EXHIBIT 10.30
EXECUTION COPY
PURCHASE OPTION
This Purchase Option and Pre-Initial Public Offering Option (this "Option") is
made and entered into as of the 11th day of March, 1997 by and between XXXXX
Financial, a California corporation ("XXXXX") and CAPAX Management & Insurance
Services, a California corporation ("CAPAX"). This Option is entered into in
connection with, and as a condition to, that certain Series A Preferred Stock
Purchase Agreement (the "Purchase Agreement"), of even date herewith, by and
between CAPAX and XXXXX Insurance Company, a wholly-owned subsidiary of XXXXX
("PICO"). All capitalized terms used herein without definition shall have the
meaning ascribed to them in the Purchase Agreement.
R E C I T A L S
WHEREAS, PICO and CAPAX have entered into the Purchase Agreement, a condition
of which is that XXXXX and CAPAX enter into this Option;
WHEREAS, it is the intent of the parties that CAPAX provide XXXXX with an
option to purchase all of the equity securities of CAPAX on the terms set
forth herein; and
WHEREAS, XXXXX would not have permitted PICO to enter into the Purchase
Agreement except in the event that CAPAX entered into this Option with the
full intent to cooperate in the consummation of the transaction contemplated
herein in the event that XXXXX chooses to exercise its rights hereunder;
A G R E E M E N T
NOW, THEREFORE, in consideration of the recitals and mutual covenants set
forth herein and for other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. GRANT OF OPTION. CAPAX hereby grants to XXXXX an option (the
"Option") to purchase (the "Purchase") for cash and/or XXXXX Common Stock, no
par value, all outstanding equity securities of CAPAX, and securities
convertible into, or which give the holder the right to purchase, equity
securities of CAPAX (collectively "Convertible Securities").
1
EXECUTION COPY
The parties agree that XXXXX may attach any conditions to the Purchase which
it deems appropriate so long as such conditions are delivered to CAPAX in
writing, are included in the Option exercise notice discussed below and are
reasonably deemed economically sound by CAPAX. In the event CAPAX reasonably
determines a condition economically unsound, XXXXX shall be entitled to
condition exercise of the Option upon satisfaction of such condition if XXXXX
agrees to pay the cost of satisfaction of the condition in excess of the
portion deemed reasonably economically sound.
2. OPTION EXERCISE PERIOD; EXPIRATION. The Option can be exercised
by XXXXX at any time after the date hereof but no later than the third
anniversary of the date hereof. The Option will expire if not exercised by
the third anniversary hereof. In the event that the Option is exercised
prior to the third anniversary hereof but the Purchase does not close prior
to such date, XXXXX shall continue to have the right to close the Purchase
pursuant to such exercise of the Option for so long as XXXXX shall continue
to pursue, in good faith, the closing of the Purchase but in no event will
this extension exceed three months.
The Option must be exercised by the delivery to CAPAX of a written notice of
such exercise, which notice shall specify the expected closing date of the
Purchase and any and all conditions which must be met by CAPAX in order for
the consummation of the Purchase. The exercise notice cannot be given more
than 180 days prior to the expected closing date of the Purchase and no later
than 30 days prior to such closing date.
3. OPTION EXERCISE CONSIDERATION. The consideration to be paid to
the holders of CAPAX equity securities in exchange for the Purchase will be
cash and/or XXXXX Shares in an aggregate amount determined based on the
following formula:
(i) The Multiple (as defined) multiplied by (A) the CAPAX budgeted revenues
for 1997 if the Option is exercised before December 31, 1997 or (B)
otherwise, the actual revenue of CAPAX for the four quarter period ending
immediately prior to the closing of the Purchase; less
(ii) (A) revenue from interest income, contingency income from insurance
carriers and from insurance or management business owned, to the extent of
such ownership, by producers or affiliates of CAPAX or its subsidiaries or
other third parties and (B)
2
EXECUTION COPY
revenue from distinct portions of CAPAX' business which, while included in
the Budget or the results of the four quarter period, as the case may be, are
not reasonably expected to generate revenue for CAPAX following the period
being measured; multiplied by
(iii) the percentage of the outstanding equity securities of CAPAX which
XXXXX and/or its subsidiaries do not own at the time immediately prior to the
closing of the Purchase.
(iii) the "Multiple" is defined by the following formula:
(A) CAPAX' pre-tax return according to GAAP, consistently applied,
for the measurement period, expressed as a percentage of the
revenues used to calculate the Option exercise consideration is
defined herein as the "Pre-Tax Return."
(B) The Multiple equals (y) 0.8 plus (z) (the Pre-Tax Return x .02).
(C) For example, if the Pre-Tax Return is 7%, the Multiple equals
0.8 + (7 x 0.02), which equals 0.94.
In the event that the Purchase closes prior to the time that CAPAX' Pre-Tax
Return for the measurement period has been determined, the consideration for
the Option exercise will be paid using .8x as the estimated Multiple at
closing until the actual multiple has been determined, with make-whole
arrangements designed to return overpayments to XXXXX and underpayments to
the CAPAX shareholders as soon as possible following the determination of the
final exercise price. It is the intent of the parties that the make-whole
arrangements be designed to place the party whose consideration was held back
or overpaid, as the case may be, in the same position that such party would
have been in if the correct consideration had been paid at the time of the
closing of the option exercise. The consideration held back, if the
consideration is both cash and stock, will be held back proportionately in
cash and stock.
The determination of ratio of the exercise consideration which will be cash
and which will be XXXXX Shares will be made by XXXXX in its sole discretion
with the following qualification. XXXXX cannot choose a percentage of stock
consideration which will, by itself, cause the Purchase to fail to qualify
for tax-free reorganization
3
EXECUTION COPY
treatment under the Internal Revenue Code. The valuation of the XXXXX Shares
paid in consideration of the exercise of the Option will be the average
closing price of the trading price of the XXXXX Shares on the NASDAQ National
Market System during the 20 trading days prior to the date the Option
exercise is given; PROVIDED, HOWEVER, that if XXXXX exercises the Option
prior to its initial public offering ("IPO"), but with the same closing date
as the IPO, then the valuation of the XXXXX Shares will be the price of such
shares in the IPO; PROVIDED, FURTHER, HOWEVER, that if XXXXX exercises the
Option prior to its IPO and not as part of the IPO, then the valuation of the
XXXXX Shares will be at a price agreed upon by the Boards of Directors of
each of XXXXX and CAPAX and stock will only be a component of the
consideration if such an agreement is reached.
4. PIGGYBACK REGISTRATIONS.
(a). RIGHT TO PIGGYBACK. Whenever XXXXX proposes to register any of its
Common Stock under the Securities Act of 1933 for sale by XXXXX (other than
its initial public offering or a registration on Form S-8 or Form S-4) which
represents at least 5.0% (after giving effect to the proposed sale) of the
number of shares of outstanding XXXXX Common Stock and the registration form
to be used by XXXXX may be used for the registration of XXXXX Shares, if any,
paid to CAPAX upon exercise of the Option (a "Piggyback Registration"), XXXXX
shall give prompt written notice to the original holders of XXXXX Shares
issued upon exercise of the Option of its intention to effect such
registration. Such notice shall not be sent less than twenty-five (25) days
prior to the filing of any such registration statement, and, subject to the
terms of this Agreement, XXXXX shall include in such registration all XXXXX
Shares with respect to which XXXXX has received written requests for
inclusion therein within twenty (20) days after the delivery of PAULA's
notice.
(b) PRIORITY ON PIGGYBACK REGISTRATIONS. If a Piggyback Registration
relates to an underwritten public offering and the managing underwriter(s)
advise XXXXX in writing that in their opinion the number of shares of Common
Stock requested to be included in such registration exceeds the number which
can be sold in such offering without causing diminution in the offering
xxxxx, XXXXX shall include in such registration:
(i) FIRST, all shares of Common Stock which XXXXX proposes to sell;
4
EXECUTION COPY
(ii) SECOND, the XXXXX Shares requested to be included in such
registration, PROVIDED, that if less than all such XXXXX Shares requested
to be included may be included in the opinion of such underwriters, then
the allocation of shares to be included shall be determined PRO RATA among
the respective CAPAX holders requesting inclusion and by third-party
holders of other "piggyback" registration rights, on the basis of the
number of shares requested by such holders to be included therein.
5. PURCHASE AGREEMENT. Upon the giving of notice of the exercise of the
Option, the parties will cooperate in the preparation of an agreement setting
forth the definitive terms of the Purchase. Such agreement will contain
representations and warranties of CAPAX and the holders of the CAPAX equity
securities and Convertible Securities which shall be reasonably acceptable to
XXXXX and which shall be at least as extensive as those set forth in the
Purchase Agreement. Such agreement shall provide XXXXX with a right to
complete any due diligence prior to closing which it believes is reasonably
necessary and to receive any and all documentation prior to closing which
XXXXX believes to be reasonably necessary. Such agreement shall also provide
XXXXX with the right to terminate the Purchase in its sole discretion prior
to closing. Such termination shall be without liability of XXXXX or its
subsidiaries to CAPAX or its equity holders.
6. MAINTENANCE OF ABILITY TO CONSUMMATE THE PURCHASE. CAPAX shall not take
any corporate action or otherwise amend its Articles of Incorporation or
By-laws, or permit any of its subsidiaries to do so, without the approval of
XXXXX if such corporate action or amendment would have the effect of
preventing XXXXX from exercising the Option and closing the Purchase upon the
terms set forth herein. In addition, CAPAX shall not enter into any
management or employee compensation agreements which cannot be terminated by
CAPAX or its successor upon 90 days notice following the closing of the
Purchase.
6. NOTICES. All notices required to be given hereunder shall be given in
the manner set forth in the Purchase Agreement as if XXXXX were party thereto
instead of PICO.
7. NO DUTY TO EXERCISE. Notwithstanding the grant of the Option to XXXXX,
XXXXX shall be under no duty to exercise this Option. XXXXX shall not be
liable to
5
EXECUTION COPY
CAPAX or its equity holders for the consequences of any of their actions
which may be taken in anticipation of the exercise of the Option.
8. GOVERNING LAW. This Option shall be governed by, and enforced in
accordance with, the laws of the State of California.
9. ATTORNEYS' FEES. In the event of a dispute with respect to the terms
of this Agreement, the prevailing party shall be entitled to recover its
reasonable attorneys' fees and related costs from the other party.
10. AMENDMENTS. This Agreement may not be amended except by a writing
executed by each party hereto and no course of dealing or circumstances shall
be deemed to have caused an amendment hereto.
11. FURTHER ASSURANCES. The parties hereto agree to cooperate and work
together to negotiate, execute and deliver any and all additional documents
or agreements necessary or desirable in order to further the transactions
contemplated herein and to more fully vest in XXXXX the rights granted
hereby. Each party shall also prepare and file any and all documents required
by any governmental entity exercise authority over any of the parties or
their affiliates in connection with this Option.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the first date written above:
XXXXX FINANCIAL CAPAX MANAGEMENT & SERVICES
INSURANCE
By: By:
--------------------------- ------------------------
6
