLING FEE IN ADDITION TO THE COMMISSION ON EACH TRANSACTION PLACED AT THE FIRM. THE FEE WAS DESIGNED PRIMARILY TO SERVE AS A SOURCE OF ADDITIONAL TRANSACTION BASED REMUNERATION OR REVENUE TO THE FIRM, IN THE SAME MANNER AS A COMMISSION, RATHER THAN TO COVER ANY DIRECT HANDLING-RELATED SERVICES PERFORMED BY THE FIRM OR HANDLING-RELATED EXPENSES INCURRED BY THE FIRM IN CONNECTION WITH THE TRANSACTIONS. NEVERTHELESS, THE FIRM IMPROPERLY AND INACCURATELY CHARACTERIZED THE FEE AS ATTRIBUTABLE TO HANDLING. BY DESIGNATING THE CHARGE AS A HANDLING FEE ON CUSTOMER TRADE CONFIRMATIONS, THE FIRM UNDERSTATED THE AMOUNT OF THE TOTAL COMMISSIONS CHARGED BY THE FIRM AND MISSTATED THE PURPOSE OF THE HANDLING FEE.

 

Initiated By:

FINRA

 

Date Initiated:

09/07/2011

 

Docket/Case Number:

2010022181901

 

Principal Product Type:

No Product

 

Other Product Type(s):

 

 

Principal Sanction(s)/Relief Sought:

Other

 

Other Sanction(s)/Relief Sought:

N/A

 

Resolution:

Acceptance, Waiver & Consent(AWC)

 

Resolution Date:

09/07/2011

 

Sanctions Ordered:

Censure

Monetary/Fine $60,000.00

 

Other Sanctions Ordered:

UNDERTAKINGS - IMPLEMENT CORRECTIVE ACTION TO REMEDY THE HANDLING FEE-RELATED VIOLATIONS. SUCH CORRECTIVE ACTION SHALL INCLUDE, BUT NOT BE LIMITED TO: (1) IDENTIFYING AS COMMISSIONS OR MARK-UPS (MARK-DOWNS), ALL TRANSACTION-BASED REMUNERATION, AND ANY OTHER FEES WHICH DO NOT CONSTITUTE REASONABLE FEES; (2) FOR ANY CHARGES OR FEES FOR SERVICES, FULLY AND ACCURATELY DISCLOSING ON CONFIRMATIONS, THE SPECIFIC SERVICE PERFORMED OR TO BE PERFORMED OR THE SPECIFIC USE, AND THE AMOUNT OF THE FEE PAID OR TO BE PAID IN CONNECTION WITH EACH SERVICE OR USE, AND RETAINING DETAILED RECORDS TO SUBSTANTIATE SUCH SERVICES AND USES AND THE FEE AMOUNTS; AND (3) REVISING THE FIRM'S WRITTEN SUPERVISORY PROCEDURES AND PROVIDE TRAINING TO ADDRESS THIS UNDERTAKING RELATED TO TRANSACTION-BASED REMUNERATION, REASONABLE FEES, THEIR APPROPRIATE DISCLOSURE TO CUSTOMERS, AND RETENTION OF RELATED RECORDS.

 

 

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Sanction Details:

WITHOUT ADMITTING OR DENYING THE FINDINGS THE FIRM CONSENTED TO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS, THEREFORE THE FIRM IS CENSURED, FINED $60,000, AND REQUIRED TO CERTIFY THAT THE FIRM HAS IMPLEMENTED CORRECTIVE ACTION TO REMEDY THE HANDLING FEE-RELATED VIOLATIONS.

 

 

 

 

Disclosure 4 of 4

 

 

Reporting Source:

Regulator

 

Current Status:

Final

 

Allegations:

ON SEPTEMBER 23, 2010, THE CONNECTICUT BANKING COMMISSIONER ISSUED AN ORDER TO CEASE AND DESIST, NOTICE OF INTENT TO REVOKE REGISTRATION AS BROKER-DEALER, NOTICE OF INTENT TO FINE AND NOTICE OF RIGHT TO HEARING (DOCKET NO. RCF-10-7792-S) AGAINST SALOMON WHITNEY LLC. THE ACTION ALLEGED THAT THE FIRM VIOLATED THE ANTIFRAUD PROVISIONS IN THE CONNECTICUT UNIFORM SECURITIES ACT AND ENGAGED IN DISHONEST AND UNETHICAL PRACTICES BY NOT DISCLOSING TO CONNECTICUT CUSTOMERS THAT A TRANSACTIONAL "HANDLING FEE" CHARGED TO CONNECTICUT CUSTOMERS INCLUDED A PROFIT TO THE FIRM, THAT CERTAIN CUSTOMERS PAID LOWER FEES AND THAT THE FEE WAS NOT BASED ON THE COSTS OF HANDLING A PARTICULAR TRANSACTION. THE ACTION ALSO ALLEGED THAT THE FIRM 1) VIOLATED SECTION 36B-14(A) OF THE CONNECTICUT UNIFORM SECURITIES ACT BY FAILING TO MAINTAIN REQUIRED BOOKS AND RECORDS; 2) FAILED TO PROVIDE AGENCY STAFF WITH COPIES OR COMPUTER PRINTOUTS OF RECORDS WHEN SO REQUESTED IN CONTRAVENTION OF SECTION 36B-14(D) OF THE ACT AND SECTION 36B-31-14F OF THE REGULATIONS; AND 3) FAILED TO ENFORCE AND MAINTAIN ADEQUATE SUPERVISORY PROCEDURES.

 

Initiated By:

CONNECTICUT

 

Date Initiated:

09/23/2010

 

Docket/Case Number:

RCF-10-7792-S

 

URL for Regulatory Action:

 

 

Principal Product Type:

No Product

 

 

 

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Other Product Type(s):

 

 

Principal Sanction(s)/Relief Sought:

Civil and Administrative Penalt(ies) /Fine(s)

 

Other Sanction(s)/Relief Sought:

ORDER TO CEASE AND DESIST ISSUED 9/23/2010 NOTICE OF INTENT TO FINE ISSUED 9/23/2010 NOTICE OF INTENT TO REVOKE REGISTRATION AS BROKER-DEALER ISSUED 9/23/2010

 

Resolution:

Consent

 

Resolution Date:

03/04/2011

 

Does the order constitute a final order based on violations of any laws or regulations that prohibit fraudulent, manipulative, or deceptive conduct?

Yes

 

Sanctions Ordered:

Monetary/Fine $12,500.00

Disgorgement/Restitution

Cease and Desist/Injunction

 

Other Sanctions Ordered:

IN RESOLUTION OF THE MATTER, THE MARCH 4, 2011 CONSENT ORDER DIRECTED THE FIRM TO CEASE AND DESIST FROM REGULATORY VIOLATIONS AND TO PAY A $12,500 FINE. IN ADDITION, THE CONSENT ORDER REQUIRED THAT THE FIRM FURNISH THE DIVISION WITH PROOF WITHIN 45 DAYS THAT THE FIRM HAD REIMBURSED EACH AFFECTED CONNECTICUT CUSTOMER THE DIFFERENCE BETWEEN THE "HANDLING FEE" PAID BY THE CUSTOMER FOR EACH TRANSACTION, AND THE ACTUAL AMOUNT OF THE FIRM'S TICKET AND CLEARING CHARGE AND THE POSTAGE FEE ASSESSED BY SALOMON WHITNEY LLC'S CLEARING FIRM.

 

Sanction Details:

SEE RESPONSE TO ITEM 13.B.

 

Regulator Statement

SALOMON WHITNEY LLC WAS AFFORDED AN OPPORTUNITY TO REQUEST A HEARING ON THE ALLEGATIONS IN THE ORDER TO CEASE AND DESIST, NOTICE OF INTENT TO REVOKE REGISTRATION AS BROKER-DEALER AND NOTICE OF INTENT TO FINE. UPDATE: MATTER RESOLVED VIA CONSENT ORDER ENTERED ON MARCH 4, 2011 (SEE ITEM 13.B. FOR DETAILS).

 

 

 

 

Reporting Source:

Firm

 

Current Status:

Final

 

 

 

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Allegations:

ON SEPTEMBER 23, 2010, THE CONNECTICUT BANKING COMMISSIONER ISSUED AN ORDER TO CEASE AND DESIST, NOTICE OF INTENT TO REVOKE REGISTRATION AS BROKER-DEALER, NOTICE OF INTENT TO FINE AND NOTICE OF RIGHT TO HEARING (DOCKET NO. RCF-10-7792-S) AGAINST SALOMON WHITNEY LLC. THE ACTION ALLEGED THAT THE FIRM VIOLATED THE ANTIFRAUD PROVISIONS IN THE CONNECTICUT UNIFORM SECURITIES ACT AND ENGAGED IN DISHONEST AND UNETHICAL PRACTICES BY NOT DISCLOSING TO CONNECTICUT CUSTOMERS THAT A TRANSACTIONAL "HANDLING FEE" CHARGED TO CONNECTICUT CUSTOMERS INCLUDED A PROFIT TO THE FIRM, THAT CERTAIN CUSTOMERS PAID LOWER FEES AND THAT THE FEE WAS NOT BASED ON THE COSTS OF HANDLING A PARTICULAR TRANSACTION. THE ACTION ALSO ALLEGED THAT THE FIRM 1) VIOLATED SECTION 36B-14 (A) OF THE CONNECTICUT UNIFORM SECURITIES ACT BY FAILING TO MAINTAIN REQUIRED BOOKS AND RECORDS; 2) FAILED TO PROVIDE AGENCY STAFF WITH COPIES OR COMPUTER PRINTOUTS OF RECORDS WHEN SO REQUESTED IN CONTRAVENTION OF SECTION 36B- 14(D) OF THE ACT AND SECTION 36B-31-14F OF THE REGULATIONS; AND 3) FAILED TO ENFORCE AND MAINTAIN ADEQUATE SUPERVISORY PROCEDURES.

 

Initiated By:

CONNECTICUT

 

Date Initiated:

09/23/2010

 

Docket/Case Number:

RCF-10-7792-S

 

Principal Product Type:

No Product

 

Other Product Type(s):

 

 

Principal Sanction(s)/Relief Sought:

Civil and Administrative Penalt(ies) /Fine(s)

 

Other Sanction(s)/Relief Sought:

ORDER TO CEASE AND DESIST ISSUED 9/23/2010 NOTICE OF INTENT TO FINE ISSUED 9/23/2010 NOTICE OF INTENT TO REVOKE REGISTRATION AS BROKER-DEALER ISSUED 9/23/2010

 

Resolution:

Consent

 

Resolution Date:

03/04/2011

 

Sanctions Ordered:

Monetary/Fine $12,500.00 Disgorgement/Restitution Cease and Desist/Injunction

 

 

 

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Other Sanctions Ordered:

IN RESOLUTION OF THE MATTER, THE MARCH 4, 2011 CONSENT ORDER DIRECTED THE FIRM TO CEASE AND DESIST FROM REGULATORY VIOLATIONS AND TO PAY A $12,500 FINE. IN ADDITION, THE CONSENT ORDER REQUIRED THAT THE FIRM FURNISH THE DIVISION WITH PROOF WITHIN 45 DAYS THAT THE FIRM HAD REIMBURSED EACH AFFECTED CONNECTICUT CUSTOMER THE DIFFERENCE BETWEEN THE "HANDLING FEE" PAID BY THE CUSTOMER FOR EACH TRANSACTION, AND THE ACTUAL AMOUNT OF THE FIRM'S TICKET AND CLEARING CHARGE AND THE POSTAGE FEE ASSESSED BY SALOMON WHITNEY LLC'S CLEARING FIRM.

 

Sanction Details:

ORDER DIRECTED THE FIRM TO CEASE AND DESIST FROM REGULATORY VIOLATIONS AND TO PAY A $12,500 FINE. IN ADDITION, THE CONSENT ORDER REQUIRED THAT THE FIRM FURNISH THE DIVISION WITH PROOF WITHIN 45 DAYS THAT THE FIRM HAD REIMBURSED EACH AFFECTED CONNECTICUT CUSTOMER THE DIFFERENCE BETWEEN THE "HANDLING FEE" PAID BY THE CUSTOMER FOR EACH TRANSACTION, AND THE ACTUAL AMOUNT OF THE FIRM'S TICKET AND CLEARING CHARGE AND THE POSTAGE FEE ASSESSED BY SALOMON WHITNEY LLC'S CLEARING FIRM. THE $12,500 FINE WAS PAID ON 02/23/2011.

 

Firm Statement

SALOMON WHITNEY LLC WAS AFFORDED AN OPPORTUNITY TO REQUEST A HEARING ON THE ALLEGATIONS IN THE ORDER TO CEASE AND DESIST, NOTICE OF INTENT TO REVOKE REGISTRATION AS BROKER-DEALER AND NOTICE OF INTENT TO FINE. UPDATE: MATTER RESOLVED VIA CONSENT ORDER ENTERED ON MARCH 4, 2011 (SEE ITEM 13.B. FOR DETAILS).

 

 

 

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Arbitration Award - Award / Judgment

 

 

 

 

Brokerage firms are not required to report arbitration claims filed against them by customers; however, BrokerCheck provides summary information regarding FINRA arbitration awards involving securities and commodities disputes between public customers and registered securities firms in this section of the report.

The full text of arbitration awards issued by FINRA is available at www.finra.org/awardsonline.

 

 

Disclosure 1 of 1

 

 

Reporting Source:

Regulator

 

Type of Event:

ARBITRATION

 

Allegations:

ACCOUNT ACTIVITY-BRCH OF FIDUCIARY DT; ACCOUNT ACTIVITY- MANIPULATION; ACCOUNT ACTIVITY-MISREPRESENTATION; ACCOUNT ACTIVITY-OMISSION OF FACTS; ACCOUNT ACTIVITY-OTHER; ACCOUNT ACTIVITY-SUITABILITY; ACCOUNT ACTIVITY-VIOLATE OF BLUE SKY LWS; ACCOUNT RELATED-BREACH OF CONTRACT; ACCOUNT RELATED-FAILURE TO SUPERVISE; ACCOUNT RELATED-NEGLIGENCE; ACCOUNT RELATED- OTHER

 

Arbitration Forum:

FINRA

 

Case Initiated:

01/03/2020

 

Case Number:

19-03796

 

Disputed Product Type:

 

 

Sum of All Relief Requested:

$50,000.00

 

Disposition:

AWARD AGAINST PARTY

 

Disposition Date:

06/02/2020

 

Sum of All Relief Awarded:

$23,175.08

 

 

There may be a non-monetary award associated with this arbitration.

Please select the Case Number above to view more detailed information.

 

 

 

 

 

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End of Report

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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EXHIBIT C

Form of Employment Agreement


 


 

FORM OF EMPLOYMENT AGREEMENT

This Employment Agreement (this “Agreement”) is made and entered into as of ______________ ___, 2021, by and between [NAME] (the “Executive”) and Salomon Whitney LLC, a New York limited liability company (the “Company”).

WHEREAS, the Company is a duly registered Financial Industry Regulatory Authority, Inc. (“FINRA”) Broker-Dealer; and

WHEREAS, the Company desires to employ the Executive on the terms and conditions set forth herein; and

WHEREAS, the Executive desires to be employed by the Company on such terms and conditions.

NOW, THEREFORE, in consideration of the mutual covenants, promises, and obligations set forth herein, the parties agree as follows:

1.Term. The Executive’s employment hereunder shall be effective as of the date hereof and shall continue until the fifth anniversary thereof, unless terminated earlier pursuant to Section 5 of this Agreement.  The period during which the Executive is employed by the Company hereunder is hereinafter referred to as the “Employment Term”.

2.Position and Duties.

2.1Position. During the Employment Term, the Executive shall serve as the [Title] of the Company, reporting to the Board of Managers of the Company (the “Board”). In such position, the Executive shall have such duties, authority, and responsibilities as shall be determined from time to time by the Board, which duties, authority, and responsibilities are consistent with the Executive’s position. The Executive shall, if requested, also serve as a member of the Board or as an officer or director of any affiliate of the Company for no additional compensation.

2.2Duties. During the Employment Term, the Executive shall devote substantially all of Executive’s business time and attention to the performance of the Executive’s duties hereunder and will not engage in any other business, profession, or occupation for compensation or otherwise which would conflict or interfere with the performance of such services either directly or indirectly without the prior written consent of the Board. Notwithstanding the foregoing, the Executive will be permitted to with the prior written consent of the Board act or serve as a director, trustee, committee member, or principal of any type of business, civic, or charitable organization as long as such activities are disclosed in writing to the Board, provided that such activities do not interfere with the performance of the Executive’s duties and responsibilities to the Company as provided hereunder, including, but not limited to, the obligations set forth in Section 2.1 hereof.

3.Place of Performance. The principal place of Executive’s employment shall be the Company’s principal executive office currently located at 1295 Walt Whitman Road, Suite A,

 


 

Melville, NY 11747; provided that, the Executive may be required to travel on Company business during the Employment Term.

4.Compliance.  As part of the proper performance of his duties under this Agreement, Executive shall familiarize himself with, and at all times during the Employment Term shall comply with, the rules of FINRA, the statutes, regulations, rules and statements of policy promulgated and administered by the U.S. Securities and Exchange Commission, all other statutes, regulations and rules of any federal, state and/or local governmental authority or regulatory agency, and the rules, regulations and policies of any national or regional securities exchange which the Company is or may become a member (collectively, “Regulations”), any of which may now or hereafter apply to Executive’s activities under this Agreement. During the Employment Term Executive shall at all times be registered with FINRA and be duly licensed in each state where such licensure is required, and shall timely apply for, obtain and maintain all necessary licenses, permits and registrations as shall be required by any Regulations in connection with Executive’s activities under this Agreement. Executive shall read and comply with the Written Supervisory Procedures of the Company

5.Compensation.

5.1Base Salary. The Company shall pay the Executive an annual base salary of $250,000 in periodic installments in accordance with the Company’s customary payroll practices and applicable wage payment laws. The Executive's annual base salary, as in effect from time to time, is hereinafter referred to as “Base Salary”.

5.2Fringe Benefits and Perquisites. During the Employment Term, the Executive shall be entitled to fringe benefits and perquisites consistent with the practices of the Company, which fringe benefits and perquisites are set forth on Exhibit A attached hereto and made a part hereof, and governing benefit plan requirements (including plan eligibility provisions).  If any of the fringe benefits and perquisites set forth on Exhibit A become unavailable or cost-prohibitive, in the good faith judgment of the Board, the Executive shall be entitled to participate in equivalent benefits and perquisites.  In the event the Company proposes to change or terminate any such Exhibit A benefits and perquisites, any substitute shall be an equivalent and subject to the consent of the Executive, which consent shall not be unreasonably withheld, delayed, denied, or conditioned.

5.3Employee Benefits. During the Employment Term, the Executive shall be entitled to participate in all employee benefit plans, practices, and programs maintained by the Company, as in effect from time to time (collectively, “Employee Benefit Plans”), to the extent consistent with applicable law and the terms of the applicable Employee Benefit Plans. Subject in all respects to the provisions of Section 5.2, the Company reserves the right to amend or terminate any Employee Benefit Plans at any time in its sole discretion, subject to the terms of such Employee Benefit Plan and applicable law.

5.4Bonus.  During the Employment Term, the Executive shall be entitled to receive a bonus payment (the “Bonus”) equal to 6.25% of the Company’s annual adjusted earnings before interest, income taxes, depreciation, and amortization (“EBITDA”), as determined by the Board in its reasonable discretion, which bonus payment shall be calculated in accordance

 


 

with the provisions of Exhibit A attached to and made a part of this Agreement. The Bonus shall be calculated by the Board on an estimated basis and shall be paid quarterly to the Executive no later than 14 (fourteen) days following the filing of the monthly FOCUS report, which amount shall be pro-rated for any partial monthly period.  The first such quarterly bonus shall be payable for the partial quarterly period ending June 30, 2021.  Within thirty (30) days following the completion of the audit for such fiscal year, the Board shall calculate the annual EBITDA for the fiscal year then ended (the “Annual EBITDA”) and, (a) if 6.25% of the Annual EBITDA is greater than the amount paid to the Executive as aggregate quarterly Bonuses for such fiscal year, then the Company shall pay to the Executive in immediately available funds the amount by which Executive was underpaid, and (b) if 6.25% of the Annual EBITDA is less than the amount paid to the Executive as aggregate quarterly Bonuses for such fiscal year, then the Executive shall pay to the Company  in immediately available funds the amount by which the Executive was overpaid, provided, however, that in the sole discretion of the Company, any such overpayment may be satisfied by way of offset against future Bonus payments.  The Executive agrees that the Company and/or Purchaser (as defined below) may set off against any Bonus payable under this Agreement any amounts payable by Angia Holdings LLC, a New York limited liability company (“Angia”), of which Executive is an owner, in respect of Angia’s indemnification obligations under that certain Membership Interest Purchase Agreement, dated of even date herewith, by and among Angia, SW Affiliated Holdings LLC, a Nevada limited liability company (“Purchaser”), and the Company.

5.5Business Expenses. The Executive shall be entitled to reimbursement for all reasonable and necessary out-of-pocket business, entertainment, and travel expenses incurred by the Executive in connection with the performance of the Executive’s duties hereunder in accordance with the Company’s expense reimbursement policies and procedures.

5.6Clawback Provisions. Notwithstanding any other provisions in this Agreement to the contrary, any incentive-based or other compensation paid to the Executive under this Agreement or any other agreement or arrangement with the Company which is subject to recovery under any law, government regulation, or stock exchange listing requirement will be subject to such deductions and clawback as may be required to be made pursuant to such law, government regulation, or stock exchange listing requirement (or any policy adopted by the Company pursuant to any such law, government regulation or stock exchange listing requirement).

6.Termination of Employment.

6.1For Cause. Notwithstanding anything herein to the contrary, the Company may terminate Executive’s employment hereunder for “Cause” for any one of the following reasons: (1) conviction of or plea of guilty or no contest to a felony (or state law equivalent); (2) conviction of or plea of guilty or no contest to a misdemeanor that is financial in nature or to a misdemeanor where imprisonment is imposed; (3) a determination by a FINRA hearing panel or arbitration panel that Executive engaged in willful misconduct, (provided, however, that pro forma allegations of dishonesty, illegal conduct, misconduct, theft or fraud asserted in a customer complaint shall not, by the mere fact that such allegations have been made, constitute the basis for a termination for “Cause”); (4) any action taken by any federal, state, or self-regulatory organization securities regulator resulting in a statutory disqualification or a

 


 

suspension of more than six (6) months from association with a FINRA member for securities law violations including falsification of any document required to be filed with any regulatory authority, or falsification of any employment or Company records; (5) the Company’s EBITDA, determined on a trailing three-month basis immediately preceding the Closing, has declined over two consecutive quarters by more than an aggregate of 50% as compared with the Company’s EBITDA on the date first set forth above; (6) the Executive’s engagement in conduct that brings or is reasonably likely to bring any member of the Company Group negative publicity or into public disgrace, embarrassment or disrepute, as determined in good faith by the Board; or (7) Executive’s failure or inability to perform any material reasonable assigned duties after written notice from the Company of, and a reasonable opportunity (not to exceed 20 (twenty) days from the date of such written notice) to cure, such failure or inability; or (8) Executive’s material breach of this Agreement or any other agreement between Executive and any member of the Company Group, which breach is not cured within 20 (twenty) days following written notice of such breach (provided that, if such breach, by its nature, cannot reasonably be expected to be cured, then no cure period need be provided). Upon termination of Executive’s employment with the Company for Cause, the Company shall be under no further obligation to Executive except to pay all accrued but unpaid Base Salary, all unreimbursed business expenses properly incurred by the Executive, which shall be subject to and paid in accordance with the Company’s expense reimbursement policy, and accrued but unused vacation, which amounts shall be paid on the pay date immediately following the Termination Date (as defined below) in accordance with the Company's customary payroll procedures.

6.2Without Cause.  The Company may terminate Executive’s employment hereunder at any time without Cause, provided, however, that in the event of such termination, Executive shall be entitled to the continuation of the Base Salary, and the continuation of fringe benefits, and perquisites in accordance with Section 5.2 and the Company’s then-current payroll policies and practices, and to the Bonus, which shall be paid in accordance with Section 5.4, for the remaining term of this Agreement (the “Severance Payments”), subject to Executive’s execution and delivery to the Company of a general release of claims in a form acceptable to the Company (the “Release”) (and Executive’s non-revocation of the same).  If Executive fails to execute or revokes the Release, the Company will have no contractual or legal obligation to make any of the Severance Payments, but Executive’s obligations under this Agreement shall remain in effect.  Notwithstanding the foregoing, upon any breach by Executive of the provisions of Section 9 of this Agreement, the Company’s obligation to make any Severance Payments shall immediately terminate, which termination shall not limit, restrict or otherwise affect Executive’s continuing obligations under such Section.  The Severance Payments, if any, shall begin on the first of the Company’s regular salary payment dates following the date on which the Release becomes effective, provided that the requirements and conditions described herein have been met by Executive.

6.3Termination for Good Reason.  If Executive terminates his employment with the Company for Good Reason (as hereinafter defined), he shall be entitled to the Severance Payments, less deductions required by law, subject to Executive’s execution and delivery to the Company of the Release (and Executive’s non-revocation of the same).  If Executive fails to execute or revokes the Release, the Company will have no contractual or legal obligation to make any of the Severance Payments, but Executive’s obligations under this Agreement shall

 


 

remain in effect.  Notwithstanding the foregoing, upon any breach by Executive of the provisions of Section 9 of this Agreement, the Company’s obligation to make any Severance Payments shall immediately terminate, which termination shall not limit, restrict or otherwise affect Executive’s continuing obligations under such Section.  The Severance Payments, if any, shall begin on the first of the Company’s regular salary payment dates following the date on which the Release becomes effective, provided that the requirements and conditions described herein have been met by Executive.  For purposes of this Agreement, “Good Reason” shall mean any of the following:  (i) any non-consensual required relocation of the Executive’s principal place of employment more than 80 (eighty) miles from Executive’s current primary work location (provided that this clause (i) shall not apply in the event that Executive primarily works from home at such time); (ii) any material breach by the Company of this Agreement, including but not limited to the failure to provide fringe benefits and perquisites in accordance with Section 5.2 or the failure to pay any Bonus required to be paid to Executive in accordance with Section 5.4; (iii) a material adverse change to the Executive’s title, duties or responsibilities; or (iv) directives by the Company’s Board not in compliance with § 4 of this Agreement. Notwithstanding the foregoing, an event that is or would constitute Good Reason shall permanently cease to constitute Good Reason if: (A) the Executive does not provide the Company with written notice of his intent to terminate for Good Reason and a description of the event that Executive believes constitutes Good Reason within thirty (30) days after Executive knows of such event; (B) the Company reverses the action or cures the matter that constitutes Good Reason within thirty (30) days after Executive provides the written notice described in clause (B); or (C) Executive does not actually terminate this Agreement within the fifteen (15)-day period following the expiration of the cure period referenced in clause (B).

 

6.4.Voluntary Termination.  If the Executive’s employment is terminated upon the expiration of this Agreement, or by the Executive by his willful and voluntary resignation, the Company shall be under no further obligation to Executive except to pay all accrued but unpaid Base Salary, all unreimbursed business expenses properly incurred by the Executive, which shall be subject to and paid in accordance with the Company’s expense reimbursement policy, and accrued but unused vacation, which shall be paid on the pay date immediately following the Termination Date in accordance with the Company's customary payroll procedures.

6.5Death or Disability.

(a)The Executive’s employment hereunder shall terminate automatically on the Executive’s death during the Employment Term, and the Company may terminate the Executive’s employment on account of the Executive’s Disability.

(b)If the Executive’s employment is terminated during the Employment Term on account of the Executive’s death or Disability, the Executive (or the Executive’s estate and/or beneficiaries, as the case may be) shall be entitled to receive all accrued but unpaid Base Salary, all unreimbursed business expenses properly incurred by the Executive, which shall be subject to and paid in accordance with the Company’s expense reimbursement policy, and accrued but unused vacation, which shall be paid on the pay date immediately following the Termination Date in accordance with the Company's customary payroll procedures.  Notwithstanding any other provision contained herein, all payments made in

 


 

connection with the Executives Disability shall be provided in a manner which is consistent with federal and state law.

(c)For purposes of this Agreement, “Disability” shall mean the Executive’s inability, due to physical or mental incapacity, to perform the essential functions of the Executive’s job, for 90 days out of any 365-day period.  Any question as to the existence of the Executive’s Disability as to which the Executive and the Company cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to the Executive and the Company. If the Executive and the Company cannot agree as to a qualified independent physician, each shall appoint such a physician and those two physicians shall select a third who shall make such determination in writing. The determination of Disability made in writing to the Company and the Executive shall be final and conclusive for all purposes of this Agreement.

6.6Notice of Termination. Any termination of the Executive’s employment hereunder by the Company or by the Executive during the Employment Term (other than termination pursuant to Section 6.5(a) on account of the Executive’s death) shall be communicated by written notice of termination (“Notice of Termination”) to the other party hereto in accordance with Section 25. The Notice of Termination shall specify:

(a)The termination provision of this Agreement relied upon;

(b)To the extent applicable, a reasonable description of the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated; and

(c)The applicable Termination Date.

6.7Termination Date. The Executive’s “Termination Date” shall be:

(a)If the Executive’s employment hereunder terminates on account of the Executive’s death, the date of the Executive’s death;

(b)If the Executive's employment hereunder is terminated on account of the Executive’s Disability, the date that it is determined that the Executive has a Disability;

(c)If the Company terminates the Executive’s employment hereunder for Cause, the date the Notice of Termination is delivered to the Executive; or

(d)If the Company terminates the Executive’s employment hereunder without Cause in accordance with Section 6, or the Executive terminates his or her employment hereunder for Good Reason or for convenience in accordance with Section 6, the date specified in the Notice of Termination.

6.8Resignation of All Other Positions. On termination of the Executive’s employment hereunder for any reason, the Executive shall be deemed to have resigned from all positions that the Executive holds as an officer or member of the Board (or a committee thereof) of the Company or any of its affiliates.

 


 

7.Cooperation. The parties agree that certain matters in which the Executive will be involved during the Employment Term may necessitate the Executives cooperation in the future. Accordingly, following the termination of the Executives employment for any reason, to the extent reasonably requested by the Board, the Executive shall cooperate with the Company in connection with matters arising out of the Executives service to the Company.

8.Confidential Information. The Executive understands and acknowledges that during the Employment Term, the Executive will have access to and learn about Confidential Information, as defined below.

8.1Confidential Information Defined.

(a)Definition.

For purposes of this Agreement, “Confidential Information” includes, but is not limited to, all information not generally known to the public, in spoken, printed, electronic or any other form or medium, relating directly or indirectly to: business processes, practices, methods, policies, plans, publications, documents, research, operations, services, strategies, techniques, agreements, contracts, terms of agreements, transactions, potential transactions, negotiations, pending negotiations, know-how, trade secrets, computer programs, computer software, applications, operating systems, software design, web design, work-in-process, databases, device configurations, embedded data, compilations, metadata, technologies, manuals, records, articles, systems, material, sources of material, supplier information, vendor information, financial information, results, accounting information, accounting records, legal information, marketing information, advertising information, pricing information, credit information, design information, payroll information, staffing information, personnel information, employee lists, supplier lists, vendor lists, developments, reports, internal controls, security procedures, graphics, drawings, sketches, market studies, sales information, revenue, costs, formulae, notes, communications, algorithms, product plans, designs, styles, models, ideas, audiovisual programs, inventions, unpublished patent applications, original works of authorship, discoveries, experimental processes, experimental results, specifications, Customer Information, customer lists, client information, client lists, manufacturing information, factory lists, distributor lists, and buyer lists of the Company Group or its businesses or any existing or prospective customer, supplier, investor or other associated third party, or of any other person or entity that has entrusted information to the Company Group in confidence.

The Executive understands that the above list is not exhaustive, and that Confidential Information also includes other information that is marked or otherwise identified as confidential or proprietary, or that would otherwise appear to a reasonable person to be confidential or proprietary in the context and circumstances in which the information is known or used.

 


 

The Executive understands and agrees that Confidential Information includes information developed by Executive in the course of employment by the Company as if the Company furnished the same Confidential Information to the Executive in the first instance. Confidential Information shall not include information that is generally available to and known by the public at the time of disclosure to the Executive; provided that, such disclosure is through no direct or indirect fault of the Executive or person(s) acting on the Executive's behalf.

(b)Company Creation and Use of Confidential Information.

The Executive understands and acknowledges that the Company Group has invested, and continues to invest, substantial time, money, and specialized knowledge into developing its resources, creating a customer base, generating customer and potential customer lists, training its employees, and improving its offerings in the field of its businesses. The Executive understands and acknowledges that as a result of these efforts, the Company Group has created, and continues to use and create Confidential Information. This Confidential Information provides the Company Group with a competitive advantage over others in the marketplace.

(c)Disclosure and Use Restrictions.

The Executive agrees and covenants: (i) to treat all Confidential Information as strictly confidential; (ii) not to directly or indirectly disclose, publish, communicate, or make available Confidential Information, or allow it to be disclosed, published, communicated, or made available, in whole or part, to any entity or person whatsoever (including other employees of the Company Group) not having a need to know and authority to know and use the Confidential Information in connection with the business of the Company Group and, in any event, not to anyone outside of the direct employ of the Company Group except as required in the performance of the Executive’s authorized employment duties to the Company or with the prior consent of the Live Ventures CEO acting on behalf of the Company Group in each instance (and then, such disclosure shall be made only within the limits and to the extent of such duties or consent); and (iii) not to access or use any Confidential Information, and not to copy any documents, records, files, media, or other resources containing any Confidential Information, or remove any such documents, records, files, media, or other resources from the premises or control of the Company Group, except as required in the performance of the Executive’s authorized employment duties to the Company or with the prior consent of the Live Ventures CEO acting on behalf of the Company Group in each instance (and then, such disclosure shall be made only within the limits and to the extent of such duties or consent).

Nothing herein shall be construed to prevent disclosure of Confidential Information as may be required by applicable law or regulation, or pursuant to the valid order of a court of competent jurisdiction or an authorized government agency, provided that the disclosure does not exceed the extent of disclosure required by such law, regulation, or order. The Executive shall promptly provide

 


 

written notice of any such order to the Board.

(d)Permitted Disclosures. Nothing herein shall be construed to prevent disclosure of Confidential Information as may be required by applicable law or regulation, or pursuant to the valid order of a court of competent jurisdiction or an authorized government agency, provided that the disclosure does not exceed the extent of disclosure required by such law, regulation, or order. The Executive shall promptly provide written notice of any such order to the Board.

9.Restrictive Covenants.

9.1Acknowledgement. The Executive understands that the nature of the Executive’s position gives the Executive access to and knowledge of Confidential Information and places the Executive in a position of trust and confidence with the Company. The Executive understands and acknowledges that the intellectual and other services the Executive provides to the Company are unique, special, or extraordinary.  The Executive further understands and acknowledges that the Company’s ability to reserve these for the exclusive knowledge and use of the Company is of great competitive importance and commercial value to the Company, and that improper use or disclosure by the Executive is likely to result in unfair or unlawful competitive activity.

9.2Non-Competition. Because of the Company’s legitimate business interest as described herein and the good and valuable consideration offered to the Executive, during the Employment Term and for twelve (12) months (the “Non-Compete Term”), to run consecutively, beginning on the last day of the Executive’s employment with the Company, regardless of the reason for the termination and whether employment is terminated at the option of the Executive or the Company, the Executive agrees and covenants not to engage in Prohibited Activity (a) within the State of New York or (b) within a radius of twenty-five (25) miles from any location from which the Company has operated during the Employment Term.

For purposes of this Section 9, “Prohibited Activity” is activity in which the Executive contributes the Executive's knowledge, directly or indirectly, in whole or in part, as an employee, employer, owner, operator, manager, advisor, consultant, agent, employee, partner, director, stockholder, officer, volunteer, intern, or any other similar capacity to an entity engaged in the same business as the Company. Provided that Executive is in compliance with all restrictions set forth in this Agreement that are applicable to Executive following the end of the Employment Term, Executive’s engagement by a registered investment advisor or a non-broker-dealer for the sole purpose of engaging in private equity transactions shall not constitute a violation of this Section 9.2.  Prohibited Activity also includes activity that may require or inevitably requires disclosure of trade secrets, proprietary information, or Confidential Information.  

This Section 9 does not, in any way, restrict or impede the Executive from exercising protected rights to the extent that such rights cannot be waived by agreement or from complying with any applicable law or regulation or a valid order of a court of competent jurisdiction or an authorized government agency, provided that such compliance does not exceed that required by

 


 

the law, regulation, or order. The Executive shall promptly provide written notice of any such order to the Board.

The Executive shall be entitled to receive continuation of the Base Salary and fringe benefits for the twelve (12) month period of the Non-Compete Term, should the Company elect to impose said Non‑Compete Term provided, however, that such salary and fringe benefit continuation shall not be made (a) if the Executive voluntarily terminated his employment under Section 6.4, (b) if the Company terminated the Executive’s employment for Cause, or (c)  if the Executive is already receiving Severance Payments during such twelve (12) month period (provided that, if Executive is receiving Severance Payments which include less that twelve (12) months of Base Salary continuation, then Executive shall receive additional Base Salary and fringe benefit continuation for the difference between twelve (12) months and the period for which Executive is otherwise receiving Severance Payments (by way of example, if Executive is receiving six (6) months of Severance Payments pursuant to this Agreement, then Executive would receive an additional six (6) months of Base Salary and fringe benefit continuation pursuant to this Section 9.2). The Company’s obligation to provide such Base Salary and fringe benefit continuation shall be subject to Executive’s execution and delivery to the Company of the Release (and Executive’s non-revocation of the same).

9.3Non-Solicitation of Employees. The Executive agrees and covenants not to directly or indirectly solicit, hire, recruit, attempt to hire or recruit, or induce the termination of employment of any employee of the Company, or attempt to do so, during the three year period, to run consecutively, beginning on the last day of the Executive’s employment with the Company.

9.4Non-Solicitation of Customers. The Executive understands and acknowledges that because of the Executive’s experience with and relationship to the Company, the Executive will have access to and learn about much or all of the Company's customer information. “Customer Information” includes, but is not limited to, names, phone numbers, addresses, email addresses, order history, order preferences, chain of command, decisionmakers, pricing information, and other information identifying facts and circumstances specific to the customer and relevant to sales and/or services.

The Executive understands and acknowledges that loss of this customer relationship and/or goodwill will cause significant and irreparable harm.

The Executive agrees and covenants, during the three year period, to run consecutively, beginning on the last day of the Executive’s employment with the Company, not to directly or indirectly solicit, contact (including but not limited to email, regular mail, express mail, telephone, fax, instant message, or social media), attempt to contact, or meet with the Company’s current, former, or prospective customers for purposes of offering or accepting goods or services similar to or competitive with those offered by the Company.

10.Mutual Non-Disparagement. Each party agrees and covenants that such party  will not at any time make, publish, or communicate to any person or entity or in any public forum any defamatory or disparaging remarks, comments, or statements by one against the other, including concerning the Company Group, or any Company Group affiliates, businesses, employees, officers, and existing and prospective customers, suppliers, investors and other associated third

 


 

parties.  “Company Group” means, collectively, the Company, Live Ventures, and any of their respective direct or indirect subsidiaries or affiliates.

This Section 10 does not, in any way, restrict or impede a party from exercising protected rights to the extent that such rights cannot be waived by agreement or from complying with any applicable law or regulation or a valid order of a court of competent jurisdiction or an authorized government agency, provided that such compliance does not exceed that required by the law, regulation, or order.

11.Acknowledgement. The Executive acknowledges and agrees that the services to be rendered by the Executive to the Company are of a special and unique character; that the Executive will obtain knowledge and skill relevant to the Company's industry, methods of doing business and marketing strategies by virtue of the Executive's employment; and that the restrictive covenants and other terms and conditions of this Agreement are reasonable and reasonably necessary to protect the legitimate business interest of the Company Group.

The Executive further acknowledges that the benefits provided to the Executive under this Agreement, including the amount of the Executive’s compensation, reflects, in part, the Executive’s obligations and the Company's rights under Section 8, Section 90, and Section 10 of this Agreement; that the Executive has no expectation of any additional compensation, royalties, or other payment of any kind not otherwise referenced herein in connection herewith; and that the Executive will not suffer undue hardship by reason of full compliance with the terms and conditions of Section 8, Section 9, and Section 10 of this Agreement or the Company's enforcement thereof.

12.Remedies. In the event of a breach or threatened breach by the Executive of Section 0, Section 0, or Section 10 of this Agreement, the Executive hereby consents and agrees that the Company shall be entitled to seek, in addition to other available remedies, a temporary or permanent injunction or other equitable relief against such breach or threatened breach from any court of competent jurisdiction, and that money damages would not afford an adequate remedy, without the necessity of showing any actual damages, and without the necessity of posting any bond or other security. The aforementioned equitable relief shall be in addition to, not in lieu of, legal remedies, monetary damages, or other available forms of relief.

13.