SERIES A PREFERRED STOCK PURCHASE AGREEMENT
dated as of March 11, 1997
among
▇▇▇▇▇ INSURANCE COMPANY
and
CAPAX MANAGEMENT & INSURANCE SERVICES
TABLE OF CONTENTS
1.PURCHASE, SALE AND TERMS OF SHARES.......................................... 1
1.1 THE PREFERRED SHARES...................................................... 1
1.1 THE CONVERSION SHARES..................................................... 1
1.3 PURCHASE PRICE AND CLOSING................................................ 1
1.4 POST-CLOSING ADJUSTMENT................................................... 2
1.5 POST-CLOSING PAYMENTS..................................................... 2
1.6 USE OF PROCEEDS........................................................... 3
1.7 POST-CLOSING SHARE ADJUSTMENTS............................................ 3
1.8 BUY-SELL AGREEMENT........................................................ 5
1.9 RIGHT OF FIRST REFUSAL.................................................... 5
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............................. 6
2.1 ORGANIZATION, STANDING AND POWER OF THE COMPANY........................... 6
2.2 AUTHORITY; ENFORCEABILITY; NO CONFLICT.................................... 6
2.3 CAPITALIZATION............................................................ 7
2.4 SUBSIDIARIES.............................................................. 8
2.5 STATUS OF SHARES.......................................................... 8
2.6 FINANCIAL STATEMENTS...................................................... 8
2.7 LIABILITIES............................................................... 9
2.8 INDEBTEDNESS.............................................................. 9
2.9 TITLE TO ASSETS........................................................... 9
2.10 ACTIONS PENDING.......................................................... 9
2.11 COMPLIANCE WITH LAW......................................................10
2.12 TAXES,...................................................................10
2.13 NO MATERIAL ADVERSE CHANGE...............................................10
2.14 CERTAIN FEES.............................................................10
2.15 DISCLOSURE...............................................................11
2.16 BOOKS AND RECORDS........................................................11
2.17 TRANSACTIONS WITH AFFILIATES.............................................11
2.18 ABSENCE OF CERTAIN DEVELOPMENTS..........................................11
2.19 ABSENCE OF OWNERSHIP RIGHTS IN BOOK OF BUSINESS..........................13
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER............................13
3.1 ORGANIZATION AND STANDING OF THE PURCHASER................................13
3.2 AUTHORITY; ENFORCEABILITY; NO CONFLICT....................................13
3.3 ACQUISITION FOR INVESTMENT................................................14
3.4 GOVERNMENTAL APPROVALS....................................................14
4. CONDITIONS TO PURCHASER'S OBLIGATIONS......................................14
4.1 REPRESENTATIONS AND WARRANTIES............................................14
4.2 CORPORATE AND SHAREHOLDER PROCEEDINGS.....................................15
4.3 OFFICER'S CERTIFICATE.....................................................15
4.4 NO PROCEEDINGS OR LITIGATION..............................................15
4.5 CERTIFICATE OF DETERMINATION..............................................15
4.6 ▇▇▇▇▇ TRADING COMPANY AGREEMENT...........................................15
4.7 MANAGEMENT CONSULTANT AGREEMENT...........................................16
4.8 COMPLIANCE WITH THIS AGREEMENT AND RELATED AGREEMENTS.....................16
4.9 PROCEEDINGS SATISFACTORY..................................................16
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4.10 OPTION...................................................................16
4.11 NON-COMPETITION AGREEMENT................................................16
4.12 MINISTERIAL ITEMS........................................................16
5. AFFIRMATIVE COVENANTS OF THE COMPANY.....................................17
5.1 INSPECTION RIGHTS.........................................................17
5.2 BUDGETS APPROVAL..........................................................17
5.3 FINANCINGS................................................................17
5.4 BY-LAWS AND INDEMNIFICATION...............................................18
5.5 CORPORATE EXISTENCE.......................................................18
5.6 EX-OFFICIO NON-VOTING BOARD MEMBER: EXPENSES OF DIRECTORS.................18
5.7 COMPLIANCE WITH LAWS......................................................18
5.8 KEEPING OF RECORDS AND BOOKS OF ACCOUNT...................................18
5.9 REPORTING REQUIREMENTS....................................................19
5.10 REPORTS TO DIRECTORS.....................................................19
5.11 MAINTENANCE OF FINANCIAL STRENGTH........................................20
5.12 MAINTENANCE OF ADEQUATE ERRORS & OMISSIONS/DIRECTORS &
OFFICERS INSURANCE......................................................20
5.13 CREATION AND MAINTENANCE OF COMPENSATION COMMITTEE.......................20
5.14 SUBMISSION OF OPTION TO SHAREHOLDERS FOR APPROVAL........................20
6. NEGATIVE COVENANTS OF THE COMPANY..........................................21
6.1 DEALINGS WITH AFFILIATES..................................................21
6.2 COMPENSATION TO OFFICERS..................................................21
6.3 MAINTENANCE OF OWNERSHIP OF SUBSIDIARIES..................................21
6.4 CONDUCT OF BUSINESS.......................................................21
6.5 RESTRICTIONS ON INDEBTEDNESS..............................................21
6.6 ASSUMPTIONS OR GUARANTIES OF INDEBTEDNESS OF OTHER PERSONS................22
6.7 INVESTMENTS IN OTHER CORPORATIONS OR ENTITIES (LESS THAN 100% OWNED)......22
6.8 ACQUISITION OF OTHER CORPORATIONS OR ENTITIES (100% OWNED)................23
6.9 AMENDMENTS................................................................23
6.10 OTHER AGREEMENTS.........................................................23
6.11 USE OF FIDUCIARY FUNDS...................................................23
7. RIGHT OF FIRST REFUSAL.....................................................23
7.1 RIGHT OF FIRST REFUSAL....................................................23
7.2 NOTICE OF ACCEPTANCE......................................................24
7.3 CONDITIONS TO ACCEPTANCES AND PURCHASE....................................24
7.4 FURTHER SALE..............................................................25
7 5 EXCEPTION.................................................................25
7.6 SALE OF COMPANY AS A WHOLE................................................25
7.7 RIGHTS UNDER BUY-SELL AGREEMENT...........................................26
8. DEFINITIONS AND ACCOUNTING TERMS...........................................26
8.1 CERTAIN DEFINED TERMS.....................................................26
8.2 ACCOUNTING TERMS..........................................................30
9. INDEMNIFICATION ...........................................................30
9.1 GENERAL INDEMNITY.........................................................30
9.2 INDEMNIFICATION PROCEDURE.................................................31
10. MISCELLANEOUS.............................................................32
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10.1 NO WAIVER: CUMULATIVE REMEDIES...........................................32
10.2 AMENDMENTS, WAIVERS AND CONSENTS.........................................32
10.3 ADDRESSES FOR NOTICES....................................................32
10.4 COSTS, EXPENSES AND TAXES................................................33
10.5 BINDING EFFECT: ASSIGNMENT...............................................33
10.6 SURVIVAL OF REPRESENTATIONS AND WARRANTIES...............................33
10.7 PRIOR AGREEMENTS.........................................................34
10.8 SEVERABILITY.............................................................34
10.9 CONFIDENTIALITY..........................................................34
10.10 GOVERNING LAW...........................................................34
10.11 HEADINGS................................................................35
10.12 COUNTERPARTS............................................................35
10.13 FURTHER ASSURANCES......................................................35
10.14 WAIVER..................................................................35
10.15 SPECIFIC ENFORCEMENT....................................................35
10.16 CUMULATIVE VOTING.......................................................36
EXHIBITS
Exhibit A: Certificate of Determination of Preferences of Series A Preferred
Stock
Exhibit B: ▇▇▇▇▇ Trading Company (PTC) Agreement
Exhibit C: Management Agreement
Exhibit D: Purchase Option and Pre-Initial Public Offering Option
Exhibit E: Non-Competition Agreement
SCHEDULES
Schedule 1.5
Schedule 2.2
Schedule 2.3
Schedule 2.4
Schedule 2.6
Schedule 2.8
Schedule 2.9
Schedule 2.10
Schedule 2.12
Schedule 2.17
Schedule 2.18
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SERIES A PREFERRED STOCK PURCHASE AGREEMENT
Dated as of March 11, 1997
▇▇▇▇▇ Insurance Company
Ladies and Gentlemen:
CAPAX MANAGEMENT & INSURANCE SERVICES, a California corporation
(the "Company"), hereby agrees with you as follows:
1. PURCHASE, SALE AND TERMS OF SHARES
1.1 THE PREFERRED SHARES.
The Company has authorized the issuance and sale of 44,252 shares of its
authorized but unissued shares of Series A Preferred Stock, no par value (the
"Preferred Shares" or the "Series A Preferred Stock"), at a purchase price of
$26.87 per share to ▇▇▇▇▇ Insurance Company (the "Purchaser"). The
designation, rights, preferences and other terms and provisions of the Series
A Preferred Stock are set forth in the Certificate of Determination attached
as EXHIBIT A hereto (the "Certificate of Determination").
1.2 THE CONVERSION SHARES.
The Company has authorized and has reserved and covenants to continue to
reserve, free of preemptive rights and other similar contractual rights of
stockholders, a sufficient number of its authorized but unissued shares of
its Class A Common Stock, no par value (the "Class A Common Stock") and the
Company's Class B Common Stock, no par value (the "Class B Common Stock" and
together with the Class A Common Stock, the "Common Stock"), to satisfy the
rights of conversion of the holders of the Preferred Shares. Any shares of
Common Stock issuable upon conversion of the Preferred Shares (and such
shares when issued) are herein referred to as the "Conversion Shares." The
Preferred Shares and the Conversion Shares are sometimes collectively
referred to as the "Shares."
1.3 PURCHASE PRICE AND CLOSING.
The Company agrees to issue and sell to the Purchaser and, in
consideration of and in express reliance upon the representations,
warranties, covenants, terms and conditions of this Agreement, the Purchaser
agrees to purchase the Preferred Shares.
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The aggregate purchase price of the Preferred Shares is $1,189,050 in
cash. The purchase price will be paid 80% at the Closing and the remaining
20%, as adjusted, following the calculation of the post-closing adjustment
described in Section 1.4 below.
The closing of the purchase and sale of the Preferred Shares to be
acquired by the Purchaser from the Company under this Agreement (the
"Closing") shall take place at the offices of the Purchaser at 10:00 a.m. on
March 11, 1997, or at such time and date thereafter as the Purchaser and the
Company may agree (the "Closing Date"). At the Closing, the Company will
deliver to the Purchaser certificates for the Preferred Shares registered in
the Purchaser's name, against delivery of a check or checks payable to the
order of the Company, or a transfer of funds to the account of the Company by
wire transfer. Notwithstanding the foregoing, the Purchaser shall be entitled
to cancel interest due on any indebtedness of the Company or its subsidiaries
to the Purchaser, but not principal thereof, in satisfaction of the portion
of the purchase price due at the Closing, to the extent of such canceled
interest.
1.4 POST-CLOSING ADJUSTMENT.
The parties agree that the aggregate purchase price to be paid by the
Purchaser set forth in Section 1.3 is an estimate of the true price agreed
upon by the parties. It is the intent of the parties that the true price be
determined by utilizing the following formula, which is based on the
Company's audited calendar year 1997 financial statements which are not
available at the time of closing:
(i) $1,189,050, minus the result of clauses (ii) - (iv) below;
(ii) $792,700; less
(iii) the actual, audited pre-tax income of the Company for calendar year
1997 according to GAAP consistently applied (if the results are a
loss, the loss will be added to, not subtracted from, $792,000);
(iv) multiplied by 0.30.
Notwithstanding the foregoing, if the actual, audited pre-tax income of
the Company for calendar year 1997 exceeds $792,000, there will be no
post-closing adjustment.
This adjustment shall be separate from, and in addition to, any adjustment
called for by Section 1.7 below.
1.5 POST-CLOSING PAYMENTS.
The final portion of the aggregate purchase price is calculated by the
following formula: (i) $237,810 minus (ii) the amount of the post-closing
adjustment plus (iii) interest on the result of (i) - (ii) from the date of
closing to the date of payment at the same interest rate as the
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indebtedness of the Company or its subsidiaries to the Purchaser. The final
portion of the aggregate purchase price will be paid following the calculation
of the post-closing adjustment first by canceling by the Purchaser of any
accrued but unpaid interest and principal of any indebtedness of the Company or
its subsidiaries to the Purchaser. Any remaining payment due will be paid by the
Purchaser's company check made payable to the Company.
In the event the post-closing adjustment exceeds $237,810, then the
Purchaser will not make any payments to the Company nor cancel any
indebtedness or interest. Rather, the Company will agree to make and issue to
the Purchaser a new note in the form attached hereto as SCHEDULE 1.5 in the
principal amount of (i) the post-closing adjustment minus (ii) $237,810.
1.6 USE OF PROCEEDS.
The Company shall use a portion of the proceeds from the sale of the
Preferred Shares to assure compliance with regulatory monetary obligations
outstanding at Closing, if any. The remainder of the proceeds shall be used
for working capital, the acquisition of insurance books of business or
insurance agencies or for investment in the Company's insurance agency
subsidiaries. No portion of the purchase price shall be directly or
indirectly paid to the Company's shareholders or bank creditors, except that
up to $300,000 of such proceeds may be used to bring the balance of the
Company's revolving credit line with Modesto Banking Company to zero for 30
days each year. Thereafter the Modesto Banking Company revolving credit line
shall not be accessed unless the Company Board of Directors approves a plan
to reduce the balance to zero when required by the Bank.
1.7 POST-CLOSING SHARE ADJUSTMENTS.
1.7.1 The parties acknowledge that the number of Shares delivered to the
Purchaser at the Closing is an estimate of the actual number of shares to
which the Purchaser is entitled. Further, the parties agree that the
Purchaser has bargained for a particular percentage of the fully-diluted
equity of the Company as of the Closing Date. Due to a number of outstanding
obligations of the Company to issue additional equity securities to parties
other than the Purchaser, as of the Closing Date, the parties agree that the
following adjustments to the number of outstanding Company Common Stock as of
the Closing Date were made prior to this calculation of the estimated number
of Preferred Shares to be delivered at closing:
1. An aggregate of 1,983 shares of Class B Common Stock are assumed to
be issued to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ in three annual installments; and
2. An aggregate of 655.5 shares of Class B Common Stock are assumed to be
issued to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ in five annual installments; (these shares can
be expected to be issued to parties from whom the Company acquired books of
business partially in exchange for stock on a deferred basis (1 and 2
collectively, the "Acquisition Shares");
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3. An aggregate of 4,152.5 shares of Class B Common Stock are assumed
to be issued to the following producers employed by the Company pursuant to a
grant given in 1995: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇; ▇▇▇▇▇▇ ▇▇▇▇▇▇▇; ▇▇▇ ▇▇▇▇▇▇; ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇; ▇▇▇ ▇. ▇▇▇▇▇▇▇; ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇; ▇▇▇▇▇▇ ▇. ▇▇▇▇▇; ▇▇▇▇▇▇ ▇. ▇▇▇▇▇;
▇▇▇ ▇▇▇▇▇; ▇▇▇▇▇ ▇▇▇▇▇▇▇; ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇▇; and ▇▇▇▇▇ ▇▇▇▇▇ in various
installments;
4. An aggregate of 4,647 shares of Class B Common Stock are assumed to
be issued to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ as incentive compensation for services rendered
to the Company in 1995, 1996, and 1997 (3 and 4 collectively, the "Bonus
Shares").
1.7.2 The number of Preferred Shares delivered at the Closing assumed
that no equity of the Company would be issued as a result of the exercise of
any other rights to purchase equity of the Company outstanding at the Closing
("Other Shares").
1.7.3 In the event that more than the number of Acquisition Shares or the
Bonus Shares are issued by the Company at the time that any portion of such
shares are due to be issued, or the Company issues any Other Shares, the
Company will be obligated to issue to the Purchaser that number of Preferred
Shares which is determined by the following formula: (i) the number of
Preferred Shares issued as Acquisition Shares and/or Bonus Shares at the time
that any portion of such shares are due to be issued which exceeds the
estimations used in Section 1.7.1 above, plus the number of Other Shares
issued, divided by (ii) 6.667. The Company agrees to amend the Certificate of
Determination, if necessary, to increase the authorized number of shares of
its Series A Preferred Stock to include the additional shares to be issued
under this Section.
1.7.4 In the event that all or any portion of the Acquisition Shares or
Bonus Shares are not issued to the parties to whom they are due on the dates
that they are due to be issued, the Purchaser will be obligated to return to
the Company that number of Preferred Shares which is determined by the
following formula: (i) the number of Acquisition Shares or Bonus Shares not
issued by the Company as planned divided by (ii) 6.667. In the event that
Acquisition Shares or Bonus Shares which were not issued when due are
ultimately issued, the adjustment made under this Section 1.7.4 will be
reversed.
1.7.5 No adjustment need be made under this Section 1.7 more often than
once per year (effective as of the 1st day of January of each year) and all
adjustments which should have otherwise been made during the pendency of such
one year period will be delayed until the end of such period.
1.7.6 In the event Other Shares are issued upon the exercise of options
to buy such securities held by ▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇. as of the Closing Date,
the Purchaser shall be obligated to pay the Company an amount per each Share
issued to the Purchaser as an adjustment based on the Other Shares issued to
▇▇. ▇▇▇▇▇▇. The Purchaser's payment per each Share issued to the Purchaser
will equal the exercise price paid by ▇▇. ▇▇▇▇▇▇ per Other Share. In lieu of
paying such amount, the Purchaser may, in its sole discretion, forfeit the
Shares to be issued to the
4
Purchaser as a result of the adjustment set forth in this Section 1.7 resulting
from the issuance of Other Shares to ▇▇. ▇▇▇▇▇▇ upon exercise of his options.
1.7.7 This adjustment shall be separate from, and in addition to, any
adjustment called for by Section 1.4 above.
1.7.8 The parties agree that the amount of Shares to be issued to the
Purchaser shall be adjusted post-closing in the event certain contingent
liabilities are actually incurred by the Company. If the Company or its
subsidiaries makes payments to any third party as a result of the following:
A. Payment to the Internal Revenue Service or any past or present
participant in the CAPAX Employee Stock Ownership Plan (or its predecessors)
arising out of the audit of that Plan's 1994 activities;
B. Payments to Nordstrom & ▇▇▇▇▇▇ Insurance Services, or its
shareholders, in amounts in excess of those set forth in SCHEDULE 2.6 hereof;
then
the Company shall issue additional Shares to the Purchaser in an amount
equal to the amount of such payments, multiplied by 0.15, divided by $26.87.
This adjustment will be separate from, and in addition to, any adjustment
called for by Sections 1.4 and 1.7 above. The Company agrees to amend the
Certificate of Determination, if necessary, to increase the authorized number
of shares of its Series A Preferred Stock to include the additional shares to
be issued under this Section.
1.8 BUY-SELL AGREEMENT.
The Shares, and the Purchaser, shall be subject to all of the obligations
of a holder of Common Stock under the Buy-Sell Agreement except the
provisions of Section 10. Without admitting that the Purchaser is bound by
any prior version of the Buy-Sell Agreement, the parties specifically agree
that the Purchaser is not subject to Sections 2(g)(5), 2(g)(6), 2(h)(5),
2(h)(6), 2(i)(4) or 2(i)(5) of the June 23, 1998 restatement of the Buy-Sell
Agreement.
1.9 RIGHT OF FIRST REFUSAL.
Any transfer, sale, assignment, hypothecation, encumbrance, or alienation
of any of the Shares other than according to the terms of this Agreement or
the Related Agreements, shall be void and shall not transfer any right,
title, or interest in or to the Shares, or any of them, to the purported
transferee, buyer, assignee, pledgee, or encumbrancer.
Purchaser shall be permitted to treat the Shares as an admitted asset for
insurance regulatory purposes, giving certain rights of encumbrance to the
California Commissioner of Insurance on behalf of the Purchasers'
policyholders.
5
In the event the Purchaser receives a BONA FIDE offer to purchase the
Shares from an unaffiliated third party, the Purchaser shall be free to sell
to such third party so long as the Purchaser first offers the Company or its
designees (who shall be limited to the Company and other Company
shareholders), the right to match such offer. The Purchaser shall provide the
Company with written notice of any such offer and the terms of the offer
including the identity of the third party. The Company and its designees
shall have 60 days from receipt of such notice to notify the Purchaser that
the Company, or its designees, will match the price and payment terms of the
offer. If the Purchaser does not receive an exercise notice(s) that covers
ALL of the Shares so offered for sale within the 60 day period, it will be
free to sell all the Shares so offered for sale to the third party. Once so
sold, the Shares will automatically convert into Common Stock. No subsequent
sales of the Shares contemplated by a buyer who acquired the Shares pursuant
to this Section 1.9 shall be subject to this right of first refusal or the
procedures contained in this Section 1.9. The Purchaser shall have no right
to sell the Shares to any party (i) licensed to sell insurance in the State
of California, or (ii) affiliated with any entity so licensed.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser as of the
Closing Date as follows:
2.1 ORGANIZATION. STANDING AND POWER OF THE COMPANY.
Each of the Company and the Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation. Each of the Company and the Subsidiaries has all requisite
power and authority to own, lease and operate its properties and assets and
to conduct its business as now being conducted and is duly qualified to do
business in good standing in those foreign jurisdictions in which such
qualification is required.
2.2 AUTHORITY; ENFORCEABILITY; NO CONFLICT.
The Company has all requisite corporate power and authority to enter into
this Agreement and each Related Agreement to which it is a party, to issue
and sell the Shares, and to carry out its obligations hereunder and under
each Related Agreement to which it is a party.
The execution, delivery and performance of this Agreement and each
Related Agreement to which it is a party by the Company and the issuance and
sale of.the Shares by the Company, and the contingent sale of the Company
pursuant to the execution and delivery of the Option (as defined), have been
duly and validly authorized by all requisite corporate and Shareholder
proceedings on the part of the Company. This Agreement and each Related
Agreement to which it is a party when executed and delivered by the Company
is a valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except that (i) such enforcement may be
subject to bankruptcy, insolvency, reorganization, moratorium,
rehabilitation, liquidation, conservatorship, receivership or other similar
laws now or hereafter in effect relating to creditors' rights generally and
(ii) the remedy of specific performance and
6
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding
therefor may be brought.
Except as set forth on SCHEDULE 2.2, the execution and delivery of this
Agreement and each Related Agreement to which it is a party by the Company
does not, and the consummation by the Company of the transactions
contemplated hereby and thereby will not result in or constitute: (a) a
default, breach or violation of or under the Articles of Incorporation or the
By-Laws, (b) a default, breach or violation of or under any mortgage, deed of
trust, indenture, note, bond, license, lease agreement or other instrument or
obligation to which the Company or any Subsidiary is a party or by which any
of their respective properties or assets are bound, (c) a violation of any
statute, rule, regulation, order, judgment or decree of any court, public
body or authority by which the Company, any Subsidiary or any of their
respective properties or assets are bound, (d) an event which (with notice or
lapse of time or both) would permit any Person to terminate, accelerate the
performance required by, or accelerate the maturity of any indebtedness or
obligation of the Company or any Subsidiary under any agreement or commitment
to which the Company or any Subsidiary is a party or by which the Company or
any Subsidiary is bound or by which any of their respective properties or
assets are bound, (e) the creation or imposition of any lien, charge or
encumbrance on any property of the Company or any Subsidiary under any
agreement or commitment to which the Company or any Subsidiary is a party or
by which the Company or any Subsidiary is bound or by which any of their
respective properties or assets are bound, or (f) an event which would
require any consent under any agreement to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary is bound or
by which any of their respective properties or assets are bound.
2.3 CAPITALIZATION.
The authorized capital stock of the Company consists of (a) 1,000,000
shares of Class A Common Stock, of which 174,408 shares are outstanding,
44,252 are reserved for issuance upon conversion of the Series A Preferred
Stock, (b) 1,000,000 shares of Class B Common Stock, of which 64,913 shares
are outstanding and (c) 200,000 shares of Preferred Stock, no par value, of
which 44,252 have been designated as Series A Preferred Stock, none of which
are outstanding. All of the outstanding shares of the Common Stock have been
duly authorized and validly issued, and are fully paid and non-assessable.
Except for the options issued or to be issued under the Stock Option Plan or
as provided herein or in any of the Related Agreements, the obligations of
the Company pursuant to the Asset Purchase Agreement dated March 16, 1994
with Takehara & Associates and the obligations of the Company pursuant to the
letter of agreement between the Company and Nordstrom & ▇▇▇▇▇▇ Insurance
Brokers of Northern California dated March 29, 1994 and the rights of ▇▇▇▇▇▇
▇▇▇▇▇▇▇ to obtain up to $150,000 of Class B Common Stock, as incentive
compensation, there are no outstanding preemptive, conversion or other
rights, options or warrants granted or issued by or binding upon the Company
for the purchase or acquisition by any other Person of any shares of capital
stock of the Company or any other securities convertible into, exchangeable
for or evidencing the right to subscribe for any shares of such capital
stock. Except for the Company's obligations under the ESOP, the June 23, 1988
Restatement of CAPAX Management 8C Insurance Services Stock Purchase
Agreement of August 21, 1986 (the "Buy-Sell Agreement") and the Certificate
of Determination, the Company
7
is not subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any shares of its capital stock or any
convertible securities, rights or options of the type described in the
preceding sentence.
Except as set forth in the Buy-Sell Agreement, the Company is not a party
to, and it has no Knowledge of, any agreement restricting the voting or
transfer of any shares of the capital stock of the Company.
Except as set forth on SCHEDULE 2.3, the offer and sale of all capital
stock, convertible securities, rights or options of the Company issued prior
to the Closing Date complied with or were exempt from all applicable federal
and state securities laws and no stockholder has a right of rescission or
damages with respect thereto.
2.4 SUBSIDIARIES.
SCHEDULE 2.4 sets forth each Subsidiary showing the jurisdiction of its
incorporation or organization and showing the percentage of each Person's
ownership of the outstanding stock or other interests of such Subsidiary. All
of the outstanding shares of capital stock of each Subsidiary have been duly
authorized and validly issued, and are fully paid and non-assessable. There
are no outstanding preemptive, conversion or other rights, options, warrants
or agreements granted or issued by or binding upon any Subsidiary for the
purchase or acquisition of any shares of capital stock of any Subsidiary or
any other securities convertible into, exchangeable for or evidencing the
right to subscribe for any shares of such capital stock. Neither the Company
nor any Subsidiary is subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of the capital stock of
any Subsidiary or any convertible securities, rights or options of the type
described in the preceding sentence. Neither the Company nor any Subsidiary
is a party to, nor has any Knowledge of, any agreement restricting the voting
or transfer of any shares of the capital stock of any Subsidiary.
2.5 STATUS OF SHARES.
The Preferred Shares to be issued at the Closing have been duly
authorized by all necessary corporate and shareholder action on the part of
the Company. When issued and paid for as provided in this Agreement, the
Preferred Shares will be validly issued and outstanding, fully paid and
nonassessable, and the issuance of such Preferred Shares is not and will not
be subject to preemptive or other similar contractual rights of any other
stockholder of the Company. The Conversion Shares have been duly authorized
by all necessary corporate action on the part of the Company and have been
duly reserved for issuance. When the Conversion Shares are issued such shares
will be validly issued and outstanding, fully paid and nonassessable and the
issuance of such shares will not be subject to preemptive or other similar
contractual rights of any other stockholder of the Company.
2.6 FINANCIAL STATEMENTS.
Attached here as SCHEDULE 2.6 are the consolidated and consolidating
balance sheets of the Company and the Subsidiaries as at December 31, 1996
and 1995 and the related
8
consolidated and consolidating income statements and statements of cash flows
and changes in stockholders' equity of the Company and the Subsidiaries for
the fiscal years then ended. All such financial statements are complete and
correct and fairly present the financial condition of the Company and the
Subsidiaries at such dates and the results of the operations of the Company
and the Subsidiaries for the periods covered by such statements, all in
accordance with GAAP consistently applied. In the event that at any time
after the Closing Date the Company shall be informed by its accountants that
it is necessary or appropriate to adjust its financial statements to change
the manner in which it amortizes its goodwill and/or expirations assets
relating to mergers and acquisitions activities closing prior to the Closing
Date, the Company represents that it will adjust such financial statements by
restating them as of December 31, 1996 and will not recognize the adjustment
in any period following the Closing Date. No such adjustment will cause any
change in the purchase price or post-closing adjustments herein or constitute
a breach of any representation and/or warranty under this Agreement.
2.7 LIABILITIES.
Except as set forth in SCHEDULE 2.6, neither the Company nor any
Subsidiary has any material liabilities, obligations, claims or losses
(whether liquidated or unliquidated, secured or unsecured, absolute, accrued,
contingent or otherwise) that would be required to be disclosed on a balance
sheet of the Company or any Subsidiary (including the notes thereto) in
conformity with GAAP.
2.8 INDEBTEDNESS.
SCHEDULE 2.8 sets forth all outstanding secured and unsecured
Indebtedness of the Company or any Subsidiary, or for which the Company or
any Subsidiary has commitments, immediately after the Closing Date. Neither
the Company nor any Subsidiary is in default with respect to any
Indebtedness, except as set forth on SCHEDULE 2.8.
2.9 TITLE TO ASSETS.
Each of the Company and the Subsidiaries has good and marketable title to
all of its real and personal property reflected in SCHEDULE 2.6, free of any
mortgages, pledges, charges, liens, security interests or other encumbrances,
except for Permitted Liens and those indicated on SCHEDULE 2.9. Each of the
Company and the Subsidiaries enjoys peaceful and undisturbed possession under
all leases under which it is operating, and all said leases are valid and
subsisting and in full force and effect.
2.10 ACTIONS PENDING.
Except as set forth in SCHEDULE 2.10, there is no action, suit, claim,
investigation or proceeding pending or, to the Knowledge of the Company,
threatened against the Company or any Subsidiary which questions the validity
of this Agreement or any of the Related Agreements or any action taken or to
be taken pursuant hereto or thereto. There is no action, suit, claim,
investigation or proceeding pending or, to the Knowledge of the Company,
threatened, against or involving the Company, any Subsidiary or any of their
respective properties or assets. There are
9
no outstanding orders, judgments, injunctions, awards or decrees of any
court, arbitrator or governmental or regulatory body against the Company or
any Subsidiary.
2.11 COMPLIANCE WITH LAW.
In the Company's Knowledge, the business of the Company and the
Subsidiaries has been and is presently being conducted so as to comply with
all applicable federal, state, and local governmental laws, rules,
regulations and ordinances. Each of the Company and the Subsidiaries has all
franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals necessary for the conduct of its business as now
being conducted by it.
2.12 TAXES.
Except as set forth in SCHEDULE 2.12, each of the Company and the
Subsidiaries has accurately prepared and timely filed all federal, state and
other tax returns required by law to be filed by it, has paid or made
provisions for the payment of all taxes shown to be due and all additional
assessments, and adequate provisions have been and are reflected in the
financial statements of the Company and the Subsidiaries for all current
taxes and other charges to which the Company or any Subsidiary is subject and
which are not currently due and payable. None of the federal income tax
returns of the Company or any Subsidiary for the years subsequent to December
31, 1993 have been audited by the Internal Revenue Service. The Company has
no Knowledge of any additional assessments, adjustments or contingent tax
liability (whether federal or state) pending or threatened against the
Company or any Subsidiary for any period, nor of any basis for any such
assessment, adjustment or contingency.
2.13 NO MATERIAL ADVERSE CHANGE.
Since December 31, 1996, (a) there has been no material adverse change in
the business, assets, operations, affairs, financial projections or financial
condition of the Company or any Subsidiary; and (b) to the Company's
Knowledge neither the business, financial condition, operation, financial
projections or affairs of the Company, any Subsidiary nor any of their
respective properties or assets have been adversely affected in any material
respect as the result of any legislative or regulatory change, any revocation
or change in any franchise, permit, license or right to do business, or any
other event or occurrence, whether or not insured against.
2.14 CERTAIN FEES.
No broker's, finder's or financial advisory fees or commissions will be
payable by the Company or any Subsidiary with respect to the transactions
contemplated by this Agreement and the Related Agreements.
10
2.15 DISCLOSURE.
Neither this Agreement or the Schedules hereto nor any of the Related
Agreements or any other document, certificate or instrument furnished to the
Purchaser by or on behalf of the Company or any Subsidiary in connection with
the transactions contemplated by this Agreement or any of the Related
Agreements, contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained
herein or therein not misleading.
2.16 BOOKS AND RECORDS.
The records and documents of the Company and the Subsidiaries accurately
reflect in all material respects information relating to the business of the
Company and the Subsidiaries, the location and collection of its assets, and
the nature of all material transactions giving rise to the obligations or
accounts receivable of the Company or any Subsidiary.
2.17 TRANSACTIONS WITH AFFILIATES.
Except as set forth on SCHEDULE 2,17, there are no loans, leases,
agreements, contracts, royalty agreements, management contracts or
arrangements or other continuing transactions which exceed $15,000 per year
in payments between the parties between (a) the Company, any Subsidiary or
any of their respective customers or suppliers on the one hand, and (b) any
officer, consultant or director of the Company, any Subsidiary or any Person
owning any capital stock of the Company or any Subsidiary or any member of
the immediate family of such officer, consultant director or stockholder or
any corporation or other entity controlled by such officer, consultant,
director or stockholder, or a member of the immediate family of such officer,
consultant, director or stockholder on the other hand.
2.18 ABSENCE OF CERTAIN DEVELOPMENTS.
Except as provided in SCHEDULE 2.18, since December 31, 1996, neither the
Company nor any Subsidiary has:
A. issued any stock, bonds or other corporate securities or any
rights, options or warrants with respect thereto;
B. borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities incurred in
the ordinary course of business which are comparable in nature and amount to
the current liabilities incurred in the ordinary course of business during
the comparable portion of its prior fiscal year, as adjusted to reflect the
current nature and volume of the Company's or such Subsidiary's business;
C. discharged or satisfied any lien or encumbrance or paid any
obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
11
D. declared or made any payment or distribution of cash or other
property to stockholders with respect to its stock, or purchased or redeemed,
or made any agreements so to purchase or redeem, any shares of its capital
stock;
E. mortgaged or pledged any of its assets, tangible or intangible, or
subjected them to any liens, charge or other encumbrance, except Permitted
Liens;
F. sold, assigned or transferred any other material tangible assets,
or canceled any material debts or claims, except in the ordinary course of
business;
G. sold, assigned or transferred any patents, patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible assets
or intellectual property rights, or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of
business or to the Purchaser or their representatives;
H. suffered any substantial losses or waived any rights of material
value, whether or not in the ordinary course of business, or suffered the
loss of any material amount of prospective business;
I. made any changes in employee compensation except in the ordinary
course of business and consistent with past practices;
J. made capital expenditures or commitments therefor that aggregate in
excess of $50,000;
K. entered into any other transaction other than in the ordinary
course of business, or entered into any other material transaction, whether
or not in the ordinary course of business;
L. made charitable contributions or pledges in excess of $25,000;
M. suffered any material damage, destruction or casualty loss, whether
or not covered by insurance;
N. experienced any material problems with labor or management in
connection with the terms and conditions of their employment; or
O. effected any two or more events of the foregoing kind which in the
aggregate would be material to the Company or such Subsidiary.
12
2.19 ABSENCE OF OWNERSHIP RIGHTS IN BOOK OF BUSINESS.
Other than the rights held by the shareholders of ▇▇▇▇▇, ▇▇▇▇ & Company
Insurance Brokers in its book of business and the rights of ▇▇▇▇ ▇▇▇▇▇▇ and
Cam Buck in their books of business, (i) no person has any right in or to
commissions or fees due to the Company or any of its subsidiaries from the
sale of insurance or management services recorded by the Company during the
year ended December 31, 1996 and (ii) no person has any right to any payments
in the event of the sale of any insurance or management services book of
business owned by the Company or its subsidiaries due to an ownership
interest in such books of business.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as of the
Closing Date as follows:
3.1 ORGANIZATION AND STANDING OF THE PURCHASER.
The Purchaser is a corporation duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its incorporation.
3.2 AUTHORITY; ENFORCEABILITY; NO CONFLICT.
The Purchaser has all requisite corporate power and authority to enter
into this Agreement and each Related Agreement to which it is a party and to
carry out its obligations hereunder and thereunder. The execution, delivery
and performance of this Agreement and each Related Agreement to which it is a
party by the Purchaser have been duly and validly authorized by all requisite
corporate or partnership proceedings on the part of the Purchaser.
This Agreement and each Related Agreement to which it is a party when
executed and delivered by the Purchaser is a valid and binding obligation of
the Purchaser, enforceable against it in accordance with its terms, except
that (i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium, rehabilitation, liquidation, conservatorship,
receivership or other similar laws now or hereafter in effect relating to
creditors' rights generally and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding
therefore may be brought.
The execution and delivery of this Agreement and each Related Agreement
to which it is a party by the Purchaser does not, and consummation by the
Purchaser of the transactions contemplated hereby will not, result in or
constitute (a) a default, breach or violation of or under the organizational
documents of the Purchaser, (b) a default, breach or violation of or under
any mortgage, deed of trust, indenture, note, bond, license, lease agreement
or other instrument or obligation to which the Purchaser is a party or by
which any of its properties or assets are bound,
13
except for any defaults, breaches or violations which would not, individually
or in the aggregate, have a material adverse effect on the Purchaser or
prevent or materially delay the consummation by the Purchaser of the
transactions contemplated hereby, or (c) a violation of any statute, rule,
regulation, order, judgment or decree of any court, public body or authority,
except for any violations which would not, individually or in the aggregate,
have a material adverse effect on the Purchaser or prevent or materially
delay the consummation by the Purchaser of the transactions contemplated
hereby.
3.3 ACQUISITION FOR INVESTMENT.
The Purchaser is an "accredited investor" as defined in Regulation D
under the Securities Act, and is acquiring the Preferred Shares solely for
its own account for the purpose of investment and not with a view to or for
sale in connection with any distribution thereof, and it has no present
intention or plan to effect any distribution of the Preferred Shares. The
Purchaser acknowledges that it is able to bear the financial risks associated
with an investment in the Preferred Shares and that it has been given full
access to such records of the Company and the Subsidiaries and to the
officers of the Company and the Subsidiaries as it has deemed necessary and
appropriate to conducting its due diligence investigation. The Preferred
Shares will bear a legend to the following effect:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or the laws of the
State of California or elsewhere, and may not be sold or transferred except
in compliance with that Act and such laws."
3.4 GOVERNMENTAL APPROVALS.
No authorization, consent, approval, license or exemption of or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be
necessary for, or in connection with, the execution, delivery and performance
by the Purchaser of this Agreement and each Related Agreement to which it is
a party.
4. CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligation of the Purchaser to purchase and pay for the Preferred
Shares to be purchased by it at the Closing is subject to the following
conditions:
4.1 REPRESENTATIONS AND WARRANTIES.
Each of the representations and warranties set forth in Section 2 hereof
shall be true, accurate and correct at the Closing Date with the same effect
as though made at and as of such time.
14
4.2 CORPORATE AND SHAREHOLDER PROCEEDINGS.
The Purchaser shall have received a copy of the resolutions of the Board
of Directors and the Shareholders of the Company authorizing (a) the approval
of the Certificate of Determination, (b) the election to the Board of
Directors of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, (c) the execution, delivery and performance
by the Company of this Agreement and each Related Agreement (including, if
exercised by ▇▇▇▇▇, the Option) to which it is a party, (d) the issuance of
the Preferred Shares and (e) the execution, delivery and performance by the
Company of all other agreements or matters contemplated hereby or executed in
connection herewith, certified by the Secretary or an Assistant Secretary of
the Company on the Closing Date.
4.3 OFFICER'S CERTIFICATE.
The Purchaser shall have received a certificate of the President and
Treasurer of the Company, dated the Closing Date, which shall certify that
the representations and warranties contained in Section 2 hereof are true and
correct as of the Closing Date and that all actions required to be taken by
the Company prior to or at the Closing have been taken by the Company as of
the Closing Date.
4.4 NO PROCEEDINGS OR LITIGATION.
No action, suit or proceeding before any arbitrator or any governmental
authority shall have been commenced, no investigation by any governmental
authority shall have been threatened, against the Company or any Subsidiary,
or any of the officers or directors of the Company or any Subsidiary seeking
to restrain, prevent or change the transactions contemplated by this
Agreement, and each Related Agreement, or seeking damages in connection with
such transactions.
4.5 CERTIFICATE OF DETERMINATION.
The Certificate of Determination of the Series A Preferred Stock of the
Company, setting forth, without limitation, the designations, preferences,
powers, qualifications, special or relative rights and privileges of the
Series A Preferred Stock (the "Certificate of Determination"), in the form of
EXHIBIT A, shall have been filed with the Secretary of State of California.
4.6 ▇▇▇▇▇ TRADING COMPANY AGREEMENT.
The Purchaser's parent, ▇▇▇▇▇, and the Company shall have entered into
the ▇▇▇▇▇ Trading Company Agreement (as amended from time to time, the "PTC
Agreement"), substantially in the form of EXHIBIT B. The PTC Agreement will
include, among other things, compensation to the Company for mergers and
acquisition referrals and new product development to be provided to ▇▇▇▇▇ and
its affiliates.
15
4.7 MANAGEMENT CONSULTANT AGREEMENT.
The Purchaser's parent, ▇▇▇▇▇, and the Company shall have entered into
the Management Agreement, substantially in the form of EXHIBIT C.
4.8 COMPLIANCE WITH THIS AGREEMENT AND RELATED AGREEMENTS.
The Company shall have performed, satisfied and complied in all material
respects with all covenants, agreements and conditions required by this
Agreement or any Related Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing.
4.9 PROCEEDINGS SATISFACTORY.
All proceedings taken in connection with the issuance and sale of the
Preferred Shares and all documents and papers relating thereto shall be
satisfactory in form and substance to the Purchaser. The Purchaser shall have
received copies of such documents and papers as the Purchaser may reasonably
request in connection with this Agreement and the Related Agreements.
4.10 OPTION.
Each of the Company and ▇▇▇▇▇ shall have executed and delivered the
Purchase Option (the "Option") substantially in the form of EXHIBIT D hereto.
4.11 NON-COMPETITION AGREEMENT.
Each of the Company and its Subsidiaries and ▇▇▇▇▇ and its subsidiary Pan
American Underwriters, Inc. shall have executed and delivered the
Non-Competition Agreement substantially in the form of EXHIBIT E hereto.
4.12 MINISTERIAL ITEMS.
The Company shall have delivered to the Purchaser evidence reasonable
satisfactory to the Purchaser's counsel of the Company's completion of the
following items:
A. cancellation of 8,140 shares of the Company's Common Stock in
satisfaction of all indebtedness owed by ▇▇▇▇▇▇ ▇▇▇▇▇▇ to the Company;
B. execution of settlement documents and delivery by Nordstrom &
▇▇▇▇▇▇ Insurance Brokers of Northern California ("Nordstrom") of a release in
favor of the Company with respect to outstanding claims arising from the
Nordstrom acquisition;
C. termination of the UCC Security Interest filing in favor of the
Aetna Insurance Company;
16
D. waiver executed by the requisite parties to the Buy-Sell Agreement
to the issuance of the Preferred Shares, and if necessary, the Conversion
Shares and to the rights granted to the Purchaser under the Buy-Sell
Agreement by the terms of Article 7 hereof;
E. copies of the executed documentation of the renewal of the
Company's $300,000 line of credit with the Bank; and
F. No shares of Common Stock offered to the Company by holders thereof
pursuant to the Buy-Sell Agreement or otherwise have been repurchased by the
Company since December 31, 1995 (except for 6,000 shares of Class A Common
Stock and 2,140 shares of Class B Common Stock repurchased from ▇▇▇▇▇▇ ▇▇▇▇▇▇
in exchange for cancellation of indebtedness) and no agreements to repurchase
such shares have been entered into by the Company or any of its subsidiaries.
5. AFFIRMATIVE COVENANTS OF THE COMPANY
The Company covenants and agrees that on and after the Closing Date it
will:
5.1 INSPECTION RIGHTS.
Permit during normal business hours, upon reasonable request and
reasonable notice, the Purchaser or any employees, agents or representatives
thereof, to examine and make reasonable copies of and extracts from the
records and books of account of, and visit and inspect the properties,
assets, operations and business of the Company and any Subsidiary, and to
discuss the affairs, finances and accounts of the Company and any Subsidiary
with any of its officers, consultants, directors or Key Employees.
5.2 BUDGETS APPROVAL.
Prior to the commencement of each fiscal year, prepare and submit to, and
obtain in respect thereof the approval of the Company's Board of Directors, a
business plan and quarterly operating budget in detail for each fiscal year,
quarterly operating expenses and profit and loss projections, quarterly
balance sheet projections, quarterly cash flow projections and a capital
expenditure budget for the fiscal year.
5.3 FINANCINGS.
Promptly, fully and in detail, inform all of the members of the Board of
Directors of any discussions, offers or contracts relating to possible
financings of any material nature for the Company or any Subsidiary, whether
initiated by the Company, any Subsidiary or any other Person and cause any
such financing to be approved by at least two-thirds of the members of the
Board of Directors.
17
5.4 BY-LAWS AND INDEMNIFICATION.
The Company shall at all times maintain provisions in its By-laws or
Articles of Incorporation indemnifying all officers and directors against
liability to the maximum extent permitted under the laws of the state of its
incorporation.
5.5 CORPORATE EXISTENCE.
Maintain, and cause each of its Subsidiaries, to maintain their
respective corporate existence, intellectual property rights, other rights
and franchises in full force and effect to the extent appropriate in
accordance with good business practice.
5.6 EX-OFFICIO NON-VOTING BOARD MEMBER; EXPENSES OF DIRECTORS.
In addition to any Board member that the holders of the Shares may be
entitled to elect voting separately as a class, the Purchaser shall be
entitled to nominate and cause to be admitted to the Company's Board of
Directors one "ex-officio" non-voting member of the Board of Directors. Such
non-voting member shall be entitled to all rights and privileges of a full
voting member of the Board, excepting the right to vote. Notwithstanding the
foregoing, in the absence of the voting member of the Board elected by the
holders of the Shares voting separately as a class, the ex-officio member
shall be entitled to exercise the voting proxy of such absent voting member
to the full extent permitted under applicable law.
Promptly reimburse in full each director and ex-officio non-voting
director of the Company who is not an officer or employee of the Company for
all of his reasonable out-of-pocket expenses incurred in attending each
meeting of the Board of Directors or any committee thereof within a
reasonable time following presentment of customary documentation evidencing
such expenditures.
5.7 COMPLIANCE WITH LAWS.
Comply, and cause each Subsidiary to comply, with all applicable laws,
rules, regulations and orders, noncompliance with which could have a material
adverse effect on its business, assets, operations or condition, financial or
otherwise.
5.8 KEEPING OF RECORDS AND BOOKS OF ACCOUNT.
Keep, and cause each Subsidiary to keep, adequate records and books of
account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Company
and such Subsidiary, and in which, for each fiscal year, all proper reserves
for depreciation, depletion, obsolescence, amortization, taxes, bad debts and
other purposes in connection with its business shall be made.
18
5.9 REPORTING REQUIREMENTS.
Furnish the following to the Purchaser:
A. QUARTERLY REPORTS: as soon as available and in any event within 45
days after the end of each of the first three fiscal quarters of the Company,
consolidated and consolidating balance sheets of the Company and the
Subsidiaries as of the end of such period and consolidated and consolidating
statements of income and statements of cash flows and changes in
stockholders' equity of the Company and the Subsidiaries for such period and
for the period commencing at the end of the previous fiscal year and ending
with the end of such period, setting forth in each case in comparative form
the corresponding figures for the corresponding period of the preceding
fiscal year, and including comparisons to the budget or business plan and an
analysis of the variances from the budget or plan, prepared in accordance
with GAAP consistently applied;
B. ANNUAL REPORTS: as soon as available and in any event within 90
days after the end of each fiscal year of the Company, a copy of the annual
audit report (including all notes thereto) for such year for the Company and
the Subsidiaries, including therein consolidated and consolidating balance
sheets of the Company and the Subsidiaries as of the end of such fiscal year
and consolidated and consolidating statements of income and statements of
cash flows and changes in stockholders' equity of the Company and the
Subsidiaries for such fiscal year, setting forth in each case in comparative
form the corresponding figures for the preceding fiscal year, all such
consolidated statements to be duly certified by the Chief Financial Officer
of the Company-and an independent public accountant of recognized national
standing approved by the Audit Committee;
C. REPORTS AND OTHER INFORMATION: within 10 days after receipt,
publication, commencement or occurrence, copies of all consulting reports,
management reports and notices of all material actions made available to any
director of the Company, in his capacity as a director, such information as
the Company shall make available to any of its stockholders, and such other
information as the Purchaser shall reasonably request; and
D. OFFICER'S CERTIFICATE: as soon as possible, and in any event within
30 days, after the end of a fiscal quarter, a certificate executed by a duly
authorized officer of the Company representing as to the compliance of the
Company with the provisions of Section 6.
E. COMPLIANCE. The requirements of this Section 5.9 shall be fulfilled
by delivery of the subject items to the Series A Director and/or otherwise
directly to the Purchaser.
5.10 REPORTS TO DIRECTORS.
Furnish the following to all directors of the Company:
19
A. ACCOUNTANT'S LETTERS: within 10 days after receipt, copies of all
accountant's letters, reviews and reports to management; and
B. NOTICE OF ADVERSE CHANGES: promptly after the occurrence thereof
and in any event within 10 days after each occurrence, notice of any default
under any bank credit agreement or any other material agreement; or any
material litigation, proceedings, suits or investigations affecting the
Company or any Subsidiary; or any material adverse change in the business,
assets, operations or condition of the Company or any Subsidiary.
5.11 MAINTENANCE OF FINANCIAL STRENGTH.
At all times maintain such financial strength and liquidity so as to
permit the Company and each of its Subsidiaries to maintain adequate levels
of professional errors and omissions insurance for its operations and to
continue to pay their respective debts as they become due.
5.12 MAINTENANCE OF ADEQUATE ERRORS K. OMISSIONS / DIRECTORS & OFFICERS
INSURANCE.
Maintain generally acceptable levels of professional errors & omissions
insurance with nationally recognized carriers specializing in such coverage
with A.M. Best ratings of B+ or better for each operating Subsidiary of the
Company. Maintain generally acceptable levels of directors and officers
insurance for the Company with nationally recognized carriers specializing in
such coverage with A.M. Best ratings of B+ or better. The Company shall
maintain no less than $1,000,000 of DAO cover with a retention or a
deductible not to exceed $100,000. E
5.13 CREATION AND MAINTENANCE OF COMPENSATION COMMITTEE.
So long as any of the Preferred Shares remain outstanding, the Board of
Directors of the Company will maintain a committee, to be known as the
Compensation Committee, to which it will delegate the approval of all
compensation arrangements among the Company and the Subsidiaries on the one
hand, and Key Employees on the other hand. The Compensation Committee will
consist of three members, two of which will be non-employee members of the
Board of Directors and the other member will be the Chief Executive Officer
of the Company. For at least the first two years following the Closing Date,
one of the two independent director members of the Committee will be ▇▇.
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇. A majority of the Committee must approve all compensation
arrangements, including year-end and starting bonuses. The non-employee
director members of the Committee will be solely responsible for approving
compensation arrangements involving the Chief Executive Officer, including
year-end and starting bonuses.
5.14 SUBMISSION OF OPTION TO SHAREHOLDERS FOR APPROVAL.
Within 60 days of the Closing, the Company will submit the Option to the
Company's shareholders for their approval. Such submission will be done in
accordance with applicable California law, and with respect to the approval
of the Option by the Company's ESOP,
20
applicable Federal law. The Company will fully support the approval of the
Option by its shareholders.
6. NEGATIVE COVENANTS OF THE COMPANY
The Company covenants and agrees that on and after the Closing Date it
will not, without the prior written approval of the Purchaser (which will not
be unreasonably withheld or delayed):
6.1 DEALINGS WITH AFFILIATES.
Enter into any material transaction (other than the repurchase of shares
of Common Stock in compliance with the Company's obligations under the ESOP),
including, without limitation, any real property leases, any loans or
extensions of credit, release of guarantee or consulting agreement with any
Affiliate.
6.2 COMPENSATION TO OFFICERS.
Enter into, amend, modify or waive in any material respect any
employment, benefit or compensation arrangement with any Key Employee, or pay
to any Key Employee or officer compensation (including salary and bonus) in
excess of that provided in any employment agreement as in effect in the
Closing Date. Except as approved by the Purchaser, pay a bonus to any of the
foregoing persons (in cash or in Common Stock) who are also shareholders of
the Company or any Subsidiary which is not approved by the Compensation
Committee of the Company's Board of Directors.
6.3 MAINTENANCE OF OWNERSHIP OF SUBSIDIARIES.
Sell or otherwise dispose of any shares of capital stock of any
Subsidiary, except to a wholly-owned Subsidiary, or permit any Subsidiary to
issue, sell or otherwise dispose of any shares or rights to acquire any of
its capital stock or the capital stock of any Subsidiary, except to the
Company or a wholly-owned Subsidiary; provided, however, that the Company may
liquidate, merge or consolidate any Subsidiary into or with itself, provided
that the Company is the surviving entity, or into or with a wholly-owned
Subsidiary, or the Company may sell all or a portion of any Subsidiary to the
Company or a wholly-owned Subsidiary.
6.4 CONDUCT OF BUSINESS.
Engage, or permit any Subsidiary to engage, in any business other than
the business engaged in by the Company or any Subsidiary on the date hereof
and any businesses or activities similar or related thereto.
6.5 RESTRICTIONS ON INDEBTEDNESS.
Create, incur or assume, or permit any of its Subsidiaries to create,
incur or assume, any Indebtedness if, after giving effect to such creation,
incurrence or assumption, the Leverage Ratio would exceed .50 to 1.00.
21
6.6 ASSUMPTIONS OR GUARANTIES OF INDEBTEDNESS OF OTHER PERSONS.
Assume, guarantee, endorse or otherwise become directly or contingently
liable on, or permit any Subsidiary to assume, guarantee, endorse or
otherwise become directly or contingently liable on (including, without
limitation, liability by way of agreement, contingent or otherwise, to
purchase, to provide funds for payment, to supply funds to or otherwise
invest in the debtor or otherwise to assure the creditor against loss) any
Indebtedness of any Person other than the Company, any Subsidiary or the
ESOP, except for guaranties by endorsement of negotiable instruments for
deposit or collection in the ordinary course of business, if, after giving
effect thereto, the Leverage Ratio would exceed .50 to 1.00 assuming that the
Company is primarily liable for the obligation guaranteed.
6.7 INVESTMENTS IN OTHER CORPORATIONS OR ENTITIES (LESS THAN 100% OWNED).
Make or permit any Subsidiary to make, any loan or advance to any Person,
or purchase, otherwise acquire, or permit any Subsidiary to purchase or
otherwise acquire, the capital stock, assets comprising the business of,
obligations of, or any interest in, any other corporation or entity which
will not be operated as a wholly-owned Subsidiary, except:
A. investments by the Company or a Subsidiary in evidences of
indebtedness issued or fully guaranteed by the United States of America or
any state or public subdivision thereof;
B. investments by the Company or a Subsidiary in certificates of
deposit, -notes, acceptances and repurchase agreements having a maturity of
not more than one year from the date of acquisition issued by a fiscally
sound and reputable bank organized in the United States having capital,
surplus and undivided profits of at least $100,000,000;
C. investments by the Company or a Subsidiary in the highest-rated
commercial paper;
D. investments by the Company or a Subsidiary in "Money Market" fund
shares, or in money market accounts fully insured by the Federal Deposit
Insurance Corporation and sponsored by banks and other financial
institutions, provided that the investments consist principally of the types
of investments described in clauses (a), (b) or (c) of this Section 6.07;
E. loans or advances from a Subsidiary to the Company or from the
Company to a wholly-owned Subsidiary.
F. loans up to an aggregate of $200,000 to ▇▇▇▇▇, ▇▇▇▇ and Company
Insurance Brokers.
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6.8 ACQUISITION OF OTHER CORPORATIONS OR ENTITIES (100% OWNED).
Acquire, or permit any Subsidiary to acquire, all of the equity
securities or all or substantially all of the assets of another Person,
whether by purchase, merger or consolidation, if the annual revenue of such
Person exceeds 10% of the annual revenue of the Company for the preceding
year.
6.9 AMENDMENTS.
Amend or waive any provision of the Articles of Incorporation or By-laws
of the Company in any way that would adversely affect the liquidation
preferences, dividend rights, voting rights or redemption rights of the
holders of the Series A Preferred Stock.
6.10 OTHER AGREEMENTS.
Enter into any agreement in which the terms of such agreement would
materially restrict or materially impair the right to perform of the Company
or any Subsidiary under this Agreement, any Related Agreement or the Articles
of Incorporation of the Company.
6.11 USE OF FIDUCIARY FUNDS.
Utilize, or permit any Subsidiary to utilize, in any way, any funds held
by the Company or any Subsidiary in a fiduciary capacity, whether such funds
are held in a trust account or otherwise for any purpose other than to timely
pay over such funds to the rightful owner thereof.
7. RIGHT OF FIRST REFUSAL
7.1 RIGHT OF FIRST REFUSAL.
Before the Company shall issue, sell or exchange, agree or obligate
itself to issue, sell or exchange (a) any shares of Common Stock, (b) any
other equity security of the Company, including without limitation, shares of
preferred stock, (c) any convertible debt security of the Company including
without limitation, any debt security which by its terms is convertible into
or exchangeable for any equity security of the Company, (d) any security of
the Company that is a combination of debt and equity, or (e) any option,
warrant or other right to subscribe for, purchase or otherwise acquire any
such equity security or any such convertible debt security of the Company,
the Company shall, in each case, first offer to sell such securities (the
"Offered Securities") to the Purchaser (the "Offeree") as follows: the
Company shall offer to sell to the Offeree an amount of the Offered
Securities (the "Basic Amount") sufficient to allow the Offeree to maintain a
proportional interest in the Company equal to the number of shares of Common
Stock (including for the purposes of such calculation the number of shares of
Common Stock issuable upon conversion of the Series A Preferred Stock or
conversion or exercise of other securities or options of the Company) then
held by the Offeree over the total number of shares of
23
Common Stock issued and outstanding and the number of shares of Common Stock
issuable upon conversion of the Preferred Stock or conversion or exercise of
other securities or options of the Company, determined immediately prior to
the issue, sale or exchange of the Offered Securities, at a price and on such
other terms as applicable to such issuance, sale or exchange of Offered
Securities. Such terms and price, and the Offeree's Basic Amount, shall be
specified by the Company in writing delivered to the Offeree (the "Offer"),
which Offer by its terms shall remain open and irrevocable for a period of
thirty (30) days from receipt of the Offer.
7.2 NOTICE OF ACCEPTANCE.
Notice of the Offeree's intention to accept, in whole or in part, any
Offer made pursuant to Section 7.1 shall be evidenced by a writing signed by
the Offeree and delivered to the Company prior to the end of the 30-day
period of such offer, setting forth such of the Offeree's Basic Amount as the
Offeree elects to purchase (the "Notice of Acceptance").
7.3 CONDITIONS TO ACCEPTANCES AND PURCHASE.
A. PERMITTED SALES OF REFUSED SECURITIES. In the event that a Notice of
Acceptance is not given by the Offeree in respect of all the Offered
Securities, the Company shall have ninety (90) days from the expiration of
the 30-day period set forth in Section 7.1 to sell all or any part of such
Offered Securities as to which a Notice of Acceptance has not been given by
the Offeree (the "Refused Securities") to the Person or Persons, for the
stated consideration and otherwise in all respects upon terms and conditions,
including, without limitation, unit price and interest rates, which are no
more favorable, in the aggregate, to such other Person or Persons or less
favorable to the Company than those set forth in the Offer.
B. REDUCTION IN AMOUNT OF OFFERED SECURITIES. In the event the Company
shall propose to sell less than all the Offered Securities (any such sale to
be in the manner and on the terms specified in Section 7.3(A) above), then
the Offeree shall be obligated to reduce the number of shares or other units
of the Offered Securities specified in its respective Notice of Acceptance to
an amount which shall be not less than the amount of the Offered Securities
which the Offeree elected to purchase pursuant to Section 7.2 multiplied by a
fraction, (i) the numerator of which shall be the amount of Offered
Securities which the Company actually proposes to sell, and (ii) the
denominator of which shall be the amount of all Offered Securities. In the
event that the Offeree reduces the number or amount of Offered Securities
specified in its respective Notice of Acceptance, the Company may not sell or
otherwise dispose of more than the reduced amount of the Offered Securities
until such securities have again been offered to the Offeree in accordance
with Section 7.1.
C. CLOSING. Upon the closing, which shall include full payment to the
Company, of the sale to such other Person or Persons of all or less than all
the Refused Securities, the Offeree shall purchase from the Company, and the
Company shall sell to the Offeree, the number of Offered Securities specified
in the Notices of Acceptance, as reduced pursuant to Section 7.3(B) if the
Offeree has so elected, upon the terms and conditions specified in the Offer.
The purchase by the Offeree of any Offered Securities is subject in all cases
to the preparation, execution and delivery by the Company and the Offeree of
a purchase agreement relating to such
24
Offered Securities reasonably satisfactory in form and substance to the
Offeree and its counsel; provided that if the purchasers of Refused
Securities agree to close on terms offered to Offeree, the refusal of the
Offeree to close shall not prevent the sale of Refused Securities or any
portion of the Offered Securities to such purchaser.
7.4 FURTHER SALE.
Subject to the proviso contained at the end of Section 7.3(C), in each
case, any Offered Securities not purchased by the Offeree or other Person or
Persons in accordance with Section 7.3 may not be sold or otherwise disposed
of until they are again offered to the Offeree under the procedures specified
in Sections 7.1, 7.2 and 7.3.
7.5 EXCEPTION.
The rights of the Offeree under this Section 7 shall not apply to the
following: (a) Common Stock issued as a stock dividend to holders of Common
Stock or upon any subdivision or combination of shares of Common Stock; (b)
Series A Preferred Stock issued as a dividend to holders of Series A
Preferred Stock upon any subdivision or combination of shares of Series A
Preferred Stock; (c) the Conversion Shares; (d) shares of Common Stock, or
options exercisable therefor, issued after the date hereof to directors,
officers or employees of or consultants to the Company or any Subsidiary
pursuant to any qualified or non-qualified stock option plan or agreement,
employee stock ownership plan, stock purchase agreement, stock plan, stock
restriction agreement, or consulting agreement or such other options,
arrangements, agreements or plans approved by the Board of Directors so long
as the aggregate number of such shares does not exceed 10% of the number of
Fully Diluted Outstanding Common Stock at the time of proposed issuance; (e)
securities issued solely in consideration for the acquisition (whether by
merger or otherwise) by the Company of all or substantially all of the
capital stock or assets of any other entity; (f) securities issued in a
transaction in which the entire proceeds (net of expenses) of issuance are
used to pay, satisfy and discharge obligations of the Company to the
Purchaser and (g) securities issued in a transaction in which the entire
proceeds (net of expenses) of issuance are used to pay, satisfy and discharge
Indebtedness owed by the Company to any Person other than a Subsidiary.
7.6 SALE OF COMPANY AS A WHOLE.
The Purchaser shall have the same first refusal rights, on the same terms
as set forth in Sections 7.1-7.5 above, in the case of the sale of the
Company as a whole, whether such sale takes the form of a cash sale, merger
or purchase of all or substantially all assets of the Company. In the event
the offered consideration for such a sale is, in whole or in part, equity or
debt securities of the offeror, the Purchaser shall be permitted to
substitute its equity or debt securities for the offeror's in matching such
offer. Such matching securities will be valued in the same manner as the
offeror's securities are valued.
25
7.7 RIGHTS UNDER BUY-SELL AGREEMENT.
The Purchaser shall have the same rights to purchase Common Stock offered
for sale by Affiliates under the Buy-Sell Agreement as if the Preferred
Shares were converted into Common Stock immediately prior to the offer of
stock under the Buy-Sell Agreement
8. DEFINITIONS AND ACCOUNTING TERMS
8.1 CERTAIN DEFINED TERMS.
As used in this Agreement, the following terms shall have the following
meanings:
"Acquisition Shares" shall have the meaning assigned to such term in
Section 1.7.1.
"Affiliate" shall mean any officer or director of the Company or any
Subsidiary or holder of five percent (5%) or more of any class of capital
stock of the Company or any Subsidiary, or any member of their respective
immediate families or any corporation or other entity directly or indirectly
controlled by one or more of such officers, directors or 5% stockholders or
members of their immediate families.
"Agreement" shall mean this Series A Preferred Stock Purchase
Agreement, including all amendments, modifications or supplements thereto.
"Applicable Conversion Value" shall have the meaning assigned to such
term in the Certificate of Determination.
"Articles of Incorporation" shall mean the Articles of Incorporation
of the Company, including all amendments, modifications or supplements
thereto.
"Bank" shall have the meaning assigned to such term in Section 4.7.
7.1. "Basic Amount" shall have the meaning assigned to such term in Section
"Board of Directors" shall mean the board of directors of the Company
as constituted from time to time.
1.7.1. "Bonus Shares shall have the meaning assigned to such term in Section
"Business Day" shall mean any day except a Saturday, Sunday or other
day on which commercial banks in the State of California are authorized by
law or executive order to close.
26
"Buy-Sell Agreement" shall have the meaning assigned to such term in
Section 2.3.
"By-Laws" means the By-Laws of the Company as amended from time to
time.
"Certificate of Determination" shall have the meaning assigned to such
term in Section 4.5.
"Closing" shall have the meaning assigned to such term in Section 1.3.
"Closing Date" shall have the meaning assigned to such term in Section
1.3.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Stock" shall have the meaning assigned to such term in Section
1.2.
"Company" shall have the meaning assigned to such term in the
introductory sentence hereof.
"Consolidated Capitalization" means, at any date of determination
thereof, the sum of (a) Consolidated Indebtedness plus (b) Consolidated Net
Worth.
"Consolidated Indebtedness" means, at any date of determination
thereof, all Indebtedness of the Company and the Subsidiaries, as determined
on a consolidated basis in accordance with GAAP.
"Consolidated Net Worth" means, at any date of determination thereof,
all amounts that would be included under stockholders' equity on a
consolidated balance sheet of the Company and the Subsidiaries, as determined
on a consolidated basis in accordance with GAAP.
"Conversion Shares" shall have the meaning assigned to such term in
Section 1.02.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ESOP" shall mean the CAPAX Management & Insurance Services Employee
Stock Ownership Plan dated December 28, 1994, including all amendments,
supplements or modifications thereto.
"Fully Diluted Outstanding Common Stock" shall mean at the time of the
proposed issuance the number of issued shares actually outstanding (excluding
any shares of the Company held by the Company as "treasury stock") at such
time together with the number of shares of Common Stock which could be
acquired at such time pursuant to all rights, options, warrants or
convertible or exchangeable securities entitling the holders thereof to
subscribe for or
27
purchase or otherwise acquire shares of Common Stock as if such rights,
options, warrants or convertible or exchangeable securities have been fully
exercised or converted and the full amount of all Common Stock obtained in
connection therewith has been obtained.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time, applied on a basis
consistent with those used in the preparation of the financial statements
referred to in Section 2.6 (except for changes concurred in by the
independent public accountants to the Company and the Subsidiaries).
"Indebtedness" shall mean (a) any liability for borrowed money or
evidenced by a note or similar obligation given in connection with the
acquisition of any property or other assets (other than trade accounts
payable incurred in the ordinary course of business); (b) all guaranties,
endorsements and other contingent obligations, in respect of Indebtedness of
others, whether or not the same are or should be reflected in the Company's
balance sheet (or the notes thereto), except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in
the ordinary course of business, and (c) the present value of any lease
payments due under leases required to be capitalized in accordance with GAAP.
"indemnified party" shall have the meaning given such term in Section
9.2.
"Key Employee" shall mean and includes the Chairman, President, Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer, any
executive officer of the Company or any Subsidiary with policy-making
functions including, without limitation, the head of each Subsidiary, or any
other individual so designated by the Board of Directors.
"Knowledge" shall mean, after reasonable inquiry which would be
undertaken by a similarly situated prudent man, no information has come to
the attention of any Key Employee, giving any such Key Employee actual
knowledge of facts contrary to the existence or absence of such facts
indicated.
"Leverage Ratio" means, at any date of determination thereof, the
ratio of (a) Consolidated Indebtedness to (b) Consolidated Capitalization.
"Management Agreement" shall have the meaning as defined in Exhibit C
hereto.
"Material Adverse Effect" means any material adverse effect on (a) the
business, profits, properties or condition of the Company and the
Subsidiaries, taken as a whole, (b) the ability of the Company to perform its
obligations under the Agreement or any Related Agreement and (c) the binding
nature, validity or enforceability of this Agreement or any Related
Agreement, which, in each case, arises from, or reasonably could be expected
to arise from, any action or omission of action on the part of the Company or
any Subsidiary or the occurrence of any event or the existence of any fact or
condition in respect of the Company or any Subsidiary or any of their
respective properties.
28
"Non-Competition Agreement" shall have the meaning as defined in
Exhibit E. hereto.
"Notice of Acceptance" shall have the meaning assigned to such term in
Section 7.2
"Offer" shall have the meaning assigned to such term in Section 7.1.
"Offeree" shall have the meaning assigned to such term in Section 7.1.
"Offered Securities" shall have the meaning assigned to such term in
Section 7.1.
"Option" shall have the meaning as defined in Exhibit D hereto.
"Other Shares" shall have the meaning assigned to such term in Section
1.7.2.
"▇▇▇▇▇" shall mean ▇▇▇▇▇ Financial, a California corporation and
parent of the Purchaser.
"▇▇▇▇▇ Shares" shall have the meaning assigned to such term in Section
1.3.
"Permitted Liens" shall mean (a) liens or charges for current taxes,
assessments or other governmental charges which are not delinquent or which
remain payable without penalty, or the validity of which is contested in good
faith by appropriate proceedings upon stay of execution of the enforcement
thereof, provided the Company shall have set aside on its books and shall
maintain adequate reserves for their payment in conformity with GAAP, (b)
liens, deposits or pledges made to secure statutory obligations surety or
appeal bonds, or bonds for the release of attachments or for stay of
execution, or to secure the performance of bids, tenders, contracts (other
than for the payment of borrowed money), leases or for purposes of like
general nature in the ordinary course of its business and (c) purchase money
security interests for equipment hereafter acquired, conditional sale
agreements, or other title retention agreements, with respect to equipment
hereafter acquired, provided, however, that no such security interest or
agreements shall extend to any property other than the after-acquired
equipment then being purchased.
"Person" shall mean an individual, corporation, partnership, joint
venture, trust, university, or unincorporated organization, or a government
or any agency or political subdivision thereof.
"Plans" shall have the meaning assigned to such term in Section 2.13.
"Preferred Shares" shall have the meaning assigned to such term in
Section 1.1.
"PTC Agreement" shall have the meaning as defined in Exhibit B hereto.
29
"Purchaser" shall have the meaning assigned to such term in Section 1.1.
"Purchaser Director" mean that director of the Company who is a
representative of the Purchaser. During the first two years after the
Closing, such representative shall be ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇.
"Refused Securities" shall have the meaning assigned to that term in
Section 7.3.
"Related Agreements" shall mean the PTC Agreement, the Non-Competition
Agreement, the Option Agreement, the Management Agreement and the Buy-Sell
Agreement, including all amendments, modifications or supplements thereto.
"Series A Preferred Stock" shall have the meaning assigned to such
term in Section 1.1.
"Shares" shall have the meaning assigned to such term in Section 1.2.
"Stock Option Plan" shall mean the 1995 Stock Bonus Program of the
Company, including all amendments, supplements or modifications thereto.
"Subsidiary" shall mean any corporation or other entity of which at
least a majority of the securities or other ownership interest having
ordinary voting power (absolutely or contingently) for the election of
directors or other persons performing similar functions are at the time owned
directly or indirectly by the Company and/or any of its other Subsidiaries.
8.2 ACCOUNTING TERMS.
All accounting terms not specifically defined herein shall be construed
in accordance with GAAP consistently applied, and all financial data
submitted pursuant to this Agreement, unless otherwise specified, shall be
prepared in accordance with GAAP.
9. INDEMNIFICATION
9.1 GENERAL INDEMNITY.
The Company agrees to indemnify and save harmless the Purchaser (and its
respective directors, officers, affiliates, agents, successors and assigns)
from and against any and all losses, liabilities, deficiencies, costs,
damages and expenses (including, without limitation, reasonable attorneys'
fees, charges and disbursements) necessarily incurred by the Purchaser as a
result of any inaccuracy in or breach of the representations and warranties
(as of the closing date) or covenants (as of and after the closing date) made
by the Company herein or in any of the Related Agreements. The Purchaser
agrees to indemnify and save harmless the Company and its directors,
officers, affiliates, agents, successors and assigns from and against any and
all losses,
30
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys' fees, charges and disbursements) incurred by
any of the Company as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Purchaser herein. Neither
party shall be liable for indemnification hereunder unless the other party's
damages from a breach of representations and warranties exceeds $50,000 in the
aggregate or the other party's damages from a breach of a covenant or other term
hereof exceeds $10,000 per year.
9.2 INDEMNIFICATION PROCEDURE.
Any party entitled to indemnification under this Section 9 (an
"indemnified party") will give written notice to the indemnifying party of
any claim with respect to which it seeks indemnification promptly after the
discovery by such party of any matters giving rise to a claim for
indemnification; provided that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Section 9 except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder,
the indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between
it and the indemnifying party may exist in respect of such action, proceeding
or claim, to assume the defense thereof, with counsel reasonably satisfactory
to the indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any
indemnification notice to notify, in writing, such person of its election to
defend, settle or compromise, at its sole cost and expense, any action,
proceeding or claim (or discontinues its defense at any time after it
commences such defense), then the indemnified party may, at its option,
defend, settle or otherwise compromise or pay such action or claim. In any
event, unless and until the indemnifying party elects in writing to assume
and does so assume the defense of any such claim, proceeding or action, the
indemnified party's costs and expenses arising out of the defense, settlement
or compromise of any such action, claim or proceeding shall be losses subject
to indemnification hereunder. The indemnified party shall cooperate fully
with the indemnifying party in connection with any negotiation or defense of
any such action or claim by the indemnifymg party and shall furnish to the
indemnifying party all information reasonably available to the indemnified
party which relates to such action or claim. The indemnifying party shall
keep the indemnified party fully apprised at all times as to the status of
the defense or any settlement negotiations with respect thereto. If the
indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with
counsel of its choice at its sole cost and expense. The indemnifying party
shall not be liable for any settlement of any action, claim or proceeding
effected without its written consent, provided, however, that the
indemnifying party shall not unreasonably withhold, delay or condition its
consent. Anything in this Section 9 to the contrary notwithstanding, the
indemnifying party shall not, without the indemnified party's prior written
consent, settle or compromise any claim or consent to entry of any judgment
in respect thereof which imposes any future obligation on the indemnified
party or which does not include, as an unconditional term thereof, the giving
by the claimant or the plaintiff to the indemnified party, a release from all
liability in respect of such
31
claim. The indemnification required by this Section 9 shall be made by
periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred so long as the indemnified party irrevocably
agrees to refund such moneys if it is ultimately determined by a court of
competent jurisdiction that such party was not entitled to indemnification.
The indemnity agreements contained herein shall be in addition to (a) any
cause of action or similar right of the indemnified party against the
indemnifying party or others, and (b) any liabilities the indemnifying party
may be subject to pursuant to the law.
10. MISCELLANEOUS
10.1 NO WAIVER; CUMULATIVE REMEDIES.
No failure or delay on the part of any party to this Agreement in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy hereunder. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
10.2 AMENDMENTS, WAIVERS AND CONSENTS.
Any provision in the Agreement to the contrary notwithstanding, and
except as hereinafter provided, changes in, termination or amendments of or
additions to this Agreement or any Related Agreement may be made, and
compliance with any covenant or provision set forth herein may be omitted or
waived, if the Company (a) shall obtain consent thereto in writing from the
Purchaser. Any waiver or consent may be given subject to satisfaction of
conditions stated therein and any waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
10.3 ADDRESSES FOR NOTICES.
Any notice, demand, request, waiver or other communication under this
Agreement or any Related Agreement shall be in writing and shall be deemed to
have been duly given on the date of service if personally served, on the date
of transmission if sent by telecopier or on the third day after mailing if
mailed to the party to whom notice is to be given, by first class mail,
registered, return receipt requested, postage prepaid and addressed as
follows:
To the Purchaser: ▇▇▇▇▇ Financial
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
32
To the Company: CAPAX Management & Insurance Services
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: President
Telecopier No: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Crabtree, Schmidt, ▇▇▇▇, ▇▇▇▇▇▇ and ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
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10.4 COSTS, EXPENSES AND TAXES.
The prevailing party shall be entitled to the reasonable fees and
out-of-pocket expenses of legal counsel, independent public accountants,
consultants and other outside experts retained by such party in connection
with the successful enforcement of this Agreement or any Related Agreement.
In addition, the Company shall pay any and all stamp, or other similar taxes
payable or determined to be payable in connection with the execution and
delivery of this Agreement, the issuance of the Preferred Shares and the
other instruments and documents to be delivered hereunder or thereunder, and
agrees to save the Purchaser harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission
to pay such taxes.
10.5 BINDING EFFECT: ASSIGNMENT.
This Agreement and each Related Agreement to which it is a party shall be
binding upon and inure to the benefit of each of the Company and the
Purchaser and their respective heirs, successors and assigns, except that the
Company shall not have the right to delegate its obligations hereunder or to
assign its rights hereunder or any interest herein without the prior written
consent of the Purchaser and the Purchaser shall not have the right to assign
their rights hereunder or any interest herein (including, without limitation,
by the sale of their Shares) without the prior written consent of the
Company; provided that the Purchaser may assign their rights, without such
prior written consent, to any Person which purchases all of the Preferred
Shares from the Purchaser as permitted hereunder or under a Related
Agreement, or to any entity controlling, controlled by or under common
control with the Purchaser. For the purposes of this Section 10.5, "control"
shall mean any Purchaser beneficially owns more than 50% of the voting
securities of such entity or more than 50% of the voting securities of such
Purchaser is directly or indirectly beneficially owned or held by such entity
or such Purchaser is a partnership in which such entity is a general partner.
10.6 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All representations and warranties made in this Agreement, each Related
Agreement, the Shares, or any other instrument or document delivered in
connection herewith or therewith, shall remain enforceable until December 31,
1999; provided that the representations and warranties
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shall remain enforceable for two years after such date to the extent written
notice of any breach thereof is given on or prior to such date and the
representations and warranties relating to taxes shall survive for the
applicable statute of limitation.
10.7 PRIOR AGREEMENTS.
This Agreement, each Related Agreement, the terms of the Series A
Preferred Stock, and the other agreements executed and delivered herewith
constitute the entire agreement between the parties and supersedes any prior
understandings or agreements concerning the subject matter hereof.
10.8 SEVERABILITY.
The provisions of this Agreement, each Related Agreement and the terms of
the Series A Preferred Stock are severable and, in the event that any court
of competent jurisdiction shall determine that any one or more of the
provisions or part of a provision contained in this Agreement, any Related
Agreement or the terms of the Series A Preferred Stock shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other
provision or part of a provision of this Agreement, any Related Agreement or
the terms of the Series A Preferred Stock; but this Agreement, each Related
Agreement and the terms of the Series A Preferred Stock shall be reformed and
construed as if such invalid or illegal or unenforceable provision, or part
of a provision, had never been contained herein, and such provisions or part
reformed so that it would be valid, legal .and enforceable to the maximum
extent possible.
10.9 CONFIDENTIALITY.
The Purchaser agrees that it will keep confidential and will not disclose
or divulge any confidential, proprietary or secret information which the
Purchaser may obtain from the Company pursuant to financial statements,
reports and other materials submitted by the Company to the Purchaser
pursuant to this Agreement, or pursuant to visitation or inspection rights
granted hereunder, unless such information is known, or until such
information becomes known other than through a breach of this Section 10.9,
to the public; PROVIDED, HOWEVER, that the Purchaser may disclose such
information (a) on a confidential basis to its attorneys, accountants,
consultants and other professionals to the extent necessary to obtain their
services in connection with its investment in the Company, (b) to any
prospective purchaser of any Preferred Shares or Conversion Shares from the
Purchaser as long as such prospective purchaser agrees in writing to be bound
by the provisions of this Section 10.9, (c) to any entity controlling,
controlled by or under common control with the Purchaser or (d) as required
by applicable law.
10.10 GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, AND WITHOUT GIVING EFFECT TO
CHOICE OF LAW PROVISIONS.
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10.11 HEADINGS.
Article, section and subsection headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of
this Agreement for any other purpose.
10.12 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument, and any of
the parties hereto may execute this Agreement by signing any such counterpart.
10.13 FURTHER ASSURANCES.
From and after the date of this Agreement, upon the request of the
Purchaser or the Company, each of the Company and the Purchaser shall execute
and deliver such instruments, documents and other writings as may be
reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement, each Related Agreement and
the Shares.
10.14 WAIVER.
At any time prior to the Closing Date, any party hereto may (a) extend
the time for the performance of any of the obligations or other acts of any
other party hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto, and
(c) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed by
the party granting such waiver but such waiver or failure to insist upon
strict compliance with such obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent
or future failure.
10.15 SPECIFIC ENFORCEMENT.
Each of the Purchaser and the Company acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of
this Agreement and each Related Agreement were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly
agreed that the parties shall be entitled to an injunction or injunctions to
prevent breaches of the provisions of this Agreement, each Related Agreement
and to enforce specifically the terms and provisions hereof in any court of
the United States or any state thereof having jurisdiction, this being in
addition to any other remedy to which they may be entitled at law or equity.
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10.16 CUMULATIVE VOTING.
Notwithstanding anything herein or in the Certificate of Determination to
the contrary, the Purchaser agrees not to exercise its rights to cumulate its
votes in the election of directors of the Company. In the event the Purchaser
is required to exercise its cumulative voting rights notwithstanding this
Section 10.16, the Purchaser agrees to exercise all of its cumulative votes
for the election of the Purchaser Director.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date and year first above written.
COMPANY:
CAPAX MANAGEMENT & INSURANCE
SERVICES
BY: /s/ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇.
----------------------------
PURCHASER:
▇▇▇▇▇ INSURANCE COMPANY
By: /s/ [ILLEGIBLE]
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