Exhibit 1.4
ARTICLES OF ACQUISITION AND PLAN OF REORGANIZATION
I. PARTIES TO AGREEMENT
The parties to this agreement shall be:
Sterling Brokerage Services, L.L.C., a Texas Limited Liability Company,
whose address is 0000 X. Xxxx Xxxxxx, Xxxxxx, XX, hereinafter referred to as
SBS; and
Sterling Resources, Inc., a Colorado Corporation, together with its wholly
owned subsidiary Xxxxx0Xx.xxx, L.L.C., a Colorado Limited Liability Company,
whose address is 000 X. Xxxxxxx Xxx., Xxxxxxxx Xxxxxxx, Xxxxxxxx, collectively
hereinafter referred to as SRI.
II. PURPOSE OF THIS AGREEMENT
The purpose of this agreement is to outline the process and agreement for
SRI to acquire SBS. SRI shall be the holding company and SBS shall continue to
be an independent entity owned in its entirety by SRI. SBS is a National
Association of Securities Dealer's Broker/Dealer.
III. CONSIDERATION
Whereas SBS desires to join its broker's broker operations with the online
fixed income brokerage operations and sales organization of SRI; and
Whereas SRI desires to join its operations with SBS under the license of
SBS for the joint benefit of all included herein;
Now therefore, in consideration of the mutual promises contained herein,
the following agreement sets forth the terms and understanding between the
parties.
IV. ACQUISITION OF SBS
The merger of the parties herein is to be completed through a tax-free
exchange of voting securities of SBS for shares in SRI. It is anticipated that
since SBS is a NASD broker/dealer and will continue as such after the
acquisition, SRI shall issue common shares of stock for all outstanding
membership units of SBS. No monies or other items of value shall be paid to or
from either of the merger partners. The ratio of common shares issued by SRI in
exchange for membership units of SBS will be completed in two stages. The
initial exchange of shares for units shall take place upon the signing of this
agreement which shall serve to begin the plan of reorganization and option
period as outlined in Section X. The second and final distribution of SRI
common shares, if any shall be completed within 12 months of the signing of this
agreement which will xxxx the end of the plan of reorganization and the end of
the option period as outlined in Section IX.
V. OWNERSHIP AND NEGOTIABILITY RESTRICTIONS OF THE COMMON SHARES OF SRI
The shares of SRI issued pursuant to this agreement as well as the existing
outstanding shares of SRI shall be restricted as to the shareholders ability to
sale, hypothecate or otherwise transfer shares received. Additionally, this
section shall prescribe a method of valuation and payment terms that would apply
upon a shareholder's death, disability, divorce, insolvency and termination of
employment. Attached to this document and labeled Appendix A is the
Shareholder's Agreement that shall enumerate the restrictions on the Common
Stock of SRI. This agreement is expressly contingent upon the execution of all
shareholders (both existing and anticipated by this document) representing 100%
of the outstanding stock of SRI.
VI. INTENT TO QUALIFY AS A "TAX FREE EXCHANGE IN REORGANIZATION"
It is the parties intent to qualify under Internal Revenue Service Code
Sections 354 through 361 et al. This document shall serve as the "plan of
reorganization." It is understood that only securities of the parties hereto
shall be exchanged and that no other property or "boot" shall be involved in the
set of transactions contemplated herein. If any portion of this plan of
reorganization should by its existence in this document cause this plan of
reorganization to fail as a "tax free exchange in reorganization" that portion
alone shall be considered void and the balance of this plan and articles of
acquisition shall survive.
VII. CONDITIONS PRECEDENT TO ACQUISITION
SBS is currently a "Five Thousand Dollar" Broker/Dealer member of the NASD.
Specifically, this designation limits the scope of business activities of SBS to
sales and purchases of debt securities from other NASD Broker/Dealer members.
This designation currently serves the needs of SBS whose activities are limited
to inter-dealer sales. SRI, through its employees and licensing through Century
Securities Associates, Inc. conducts general securities sales and trading which
would fall outside the current designation of SBS.
In order to accommodate this plan of acquisition, SBS has undertaken to
expand and change its license designation with the NASD to allow for the
expanded activities of the new organization. Upon the advice of experts
consulted, SBS has applied to the NASD to expand from a "Five Thousand Dollar"
Broker/Dealer to a "One Hundred Thousand Dollar" Broker/Dealer.
Since the effectiveness of this acquisition depends upon SBS expanding from
a "Five Thousand Dollar" Broker/Dealer to a "One Hundred Thousand Dollar"
Broker/Dealer member any failure or inability to achieve this designation shall
by itself cause this agreement to become void with no further force or affect.
The change in designation is required to expand SBS's ability to conduct general
securities sales and trading both with the "public," as defined by the NASD and
to other Broker/Dealer members.
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VIII. MERGER OF OPERATIONS
Subject to the "Option Period" as set forth in Section X, the parties
intend to combine the operations, assets, liabilities, duties, obligations,
revenues and all other business functions of the broker/dealer together and have
SBS as a wholly owned subsidiary of SRI. Because the operations of the acquired
parties will remain disparate (i.e., broker's broker operations and general
securities operations) the pre-acquisition names of the businesses shall
continue as d/b/a designations. This shall continue to exist so long as it is
deemed prudent by management.
It is anticipated that for the initial few years following the execution of
this Agreement the company will undergo expansion that will limit the profits
realized by the shareholders. The expansion of "top line" revenues will be
primary with the "bottomline" revenue secondary.
The following listings will outline the events to occur upon the execution
of this agreement:
A. SRI shall issue fully paid common shares of stock in exchange for
all outstanding SBS common membership units as outlined in Section IX.
B. The interim Co-Chief Operating Officers and Managing Members
shall be Xxxxxx Xxxxxx and Xxxxx Xxxxxx. They shall each be the sole
operating officer of their respective divisions of SRI. They shall remain
Co-Chief Operating Officers until the expiration of the "Option Period."
Assuming the option to unwind (as outlined in Section X) is not exercised
the positions, as Co-Chief Operating officers shall continue.
C. Any regulatory requirement by the NASD or other Self-Regulating
Organization (SRO) shall be undertaken with the joint help of both parties.
D. The clearing of all securities transactions shall be centralized,
or maintained under the license of SBS in separate locations until
centralization is feasible.
E. An inventory of all assets and liabilities of the parties shall
be undertaken and attached to this agreement and labeled Appendix B. The
respective inventories of both the general securities portion (currently
SRI) and the broker's broker portion (currently SBS) shall be performed
under the guidance of Xxxxxx and Xxxxxx and submitted to each other.
F. All securities licenses of the employees of SRI shall be moved
from Century Securities Associates, Inc. to SBS as soon as is feasible.
G. Notice shall be sent to all creditors and customers of the
parties outlining changes caused by the merger. If the merger does not
affect the relationships then no notice will be required.
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H. During the "Option Period" as set forth in Section X of this
agreement, the day to day operations of each party shall go on in a
separate fashion and the revenues and expenses of each operation shall
remain separate.
I. The parties will take steps to cooperate with each other to
maximize joint business opportunities including Internet marketing,
business expansion, etc.
J. The parties will account for revenues and expenses on an ongoing
basis.
IX. CALCULATION OF SBS COMMON UNITS EXCHANGED FOR SRI COMMON SHARES
A. Initial Calculation of Exchange Ratio - The "Option Period":
The basis upon which common units of SBS shall be
exchanged for common shares of SRI will be the
issuance of an amount of the common shares of SRI
that equate to a twenty percent (20%) ownership in
SRI. This amount is not subject to re-calculation
to less than the base twenty-percent (20%)
ownership.
During the initial twelve-month period following the execution of this
agreement, each party to this agreement is hereby granted an option to rescind
the exchange outlined herein. This option may be exercised by either of the
existing majority principals of the parties. The majority existing principal of
SBS is Xxxxxx Xxxxxx and the majority principal of SRI is Xxxxx Xxxxxx. Either
may act upon behalf of their prior entity to cause this transaction to become
void and unwind the joint business activities of the parties. This option grant
and its operation are outlined in Section X.
B. Recalculation of the Exchange Ratio:
Since there is a disparate amount of revenue generation by each party it is
expected that the shares issued in exchange for SBS units will represent a
lesser ownership interest in SRI than the original members will. However, it is
the intent of this merger agreement to allow for both parties to recognize the
benefits of this merger, the initial ratio of exchange shall be subject to
recalculation twelve months after the execution of this agreement. This
recalculation shall be performed by negotiation between Xxxxxx and Xxxxxx. If an
agreement cannot be reached then the option to rescind shall be considered to
have been exercised by both parties.
X. XXXXX OF OPTION TO UNWIND ACQUISITION AND MERGED OPERATIONS DURING THE
"OPTION PERIOD"
As outlined in Section IX, this agreement hereby grants an option to each
principal of the parties to rescind this agreement and unwind the joint
operations of the parties during the first twelve months following the execution
of this agreement. This period is known and hereinafter referred to as the
"Option Period." This option may be exercised at any time during the Option
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Period by either party and shall require no condition precedent. The following
subsections shall outline the occurrences during the option period.
A. During the option period the operations of the broker's broker and
general securities divisions of SBS shall remain separate. As Co-COO's Xxxxxx
and Xxxxxx will remain in control of each division subject to reporting
financial results to SRI.
B. SRI agrees to hold the units of SBS exchanged for shares of SRI in
escrow during the option period and to return said units of SBS to former
members should the option to rescind be exercised. All corporate filings,
reports and returns shall also be continued to be updated and executed in a
timely fashion.
C. The revenues and expenses of the divisions of SBS shall remain separate
and under the control of each division. The costs of the Broker/Dealer shall be
borne by the divisions of SBS in the proportion as to the revenues raised. This
shall include, but not be limited to licensing, accounting, and general
administration thereof.
D. If either party exercises their option to rescind this acquisition
during the option period, a period up to six months following the exercise of
the option shall be allowed before the separation of the parties is completed.
This time period shall allow for any unwinding of operations and for SRI to
arrange for licensing as a NASD Broker/Dealer. However, the financial interest
that the general securities operations (currently SRI) and the broker's broker
operations (currently SBS) share as a product of this acquisition shall cease of
the date the option to rescind is exercised.
E. Each party will gain unique knowledge about the other as a consequence
of this merger. This knowledge could be damaging to the parties should either
party exercise its option to rescind. Therefore in such an event, each party
agrees not to use any information or knowledge of the other's operations,
business and trade secrets or customer base for any purpose. Any attempt to do
so may cause rise to damages that may be recovered in arbitration. Each party
agrees that a single exception to the arbitration clause in Section XXI shall
exist if either party should seek injunctive relief to enforce this section.
F. Each party agrees to hold each other harmless and defend against any
claim that arises from their respective division prior to or during the option
period. This applies to any asserted claims of liability by the customers of
the parties, any regulatory organization or any other group or entity that may
attempt such claim. Such indemnity shall include all judgment, arbitration
awards, settlements, costs and reasonable attorney fees incurred by the parties
in connection with all claims.
G. There shall exist a fiduciary duty and duty of fair dealing between the
parties during the option period.
H. There will be conflicts of interest during the option period since each
party is an existing customer of the other. This agreement requires full
disclosure of any conflict to the other party.
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XI. FINANCIAL OBLIGATIONS FOR REGULATORY AND TRADING CAPITAL OF THE MERGED
COMPANY
The financial capital needs of SBS are expected initially to expand given
the upgrade of the Broker/Dealer outlined in Section VII. SRI agrees to provide
the difference of capital needed to meet the requirements of the NASD and other
SRO's. The parties to this agreement have been advised that the combined
operations will require a minimum net capital amount of one hundred twenty
thousand dollars ($120,000.00). SBS currently maintains thirty thousand dollars
($30,000.00) of net capital and will need an additional ninety thousand dollars
($90,000) to meet the regulatory requirement. SRI agrees to supply this capital
by way of subordinated loan or equity infusion. Additionally, additional
capital may be required as a clearing deposit to secure a trading line of
credit. Both SRI and SBS and their principals agree to attempt to secure these
amounts.
Should either or both parties to this agreement not be able to raise or
supply the needed capital upon mutually agreeable terms within one hundred
twenty days (120) after the execution of this agreement, this plan of
reorganization and merger shall fail and this document shall become null and
void. Any items of value exchanged between the parties shall be returned.
XII. FUNDS EXCHANGED BETWEEN SRI AND SBS
It is anticipated that after the execution of this agreement, certain funds
may be exchanged between SRI and SBS for expansion purposes. Irrespective of
the manner in which any funds and/or property are exchanged (i.e., loaned or
invested as equity) between the parties, for the purpose of the "Option Period"
herein such funds shall be considered by the shareholders as loaned funds or
property and shall be returned to the party providing the funds or property if
the option to rescind is exercised by any party hereto.
XIII. COSTS AND FEES OF THE MERGER
Both parties anticipate certain costs to be incurred pursuant to this
agreement. Any reasonable costs associated with the upgrade of SBS'
Broker/Dealer shall be shared equally between the parties. Costs that arise
prior to the execution of this agreement shall be borne by the party that has
incurred them. Costs and Fees arising after the execution of this agreement
shall be borne by the merged SBS proportionately as to revenues produced.
Therefore, the general securities division (currently SRI) and the broker's
broker divisions shall pay only their proportionate share of costs. Shared
overhead shall be contributed equally by both parties.
XIV. EMPLOYEES OF SRI TO BECOME EMPLOYEES OF SBS
The licensed employees of SRI are currently under contract as "independent
contractors" with Century Securities Associates. Nothing in this agreement is
meant to abrogate or otherwise violate the terms of those agreements. A
specimen copy of this agreement is attached to this agreement as Appendix C.
The "independent contractor's agreement" requires 5 days notice to terminate and
such notice will be tendered within 5 business days of the regulatory
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requirements outlined in Section VII (Conditions Precedent) being met. SBS
agrees to hire all employees of SRI.
XV. ACCEPTANCE OF EMPLOYEE BENEFITS AND PROGRAM OF SRI AND SBS
SRI and SBS currently operate employee benefit programs for their
employees. The parties agree to continue substantially all of these programs
indefinitely beyond the merger unless the joint management of the parties agrees
otherwise. At the time of execution these programs include Employee stock
ownership, partially paid health insurance benefits and a retirement plan. A
copy of these items have been supplied to each party receipt of which is
acknowledged by the execution of this agreement. This section shall not impair
the parties' ability to add, delete or otherwise modify any benefit or other
employee program.
XVI. AGREEMENT FOR THE PARTIES TO "STAND STILL"
Upon the execution of this agreement each party agrees to cease any merger
or business combination discussions with others that could adversely impact
either party to this agreement. SRI hereby discloses that it has discussed a
business combination with Unicapital but has not defined any conditions or
terms. SRI will continue discussions only under the advice and consent of SBS.
Discussions entered into prior to the execution of this agreement shall not be a
violation hereof.
All other ongoing business matters shall be undertaken as usual and shall
not be affected by this document or the pendency of its execution.
XVII. REGULATORY AND COMPLIANCE ISSUES
It is understood that the terms and conditions of this agreement are
subject to the rules and regulations that govern the parties hereto. Therefore,
if any portion of this agreement is found to violate any securities rule or
regulation of any governing agency, Self Regulatory Organization (SRO), any
court of competent jurisdiction or state securities, authority, such portion
shall be deemed void and to have no force or effect on the parties. All other
terms and conditions shall remain as originally written.
It shall be considered as sufficient cause to terminate this agreement if
any party hereto is suspended from doing business in the securities industry.
XVIII.THIS AGREEMENT BINDING ON SUCCESSORS IN INTEREST
This agreement shall be binding on all successor in interest to the
parties. Specifically, this shall include sale, merger or other transformation
of either party to this agreement. Additionally, it is agreed that should
either party use a subsidiary or affiliated entities in the performance of this
agreement the party so utilizing such subsidiary or affiliated entities shall be
responsible and liable for the actions of that affiliate or subsidiary.
Furthermore, the utilizing party shall guarantee the obligations and liabilities
of such affiliate or subsidiary.
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XIX. REASONABLE ATTORNEY'S FEES
It is understood that any act of default, breach or repudiation of this
agreement hereto could subject each party to serious financial and regulatory
damages. Such damages may include significant financial risk and damage that
could be caused by actions or inactions of the other party. In the case of such
events of default, breach or repudiation and a dispute between the parties
arises the prevailing party shall be entitled to recover reasonable attorney's
fees in addition to any damages awarded.
XX. TIME IS OF THE ESSENCE
As it is greatly to the benefit of each party to proceed with this
acquisition, time frames set forth herein must be met. Any unreasonable delay
that is not agreed to by all parties to this agreement shall constitute a breach
of this agreement. Any breach due to unreasonable time delays without the
consent of the parties shall deem this contract null and void. All items of
value shall be returned to the parties contributing them.
XXI. GOVERNING LAW - ARBITRATION CLAUSE
This agreement shall be governed by the rules of the National Association
of Securities Dealers and by the laws of the State of Colorado.
Any dispute, complaint or action that shall arise from this agreement shall
be adjudicated by binding arbitration according to the National Association of
Securities Dealers Code of Arbitration. Execution hereof shall be deemed as an
irrevocable submission to arbitration.
XXII. COMPLETE AGREEMENT
This document describes the complete agreement between the parties. No
other understanding, either written or verbal shall modify the contents herein.
Any modification to this agreement shall so state in writing and be executed by
all parties hereto.
XXIII.FACSIMILE SIGNATURES DEEMED AS ORIGINAL
Any signature or initial received by any party by way of facsimile shall be
deemed as an original signature or initial.
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This agreement is hereby deemed the complete agreement between the parties
and is accepted this ___ day of ______, 2001.
STERLING BROKERAGE SERVICES L.L.C.
By: Xxxxxx Xxxxxx, Chief Operating Officer and
Managing Member
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STERLING RESOURCES, INC. on behalf of its
affiliates
By: Xxxxx Xxxxxx, President and Chief Executive
Officer
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RATIFICATION OF THE MEMBERS OF STERLING
BROKERAGE SERVICES, L.L.C.
By: Xxxxxx Xxxxxx Member
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By: Xxxx Xxxxxx, Member
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RATIFICATION OF THE SHAREHOLDERS OF STERLING
RESOURCES, INC.
By: Xxxxx Xxxxxx, Shareholder
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By: Xxxx Xxxxxx (a/k/a Xxxx Xxxxxxx),
Shareholder
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