1
EXHIBIT 4.2
[Execution Copy]
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (the "Agreement") is entered in as of
September 7,1993 by and among Financial Pacific Insurance Group, Inc., a
Delaware corporation (the "Corporation"), the parties set forth on Schedule 1
attached hereto (the "Purchasers"), Xxxxxx X. Xxxxxxx ("Xxxxxxx"), Xxxxxxx X.
Xxxxxxx ("SMG") and Xxxxx Fargo Bank, N.A., Trustee for Xxxxxx & Xxxxxxx FBO
Xxxxx X. Xxxxxx ("Xxxxxx") (the Purchasers, Xxxxxxx, SMG and Xxxxxx are
individually referred to herein as a "Stockholder" and collectively as the
"Stockholders").
RECITALS
A. As of the date hereof, the authorized capital stock of the
Corporation consists of (i) 10,000,000 shares of common stock, par value $.001
per share ("Common Stock"), of which 1,232,284 shares are issued and
outstanding, and (ii) 4,000,000 shares of preferred stock, par value $.001 per
share, of which 4,000,000 have been designated as Series A Convertible Preferred
Stock (the "Series A Stock") and 3,650,001 shares of Series A Stock are issued
and outstanding.
X. Xxxxxxx, SMG and Xxxxxx are the holders of all of the issued
and outstanding shares of Common Stock and the Purchasers are the holders of all
of the issued and outstanding shares of Series A Stock. The shares of Common and
Series A Stock now or hereafter owned by the Stockholders are hereinafter
collectively referred to as the "Shares." As used hereinafter in this Agreement,
the term "Shares" shall also include any additional shares of Common Stock,
options to purchase Common Stock or securities convertible Common Stock of the
Corporation issued to or acquired by any of the parties: and the term "number
of Shares" shall refer to the aggregate of (i) the number of Shares of Common
Stock owned by the Stockholder and (ii) the number of Shares of Common Stock
issuable upon conversion of the Series A Stock owned by the Stockholder.
C. It is deemed to be in the best interests of the Corporation
and the Stockholders that provision be made for the continuity and stability of
the business and policies of the Corporation.
AGREEMENT
The parties agree as follows:
1. Agreement Available for Inspection. An original copy of this
Agreement duly executed by each of the Stockholders shall be delivered to the
Secretary of
2
the Corporation, maintained at the principal executive office of the Corporation
and made available for inspection.
2. Election of Directors.
(a) Voting of Stock. At or before each annual or special meeting
of the stockholders of the Corporation called for the purpose of electing
directors of the Corporation, and at each time at which stockholders of the
Corporation shall vote for or consent to the election of directors of the
Corporation, then and in each event, each Stockholder shall vote (or consent
with respect to) all Shares owned by him or it, to the extent that such Shares
are entitled to be voted, in a manner that would elect to the Board of Directors
of the Corporation (the "Board") (i) one nominee who is designated by FinPac
Partners, a California limited partnership ("FinPac"), (ii) one nominee who is
designated by St. Xxxx Fire and Marine Insurance Company ("SPFM"), (iii) one
nominee who is designated by The Firemark Global Insurance Fund, L.P., a
Delaware limited partnership ("Firemark"), as the chief executive officer of the
Corporation and (v) one nominee who is designated by the above four nominees.
(b) Initial Directors. The initial directors of the Corporation
shall be Xxxxxxx X. Xxxxx, Xxxxxxx X. Xxxxx, Xxxxxxx X. Xxxxxxxxx, Xxxxxx X.
Xxxxxxx and Xxxxxxx X. Xxxxxxx.
(c) Removal of Director. At each annual or special meeting of the
stockholders of the Corporation called for the purpose of removing directors of
the Corporation, and at each time at which stockholders of the Corporation
shall vote for or consent to the removal of directors of the Corporation, then
and in each event, no stockholder shall vote (or consent with respect to) any
Shares owned by him or it, to the extent that such Shares are entitled to be
voted, for the removal of any director who is (i) the chief executive officer
of the Corporation, (ii) designed by FinPac, (iii) designated by SPFM, (iv)
designated by Firemark, or (v) designated by the chief executive officer of the
Corporation and the nominees of FinPac, SPFM and Firemark, as the case may be.
If the vote at such annual or special meeting or such consent results in a
director being removed, there shall immediately follow an election of directors
in accordance with subparagraph (a) above.
(d) Vacancy. In the event of a vacancy on the Board created by
the death, incapacity or resignation of a director, such vacancy shall be
filled by a successor director who shall be elected in the manner by which his
or her predecessor was elected as provided in subparagraph (a) above.
(e) Size of Board of Directors. With respect to any proposed
amendment of the Corporation's Bylaws, each Stockholder agrees to vote (or
consent with respect to) any Shares owned by him or it, to the extent that such
Shares are entitled to be
2.
3
voted, such that the authorized number of members of the Board shall neither be
increased nor decreased from five without the consent of all of the
Stockholders.
3. Proposed Sales by Stockholders; Right of First Refusal and Co-Sale
Rights.
(a) Solicited Shares. If any Stockholder receives a bona fide offer
to purchase his or its Shares (other than in a Transaction pursuant to Section
6(b)) or any portion thereof (the "Solicited Shares") which he or it does not
wish to accept, he or it shall immediately give notice, as provided in Section
12 of this Agreement, to the Corporation and the other Stockholders (the "Other
Stockholders"), setting forth the terms of such offer and the identity of and
means of contacting the offeror. Each of the other Stockholders shall be
entitled to offer to sell to such offeror such proportion of the Solicited
Shares as the number of Shares owned by him or it bears to the total number of
Shares owned by the other Stockholders.
(b) Proposed Sales. Should any Stockholder desire to sell, assign,
encumber, transfer or otherwise dispose of any of his or its Shares, or of any
interest in such Shares in any transaction other than a transaction pursuant to
Section 6(b) of this Agreement (the "Transaction"), he or it (the "Seller")
shall first serve written notice (the "Notice") on the Corporation and the
Other Stockholders, in the manner prescribed in Section 12 of this Agreement,
of his or its desire to do so. The Notice must specify: (i) the name and address
of the person or entity to whom the Seller proposes to sell, encumber, assign
or transfer the Shares or an interest in the Shares (the "Offeror"), (ii) the
number of Shares, or the interest in the Shares, the Seller proposes to sell,
assign or transfer (the "Offered Shares"), (iii) the price or amount per Share
to be paid or delivered to the Seller for the proposed sale, encumbrance,
assignment or transfer, and (iv) all other terms and conditions of the proposed
sale, encumbrance, assignment or transfer, and (iv) all other terms and
conditions of the proposed sale, encumbrance, assignment or transfer. In the
event the Seller proposes to sell, assign, transfer or encumber a number of
Shares which would reduce the number of shares held by them or it after the
proposed sale, assignment, encumbrance or transfer to less than 10% of the
number of Shares of the Corporation held by such Seller as of the Second
Closing Date (as defined in the Series A Convertible Preferred Stock Purchase
Agreement of even date herewith among the Corporation and the Purchasers) the
Seller must include all Shares held by him or it as Offered Shares.
(c) Board Meeting. The Secretary of the Corporation shall, within
seven days after actual physical receipt by him or her of a Notice, call a
special meeting of the Corporation's Board of Directors in the manner provided
in the Bylaws, to be held at the earliest time that is reasonably feasible.
(d) Corporation's Option to Purchase.
(i) Subject to subparagraph (d)(ii), the Corporation shall have
15 days after a Notice is deemed, under Section 12 of this Agreement, to
3.
4
have been served on it, to elect to purchase all or any part of the
Offered Shares, at the price and on the terms and conditions
specified in the Notice; provided, however, that the Corporation
shall not be permitted to purchase any part of the Offered Shares
unless all Remaining Shares, as that term is defined in subparagraph
(f), are purchased by The Other Stockholders pursuant to the last
sentence of subparagraph (g).
(ii) In the event the price specified in the Notice is to
be paid in other than cash, cash equivalents or publicly traded
securities and the Corporation and the Seller are unable to reach
agreement as to the valuation of the price specified in the Notice
within ten days of the date the Notice is deemed to have been served,
the valuation of the price shall be determined by arbitration in
accordance with the rules of the American Arbitration Association,
the cost of which shall be borne equally by the Corporation and the
Seller. In such event, the 15 day period provided in subparagraph
(d)(i) hereof, shall be tolled until such time as the arbitrator
delivers his findings as to the valuation of the price to the
Corporation, the Other Stockholders and the Seller.
(e) Exercise of Option by Corporation. Should the Corporation,
within the time specified in subparagraph (d), elect to purchase all or any part
of the Offered Shares, the Secretary of the Corporation shall promptly give
written notice of that fact to the Seller. Within 15 days thereafter, on
delivery to the Corporation of the certificate or certificates representing the
number of Offered Shares purchased by the Corporation endorsed for transfer to
the Corporation, the Corporation shall deliver to the Seller any cash, notes or
other instruments required to consummate its purchase. If the Corporation elects
to purchase only part of the Offered Shares, this purchase shall be held in
escrow pending resolution of whether the Corporation shall be permitted to
purchase any Offered Shares pursuant to subparagraph (d)(i).
(f) Failure of Corporation to Exercise Option. Should the
Corporation fail to purchase, within the time and in the manner specified in
subparagraph (e), all of the Offered Shares, the Secretary of the Corporation
shall promptly give written notice (the "Rejection Notice") of that fact to
each of the Other Stockholders. The Rejection Notice shall also specify the
number of Offered Shares specified in the Notice and the number of Offered
Shares not purchased by the Corporation (the "Remaining Shares").
(g) Other Stockholders' Option to Purchase. Within ten days
after the mailing of the Rejection Notice, each Other Stockholder may serve
written notice on the Secretary of the Corporation of its election to purchase
a specified number of the Remaining Shares at the price and on the terms and
conditions specified in the Notice, or, alternatively, his or its election to
sell Shares on the terms set forth in the Notice and the number of Shares each
Other Stockholder would like to sell in the Transaction if given the
opportunity. Should
4.
5
the total number of Shares the Other Stockholders have elected to purchase be
less than the number of Remaining Shares, the Seller shall be entitled to sell
all of the Offered Shares to the Offeror in the Transaction, subject to the
rights of co-sale granted to the Other Stockholders hereunder.
(h) Excessive Offers to Purchase. Should the total number of
Shares the Other Stockholders have elected to purchase exceed the number of
Remaining Shares, each of such Other Stockholders shall be entitled to purchase
such proportion of the Remaining Shares as the number of Shares such
Stockholder sought to purchase by notice given pursuant to subparagraph (g)
bears to the total number of Shares owned by Other Stockholders who have
elected to purchase Remaining Shares. The Secretary of the Corporation shall
promptly, on expiration of the time period specified in subparagraph (g),
notify each of the Other Stockholders of the number of Remaining Shares which
he or it may purchase and the date, which shall be five days after the
expiration of the time period specified in subparagraph (g), which the
Secretary has set for consummation of the purchase of the Remaining Shares by
the Other Stockholders (the "Purchase").
(i) Consummation of Purchase. On or prior to the date set by
the Secretary of the Corporation pursuant to subparagraph (h) for consummation
of the Purchase, each of the Other Stockholders participating in the Purchase
must deliver to the Secretary of the Corporation all cash, notes or other
instruments required to consummate his or its Purchase. On the date set
pursuant to subparagraph (h) for consummation of the Purchase, the Secretary of
the Corporation shall, on delivery to him or her of the certificate or
certificates for the Remaining Shares duly endorsed for transfer, consummate
the Purchase and deliver the consideration therefor to the Seller. The
Secretary of the Corporation shall then cause each of the Remaining Shares
purchased by a Stockholder to be transferred to the name of such Stockholder on
the books of the Corporation.
(j) Failure to Exercise Option; Joint Sale.
(i) Should the Corporation and the Other Stockholders fail
to elect within the times specified in this Agreement to purchase all
of the Offered Shares specified in the Notice, and if any Other
Stockholder has expressed, pursuant to subparagraph (g), a desire to
sell all or a portion of his or its Shares, then each such Other
Stockholder (the "Participating Stockholder") shall be entitled to
sell a portion of his or its Shares in the Transaction. The
Secretary of the Corporation shall promptly, on expiration of the
time period specified in subparagraph (g), notify the Seller and
Offeror of the identities of the Participating Stockholders and the
number of Shares they wish to sell. The Seller shall use his or its
best efforts to interest the Offeror in purchasing the Shares the
Participating Stockholders desire to sell, as well as all Offered
Shares. If the Offeror does not wish to purchase the full amount of
available Shares, then the Participating Stockholders as a group
shall be entitled to sell in the Transaction up to that number of
Shares which is
5.
6
the same percentage of the number of Shares the Offeror will
accept as the number of Shares the Participating Stockholders
wish to sell bears to the total number of the Shares the Seller
and the Participating Stockholder wish to sell and the number of
Shares that each Participating Stockholder will be able to sell
will be allocated pro rata based on the number of Shares each
Participating Stockholder elects to sell pursuant to
subparagraph(g).
(ii) The transaction shall then proceed on the
terms and conditions set forth in the Notice, with the Seller
entitled to sell that number of his or its own Shares which
equals the difference between the number of Shares allowed to be
sold by the Participating Stockholders as calculated above, and
the total number of Shares accepted by the Offeror.
(iii) If there are no Participating Stockholders,
the Seller shall be entitled to sell all of the Offered Shares to
the person or entity specified in the Notice at the price and on
the terms and conditions specified in that Notice, if such sale
is consummated within 90 days from the date the Notice is
received by the Secretary of the Corporation. The Seller may not,
however, without giving a new Notice of his or its intention to
do so, which Notice shall reinstate the options of the
Corporation and the Other Stockholders set forth in this
Agreement to purchase the Offered Shares or to sell their
respective shares, sell any or all of the Offered Shares to the
person or entity and on the terms specified in the Notice after
said 90 day period has elapsed, or to any other person or entity
or at any other price or on any other terms and conditions than
those specified in the Notice.
(iv) The proceeds of any sale made by the Seller
without compliance with the provisions of this Section 3 shall be
deemed to be held in constructive trust in such amount or
amounts as would have been due the Participating Stockholder(s)
had the Seller compiled with this Section 3.
4. Financial Information.
(a) Annual and Quarterly Information. The Corporation will
furnish the following reports to each Stockholder (or its representative) so
long as such Stockholder is a holder of any Shares:
(1) As soon as practicable after the end of each
fiscal year of the Corporation, and in any event within 90 days
thereafter, a consolidated balance sheet of the Corporation and
its subsidiaries as of the end of such fiscal year, and
consolidated statements of income and cash flow of the
Corporation and its subsidiaries for such year, prepared in
accordance with generally accepted accounting principles
consistently applied and setting forth in each case in
comparative form the figures for the previous fiscal year, all
in
6.
7
reasonable detail and certified by independent public accountants
of recognized national standing selected by the Corporation.
(ii) As soon as practicable after the end of the
first, second and third quarterly accounting periods in each
fiscal year of the Corporation, and in any event within 45 days
thereafter, a consolidated balance sheet of the Corporation and
its subsidiaries as of the end of each such quarterly period, and
consolidated statements of income and cash flow of the
Corporation and its subsidiaries for such period and for the
current fiscal year to date, prepared in accordance with
generally accepted accounting principles consistently applied and
setting forth in comparative form the figures for the
corresponding periods of the previous fiscal year, subject only
to changes resulting from normal year-end audit adjustments, all
in reasonable detail and certified by the principal financial or
accounting officer of the Corporation.
(iii) During such time as the Corporation is
subject to the reporting requirements of Section 13(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and in lieu of the financial information required pursuant to
clauses (i) and (ii), copies of its Annual and Quarterly Reports
on Forms 10-K and 10-Q, respectively, or any similar successor
forms, as filed with the Securities and Exchange Commission.
(b) Additional Information. Tile Corporation will permit
representatives of the Stockholders to visit and inspect any of the properties
of the Corporation, including books of account, and to discuss its affairs,
finances and accounts with the Corporation's officers and its independent public
accountants, all at such reasonable times and as often a Stockholder may
reasonably request. During such time as the Corporation is not subject to the
reporting requirements of Section 13(a) of the Exchange Act, the Corporation
will deliver the reports described below in this subparagraph (b) to any
Stockholder who holds at least 10% of the Shares held by the Stockholder on the
Second Closing Date:
(i) As soon as practicable after the end of each
month commencing with the month of January 1994 and in any event
within 30 days thereafter, a consolidated balance sheet of the
Corporation and its subsidiaries as of the end of such month, and
consolidated statements of income and cash flow of the
Corporation and its subsidiaries for each month and for the
current fiscal year of the Corporation to date, prepared in
accordance with generally accepted accounting principles
consistently applied, together with a comparison of such
statements to the prior year's results and the Corporation's
operating plan then in effect and approved by its Board of
Directors, and certified, subject only to changes resulting from
normal year-end audit adjustments, by the principal financial or
accounting officer of the Corporation. As soon as practicable
after the end of each month and in any event within 30 days
7.
8
thereafter for the months of September 1993 through December 1993, the
following information with respect to X.X. Xxxxx Insurance Company and
Property Managers Insurance Services: sales, claims, reserves,
investment income and paid expenses.
(ii) An annual summary of the financial plan of the
Corporation (to be delivered 30 days prior to each fiscal year end), as
contained in its operating plan approved by the Corporation's Board of
Directors, as soon as practicable following such approval. Any material
changes in such financial plan shall be submitted as promptly as
practicable after such changes have been approved by the Board of
Directors.
(iii) With reasonable promptness, such other information
and data with respect to the Corporation and its subsidiaries as a
Stockholder may from time to time reasonably request.
(iv) The foregoing provisions of this subparagraph (b)
shall not be in limitation of any rights which the Stockholders may
have to the books and records of the Corporation and it subsidiaries,
or to inspect their properties or discuss their affairs, finances and
accounts.
(c) Assignment of Rights to Financial Information. The rights
granted pursuant to subparagraphs (a) and (b) may be assigned or otherwise
conveyed by any Stockholder in connection with the transfer or assignment of
Shares to a partner of a Purchaser, or the transfer or assignment to a single
transferee of not less than 20% of the Shares held by such Stockholder on the
Second Closing Date, and such rights may be further reassigned or conveyed by
such partner or single transferee to another such partner or single transferee,
upon the written consent of the Corporation which consent shall not be
unreasonably withheld.
5. Right of First Refusal Upon New Issuance by Corporation. The
Corporation hereby grants to each Stockholder the right of first refusal to
purchase, pro rata, all (or any part of) such Stockholder's pro rata share of
New Securities (as defined in this Section 5) which the Corporation may, from
time to time, propose to sell and issue. A Stockholder's pro rata share, for
purposes of this right of first refusal, is the ratio of (i) the number of
Shares owned by such Stockholder as of the date of the proposed sale to (ii) the
aggregate number of shares of Common Stock of the Corporation outstanding as of
the date of such proposed sale plus the number of shares of Common Stock
issuable upon conversion of all outstanding convertible securities of the
Corporation (including the Series A Stock) as of the date of such proposed sale.
Each Stockholder shall have a right of over-allotment such that if any
Stockholder fails to exercise its right hereunder to purchase its pro rata
portion of New Securities, the other Stockholders may purchase all or any part
of the non-purchasing Stockholder's portion (pro rata as to all such other
Stockholders who elect to purchase such over-allotment portion) within ten days
from the date such non-purchasing
8.
9
Stockholder fails to exercise its right hereunder to purchase its pro rata
share of New Securities. This right of first refusal shall be subject to the
following provisions:
(a) Definition. "New Securities" shall mean any capital stock (including
Common Stock or Preferred Stock) of the Corporation whether now authorized or
not, and all rights, options or warrants to purchase capital stock, and
securities of any type whatsoever that are, or may become, convertible into
capital stock; provided that the term "New Securities" does not include (i)
securities outstanding on the date hereof or on the Second Closing Date; (ii)
securities offered to the public pursuant to a registration statement, filed
pursuant to the Securities Act of 1933, as amended (the "Securities Act");
(iii) securities issued pursuant to the acquisition of another corporation by
the Corporation by merger, purchase of all or substantially all the assets or
other reorganization whereby after such acquisition the Corporation owns not
less than 51% of the voting power of such corporation; (iv) any borrowings,
direct or indirect, from financial institutions or other persons by the
Corporation, whether or not presently authorized, including any type of loan or
payment evidenced by any type of debt instrument, provided such borrowings do
not have equity features, including warrants, options or other rights to
purchase capital stock, and are not convertible into capital stock of the
Corporation; (v) the shares of Common Stock reserved for issuance to employees,
directors or consultants of the Corporation (or securities convertible into
such Common Stock, or rights, options or warrants to purchase such Common Stock
or convertible securities); or (vi) the shares of Common Stock issuable upon
conversion of the Series A Stock.
(b) Notice. In the event the Corporation proposes to undertake an
issuance of New Securities, then, with respect to each such issuance, it shall
give each Stockholder written notice of its intention, describing the type of
New Securities, the price and the general terms upon which the Corporation
proposes to issue the same. Each Stockholder shall have 30 days from the date
such notice is given to agree to purchase all or any portion of the
Stockholder's pro rata share of such New Securities for the price and upon the
general terms specified in the notice by giving written notice to the
Corporation and stating therein the quantity of New Securities to be purchased.
(c) Over-Allotment. In the event any Stockholder fails to exercise the
right of first refusal as to all of the New Securities proposed to be issued
within said 30 day period, the Corporation shall give written notice of such
fact, specifying the amount of securities not elected to be purchased, to any
Stockholder who has elected to purchase any of such New Securities, and each
such Stockholder shall have ten days, after the giving of such further notice,
to purchase all or any part of its pro rata share of such unpurchased portion
by giving written notice thereof to the Corporation. After the expiration of
the period for the exercise of the over-allotment provisions of this
subparagraph (c), the Corporation shall have 120 days thereafter to sell or
enter into an agreement (pursuant to which the sale of New Securities covered
thereby shall be closed, if at all, within 120 days from the date of said
agreement) to sell that portion of the New Securities respecting which the
Stockholders' option was not exercised, at a price and upon general terms no
more favorable to the
9.
10
purchasers thereof than specified in the Corporation's notice. In the event the
Corporation has not sold the New Securities within said 120-day period (or sold
and issued new Securities in accordance with said 120-day period (or sold and
issued New Securities in accordance with the foregoing within 120 days from the
date of said agreement), the Corporation shall not thereafter issue or sell any
New Securities, without first offering such securities to the Stockholders in
the manner provided above.
(d) Assignment of Rights of First Refusal. The right of first
refusal set forth in this Section 5 may be assigned or otherwise conveyed by any
Stockholder in connection with the transfer or assignment of Shares to a partner
of a Purchaser, or the transfer or assignment to a single transferee of not less
than 20% of the Shares held by such Stockholder on the Second Closing Date, and
such rights may be further reassigned or conveyed by such partner or single
transferee to another such partner or single transferee, upon the written
consent of the Corporation which consent shall not unreasonably withheld.
6. Restrictions on Transferability of Securities; Compliance with
Securities
(a) Restrictions of Transferability. To accomplish the purposes of
this Agreement, any transfer, sale, assignment, hypothecation, encumbrance or
alienation of any of the Shares by the Stockholders, other than according to the
terms of this Agreement, devoid and transfers no right, title or interest in
or to said Shares or any of them, whether now owned or hereafter acquired, to
the purported transferee, buyer, assignee, pledgee or encumbrance holder. In
addition to the restrictions on transfer set forth herein, the Stockholders
acknowledge that Xxxxxxx'x and SMG's Shares are subject to the restrictions set
forth in that certain Restricted Stock Agreement of even date among the
Corporation, Xxxxxxx and SMG. The conditions for transfer set forth in this
Section 6 are intended to insure compliance with the provisions of the
Securities Act or, in the case of subparagraph (m) hereof, to assist in an
orderly distribution.
(b) Transfers not Subject to Restrictions. Subject to Section 9 of
this Agreement, (i) either Xxxxx or Xxxxxxx may sell, assign or transfer Shares
to his parents, the parents of his spouse, his spouse or issue or adopted
children, or to a trust established for the benefit of his parents, the parents
of his spouse, his spouse, issue, adopted children, or himself, or dispose of
them under his will and (ii) any of the Purchasers may sell, assign or transfer
Shares to a partner or an "affiliate," as such term is defined in Rule 405 under
the Securities Act.
(c) Certain Definitions. As used in this Section 6, the following
terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
10.
11
"Restricted Securities" shall mean the securities of the Corporation
required to bear or bearing the legends set forth in subparagraph (d) hereof.
"Registrable Securities" shall mean (i) the Shares, (ii) any Common Stock
issued in respect of securities issued pursuant to the conversion of the Series
A Stock upon any stock split, stock dividend, recapitalization or similar event
and (iii) Common Stock issued upon exercise of the Warrants (as defined in
Section 16 hereof).
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses incurred by the Corporation
in compliance with subparagraph (f) hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Corporation, blue ??? fees and expenses, and the expense of any
special audits incident to or required by any such registration (but excluding
the compensation of regular employees of the Corporation, which shall be paid in
any event by the Corporation) and the expenses associated with the
Corporation's obligations under subparagraph (h) hereof.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel for any Holder.
"Holder" shall mean any holder of the outstanding Shares or Registrable
Securities which have not been sold to the public.
(d) Restrictive Legends. Each certificate representing (i) the Shares,
(ii) shares of the Corporation's Common Stock issued upon conversion of Series
A Stock or exercise of the Warrants, or (iii) any other securities issued
in respect of the Shares of the Common Stock issued upon conversion of the
Series A Stock or exercise of the Warrants, upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event, shall
(unless otherwise permitted or unless the securities evidenced by such
certificate shall have been registered under the Securities Act and publicly
sold pursuant to such registration) be stamped or otherwise imprinted with
legends substantially in the following form (in addition to any legend required
under applicable state securities laws):
THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES
UNDER SAID ACT AND ANY APPLICABLE
11.
12
STATE SECURITIES LAW OR AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND
CONDITIONS OF THE STOCKHOLDERS AGREEMENT DATED AS OF SEPTEMBER 7, 1993, BY
AND AMONG THE CORPORATION AND CERTAIN HOLDERS OF THE OUTSTANDING CAPITAL
STOCK OF THE CORPORATION. A COPY OF THE STOCKHOLDERS AGREEMENT AND ALL
AMENDMENTS THERETO HAS BEEN PLACED ON FILE BY THE CORPORATION AND MAY BE
EXAMINED BY A STOCKHOLDER OF THE CORPORATION AS PROVIDED BY SECTION 220 OF
THE DELAWARE GENERAL CORPORATION LAW. ALL THE TERMS AND PROVISIONS OF THE
AGREEMENT ARE HEREBY INCORPORATED BY REFERENCE AND MADE A PART OF THIS
CERTIFICATE.
Upon request of holder of such certificate, the Corporation shall remove
the first legend from the certificate or issue to such holder a new certificate
therefor free of the first transfer legend, if, with such request, the
Corporation shall have received either the opinion referred to in subparagraph
(e)(i) or the "no-action" letter referred to in subparagraph (e)(ii) to the
effect that any transfer by such holder of the securities evidenced by such
certificate will be exempt from the registration and/or qualification
requirements of, and that such legend is not required in order to establish
compliance with, the Securities Act and, if applicable, any state securities
laws under which transfer restrictions on such securities had been previously
imposed.
e. Notice of Proposed Transfers. The Holder of Restricted
Securities by acceptance thereof agrees to comply in all respects with the
provisions of this subparagraph (e) and the other provisions of this Agreement,
if applicable to the proposed transfer. Prior to any proposed transfer of any
Restricted Securities (other than under circumstances described in subparagraph
(f) hereof), the Holder thereof shall give written notice to the Corporation of
such Holder's intention to effect such transfer. Each such notice shall describe
the manner and circumstances of the proposed transfer in sufficient detail, and
shall be accompanied (except in transactions demonstrated to the Corporation's
reasonable satisfaction to be in compliance with Rule 144 of the Commission, or
any substantially identical successor rule of the Commission) by either (i) a
written opinion of legal counsel who shall be reasonably satisfactory to the
Corporation, addressed to the Corporation, and reasonably satisfactory in form
and substance to the Corporation's counsel, to the effect that the proposed
transfer of the Restricted Securities may be effected without registration
under the Securities Act and any applicable state securities laws, or (ii) a
"no action" letter from
12.
13
the Commission (and any necessary state securities administrators) to the effect
that the distribution of such securities without registration will not result
in a recommendation by the staff of the Commission (or such administrators)
that action be taken with respect thereto, whereupon the Holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the Holder to the
Corporation. Each certificate evidencing the Restricted Securities transferred
as above provided shall bear the appropriate restrictive legend set forth in
subparagraph (d) above, except that such certificate shall not ear such
restrictive legend if the transfer is made pursuant to Rule 144 or if the
opinion or "no-action" letter referred to above is to the further effect that
such legend is not required in order to establish compliance with any
provisions of the Securities Act and applicable state securities laws.
(f) Corporation Registration.
(i) If the Corporation shall determine to register any of its
securities either for its own account or the account of any security holder or
holders, other than a registration relating solely to employee benefit plans, or
a registration relating solely to a Commission Rule 145 (or substantially
similar successor rule) transaction, or a registration on any registration form
which does not permit secondary sales or does not include substantially the same
information regarding the Corporation as would be required to be included in a
registration statement covering the sale of Registrable Securities, the
Corporation will:
(A) promptly give to each Holder written notice thereof;
and
(B) include in such registration (and any related
qualification under state blue sky laws and other compliance filings, and in any
underwriting involved therein), all the Registrable Securities specified in a
written request or requests, given by any Holder within 15 days after such
written notice from the Corporation described in clause (A) above is given,
except as set forth in clause (ii) below.
(ii) Underwriting. If the registration of which the Corporation
gives notice is for a registered public offering involving an underwriting, the
Corporation shall so advise the Holders as part of the written notice given
pursuant to clause (i)(A). In such event the right of any Holder to registration
pursuant to this subparagraph shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Corporation and the other persons distributing their
securities through such underwriting) enter into an underwriting agreement in
13.
14
customary form with the underwriter or underwriters selected or
approved for underwriting by the Corporation. Notwithstanding any
other provision of this subparagraph (f), if the underwriter
determines that marketing factors require a limitation on the
number of shares to be underwritten, (a) if such registration is
the first registered offering of the Corporation's securities to
the public, the underwriter may (subject to the allocation
priority set forth below) exclude from such registration and
underwriting some or all of the Registrable Securities which
would otherwise be underwritten pursuant hereto, and (b) if such
registration is other than the first registered offering of the
sale of the Corporation's securities to the general public, the
underwriter may (subject to the allocation priority set forth
below) limit the number of Registrable Securities to be included
in the registration and underwriting to not less than 50% of the
securities included therein (based on aggregate market values).
The Corporation shall so advise all holders of securities
requesting registration, and the number of shares of securities
that are entitled to be included in the registration and
underwriting shall be allocated in the following manner: The
securities of the Corporation held by officers and directors of
the Corporation (other than Registrable Securities held by
affiliates of the non-employee directors) shall be excluded from
such registration and underwriting to the extent required by such
limitation, and, if a limitation on the number of shares is still
required, the number of shares that may be included in the
registration and underwriting shall be allocated among all
Holders and other security holders requesting registration in
proportion, as nearly as practicable to the respective amounts
of Registrable Securities and other securities which they held at
the time of filing the registration statement. If any Holder of
Registrable Securities or any officer, director or other security
holder requesting registration disapproves of the terms of any
such underwriting, such person may elect to withdraw therefrom by
written notice to the Corporation and the underwriter. Any
Registrable Securities or other securities excluded or withdrawn
from such underwriting shall be withdrawn from such registration.
(g) Expenses of Registration. All Registration Expenses incurred
on behalf of Holders in connection with any registration, qualification or
compliance pursuant to this Section 6 shall be borne by the Corporation and all
Selling Expenses shall be borne by the holders of the securities so registered
pro rata on the basis of the number of their shares so registered.
(h) Registration Procedures. In the case of each registration
effected by the Corporation pursuant to subparagraph (f), the Corporation will
advise each Holder writing as to the initiation of each registration and as to
the completion thereof. The Corporation will:
14.
15
(i) Keep such registration effective for a period
of 90 days or until the Holder or Holders have completed the
distribution described in the registration statement relating
thereto, whichever first occurs; and
(ii) Furnish such number of prospectuses and other
documents incident thereto as a Holder from time to time may
reasonably request.
(i) Indemnification.
(A) The Corporation will indemnify each Holder,
each of its officers, directors and partners, and each person
controlling such Holder, with respect to which registration,
qualification or compliance has been effected pursuant to this
Section 6, and each underwriter, if any, and each person who
controls any underwriter, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or
based on any untrue statement (or alleged untrue statement) of a
material fact contained ill any prospectus, offering circular or
other document (including any related registration statement,
notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, or any violation by the Corporation of the Securities
Act or any rule or regulation thereunder applicable to the
Corporation and relating to action or inaction required of the
Corporation ill connection with any such registration,
qualification or compliance, and will reimburse each such Holder,
each of its officers, directors and partners, and each person
controlling such Holder, each Such underwriter and each person
who controls any such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating and
defending any such claims loss. damage, liability or action,
provided that the Corporation will not be liable in any such case
to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on (i) any untrue statement or
omission based upon written information furnished to the
Corporation by such Holder or underwriter and stated to be
specifically for use therein, or (ii) any failure by any such
Holder or underwriter to comply with the prospectus delivery
requirements of the Securities Act.
(B) Each Holder and other security holder will, if
Registrable Securities held by him are included in the securities
as to which such registration, qualification or compliance is
being effected, indemnify the Corporation, each of its directors
and officers and each underwriter, if any, of the Corporation's
securities covered by such a registration statement, each person
who controls the Corporation or such underwriter within the
meaning of the Securities Act and the rules and regulations
thereunder, each other such
15.
16
Holder and other security holder and each of their officers,
directors and partners, and each person controlling such Holder
or other security holder, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or
based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission
(or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein
not misleading, and will reimburse the Corporation and such
Holders, other security holders, directors, officers, partners,
persons, underwriters or control persons for any legal or any
other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the
extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information
furnished to the Corporation by such Holder or other security
holder and stated to be specifically for use therein; provided,
however, that the obligations of such Holders and other security
holders hereunder shall be limited to an amount equal to the
proceeds to each such Holder or other security holder of
Securities sold as contemplated herein.
(C) Each party entitled to indemnification under
this subparagraph (i) (the "Indemnified Party") shall give notice
to the party required to provide indemnification (the
"Indemnifying Party") promptly after such Indemnified Party has
actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose
approval shall not unreasonably be withheld), and the Indemnified
Party may participate in such defense at such party's expense,
and provided further that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying
Party of its obligation under this Section 6. No Indemnifying
Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not
include as a unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from
all liability in respect of such claim or litigation.
(j) Information by Holder. Each Holder of Registrable Securities,
and each other person holding securities included in any registration, shall
furnish to the Corporation such information regarding such Holder or other
person and the distribution proposed by such Holder or other person as the
Corporation may reasonably request in
16.
17
writing and as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Section 6.
(k) Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may permit the
sale of the Restricted Securities to the public without registration, the
Corporation agrees to:
(i) Use its best efforts to make and keep public
information available as those terms are understood and defined
in Rule 144 under the Securities Act, at all times from and after
90 days following the effective date of the first registration
under the Securities Act filed by the Corporation for an offering
of its securities to the general public;
(ii) Use its best efforts to file with the Commission
in a timely manner all reports and other documents required of
the Corporation under the Securities Act and the Exchange Act at
any time during which it is subject to such reporting
requirements: and
(iii) So long as the Stockholder owns any Restricted
Securities, furnish to the Stockholder forthwith upon request a
written statement by the Corporation as to its compliance with
the reporting requirements of Rule 144 (at any time from and
after 90 days following the effective date of the first
registration statement filed by the Corporation for an offering
of its securities to the general public), and of the Securities
Act and the Exchange Act (at any time during which it is subject
to such reporting requirements), a copy of the most recent annual
or quarterly report of the Corporation, and such other reports
and documents so filed as the Stockholder may reasonably request
in availing itself of any rule or regulation of the Commission
allowing the Stockholder to sell any such securities without
registration.
(l) Transfer of Registration Rights. The rights to cause
the Corporation to register securities granted by the Corporation under
subparagraph (f) may be assigned by any Holder to transferees or assignees of
Shares constituting at least 1% of the then outstanding Common Stock of the
Corporation (considering, for this purpose, Shares of Series A Stock to be
equivalent to the number of shares of Common Stock into which they are then
convertible); provided, however, that the Corporation is given written notice at
the time of or within a reasonable time after said transfer, stating the name
and address of said transferees or assignees and identifying the securities with
respect to which such registration rights are being assigned; and, provided,
further, that the transferees or assignees of such rights assume the obligations
of the Purchaser under Section 6.
(m) "Market Stand-Off" Agreement. Each Stockholder agrees,
if requested by the Corporation and the underwriter of Common Stock (or other
securities) of
17.
18
the Corporation, not to sell or otherwise transfer or dispose of any Common
Stock (or other securities) of the Corporation held by it during the 90 day
period following the effective date of any registration statement of the
Corporation filed under the Securities Act with respect to a firmly underwritten
public offering of securities by the Corporation, provided that at least 90% of
all Holders, other security holders whose securities are included in such
registration statement and officers and directors of the Corporation shall also
enter into similar agreements.
Such agreement shall be in writing in a form satisfactory to the
Corporation and such underwriter. The Corporation may impose stop-transfer
instructions with respect to the securities subject to the foregoing
restrictions until the end of said period.
(n) Termination of Registration Rights. The rights to cause the
Corporation to register securities granted by the Corporation under
subparagraph (f) shall terminate with respect to any Holder during such time as
all of the Registrable Securities of such Holder can be sold in accordance with
Rule 144(k) of the Commission.
7. Board Control. The parties hereby agree that the Board shall
have control over (i) the hiring of the second most senior executive officer of
the Corporation, (ii) the loss reserving policy of the Corporation and (iii) the
investment policy of the Corporation. Additionally, the Board shall be required
to approve (i) the Corporation's annual budget and (ii) the Corporation's
significant capital expenditures and acquisitions.
8. Termination of this Agreement. This Agreement shall terminate
upon the earliest to occur of:
(a) The consummation by the Corporation of an offer and sale of
shares of its capital stock to the public pursuant to an effective registration
statement under the Securities Act;
(b) The consolidation or merger of the Corporation with or into
another corporation (other than a merger in which the Corporation is the
continuing or surviving corporation) or the sale or conveyance to another
corporation of all or substantially all of the assets of the Corporation;
(c) The bankruptcy, receivership or dissolution of the
Corporation;
(d) The tenth anniversary of the date hereof; and
(e) The date on which the Stockholders, as a group, hold less
than 50% of the outstanding shares of capital stock of the Corporation.
9. Transferees Subject to Provisions. Any transferee of a
Stockholder other than the Corporation or a Stockholder is subject to the terms
of this Agreement, and
18.
19
??? prior to the receipt of any Shares, consent to be bound by the terms of this
Agreement in duly executing this Agreement and delivering an original executed
copy hereof to the Secretary of the Corporation. Any transfer without such
consent, execution and delivery will be null and void.
10. Amendments or Alterations. This Agreement may be altered or
amended in whole or in part at any time, only be a written instrument signed by
the Corporation and at least 90% in interest of the Stockholders.
11. Remedy for Breach. In addition to all other rights, any
Stockholder shall have the right to enjoin any sale or other transfer of Shares
which would cause any other Stockholder or his or its transferee to be in
breach of this Agreement.
12. Notices. Any and all notices or other communications required or
permitted by this Agreement or by law to be served on, given to, or delivered to
any party hereto by any other party to this Agreement shall be in writing and
shall be deemed duly served, given or delivered when personally delivered to the
party or to any officer of the party, or in lieu of such personal delivery, when
deposited in the United States mail as certified mail, return receipt requested,
with first-class postage prepaid, addressed, if to the Corporation to its
principal place of business, or if to a Stockholder, at the address shown on
Schedule 1 attached hereto.
13. Severability. Should any provision or portion of this
Agreement be held unenforceable or invalid for any reason, the remaining
provisions and portions of this Agreement shall be unaffected by such holding.
14. Governing Law. This Agreement shall be construed and governed by
the laws of the State of Delaware.
15. Attorneys' Fees. If any action at law or equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements, in
addition to any other relief to which such prevailing party may be entitled.
16. Additional Stockholders upon Exercise of Warrants. The
Corporation was issued a Common Stock Purchase Warrant to each of Xxxxxxx X.
Xxxxx, Xxxxxxx X. Xxxxxxx, Xxxxx X. Xxxxxxxxx and California Central Trust Bank
Corporation, as Trustee #1060000539 FBO Xxxxx X. Xxxxxx (the "Warrants"). Upon
the exercise of the Warrants and as provided in the Warrants, the holders of the
Common Stock issued pursuant thereto shall become "Stockholders" under this
Agreement and as such shall be bound by and subject to the provisions hereof and
shall have the benefit of the provisions hereof.
17. Shares Held by XXX Trustees. Certain shares of Common Stock have
been issued to California Central Trust Bank Corporation, as Trustee
#1060000539 FBO
19.
20
Xxxxxx X. Xxxxxxx ("RCG Trustee") and California Central Trust Bank Corporation,
as Trustee #1060000539 FBO Xxxxxxx X. Xxxxxxx ("SMG Trustee"). The Subscription
Agreements pursuant to which such shares were issued provide that such shares
shall be bound by and subject to the provisions hereof and shall have the
benefit of the provisions thereof. RCG shall cause RCG Trustee to comply with
the provisions of this Agreement. SMG shall cause SMG Trustee to comply with the
provisions of this Agreement.
18. Expenses of Stockholders. The Corporation will pay all
reasonable expenses of the Stockholders as listed on Schedule A hereto.
19. Counterparts. This Agreement may be signed in two or
more identical counterparts, all of which when taken together shall constitute
one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
CORPORATION:
FINANCIAL PACIFIC INSURANCE
GROUP, INC.
By: /s/ XXXXX XXXXXXXXX
---------------------------------------
Xxxxx Xxxxxxxxx, Secretary
STOCKHOLDERS:
FINPAC PARTNERS,
a California limited partnership
By: /s/ XXXXXXX X. XXXXX
---------------------------------------
Xxxxxxx X. Xxxxx, General Partner
ST. XXXX FIRE AND MARINE INSURANCE
COMPANY
By: [SIG]
---------------------------------------
THE FIREMARK GLOBAL INSURANCE
FUND, L.P., a Delaware limited partnership
By: [SIG]
---------------------------------------
20.
21
Xxxxx Fargo Bank, N.A., Trustee for Xxxxxx &
Xxxxxxx for the benefit of Xxxxx X. Xxxxxx
By: [SIG]
------------------------------------------
Its:
-----------------------------------------
/s/ XXXXXX X. XXXXXXX
---------------------------------------------
Xxxxxx X. Xxxxxxx
/s/ XXXXXXX X. XXXXXXX
---------------------------------------------
Xxxxxxx X. Xxxxxxx
21.
