EXHIBIT 1
FORTUNE FINANCIAL, INC.
SERIES A CONVERTIBLE PREFERRED STOCK, $.001 Par Value
PREFERRED STOCK PURCHASE AGREEMENT
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THIS PREFERRED STOCK PURCHASE AGREEMENT ("Agreement") is made and
executed on January 12, 2001, effective as of December 29, 2000, by and between
Fortune Financial, Inc., a Florida corporation (the "Company"), and The Crown
Group, Inc., a Florida corporation ( the "Purchaser").
RECITALS
WHEREAS, the Company proposes that the Company issue to the Purchaser
and the Purchaser agrees to purchase, shares of the Company's Convertible
Preferred Stock, Series A, par value $.001 per share, upon the terms and subject
to the conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. Authorization of Stock. The Company will authorize the issuance and
sale of 200,000 shares (the "Shares," including any such shares issued in
substitution therefor pursuant to Section 8.2) of its Series A Convertible
Preferred Stock, $.001 par value, to be designated as its "Series A Convertible
Preferred Stock" (the "Stock"). The relative rights, preferences and limitations
of the Stock, including, without limitation, the right to convert the Stock into
shares of the Company's common stock, par value $.025 per share (the "Common
Stock"), will be as set forth in the form of the Articles of Amendment of the
Articles of Incorporation of the Company attached as Exhibit A hereto (the
"Articles of Amendment"). Certain capitalized terms used in this Agreement are
defined in Section 9; references to a "Schedule" or an "Exhibit" are, unless
otherwise specified, to a Schedule or an Exhibit attached to this Agreement and
references to a "Section" are, unless otherwise specified, to one of the
Sections of this Agreement.
2. Sale and Purchase of Stock.
2.1 Sale and Purchase at Closing. Subject to the terms and
conditions herein set forth, the Company agrees that it will issue to the
Purchaser, and the Purchaser agrees that it will acquire from the Company, at
the Closing, an aggregate of 133,333 shares of Stock for a purchase price of $75
per share for an aggregate total cash purchase price of $10,000,000.
2.2 Put and Call Options. The issuance of any shares of Stock
under this Section 2.2 is conditioned upon the exemption from registration of
such shares of Stock under the Securities Act and from registration or
qualification under applicable state securities laws, as is reasonably
determined by counsel to the Company.
(a) The Company may at any time and from time to time prior to
December 31, 2003 elect in writing, at the Company's option (the "Put
Option"), to sell to the Purchaser and the Purchaser shall purchase up
to and including an aggregate of 66,667 shares of the Stock
("Additional Shares") for a purchase price of $75 per share for an
aggregate total cash purchase price of $5,000,000. To exercise the Put
Option, the Company shall provide the Purchaser with written notice
specifying the number of Additional Shares to be sold to the Purchaser
("Capital Call Notice"). Within 30 days following the Purchaser's
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receipt of a Capital Call Notice, the Company shall sell and the
Purchaser shall purchase the Additional Shares. The Company may
continue to provide Capital Call Notices and sell Additional Shares to
the Purchaser until all Additional Shares have been sold to the
Purchaser, subject to an expiration date of December 31, 2003. If the
Purchaser fails to purchase the Additional Shares offered to the
Purchaser pursuant to a Capital Call Notice pursuant to this Section
2.2(a), the Purchaser shall forfeit any and all rights it would
otherwise have under Section 2.2(c) and the Company shall have all
remedies available under law, including but not limited to specific
performance. Notwithstanding the foregoing in this Section 2.2(a), the
Purchaser shall not be obligated to purchase Additional Shares offered
to the Purchaser pursuant to a Capital Call Notice unless: (i) at the
time of the Capital Call Notice, Fortune Insurance Company ("FIC") has
a net written premium to statutory capital ratio of at least 3.5 to 1;
and (ii) the date of the Capital Call Notice is after January 1, 2002
and, for the calendar year ending December 31, 2001, the Company must
have achieved audited GAAP net income for calendar year 2001 of at
least $1,000,000. If the date of the Capital Call Notice is after June
30, 2002, for the 6 months ending June 30, 2002, the Company must also
have achieved unaudited GAAP net income at least $3,000,000 for such
period as a condition to the Purchaser's obligation to purchase
Additional Shares offered to the Purchaser pursuant to a Capital Call
Notice. Notwithstanding anything to the contrary in this Section
2.2(a), the Purchaser shall only be obligated to purchase the minimum
number of Additional Shares necessary to assist the Company in
achieving and maintaining a net written premium to statutory capital
ratio of up to 3.5 to 1.
(b) The Purchaser may at any time prior to December 31, 2003
elect, at the Purchaser's option (the "First Call Option"), to purchase
that portion of the Additional Shares not already purchased by the
Purchaser pursuant to Section 2.2(a) (the "Remaining Additional
Shares") for a purchase price of $75 per share. To exercise the First
Call Option, the Purchaser shall provide the Company with written
notice stating that it desires to purchase the Remaining Additional
Shares ("First Call Option Notice"). Within 30 days following the
Company's receipt of the First Call Option Notice, the Company shall
sell and the Purchaser shall purchase the Remaining Additional Shares.
(c) Provided that the Purchaser has purchased not less than
200,000 shares of Stock pursuant to Section 2.1, Section 2.2(a) and
2.2(b), the Purchaser shall have the option (the "Second Call Option"),
commencing on the date of the purchase of the last share of such
200,000 shares of Stock (the "Purchase Date") and expiring on December
31, 2003, to purchase at a purchase price of $75 per share the minimum
number of additional shares of Stock (the "Minimum Shares") which, if
converted into Common Stock at the "conversion price" (as defined in
Exhibit A) as of the date of the Company's receipt of the Second Call
Option Notice (as defined below), would provide the Purchaser with at
least a majority of the issued and outstanding Common Stock of the
Company as of the date of the Company's receipt of the Second Call
Option Notice. To exercise the Second Call Option, the Purchaser shall
provide the Company with written notice stating that it desires to
purchase the Minimum Shares ("Second Call Option Notice"). Within 30
days following the Company's receipt of the Second Call Option Notice,
the Company shall sell and the Purchaser shall purchase the Minimum
Shares.
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2.3 Right of First Refusal. Except for securities (as defined in
Exhibit A) issuable pursuant to the agreements made in connection with that
certain Securities Purchase Agreement dated November 15, 2000 (the "Securities
Purchase Agreement") among the Company, Hawkeye, Inc., a Florida corporation
("Hawkeye"), and Mid-Ohio Securities Corporation, FBO R. Xxx Xxxxx (Acct. 15051)
("Xxxxx"), prior to the Company's issuance of any Senior or Parity Securities
(as those terms are defined in Exhibit A), the Company shall provide the
Purchaser with 30 days prior written notice of the number, price and terms of
such securities being offered or to be offered ("Offer Notice"). Within 30 days
of receipt of the Offer Notice, the Purchaser will have the option to purchase
the securities subject to the Offer Notice by providing the Company with written
notice of the Purchaser's election to purchase such securities ("Acceptance
Notice"). The Company and the Purchaser shall be required to close the purchase
and sale of such securities not later than 15 days after the Company's receipt
of Acceptance Notice. If the Purchaser does not provide the Company with timely
Acceptance Notice, the Purchaser's option under this Section 2.3 shall expire
unexercised. The Company's obligation to provide the Offer Notice and the
Purchaser's option to purchase securities pursuant to such an Offer Notice shall
expire on December 31, 2003. The Company's obligation to sell the Purchaser
securities under this Section 2.3 is conditioned upon the exemption from
registration of such securities under the Securities Act and from registration
or qualification under applicable state securities laws, as is reasonably
determined by counsel to the Company.
3. Closing; Payment of Purchase Price.
3.1 The sale of the shares of Stock to be purchased by the
Purchaser under Section 2.1 shall take place at the offices of Akerman,
Senterfitt & Xxxxxx, P.A., 00 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000, Xxxxxxxxxxxx,
Xxxxxxx 00000, at 2:00 p.m., local time, at a closing ("Closing") on Friday,
January 12, 2001 or at such other location, time or date that the parties may
agree to, provided the conditions to Closing set forth in Section 4 have been
satisfied or waived by the party entitled to waive such condition. The
conditions set forth in Section 3.2 shall not apply to the Closing.
3.2 At Closing, the Purchaser shall deposit $5,000,000 of the
$10,000,000 Purchase Price into a joint bank account (the "Account") at Crown
Bank, Xxxxxxxxxx, Florida, in the joint names of the Purchaser and the Company.
During such time as funds remain in the Account, the Purchaser shall invest the
funds in the Account in its sole discretion. All earnings on the Account shall
belong to the Company. The Account shall require two signatures in order to
withdraw funds with one signature to be designated by the Purchaser and one
signature to be designated by the Company. The funds in the Account shall be
irrevocably and immediately released to the Company and the Purchaser shall
cause the signatory on the Account to sign all documents necessary to
immediately disburse such funds to the Company upon the fulfillment or waiver by
the Purchaser of the following conditions: (a) the Florida Department of
Insurance (the "DOI") shall have, exclusive of approving the DOI Filings
(hereinafter defined), approved or waived approving the structure of the
transactions contemplated by this Agreement or advised the Company that such
approval is not required under Florida law; and (b) FIC shall have either (i)
settled the currently pending reinsurance arbitration proceeding between FIC and
Clarendon whereby Clarendon has agreed or is ordered to pay FIC at least
$5,000,000 or (ii) obtained an enforceable, written proposal setting forth the
cost of reinsuring potential losses exceeding $5,000,000 but not exceeding
$10,000,000 from the Clarendon reinsurance arbitration proceeding currently
pending between FIC and Clarendon.
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3.3 The Company will register 66,666 shares of Stock at Closing
in the name of "The Crown Group, Inc." The Company will register an additional
66,667 shares of Stock in the name of "The Crown Group, Inc." when all funds in
the Account have been irrevocably disbursed to the Company. The Company will
deliver to the Purchaser such shares of Stock in the form of a certificate dated
the date of the Closing and registered in the name of the Purchaser, and the
Purchaser shall deliver to the Company in immediately available funds $5,000,000
of the purchase price for the shares of Stock being purchased by the Purchaser
to an account designated by the Company. If at Closing, (i) the Purchaser shall
fail to tender to the Company $5,000,000 of the purchase price for the shares of
Stock to be purchased by the Purchaser at Closing, as provided above in this
Section 3, other than on account of any of the conditions specified in the first
paragraph of Section 4 not having been fulfilled or on account of the breach by
the Company of any of its obligations under this Agreement, or (ii) if the
representations and warranties of the Purchaser contained in Section 6 shall not
be true and correct, then the Company shall, at its election, be relieved of all
further obligations under this Agreement, without thereby waiving any other
rights the Company may have by reason of such failure.
4. Conditions to Closing. The Purchaser's obligation to purchase
and pay for the shares of Stock to be sold to the Purchaser at Closing is
subject to the fulfillment, prior to or concurrently with such Closing (or,
if so stated, within the period set forth), of the following conditions.
4.1 Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be true and correct
when made and at the time of the Closing except as affected by the consummation
of the transactions contemplated by this Agreement, and except where the failure
of such representations and warranties to be so true and correct would not
individually or in the aggregate have a Material Adverse Effect.
4.2 Performance. The Company shall have performed and complied
with all agreements and conditions contained in this Agreement required to be
performed or complied with by it prior to or at the Closing.
4.3 Opinion of Counsel. The Purchaser shall receive the opinion
of Akerman, Senterfitt & Xxxxxx, P.A., counsel for the Company, substantially
in the form set forth in Exhibit B dated as of the date of the Closing.
4.4 Articles of Amendment. The Articles of Amendment shall
have been duly approved by the Company's Board of Directors and filed with the
Florida Secretary of State.
4.5 Registration Rights Agreement. The Purchaser shall have
received a fully executed counterpart of the Registration Rights Agreement
substantially in the form set out in Exhibit C (the "Registration Rights
Agreement"), and such agreement shall be in full force and effect and no term or
condition thereof shall have been amended, modified or waived.
4.6 No Actions Pending. There shall be no suit or formal
action by any Governmental Authority or any other Person or any other legal or
administrative proceeding pending or to the knowledge of the Company threatened
which questions the validity or legality of the transactions contemplated by
this Agreement, or seeks damages in connection therewith.
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4.7 Compliance with Securities Laws. The offering and sale by
the Company, at or prior to the Closing, of the Stock pursuant to this Agreement
shall have been made in compliance with all applicable requirements of federal
and state securities laws.
4.8 Documents. All documents and instruments incident to the
transactions contemplated by this Agreement shall be reasonably satisfactory to
the Purchaser, and the Purchaser shall have received all such counterpart
originals or certified or other copies of such documents as the Purchaser may
reasonably request.
4.9 Reservation of Common Stock. The shares of Common Stock
initially issuable upon conversion of the Stock shall have been duly authorized
and reserved for issuance upon conversion of the Stock.
4.10 Shareholders' Agreement. Persons holding a majority of
the outstanding shares of Common Stock as of the date hereof and at Closing
shall have executed and delivered to the Purchaser a Shareholders' Agreement in
the form of Exhibit D attached hereto ("Shareholders' Agreement") and such
agreement shall not have been rescinded, amended or modified and shall be in
full force and effect.
4.11 Conversion of Hawkeye and Xxxxx Convertible Notes. On
November 15, 2000, the Company as borrower executed convertible promissory notes
in favor of Hawkeye and Xxxxx as lenders (the "Hawkeye and Xxxxx Convertible
Notes"). At the Closing, Hawkeye and Xxxxx shall have shall have agreed in
writing to convert the full principal amount of the Hawkeye and Xxxxx
Convertible Notes into shares of Stock at a conversion price of $75 per share.
5. Representations and Warranties of the Company. The Company hereby
represents and warrants that:
5.1 Organization; Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida and has all requisite corporate power and authority to own and operate
its properties, to carry on its business, to enter into and perform all of its
obligations under this Agreement and the Registration Rights Agreement, to issue
and sell the Shares to be issued and sold at Closing and to carry out the
transactions contemplated hereby or thereby.
5.2 Subsidiaries. Schedule 5.2 lists as to each Subsidiary of
the Company on the date of this Agreement (a) its name, (b) the jurisdiction of
its incorporation or organization and (c) the percentage of its issued and
outstanding shares or other ownership interests owned by the Company or by
another Subsidiary of the Company (specifying such other Subsidiary), as the
case may be. Each Subsidiary of the Company is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own and
operate its properties and to carry on its business as now conducted and as
proposed to be conducted. All the outstanding shares of capital stock of each
Subsidiary of the Company are validly issued, fully paid and nonassessable, and
all such shares indicated in Schedule 5.2 as owned by the Company or by a
Subsidiary of the Company are so owned beneficially and of record by the Company
or by such Subsidiary, as the case may be, free and clear of any Lien except as
indicated in Schedule 5.2.
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5.3 Qualification. Each of the Company and its Subsidiaries is
duly qualified and in good standing and is authorized to do business in each
jurisdiction in which the nature of its activities or the character of the
properties it owns or leases makes such qualification necessary and in which the
failure to qualify would have a Material Adverse Effect.
5.4 Business; Financial Statements. The Company has delivered
to the Purchaser complete and correct copies of the audited consolidated balance
sheets of the Company and its Subsidiaries as of December 31, 1999 and December
31, 1998, and the related audited consolidated statements of income,
stockholders' equity and cash flows of the Company and its Subsidiaries for the
years ended December 31, 1999 and December 31, 1998. Such audited financial
statements are hereinafter referred to as the "Financial Statements." The
Financial Statements are accompanied by the report of Cherry, Bekaert & Holland,
L.L.P., which states that the Financial Statements present fairly, in all
material respects, the consolidated financial position of the Company and its
Subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with GAAP, and that the audit by such
accountants of the Financial Statements has been made in accordance with
generally accepted auditing standards. The Company has also delivered to the
Purchaser complete and correct copies of the unaudited consolidated balance
sheet of the Company and its Subsidiaries as of September 30, 2000, and the
related unaudited consolidated statement of income, stockholders' equity and
cash flows of the Company and its Subsidiaries for the three month period ended
on such date. Such unaudited financial statements are hereinafter referred to as
the "Unaudited Statements." The Financial Statements and the Unaudited
Statements have been prepared in accordance with GAAP consistently applied
throughout the periods involved (except as otherwise specified therein) and
present fairly, in all material respects, the financial position of the Company
and its Subsidiaries as of the respective dates specified, and the results of
their operations and their cash flows for the respective periods specified.
5.5 Changes. Since December 31, 1999, neither the Company nor
any of the Subsidiaries has sustained any loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance which would be material to the Company and the Subsidiaries taken as a
whole, other than as reserved for or as disclosed in the Company's financials
statements; and, except as disclosed in Commission Documents, there has
not been any material change in the capital stock of the Company or increase in
the long-term debt (other than accretion or scheduled repayments thereof) of the
Company and the Subsidiaries taken as a whole, or any change relating thereto
which has had a Material Adverse Effect.
5.6 Capital Stock and Related Matters. The authorized capital
stock of the Company consists of 18,000,000 shares of Common Stock and 500,000
shares of Preferred Stock, $.10 par value (and as of the filing of the Articles
of Amendment, $.001 par value) per share (the "Preferred Stock"). As of the date
hereof, there are (i) no shares of Preferred Stock issued and outstanding, (ii)
7,467,542 shares of Common Stock issued and outstanding, (iii) 2,399,320 shares
of Common Stock issuable upon the exercise of outstanding stock options and
warrants and upon the conversion or exchange of outstanding convertible or
exchangeable securities (including 746,428 shares of Common Stock issuable
pursuant to options issued under the Company's Incentive Plan and, assuming a
conversion and exercise price of $2.42, 826,446 shares of Common Stock issuable
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upon the exercise of warrants and 826,446 shares of Common Stock issuable upon
the conversion of convertible preferred stock issuable under the Hawkeye and
Xxxxx Convertible Notes), (iv) an aggregate of 1,045,000 shares of Common Stock
reserved for issuance under the Company's Incentive Plan (including the 746,428
shares of Common Stock issuable pursuant to options referenced in Section
5.6(ii)), and (v) 476,872 shares of capital stock of the Company held in the
treasury of the Company. All issued and outstanding shares of Common Stock have
been duly authorized and are validly issued, fully paid, nonassessable and free
of preemptive rights. The Shares, when issued to the Purchaser in accordance
with this Agreement, will be duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. Except as set forth above and on
Schedule 5.6, as of the date hereof, there are no outstanding securities
convertible into or exchangeable for any shares of capital stock of the Company
or any of its Subsidiaries, or any outstanding rights (either preemptive or
other) to subscribe for or to purchase any capital stock of the Company or any
of its Subsidiaries or any stock or securities convertible into or exchangeable
for any capital stock of the Company or any of its Subsidiaries. Except as set
forth on Schedule 5.6, as of the date hereof, neither the Company nor any of its
Subsidiaries is subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire any shares of its capital stock or any
convertible securities, rights or options. Neither the Company nor any of its
Subsidiaries is a party to, or has knowledge of, any agreement (except as set
forth on Schedule 5.6) restricting the transfer of any Shares being purchased
hereunder which would affect the transferability of the Common Stock issuable
upon conversion of the Shares. Except as set forth on Schedule 5.6, as of the
date hereof, the Company is not a party to or bound by any agreement or
commitment pursuant to which the Company is or could be required to register any
securities under the Securities Act of 1933.
5.7 Tax Returns and Payments. The Company and each of the
Subsidiaries have filed all material federal, state, local and foreign income,
payroll, franchise and other tax returns required to be filed (after giving
effect to extensions) and have paid all taxes shown as due thereon, all such tax
returns are true, complete and accurate in all material respects, and there is
no tax deficiency that has been, or to the knowledge of the Company is likely to
be, asserted against the Company, any of the Subsidiaries or any of their
properties or assets that would result in a Material Adverse Effect, except for
taxes that are being contested in good faith by appropriate proceedings.
5.8 Indebtedness of the Company. Schedule 5.8 correctly describes
all secured and unsecured Indebtedness of the Company and its Subsidiaries
(other than intercompany items) outstanding which is individually in excess of
$1,000,000 ("Significant Indebtedness") (excluding operating leases), as of
November 30, 2000. Neither the Company nor any of its Subsidiaries is in default
with respect to any Indebtedness or any instrument or agreement relating
thereto, nor to the best of the knowledge of the Company has any event occurred
that with the giving of notice or the lapse of time or both would constitute a
default thereunder.
5.9 Title to Properties; Liens. The Company and each of the
Subsidiaries have good and marketable title to all real and personal property
(other than property which is leased) material to the conduct of the business of
the Company and the Subsidiaries, taken as a whole free and clear of all Liens
except such as are described on Schedule 5.9 or such as do not in the aggregate
have a Material Adverse Effect. Attached to Schedule 5.9 is a copy of the
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Company's lease for the premises located at 00000 Xxxxxxx Xxxxxxx, Xxxxxxxxxxxx,
Xxxxxxx 00000.
5.10 Litigation. There is no action or proceeding pending or
(to the knowledge of the Company) threatened which questions the validity of
this Agreement, the Shareholders' Agreement, the Stock or any action taken or to
be taken pursuant to this Agreement, the Stock or the Registration Rights
Agreement. Other than as set forth on Schedule 5.10 and as disclosed in
Commission Documents, there are no legal or governmental proceedings pending to
which the Company or any of the Subsidiaries is a party or of which any property
of the Company or the Subsidiaries is the subject, which if determined adversely
to the Company or any of the Subsidiaries, would individually or in the
aggregate have a Material Adverse Effect; and, to the Company's knowledge, no
such proceedings which would in the aggregate have a Material Adverse Effect are
threatened.
5.11 Compliance with Other Instruments. To the best of the
Company's knowledge, neither the Company nor any of its Subsidiaries is in
violation of its articles of incorporation or by-laws, and neither the Company
nor any of its Subsidiaries is in violation of any term of any agreement or
instrument to which it is a party or by which it is bound or of any applicable
law, ordinance, rule or regulation of any Governmental Authority or any term of
any applicable order, judgment or decree of any court, arbitrator or
Governmental Authority, the consequences of which violation could reasonably be
expected to have a Material Adverse Effect. The compliance by the Company with
all of the provisions of this Agreement and the Registration Rights Agreement,
the execution, delivery and performance by the Company of this Agreement and the
Registration Rights Agreement, the issuance by the Company of the Common Stock
upon the conversion of the Stock, and the compliance with the terms of the
Articles of Amendment will not conflict with or result in a breach or violation
of any of the terms and provisions of or require any consent, approval or
authorization under any material agreement or instrument to which the Company or
any of the Subsidiaries is a party or by which the Company or any of the
Subsidiaries is bound or to which any of the property or assets of the Company
or any of the Subsidiaries is subject, except in each case as would not,
individually or in the aggregate, have a Material Adverse Effect.
5.12 Governmental Consents. Except with respect to any
filings, approvals or authorizations required under the Xxxx-Xxxxx-Xxxxxx
Antitrust Improvements Act of 1976, as amended, and the regulations thereunder,
16 C.F.R. Parts 000-000 (xxx "XXX Xxx") or by the Florida Department of
Insurance, no consent, approval or authorization of, or declaration or filing
with, any Governmental Authority on the part of the Company is required for the
valid execution and delivery of this Agreement.
5.13 Certain Fees. Except as set forth on Schedule 5.13, no
broker's or finder's fees or commissions will be payable by the Company with
respect to the transactions contemplated by this Agreement and the Registration
Rights Agreement, and the Company hereby agrees to indemnify the Purchaser
against and agrees that it will hold the Purchaser harmless from any claim,
demand or liability for broker's or finder's fees alleged to have been incurred
at the instance of the Company or any Person acting on behalf of or at the
request of the Company or any agent of the Company in connection with any of the
transactions contemplated by this Agreement and the Registration Rights
Agreement, and from any expenses, including reasonable legal fees, arising in
connection with any such claim, demand or liability.
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5.14 Enforceability. This Agreement, the Shareholders' Agreement
and the Registration Rights Agreement have been duly authorized and when validly
executed and delivered by the Company (assuming the due authorization, execution
and delivery thereof by the Purchaser, and in the case of the Shareholders'
Agreement, the Purchaser and all other parties thereto as shown on Exhibit D)
will constitute the valid and binding obligations of the Company, enforceable in
accordance with their respective terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or other similar
laws relating to or affecting enforcement of creditors' rights generally, or by
general principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law).
5.15 Integration. Neither the Company nor any Affiliate has,
directly or through any agent, sold, offered for sale, solicited offers to buy
or otherwise negotiated in respect of, any security (as defined in the
Securities Act) which is or will be integrated with the sale of the Shares, in a
manner that would require the registration of the Shares under the Securities
Act.
5.16 Government Licenses. The Company and the Subsidiaries
possess such permits, licenses, approvals, consents and other authorizations
(collectively, "Governmental Licenses") issued by the appropriate federal,
state, local or foreign regulatory agencies or bodies necessary to conduct the
business now operated by them, except where the failure to so possess such
Government Licenses would not, singly or in the aggregate, have a Material
Adverse Effect; the Company and the Subsidiaries are in compliance with the
terms and conditions of all such Governmental Licenses, except where the failure
so to comply would not, singly or in the aggregate, have a Material Adverse
Effect; all of the Governmental Licenses are valid and in full force and effect,
except when the invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not have, singly or
in the aggregate, a Material Adverse Effect; and neither the Company nor any of
the Subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which, singly or in
the aggregate, if the subject of an unfavorable decision, ruling or finding,
would result in a Material Adverse Effect.
5.17 Environmental Laws. Except as described on Schedule 5.17
or except as would not, singly or in the aggregate, result in a Material Adverse
Effect: (a) neither the Company nor any of the Subsidiaries is in violation of
any federal, state, local or foreign statute, law, rule, regulation, or
ordinance relating to the release or threatened release of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum or petroleum products (collectively, "Hazardous Materials") or to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials (collectively, "Environmental
Laws"), (b) neither the Company nor any of the Subsidiaries is lacking any
permits, authorizations and approvals required under any applicable
Environmental Laws or are in violation of the requirements of such Environmental
Laws, (c) there are no pending or, to the best knowledge of the Company,
threatened administrative, regulatory or judicial actions or notices of
violation of any Environmental Law against the Company or any of the
Subsidiaries and (d) to the knowledge of the Company there are no events or
circumstances that might reasonably be expected to form the basis of an order
for clean-up or remediation, or an action, suit or proceeding by any private
party or governmental body or agency, against or affecting the Company or any of
the Subsidiaries relating to Hazardous Materials or any Environmental Laws.
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5.18 ERISA. Neither the Company nor any of the Subsidiaries
has violated any provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or the rules and regulations promulgated thereunder,
except for such violations which, singly or in the aggregate, would not have a
Material Adverse Effect. If any plan subject to ERISA is adopted, the execution
and delivery of this Agreement and the sale of the Shares will not involve any
non-exempt prohibited transaction within the meaning of Section 406 of ERISA or
Section 4975 of the Internal Revenue Code of 1986, as amended.
5.19 No Liabilities. Neither the Company nor any of its
Subsidiaries has any material liabilities or obligations ("Liabilities"), except
(i) as reflected in the notes to the Financial Statements for the year ended
December 31, 1999 and not heretofore discharged, (ii) as reflected or reserved
against in the unaudited balance sheet of the Company at September 30, 2000
included in the Company's Form 10-Q for the quarter ended September 30, 2000 and
not heretofore discharged, (iii) Liabilities incurred in the ordinary course of
business since September 30, 2000, (iv) contractual liabilities incurred in the
ordinary course of business, (v) other Liabilities that do not, singly or in the
aggregate, have a Material Adverse Effect, (vi) as disclosed in Commission
Documents or (vii) those Liabilities disclosed on Schedule 5.8 of this
Agreement.
6. Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants as follows:
6.1 Investment Representations.
(a) The Purchaser understands that neither the Stock nor any
Common Stock issuable upon conversion, if any, of the Stock have been
registered under the Securities Act and that the certificates for the
Stock and such Common Stock will bear a legend to that effect.
(b) The Purchaser is acquiring the Stock for its account
and/or for the account of its Affiliates not with a view toward
distribution in a manner which would violate the Securities Act.
Neither the Purchaser nor any Person acting on its behalf has taken or
will take any action in connection with the transactions contemplated
by this Agreement or the offering, sale or issuance of any equity
interests in the Purchaser which would subject the offering, issuance
or sale of the Stock to the provisions of Section 5 of the Securities
Act.
(c) The Purchaser represents that it is an "accredited
investor" as such term is defined in Rule 501(a) of Regulation D under
the Securities Act (a copy of which is attached hereto as Exhibit E)
and by reason of the Purchaser's and its Affiliates' business or
financial experience, and the business or financial experience of each
of the other investors who have or may acquire an equity interest in
the Purchaser, the Purchaser and its shareholders have the capacity to
protect their own interest in connection with the transaction
contemplated in this Agreement.
(d) The Purchaser has been given access to all Company
documents, records, and other information, and has had adequate
opportunity to ask questions of, and receive answers from, the
11
Company's officers, employees, agents, accountants, and
representatives, concerning the Company's business, operations,
financial condition, assets, liabilities, and other matters considered
by the Purchaser as relevant to their investment in the Stock.
6.2 No Brokers. The Purchaser represents and warrants to the
Company that no broker's or finder's fees or commissions will be payable by the
Company, or will in any way diminish the amount payable by the Purchaser , with
respect to the transactions contemplated by this Agreement and the Registration
Rights Agreement, and the Purchaser hereby agrees to indemnify and hold the
Company harmless from any claim, demand or liability for broker's or finder's
fees alleged to have been incurred at the instance of the Purchaser, its
Affiliates or agents or any Person acting on behalf of or at the request of such
Purchaser, its Affiliates or agents.
6.3 Compliance with Laws. The Purchaser and its transferees will
comply with all filing and other reporting obligations under all Requirements
of Law which shall be applicable to the Purchaser with respect to the Stock and
to the Common Stock issuable or issued on conversion of the Stock.
6.4 Power and Authority; Enforceability. The Purchaser has all
requisite power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The Purchaser has taken all actions necessary to authorize its execution
and delivery of this Agreement, the performance of its obligations hereunder
and the consummation of the transactions contemplated hereby. This Agreement
has been duly executed and delivered by the Purchaser and constitutes a legal,
valid and binding obligation of it, enforceable against the Purchaser in
accordance with its terms (except as enforceability may be limited by applicable
bankruptcy, insolvency or similar laws). The Purchaser has sufficient financial
means and ability to deliver the purchase price for the shares of Stock to be
purchased by it at Closing, and which may be purchased under Sections 2.1 and
2.2, in immediately available United States funds.
6.5 Filing of Articles of Amendment. The Purchaser acknowledges
that, in connection with the acquisition of the Stock hereunder, the Company
will file the Articles of Amendment with the Florida Secretary of State, in
lieu of filing the articles of amendment that were previously authorized
by the Company's Board of Directors for filing with the Florida Secretary of
State in connection with the Securities Purchase Agreement.
6.6 No Other Representations. Each Purchaser acknowledges that,
in connection with the acquisition of the Stock, no representations or
warranties of any type or description have been made to such Purchaser by any
Person with regard to the Company, any of its subsidiaries, any of their
respective businesses, properties or prospects or the acquisition of the Stock
contemplated herein, other than the representations and warranties set forth in
Section 5.
7. Affirmative Covenants. The respective parties covenant that from
and after the date of Closing:
7.1 Reservation of Common Stock. The Company will at all times
reserve and keep available, solely for issuance and delivery upon conversion of
12
the Stock, the number of shares of Common Stock from time to time issuable upon
conversion of all shares of the Stock at the time outstanding. All shares of
Common Stock issuable upon conversion of the Stock shall be duly authorized and,
when issued upon such conversion, shall be validly issued, fully paid and
non-assessable.
7.2 Availability of Information. The Company will comply with
the reporting requirements of Sections 13 and 15(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and will comply with all other
public information reporting requirements of the Securities and Exchange
Commission (including Rule 144 promulgated by the Securities and Exchange
Commission under the Securities Act) from time to time in effect and relating to
the availability of an exemption from the Securities Act for the sale of any
Restricted Securities. The Company will also reasonably cooperate with each
Purchaser of any Restricted Securities in supplying such information as may be
necessary for such Purchaser to complete and file any information reporting
forms presently or hereafter required by the Securities and Exchange Commission
as a condition to the availability of an exemption from the Securities Act for
the sale of any Restricted Securities.
7.4 Stockholder Approval. As soon as practicable following the date
hereof in preparation for the Company's next annual meeting of stockholders, the
Company will take all action necessary in accordance with the Exchange Act,
Florida law and its certificate of incorporation and by-laws to obtain the
approval of its stockholders of the transactions contemplated hereby (the
"Stockholder Approval"). The Purchaser covenants that it shall cooperate and
assist the Company as reasonably required to obtain such Stockholder Approval.
7.5 Filings with the Florida Department of Insurance. Within
45 days after Closing, the Purchaser shall file or cause to be filed with the
Florida Department of Insurance ("DOI") all forms and applications required of
the Purchaser (including without limitation the Purchaser's directors, officers,
affiliates and control persons) under Florida Statutes ss. 628.461 (the "DOI
Filings"), in form reasonably satisfactory to the Company. The Purchaser agrees
to continuously consult with and apprise the Company of the status of the
preparation, submission, approval or disapproval of the DOI Filings.
7.6 Use of Proceeds. Except (i) as otherwise provided in
Section 4.11of this Agreement and (ii) for the payment of that certain
promissory note dated as of October 24, 1995 between Company as borrower and
SouthTrust Bank of Alabama, N.A. as lender, the Company will use the Purchase
Price to implement the business plan of Fortune Insurance Company.
8. Registration, Transfer and Substitution of Certificates for Stock.
8.1 Stock Register; Ownership of Stock.
(a) The Company will keep at its principal office a register
in which the Company will provide for the registration of the Stock
and the registration of transfers or conversions of the Stock. The
Company may treat the Person in whose name any of the Stock or shares
issued upon conversion of any of the Stock are registered on such
register as the owner thereof and the Company shall not be affected by
any notice to the contrary. All references in this Agreement to a
"holder" of any Stock or shares issued upon conversion of any of the
13
Stock shall mean the Person in whose name such Stock or shares issued
upon conversion of any of the Stock are at the time registered on such
register.
(b) Upon the surrender of any certificate for Stock,
properly endorsed, for registration of transfer or for conversion at
the office of the Company maintained pursuant to subsection (a) of
this Section 8.1, the Company at its expense will (subject to
compliance with Section 8.2 hereof, if applicable) execute and deliver
to or upon the order of the holder thereof (i) a new certificate or
certificates for the same aggregate number of shares of Stock less the
number of shares of Stock being converted or transferred, if any, in
the name of such holder or as such holder (upon payment by such holder
of any applicable transfer taxes) may direct, (ii) a certificate or
certificates for the number of shares of Common Stock to be issued
upon conversion of the shares of Stock so surrendered, if applicable,
in the name of such holder or as such holder (upon payment by such
holder of any applicable transfer taxes) may direct, and (iii) a new
certificate or certificates for the number of shares of Stock
transferred, if applicable, in the name of the transferee (upon
payment by such holder of any applicable transfer taxes).
8.2 Replacement of Certificates. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any certificate representing shares of Stock or shares of Common
Stock issued upon the conversion of shares of Stock and, in the case of any such
loss, theft or destruction of any certificate representing shares of Stock or
shares of Common Stock issued upon the conversion of shares of Stock held by a
Person other than the Purchaser, upon delivery of indemnity reasonably
satisfactory to the Company in form and amount or, in the case of any such
mutilation, upon surrender of such certificate representing shares of Stock or
shares of Common Stock issued upon the conversion of shares of Stock for
cancellation at the office of the Company maintained pursuant to subdivision (a)
of Section 8.1 hereof, the Company at its expense will execute and deliver, in
lieu thereof, a new certificate representing shares of Stock or Common Stock of
like tenor.
8.3 Restrictive Legends. Except as otherwise permitted by
this Section 8, each certificate for Stock (including each certificate for Stock
issued upon the transfer of any certificate for Stock) shall be stamped or
otherwise imprinted with a legend in substantially the following form:
"The shares represented by this Certificate and any shares of
Common Stock issuable upon conversion of any such shares have
not been registered under the Securities Act of 1933 and may
not be transferred in the absence of such registration or an
exemption therefrom under such Act. Such shares and any such
shares of Common Stock may be transferred only in compliance
with the conditions specified in the Preferred Stock Purchase
Agreement effective as of December ___, 2000 between Fortune
Financial, Inc. (the "Company") and the Purchaser identified
therein. A complete and correct copy of such Agreement is
available for inspection at the principal office of the
Company and will be furnished without charge to the holder of
such shares upon written request."
14
Except as otherwise permitted by this Section 8, each certificate for Common
Stock issued upon the conversion of any of the Stock, and each certificate
issued upon the transfer of any such Common Stock, shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 and may not be
transferred in the absence of such registration or an
exemption therefrom under such Act. Such shares may be
transferred only in compliance with the conditions specified
in the Preferred Stock Purchase Agreement effective as of
December ___, 2000 between Fortune Financial, Inc. (the
"Company") and the Purchaser identified therein. A complete
and correct copy of such Agreement is available for inspection
at the principal office of the Company and will be furnished
without charge to the holder of such shares upon written
request."
8.4 Notice of Proposed Transfer; Opinions of Counsel. Prior
to any transfer of any Restricted Securities which are not registered under an
effective registration statement under the Securities Act, the holder thereof
will give written notice to the Company of such holder's intention to effect
such transfer and to comply in all other respects with this Section 8.4. Each
such notice shall describe the manner and circumstances of the proposed transfer
and shall be accompanied by an opinion of counsel for such holder, which counsel
and opinion shall each be reasonably satisfactory to the Company, that the
proposed transfer may be effected without registration of such shares of
Restricted Securities under the Securities Act. Such holder shall thereupon be
entitled to transfer such shares in accordance with the terms of the notice
delivered by such holder to the Company. Each certificate representing such
shares issued upon or in connection with such transfer shall bear the
restrictive legends required by Section 8.3, unless the related restrictions on
transfer shall have ceased and terminate as to such shares pursuant to Section
8.5 hereof.
8.5 Termination of Restrictions. The restrictions imposed by
this Section 8 upon the transferability of Restricted Securities shall cease and
terminate as to any particular Restricted Securities when such restrictions are
no longer required in order to insure compliance with the Securities Act.
Whenever such restrictions shall cease and terminate as to any Restricted
Securities, the holder thereof shall be entitled to receive from the Company,
without expense (other than applicable transfer taxes, if any), new certificates
for such securities of like tenor not bearing the applicable legends required by
Section 8.3 hereof.
9. Definitions.
9.1 Certain Defined Terms. As used in this Agreement the
following terms have the following respective meanings:
Affiliate: Shall have the meaning attributed thereto under
Rule 12b-2 under the Exchange Act.
Articles of Amendment: As defined in Section 1 of this
Agreement.
15
Closing: As defined in Section 3 of this Agreement.
Code: The Internal Revenue Code of 1986, as amended from time
to time.
Commission Document: All registration statements, proxy
statements, reports and other documents (and all amendments thereto) filed by
the Company under the Securities Act or the Exchange Act.
Common Stock: As defined in Section 1 of this Agreement.
Company: As defined in the introduction to this Agreement.
Determination Date: The date upon which all adjustments to
the per share "conversion price" of the Stock have occurred pursuant to
paragraph (c)(xvi) of Section 5 of Article III of the Company's Articles of
Incorporation in effect upon filing of the Articles of Amendment.
Exchange Act: At any time, the Securities Exchange Act of
1934, as amended.
Financial Statements: As defined in Section 5.4 of this
Agreement.
GAAP: Generally accepted accounting principles set forth in
the Opinions of the Accounting Principles Board of the American Institute of
Certified Public Accountants and in statements by the Financial Accounting
Standards Board or in such other statement by such other entity as may be
approved by a significant segment of the accounting profession; and the
requisite that such principles be applied on a consistent basis shall mean that
the accounting principles observed in a current period are comparable in all
material respects to those applied in a preceding period.
Governmental Authority: Any nation or government, any state
or other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
HSR Act: As defined in Section 5.12 of this Agreement.
Incentive Plan: The Company' stock option incentive plan
adopted by the Company in 1995, as amended.
Indebtedness: With respect to any Person, at a particular
time (a) all indebtedness of such Person for borrowed money or for the deferred
purchase price of property, (b) the face amount of all letters of credit issued
for the account of such Person and, without duplication, all drafts drawn
thereunder, (c) all liabilities secured by any Lien on any property owned by
such Person, to the extent attributable to such Person's interest in such
property, even though such Person has not assumed or become liable for the
payment thereof, (d) lease obligations of such Person which, in accordance with
GAAP, should be capitalized, and (e) all guarantees by such Person of any such
indebtedness, letters of credit, drafts, liabilities or lease obligations of any
other Person; but excluding trade and other accounts payable in the ordinary
16
course of business in accordance with customary trade terms and which are not
overdue for a period of more than 60 days or, if overdue for more than 60 days,
as to which a dispute exists and adequate reserves in conformity with GAAP have
been established on the books of such Person. The term "Indebtedness" shall not
include amounts which have not been drawn under credit facilities,
notwithstanding that such amounts when drawn will automatically be secured by an
existing Lien.
Lien: Any mortgage, pledge, hypothecation, assignment,
security interest, lien, charge or encumbrance, or preference, priority or other
security agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement, any financing lease having substantially the same economic effects as
any of the foregoing, and the filing of, or agreement to give, any financing
statement under the Uniform Commercial Code or comparable law of any
jurisdiction).
Majority in Interest: A majority, by number of shares, of the
outstanding shares of Common Stock, such majority determined as if all shares of
Common Stock issuable, upon the exercise of outstanding stock options and
warrants and upon the conversion or exchange of outstanding convertible or
exchangeable securities, were so issued.
Majority Holders: The holder or holders of a majority, by
number of shares, of the outstanding shares of Common Stock, such majority
determined as if all shares of Common Stock issuable, upon the exercise of
outstanding stock options and warrants and upon the conversion or exchange of
outstanding convertible or exchangeable securities, were so issued.
Material Adverse Effect: Any effect that is or is reasonably
likely to be materially adverse to the properties, business, results of
operations or financial condition of the Company and its Subsidiaries taken as a
whole.
Person: An individual, a partnership, a joint venture, a
corporation, a limited liability company, a trust, an unincorporated
organization or a government or any department or agency thereof.
Purchase Price: The aggregate consideration under Section 2.1
to be paid by the Purchaser at Closing for 133,333 shares of Stock.
Registration Rights Agreement: As defined in Section 4.5 of
this Agreement.
Requirement of Law: As to any Person, the Certificate of
Incorporation and By- Laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation, or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject or bound.
Restricted Securities: All of the following: (a) any
certificates for Stock bearing the applicable legend or legends referred to in
Section 8.3 hereof, (b) any shares of Common Stock which have been issued upon
the conversion of any of the Stock and which are evidenced by a certificate or
certificates bearing the applicable legend or legends referred to in such
Section and (c) unless the context otherwise requires, any shares of Common
17
Stock which are at the time issuable upon the conversion of Stock and which,
when so issued, will be evidenced by a certificate or certificates bearing the
applicable legend or legends referred to in such Section.
Securities Act: At any time, the Securities Act of 1933 as
then in effect or any similar federal statute then in effect, and any reference
to a particular Section of such Act shall be deemed to include a reference to
the comparable Section, if any, in any such similar federal statute.
Securities and Exchange Commission: The U.S. Securities and
Exchange Commission, or any other federal agency at the time administering the
Securities Act or the Exchange Act, whichever is the relevant statute for the
particular purpose.
Shares: As defined in Section 1 of this Agreement.
Stock: As defined in Section 1 of this Agreement.
Subsidiaries: With respect to any Person, any corporation
with respect to which more than 50% of the combined voting power of each class
having ordinary voting power (other than stock having such power only by reason
of the happening of a contingency) is at the time owned by such Person or by one
or more Subsidiaries of such Person or by such Person and one or more
Subsidiaries of such Person.
Any of the above-defined terms may, unless the context
otherwise requires, be used in the singular or plural depending on the
reference.
9.2 Accounting Terms. As used in this Agreement, and in any
certificate, report or other document made or delivered pursuant to this
Agreement, accounting terms not defined in Section 9.1 and accounting terms
partly defined in said Section 9.1 to the extent not defined, shall have the
respective meanings given to them under United States GAAP.
9.3 Other Provisions Regarding Definitions. Unless otherwise
defined therein, all terms defined in this Agreement shall have the defined
meanings when used in any certificate, report or other document made or
delivered pursuant to this Agreement. The words "hereof," "herein," and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement.
10. Expenses. Whether or not the transactions contemplated by this
Agreement shall be consummated, the Company will pay all of its own expenses in
connection with such transactions and in connection with any amendments or
waivers (whether or not the same become effective) under or in respect of this
Agreement or the Shares purchased by the Purchaser hereunder, including, without
limitation: (a) the cost and expenses of reproducing this Agreement and the
Shares purchased by the Purchaser, of furnishing all opinions of counsel for the
Company and all certificates on behalf of the Company, and of the Company's
performance of and compliance with all agreements and conditions contained
herein to be performed or complied with by it; (b) payment of the Company's
attorneys' and financial advisors' fees, hourly or otherwise; and (c) the cost
of delivering to their principal office, insured to their satisfaction, the
Shares sold to the Purchaser hereunder and any shares of Stock delivered to the
Purchaser upon any substitution of shares of Stock pursuant to Section 8.2 and
18
of the Purchaser delivering any shares of Stock, insured to their satisfaction,
upon any such substitution. Reference is made to Section 5 of this Agreement for
certain agreements among the parties regarding the fees, if any, of brokers and
finders.
11. Survival of Representations and Warranties and Indemnification;
Certain Limitations. The Company's indemnification obligations and all
representations and warrantiescontained in this Agreement shall survive the
execution and delivery of this Agreement, any investigation at any time made by
the Purchaser or on its behalf, and the purchase of the Shares by the Purchaser
under this Agreement and any conversion of any of the Stock or any disposition
of any shares of Common Stock issued upon conversion of any of the Stock;
provided that all such representations and warranties (and the indemnities in
respect thereof with respect to claims not made prior to such date) shall expire
30 days after the date the Company's audited financial statements for the fiscal
year ending December 31, 2002 are publicly filed with the Commission or
delivered to the Purchaser. No written (except as explicitly stated therein) or
oral statements made by or on behalf of the Company, other than in this
Agreement, the Registration Rights Agreement and the exhibits hereto and
thereto, shall constitute representations or warranties within the meaning of
this Agreement. Except as otherwise provided in Section 16, the Purchaser shall
not be entitled to the remedy of rescission.
12. Amendments and Waivers. Any term of this Agreement may be amended
or modified and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively) only with the written consent of the Company and the Purchaser.
13. Notices. Except as otherwise provided in this Agreement, notices
and other communications under this Agreement shall be in writing and shall be
delivered, or mailed by first-class mail, postage pre-paid, addressed, (a) if to
the Purchaser or any other holder of Shares or shares of Common Stock into which
the Shares have been converted, at the address set forth below, or at such other
address as the Purchaser or such other holder shall have furnished to the
Company in writing, and (b) if to the Company at the address of the Company set
forth below, to the attention of its Chief Executive Officer, or at such other
address, or to the attention of such other officer, as the Company shall have
furnished to the Purchaser and each such other holder in writing.
If to CGI: The Crown Group, Inc.
000 Xxxx Xxxx Xxxxxxx
Xxxxxxxxxxx, Xxxxxxx 00000
Attention: Xxxx X. Xxxxxx, President
Facsimile: (000) 000-0000
If to the Company: Fortune Financial, Inc.
00000 Xxxxxxx Xxxxxxx, Xxxxx 000
Xxxxxxxxxxxx, Xxxxxxx 00000
Attention: J. Xxxx Xxxxxxx, President
Facsimile: (000) 000-0000
19
14. Indemnification.
14.1 Generally. The Company, on the one hand, and the
Purchaser, on the other hand (each an "Indemnifying Party"), shall indemnify the
other from and against any and all losses, damages, liabilities, claims,
charges, actions, proceedings, demands, judgments, settlement costs and expenses
of any nature whatsoever (including, without limitation, reasonable attorneys'
fees and expenses) or deficiencies (each herein called "Claims") resulting from
or arising in connection with any breach of a representation and warranty,
covenant or agreement by the Indemnifying Party.
14.2 Procedure. Each party entitled to indemnification under
this Section 14 (an "Indemnified Party") shall give notice as promptly
as reasonably practicable to each party required to provide
indemnification under this Section 14 (whether one or more, an
"Indemnifying Party") of any Claim for which indemnity may be sought
hereunder, but failure to so notify an Indemnifying Party shall not
relieve such Indemnifying Party from any liability that it may have
otherwise than on account of this indemnity agreement so long as such
failure shall not have materially prejudiced the position of the
Indemnifying Party. Upon such notification, the Indemnifying Party
shall assume the defense of such Claim if it is brought by a third
party. After such assumption the Indemnified Party shall not be
entitled to reimbursement of any expenses incurred by it in connection
with such Claim except as described below. With respect to any such
Claim, the Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party unless (i) the Indemnifying Party and
the Indemnified Party shall have mutually agreed to the contrary or
(ii) the named parties in any such action (including any impleaded
parties) include both the Indemnifying Party and the Indemnified Party
and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing or conflicting
interests between them. The Indemnifying Party shall not be liable for
any settlement of any proceeding effected without its written consent
(which shall not be unreasonably withheld or delayed by such
Indemnifying Party), but if settled with such consent or if there be a
final judgment or award resolving such Claim, the Indemnifying Party
shall indemnify the Indemnified Party from and against any loss, damage
or liability by reason of such settlement or judgment. This Section 14
shall survive Closing, except as otherwise provided in Section 11
hereof.
15. Termination. This Agreement may be terminated or, in the case of
termination by the Purchaser, the rights and obligations of the Purchaser under
this Agreement may be terminated, (a) by the mutual written consent of the
Purchaser and the Company at any time, (b) upon written notice, by the Purchaser
on the one hand or the Company on the other hand if any representation or
warranty of the other of such parties contained herein proves not to have been
true and correct in any material respect when made, or (c) upon written notice,
by the Purchaser on the one hand or the Company on the other hand if the other
of such parties materially breaches any covenant hereunder.
16. Rescission. Notwithstanding anything herein to the contrary, in the
event that the Purchaser complies with its obligation to make or cause to be
made the appropriate DOI Filings within 45 days after Closing: (a) if the DOI
disapproves the DOI Filings of the Purchaser, the Purchaser shall have the right
to rescind this Agreement, upon 30 days' written notice ("Rescission Notice") to
the Company of the Purchaser's election to exercise its rescission right under
20
this Section 16 ("Rescission Right"); and (b) in the event that the Company does
not receive Rescission Notice from the Purchaser within 15 days after the DOI's
written notice of disapproval of the Purchaser's DOI Filings, the Purchase shall
have waived the Purchaser's Rescission Right. Notwithstanding anything herein to
the contrary, the Purchaser's Rescission Right is personal in nature and may not
be assigned without the prior written consent of the Company. If within 180 days
after the Closing the Company has not either (x) settled the currently pending
reinsurance arbitration proceeding between FIC and Clarendon whereby Clarendon
has agreed or is ordered to pay FIC at least $5,000,000 or (y) purchased a
reinsurance policy to insure against potential losses exceeding $5,000,000 but
not exceeding $10,000,000 from the Clarendon reinsurance arbitration proceeding
currently pending between FIC and Clarendon, the Purchaser shall have a right to
exercise its Rescission Right after timely Rescission Notice to the Company. In
the event the Company does not receive Rescission Notice within 15 days after
the expiration of the 180 day period set forth in the immediately preceding
sentence, the Purchaser shall have waived its Rescission Right. If a valid
rescission occurs under this Section 16, the Company shall return to the
rescinding Purchaser the portion of the purchase price for Shares paid to the
Company by such Purchaser upon such Purchaser's tendering to the Company of the
Shares purchased or sought to be purchased by the Purchaser under this
Agreement.
17. Public Announcements. The initial press release or releases
concerning the transactions contemplated hereby shall be in the form agreed to
by the Company and the Purchaser. Prior to Closing, no party will issue any
other press release or make any other public announcement concerning this
Agreement or the transactions contemplated hereby without the prior written
consent of the other parties, except that a party may make such public
disclosure as may be required by law, which includes, but is not limited to, all
federal or state securities laws or a court of competent jurisdiction (in which
event such party will notify the other parties as long in advance as practicable
prior to making such disclosure and will, unless not practicable under the
circumstances, give the other parties the opportunity to comment on the language
of the disclosure prior to making such disclosure) or by any national securities
exchange or over-the-counter quotation system on which the Common Stock is
listed or quoted.
18. Miscellaneous. This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the parties hereto; provided that the
Purchaser may not assign, delegate or otherwise transfer any of the Purchaser's
rights, interests or obligations under this Agreement, without the prior written
consent of the Company. This Agreement embodies the entire agreement and
understanding between the Purchaser and the Company and supersedes all prior
agreements and understandings relating to the subject matter hereof. This
Agreement shall be construed and enforced in accordance with and governed by the
law of the State of Florida without regard to the principles regarding conflicts
of laws. The headings in this Agreement are for purposes of reference only and
shall not limit or otherwise affect the meaning hereof. This Agreement may be
executed in any number of counterparts, each of which shall be an original, but
all of which together shall constitute one instrument.
[signatures on next page]
21
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective representatives hereunto duly
authorized on January 12, 2001, effective as of December 29, 2000.
FORTUNE FINANCIAL, INC., a Florida
corporation
By: /s/ J. Xxxx Xxxxxxx
--------------------
J. Xxxx Xxxxxxx,
President and Chief Executive Officer
THE CROWN GROUP, INC., a Florida corporation
By: /s/ Xxxx X. Xxxxxx
-------------------
Xxxx X. Xxxxxx
President
22
LIST OF EXHIBITS AND SCHEDULES
Exhibit A Form of Articles of Amendment
Exhibit B Form of Opinion of Akerman, Senterfitt & Xxxxxx, P.A.
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Shareholders' Agreement
Exhibit E Copy of Rule 501(a) of Regulation of D under the Securities Act
Schedule 5.2 Subsidiaries
Schedule 5.6 Capital Stock and Related Matters
Schedule 5.8 Indebtedness
Schedule 5.9 Liens and Lease Agreement
Schedule 5.10 Litigation
Schedule 5.13 Certain Fees
Schedule 5.17 Environmental Matters
23
EXHIBIT A
FORM OF
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
FORTUNE FINANCIAL, INC.
----------------
Pursuant to Florida Statutes
Sections 607.1002 and 607.0602
----------------
Fortune Financial, Inc., a Florida corporation (the "Corporation"),
certifies that pursuant to the authority contained in Article III, Section 2 of
its Articles of Incorporation, as amended (the "Articles of Incorporation"), and
in accordance with the provisions of Sections 607.1002 and 607.0602 of the
Florida Statutes, the Board of Directors of the Corporation on January ___, 2001
(the "Adoption Date"), duly approved and adopted, and does hereby file the
following Articles of Amendment:
1. That the name of the Corporation is Fortune Financial, Inc. The
corporation was assigned document number 333831 by the Florida Secretary of
State.
2. That Article III, Section 1 of the Articles of Incorporation of the
Corporation is hereby amended to read as follows:
"ARTICLE III - Capital Stock
----------------------------
1. The maximum number of shares of stock which the Corporation is
authorized to have outstanding at any one time is:
(a) 18,000,000 shares of common stock, par value $.025 per share;
and
(b) 500,000 shares of preferred stock, par value $.001 per share."
3. That the Articles of Incorporation of the Corporation be amended to
add a new Section 5 to Article III that reads as follows:
24
"5. Pursuant to Article III, Section 2 of these Articles of
Incorporation, the Board of Directors does hereby designate, create, authorize
and provide for the issuance of a series of preferred stock having a par value
of $.001 per share, with a liquidation preference of $75 per share (the
"Liquidation Preference"), which shall be designated as Series A Convertible
Preferred Stock (the "Preferred Stock"), consisting of 500,000 shares having the
following powers, designations, preferences and relative, participating,
optional and other special rights, and qualifications, limitations and
restrictions:
(a) Ranking. The Preferred Stock shall, with respect to distributions
upon the liquidation, winding-up and dissolution of the Corporation, rank (i)
senior to all classes of Common Stock of the Corporation and to each other class
of capital stock or series of preferred stock established after the Adoption
Date, by the Board of Directors, the terms of which do not expressly provide
that it ranks senior to or on a parity with the Preferred Stock as to dividend
distributions and distributions upon the liquidation, winding-up and dissolution
of the Corporation (collectively referred to with the Common Stock of the
Corporation as "Junior Securities"); (ii) on parity with any additional shares
of Preferred Stock issued by the Corporation in the future and any other class
of capital stock or series of preferred stock issued by the Corporation
established after the Adoption Date by the Board of Directors, the terms of
which expressly provide that such class or series will rank on a parity with the
Preferred Stock as to dividend distributions and distributions upon the
liquidation, winding-up and dissolution of the Corporation (collectively
referred to as "Parity Securities"); and (iii) junior to each class of capital
stock or series of preferred stock issued by the Corporation established after
the Adoption Date, by the Board of Directors, the terms of which expressly
provide that such class or series will rank senior to the Preferred Stock as to
dividend distributions and/or distributions upon the liquidation, winding-up and
dissolution of the Corporation (collectively referred to as "Senior
Securities"). Notwithstanding the foregoing, a security shall not be deemed to
be a "Senior Security" solely because such security has a stated dividend or
interest coupon.
(b) Dividends.
(i) The Corporation shall not declare, make or pay any dividends or
other distributions upon any Junior Securities until the first to occur of the
following: (A) the third anniversary of the Preferred Stock Issue Date; (B) the
affirmative vote or consent of the holders of at least a majority of the shares
of Preferred Stock then outstanding voting or consenting as the case may be, as
one class; or (C) the Corporation achieves positive net income for three
consecutive fiscal quarters after the Preferred Stock Issue Date.
(ii) In the event that the Corporation declares, makes or pays any
dividends or other distributions upon the Common Stock (whether payable in cash,
securities, rights or other property) other than dividends and distributions
referred to in paragraph (c)(vi) of this Section 5 of Article III (hereinafter
in this Section 5 of Article III, references to Section 5 or subsections of
Section 5 of Article III shall be referred to as "Section 5( )"), the
Corporation shall also declare and pay to the holders of the Preferred Stock, in
addition to any dividends payable to them pursuant to the other provisions of
this Section 5, at the same time that it declares and pays such dividends or
other distributions to the holders of the Common Stock (and with the same record
date), the dividends or distributions which would have been declared and paid
with respect to the Common Stock issuable upon conversion of the Preferred Stock
25
had all of the outstanding Preferred Stock been converted immediately prior to
the record date for such dividend or distribution, or if no record date is
fixed, the date as of which the record holders of Common Stock entitled to such
dividends or distributions are determined.
(iii) From and after the Dividend Commencement Date, the holders of
shares of Preferred Stock shall be entitled to receive on each Dividend Payment
Date in respect of the Dividend Period ending on such Dividend Payment Date (but
excluding such Dividend Payment Date), cumulative dividends payable in shares of
Preferred Stock at a rate per annum equal to 9% of the Liquidation Preference of
each share of the then outstanding Preferred Stock; provided, however, that at
any time after the Preferred Stock Issue Date, the Corporation shall pay the
dividends required under this Section 5(b)(iii) as to particular shares of
Preferred Stock in cash if requested in writing by the holders of at least a
majority of the shares of Preferred Stock then outstanding, upon the affirmative
vote or consent of the holders thereof. The dividends under this Section
5(b)(iii) shall be fully cumulative and shall accumulate and accrue on a daily
basis (computed on the basis of a 360-day year of twelve 30-day months), whether
or not they have been declared.
(iv) So long as any shares of Preferred Stock are outstanding, the
Corporation shall not pay or set apart for payment any full dividend on any of
the Parity Securities or any dividend on any of the Junior Securities (other
than dividends in Parity Securities to the holders of Parity Securities or
dividends in Junior Securities to the holders of Junior Securities), or make any
payment on account of, or set apart for payment money for a sinking or other
similar fund for, the purchase, redemption or other retirement of any of the
Parity Securities or any of the Junior Securities or any warrants, rights, calls
or options exercisable for or convertible into any of the Parity Securities or
any of the Junior Securities, and shall not permit any Person directly or
indirectly controlled by the Corporation to purchase or redeem any of the Parity
Securities or any of the Junior Securities or any such warrants, rights, calls
or options, unless the Accrued Dividends on the Preferred Stock for all Dividend
Periods ended on or prior to the date of such payment in respect of Parity
Securities or Junior Securities have been or contemporaneously are paid in full.
(v) If the Corporation desires to make a partial dividend payment with
respect to any Parity Securities at a time when any Accrued Dividends on the
Preferred Stock have not been paid, it may do so as long as dividends upon
shares of the Preferred Stock and upon such Parity Securities are paid pro rata
so that the amount of dividends paid per share on the Preferred Stock and such
Parity Securities shall in all cases bear to each other the same ratio that the
Accrued Dividends per share on the Preferred Stock and the accrued dividends on
such Parity Securities bear to each other.
(c) Conversion Rights.
(i) After approval or ratification by the shareholders of the
Corporation of the issuance of the shares of Preferred Stock, a holder of shares
of Preferred Stock may convert such shares into Common Stock at any time on or
before the third anniversary of the Preferred Stock Issue Date at the option of
the holder thereof. Except as set forth in the next sentence, for the purposes
of conversion, each share of Preferred Stock shall be valued at the Liquidation
Preference which shall be divided by the Conversion Price in effect on the
26
Conversion Date (defined below) to determine the number of shares issuable upon
conversion. If a holder of shares of Preferred Stock gives written notice (a
"Dividend Conversion Notice") to the Corporation at least two Business Days but
not more than 60 days prior to giving a notice of conversion pursuant to Section
5(c)(ii)(B) that it will be electing to convert a specified number of shares of
Preferred Stock and that it elects to have any Accrued Dividends thereon that
are payable prior to the Conversion Date but remain unpaid as of the Conversion
Date converted into Common Stock on the Conversion Date (thereby affording the
Corporation the opportunity to pay such Accrued Dividends in cash prior to the
Conversion Date so that they will not be converted into Common Stock), then for
the purposes of conversion, each share of Preferred Stock shall be valued at the
Liquidation Preference plus the amount of Accrued Dividends thereon that are
payable prior to the Conversion Date but remain unpaid as of the Conversion
Date, if any, which shall be divided by the Conversion Price in effect on the
Conversion Date to determine the number of shares issuable upon conversion.
Immediately following any such conversion, the rights of the holders of
converted Preferred Stock shall cease and the persons entitled to receive the
Common Stock upon the conversion of Preferred Stock shall be treated for all
purposes as having become the owners of such Common Stock.
(ii) To convert Preferred Stock, a holder must (A) surrender the
certificate or certificates evidencing the shares of Preferred Stock to be
converted, duly endorsed in a form satisfactory to the Corporation, at the
office of the Corporation or transfer agent for the Preferred Stock, (B) notify
the Corporation at such office that he elects to convert Preferred Stock and the
number of shares he wishes to convert, (C) state in writing the name or names in
which he wishes the certificate or certificates for shares of Common Stock to be
issued, and (D) pay any transfer or similar tax if required by clause (iv)
below. In the event that a holder fails to notify the Corporation of the number
of shares of Preferred Stock which he wishes to convert, he shall be deemed to
have elected to convert all shares represented by the certificate or
certificates surrendered for conversion. The date on which the holder satisfies
all those requirements is the "Conversion Date." As soon as practical following
the Conversion Date, the Corporation shall deliver a certificate representing
the number of full shares of Common Stock issuable upon the conversion, and a
new certificate representing the unconverted portion, if any, of the shares of
Preferred Stock represented by the certificate or certificates surrendered for
conversion. The person in whose name the Common Stock certificate is registered
shall be treated as the stockholder of record on and after the Conversion Date.
Except as expressly set forth in Section 5(c)(i) or in the following provisions
of this Section 5(c)(ii), no adjustment will be made for accrued and unpaid
dividends on shares of Preferred Stock which have been converted. The holder of
record of a share of Preferred Stock at the close of business on a record date
with respect to the payment of dividends on the Preferred Stock in accordance
with Section 5(b)(i) hereof will be entitled to receive such dividends with
respect to such share of Preferred Stock on the corresponding dividend payment
date, notwithstanding the conversion of such share after such record date and
prior to such dividend payment date. If a holder of Preferred Stock converts
more than one share at a time, the number of full shares of Common Stock
issuable upon conversion shall be based on the total Liquidation Preference of
all shares of Preferred Stock converted.
(iii) The Corporation shall not issue any fractional shares of Common
Stock upon conversion of Preferred Stock. Instead the Corporation shall pay a
cash adjustment based upon the Closing Price of the Common Stock on the
27
principal securities market or exchange on which the Common Stock is then listed
on the Business Day prior to the Conversion Date.
(iv) If a holder converts shares of Preferred Stock, the Corporation
shall pay any documentary stamp or similar issue or transfer tax due on the
issue of shares of Common Stock upon the conversion. However, the holder shall
pay any such tax that is due because the shares are issued in a name other than
the holder's name.
(v) The Corporation has reserved and shall continue to reserve out of
its authorized but unissued Common Stock or its Common Stock held in treasury
enough shares of Common Stock to permit the conversion of the Preferred Stock in
full. The Corporation shall endeavor to list and keep listed on the Nasdaq Stock
Market, so long as the Common Stock shall be listed on the Nasdaq Stock Market,
all Common Stock issuable upon conversion of the Preferred Stock. All shares of
Common Stock that may be issued upon conversion of Preferred Stock shall be
fully paid and nonassessable. The Corporation shall endeavor to comply with all
securities laws regulating the offer and delivery of shares of Common Stock upon
conversion of Preferred Stock.
(vi) In case the Corporation shall pay or make a dividend or other
distribution on any class of capital stock of the Corporation in Common Stock,
the Conversion Price in effect at the opening of business on the day following
the date fixed for the determination of stockholders entitled to receive such
dividend or other distribution shall be reduced by multiplying such Conversion
Price by a fraction the numerator of which shall be the number of shares of
Common Stock outstanding at the close of business on the date fixed for such
determination and the denominator of which shall be the sum of such number of
shares and the total number of shares constituting such dividend or other
distribution, such reduction to become effective immediately after the opening
of business on the day following the date fixed for the determination of the
holders entitled to such dividends and distributions. For the purposes of this
Section 5(c)(vi), the number of shares of Common Stock at any time outstanding
shall not include shares held in the treasury of the Corporation. The
Corporation will not pay any dividend or make any distribution on shares of
Common Stock held in the treasury of the Corporation.
(vii) In case the outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the Conversion Price
in effect at the opening of business on the day following the day upon which
such subdivision becomes effective shall be reduced, and, conversely, in case
the outstanding shares of Common Stock shall each be combined into a smaller
number of shares of Common Stock, the Conversion Price in effect at the opening
of business on the day following the day upon which such combination becomes
effective shall be increased, in either case to equal the product of the
Conversion Price in effect on such date and a fraction the numerator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such subdivision or combination, as the case may be, and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after such subdivision or combination, as the case may be. Such reduction or
increase, as the case may be, shall become effective immediately after the
opening of business on the day following the day upon which such subdivision or
combination becomes effective.
(viii) The capital reorganization, reclassification, conversion or
exchange of Common Stock into securities, including securities other than Common
Stock (other than a reclassification, conversion or exchange in connection with
28
a business combination to which Section 5(c)(xiv) below shall apply), shall be
deemed to involve (A) a distribution of such securities other than Common Stock
to all holders of Common Stock, and (B) a subdivision or combination, as the
case may be, of the number of shares of Common Stock outstanding immediately
prior to such reclassification, conversion or exchange into the number of shares
of Common Stock outstanding immediately thereafter (and the effective date of
such reclassification, conversion or exchange shall be deemed to be "the day
upon which such subdivision becomes effective" or "the day upon which such
combination becomes effective," as the case may be, and "the day upon which such
subdivision or combination becomes effective" within the meaning of Section
5(c)(vii) above).
(ix) No adjustment in the Conversion Price need be made until all
cumulative adjustments amount to 1% or more of the Conversion Price as last
adjusted. Any adjustments that are not made shall be carried forward and taken
into account in any subsequent adjustment. Any adjustment to the Conversion
Price carried forward and not theretofore made shall be made immediately prior
to the conversion of any shares of Preferred Stock pursuant hereto.
(x) For purposes of this Section 5(c), "Common Stock" includes any
stock of any class of the Corporation which has no preference in respect of
dividends or of amounts payable in the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation and which is not
subject to redemption by the Corporation. However, subject to the provisions of
Section 5(c)(xiv) below, shares issuable on conversion of shares of Preferred
Stock shall include only shares of the class designated as Common Stock of the
Corporation on the Preferred Stock Issue Date or shares of any class or classes
resulting from any reclassification, conversion or exchange thereof and which
have no preferences in respect of dividends or amounts payable in the event of
any voluntary or involuntary liquidation, dissolution or winding- up of the
Corporation and which are not subject to redemption by the Corporation, provided
that, if at any time there shall be more than one such resulting class, the
shares of each such class then so issuable shall be substantially in the
proportion which the total number of shares of such class resulting from all
such reclassifications, conversions or exchanges bears to the total number of
shares of all such classes resulting from all such reclassifications,
conversions or exchanges.
(xi) Whenever the Conversion Price is adjusted, the Corporation shall
promptly mail to holders of Preferred Stock, first class, postage prepaid, a
notice of the adjustment. The Corporation shall file with the transfer agent for
the Preferred Stock, if any, a certificate from the Corporation's chief
financial officer briefly stating the facts requiring the adjustment and the
manner of computing it.
(xii) Upon a determination by the Board of Directors of the
Corporation, the Corporation from time to time may reduce the Conversion Price
if the Board of Directors of the Corporation considers such reductions to be
advisable in order that any event treated for federal income tax purposes as a
dividend of stock or stock rights will not be taxable to the holders of Common
Stock by any amount.
29
(xiii) If:
(A) the Corporation enters an agreement to consolidate or
merge with, or transfer all or substantially all of its assets to,
another Person, and stockholders of the Corporation must approve the
transaction; or
(B) the Corporation adopts a plan of dissolution or liquidation
of the Corporation;
the Corporation shall mail to holders of the Preferred Stock, first class,
postage prepaid, a notice stating the proposed record or effective date, as the
case may be. The Corporation shall mail the notice at least 10 days before such
date. However, failure to mail the notice or any defect in it shall not affect
the validity of any transaction referred to in clause (A) or (B) of this Section
5(c)(xiii).
(xiv) In the case of any
(A) consolidation or merger of the Corporation with or into
any other Person in which the Common Stock is converted into securities
of another Person, or the right to receive cash or assets,
(B) transaction consisting of a sale or transfer of all or
substantially all the assets of the Corporation in exchange for
securities of another Person, cash or assets followed by a liquidation,
or
(C) capital reorganization or reclassification, conversion or
exchange of outstanding shares of Common Stock other than in connection
with a business combination,
then, upon consummation of such transaction, each share of Preferred Stock shall
automatically become convertible into the kind and amount of securities, or the
right to receive cash or other assets, receivable upon the consolidation,
merger, liquidation, capital reorganization, conversion, reclassification or
exchange by a holder of the number of shares of Common Stock into which such
share of Preferred Stock might have been converted immediately prior to such
consolidation, merger, liquidation, capital reorganization, conversion,
reclassification or exchange (assuming such holder of Common Stock failed to
exercise any rights of election and received per share the kind and amount of
consideration receivable per share by non-electing shares). Appropriate
adjustment (as determined by the Board of Directors of the Corporation) shall be
made in the application of the provisions herein set forth with respect to the
rights and interests thereafter of the holders of Preferred Stock, to the end
that the provisions set forth herein (including provisions with respect to
changes in and other adjustment of the Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other securities or property thereafter deliverable upon the conversion of
Preferred Stock. If this Section 5(c)(xiv) applies, Sections 5(c)(vi), (vii) and
(viii) shall be deemed not to apply. Notwithstanding anything contained herein
to the contrary, the Corporation will not effect any transaction of the type
referred to in clause (A), (B) or (C) of this Section 5(c)(xiv) unless, prior to
the consummation thereof, the Surviving Person (as defined in Section 5(o)
thereof, if it is not the Corporation, shall assume, by written instrument
mailed to each record holder of Preferred Stock, at such holder's address as it
appears on the transfer books of the Corporation, the obligation to deliver to
such holder such
30
securities, cash or assets to which, in accordance with the foregoing
provisions, such holder is entitled upon conversion. Nothing contained in this
Section 5(c)(xiv) shall limit the rights of holders of the Preferred Stock to
convert the Preferred Stock in connection with the transaction.
(xv) In any case in which this Section 5(c) shall require that an
adjustment as a result of any event become effective from and after a record
date, the Corporation may elect to defer until after the occurrence of such
event the issuance to the holder of any shares of Preferred Stock converted
after such record date and before the occurrence of such event of the additional
shares of Common Stock issuable upon such conversion over and above the shares
issuable on the basis of the Conversion Price in effect immediately prior to
adjustment; provided, however, that if such event shall not have occurred and
authorization of such event shall be rescinded by the Corporation, the
Conversion Price shall be recomputed immediately upon such rescission to the
price that would have been in effect had such event not been authorized,
provided that such rescission is permitted by and effective under applicable
laws.
(xvi) By action of the Board of Directors of the Corporation, the
Corporation shall from time to time, on its own or upon reasonable written
request of a holder of Preferred stock, on or before the third anniversary of
the Preferred Stock Issue Date, adjust the Conversion Price by reducing or
increasing the Conversion Price for the effect of the following on the
Corporation's book value as of the Preferred Stock Issue Date: (A) the financial
impact of any reinsurance arbitration proceeding pending on the Preferred Stock
Issue Date to which Fortune Insurance Company, a Florida corporation ("FIC"), is
a party, including the cost of any reinsurance of any potential losses
therefrom; (B) the financial impact of any arbitration or litigation arising out
of any dispute or potential dispute between FIC and Sirius Reinsurance
Corporation based upon facts in existence on the Preferred Stock Issue Date; (C)
the financial impact of the outcome of In the Matter of USA Diagnostics v.
Fortune Insurance Company, Broward County Circuit Court, Case No. 94-13154(05);
(D) the financial impact of any increase or decrease in FIC's estimate of
ultimate losses for periods ending on or before December 31, 2000; (E) the
financial impact of FIC's payment of any insurance premiums to limit the
liability of FIC on any of the items listed in (A) through (D) immediately
preceding this Section 5(c)(xvi)(E); and (F) the per share of Common Stock
impact (increase or decrease) based on the Company's fiscal year 2000 fourth
quarter earnings results. In each case, such adjustments to Conversion Price
shall be determined by the Corporation on the advice of its independent public
accountants. If within forty-five (45) days of any action of the Board of
Directors to adjust the Conversion Price under this Section 5(c)(xvi) the
Corporation receives written notice from the holders of at least a majority of
the shares of Preferred Stock then outstanding (upon the affirmative vote or
consent of the holders of at least a majority of the shares of Preferred Stock
then outstanding voting or consenting as the case may be, as one class)
disputing the amount of the adjustment of the Conversion Price under this
Section 5(c)(xvi), the Board of Directors of the Corporation and such holders
of at least a majority of the shares of Preferred Stock then outstanding (upon
the affirmative vote or consent of the holders of at least a majority of the
shares of Preferred Stock then outstanding voting or consenting as the case may
be, as one class) shall jointly choose an independent actuary to decide the
dispute as the amount of the adjustment of the Conversion Price and such
actuary's decision shall be binding.
31
(d) Liquidation Preference. Upon any voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation, each holder of shares
of the Preferred Stock will be entitled to payment out of the assets of the
Corporation available for distribution of an amount equal to the Liquidation
Preference per share of Preferred Stock held by such holder, plus Accrued
Dividends, if any, to the date fixed for liquidation, dissolution or winding-up,
before any distribution is made on any Junior Securities, including, without
limitation, Common Stock of the Corporation. After payment in full of the
Liquidation Preference and all Accrued Dividends, if any, to which holders of
Preferred Stock are entitled, such holders will not be entitled to any further
participation in any distribution of assets of the Corporation. If, upon any
voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation, the amounts payable with respect to the Preferred Stock and all
other Parity Securities are not paid in full, the holders of the Preferred Stock
and the Parity Securities will share equally and ratably in any distribution of
assets of the Corporation in proportion to the full liquidation preference and
accrued dividends, if any, to which each is entitled. However, neither the
voluntary sale, conveyance, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all of the property
or assets of the Corporation nor the consolidation or merger of the Corporation
with or into one or more Persons will be deemed to be a voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation, unless such sale,
conveyance, exchange or transfer shall be in connection with a liquidation,
dissolution or winding-up of the business of the Corporation.
(e) Redemption.
(i) At any time after the third anniversary of the Preferred Stock
Issue Date, the Corporation may, at its election, redeem any or all of the
shares of the then outstanding Preferred Stock at a per share purchase price
equal to the Liquidation Preference of each share of Preferred Stock to be
redeemed, plus Accrued Dividends per share, if any, to the date of redemption.
The Corporation will mail or cause to be delivered to each holder of the
Preferred Stock a written notice of the Corporation's election to redeem shares
of Preferred Stock not less than thirty (30) days prior to the date set for the
redemption. The notice will state (i) the total number of shares of the
Preferred Stock being redeemed; (ii) the number of shares of the Preferred Stock
held by the holder that the Corporation intends to redeem; (iii) the aggregate
purchase price for the shares of Preferred Stock being redeemed; (iv) the
redemption date; and (v) that the holder is to surrender to the Corporation, at
the office of the Corporation or the transfer agent for the Preferred Stock, the
certificate or certificates representing the Preferred Stock to be redeemed.
Such notice shall be accompanied by a representation by the Corporation to the
effect that the consummation of the redemption will not render the Corporation
insolvent or unable to pay its debts as they become due, as well as an opinion
of counsel to the Corporation in form and substance reasonably satisfactory to
the holders of the Preferred Stock to the effect that the consummation of the
redemption will not conflict with or result in a breach or violation of any of
the terms or provisions of, or constitute a default (or an event that with the
giving of notice or the lapse of time or both would constitute a default) under,
or give rise to a right of termination, amendment, cancellation or acceleration
of any right or obligation of the Corporation or any of its subsidiaries under,
or give rise to a loss of any material benefit to which the Corporation or any
of its subsidiaries is entitled under, or require any consent, approval or
authorization under, any indenture, credit agreement or other material agreement
to which the Corporation or any of the subsidiaries is a party or by which any
of them are bound or to which any of their property is subject, or give the
32
holder of any note, debenture or other evidence of indebtedness the right to
require the repurchase, redemption or repayment of all or a portion of such
indebtedness by the Corporation or any of its subsidiaries. As soon as practical
following the redemption date and receipt of the certificate or certificates
representing the shares of Preferred Stock so redeemed, the Corporation shall
deliver to the holder the aggregate price payable in respect of the redeemed
shares and a new certificate representing the unredeemed portion of the shares,
if any. At the effective date of the redemption the redeemed shares shall no
longer be deemed outstanding shares of Preferred Stock for any purpose and shall
thereafter only be deemed to entitle the holder to receive the redemption price
upon surrender of the certificates formerly representing such shares of
Preferred Stock.
(ii) At any time after the third anniversary but not later than the
fifth anniversary of the Preferred Stock Issue Date, each holder of Preferred
Stock may, at its election, require the Corporation to redeem any or all of the
shares of the then outstanding Preferred Stock held by such holder at a per
share purchase price equal to the Liquidation Preference of each share of
Preferred Stock to be redeemed, plus Accrued Dividends per share, if any, to the
date of redemption. The holder of Preferred Stock requesting redemption will
mail or cause to be delivered to the Corporation a written notice of such
holder's election to require the Corporation to redeem the holder's shares of
Preferred Stock not less than sixty (60) days prior to the date set for the
redemption. The notice will state (i) the number of shares of the Preferred
Stock held by the holder that the holder desires the Corporation to redeem; (ii)
the redemption date; and (iii) that the holder is to surrender to the
Corporation, at the office of the Corporation or the transfer agent for the
Preferred Stock, the certificate or certificates representing the Preferred
Stock to be redeemed. A condition to the Corporation's obligation to redeem any
shares of Preferred Stock under this Section 5(e)(ii) is that the consummation
of the redemption will not render the Corporation insolvent or unable to pay its
debts as they become due, as well as an opinion of counsel to the Corporation in
form reasonably satisfactory to the holder of the Preferred Stock requesting
redemption to the effect that the consummation of the redemption will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default (or an event that with the giving of
notice or the lapse of time or both would constitute a default) under, or give
rise to a right of termination, amendment, cancellation or acceleration of any
right or obligation of the Corporation or any of its subsidiaries under, or give
rise to a loss of any material benefit to which the Corporation or any of its
subsidiaries is entitled under, or require any consent, approval or
authorization under, any indenture, credit agreement or other material agreement
to which the Corporation or any of the subsidiaries is a party or by which any
of them are bound or to which any of their property is subject, or give the
holder of any note, debenture or other evidence of indebtedness the right to
require the repurchase, redemption or repayment of all or a portion of such
indebtedness by the Corporation or any of its subsidiaries. As soon as practical
following the redemption date and receipt of the certificate or certificates
representing the shares of Preferred Stock so redeemed, the Corporation shall
deliver to the holder the aggregate price payable in respect of the redeemed
shares and a new certificate representing the unredeemed portion of the shares,
if any. At the effective date of the redemption the redeemed shares shall no
longer be deemed outstanding shares of Preferred Stock for any purpose and shall
thereafter only be deemed to entitle the holder to receive the redemption price
upon surrender of the certificates formerly representing such shares of
Preferred Stock.
33
(f) Voting Rights.
(i) The holders of Preferred Stock shall be entitled to notice of all
stockholders meetings in accordance with the Corporation's bylaws and the
Florida Business Corporation Act, and except as otherwise required by applicable
law, the holders of the Preferred Stock shall not be entitled to vote (or act by
written consent) on any matters submitted to the stockholders for a vote (or for
action).
(ii) In the case of any vote otherwise required by law, the affirmative
vote or consent of the holders of at least a majority of the shares of Preferred
Stock then outstanding voting or consenting as the case may be, as one class,
shall be required to constitute the vote or consent as the case may be in favor
of the matter under consideration.
(iii) Notwithstanding any other provision hereof, the Corporation in
its sole discretion may in accordance with the provisions of applicable law
without the vote or consent of any holders of the Preferred Stock amend or
supplement this Article III, Section 5 of the Articles of Incorporation:
(A) to cure any ambiguity, defect or inconsistency in any
manner that does not adversely affect the holders of Preferred Stock;
or
(B) to make any change that would provide any additional
rights or benefits to the holders of the Preferred Stock or that does
not adversely affect the rights under this Section 5 of any such
holder.
(g) Reclassification of Shares; Issuance of Senior or Parity
Securities. If there are 160,000 or more shares of Preferred Stock outstanding,
the Corporation shall not conduct any reorganization, reclassification,
conversion or exchange of Common Stock into securities (other than a
reclassification, conversion or exchange in connection with a business
combination to which Section 5(c)(xiv) above shall apply) and shall not issue
any Senior or Parity Securities (except for securities issuable pursuant to
agreements made in connection with that certain Securities Purchase Agreement
dated November 15, 2000 among the Corporation, Hawkeye, Inc., and Mid-Ohio
Securities Corporation, FBO R. Xxx Xxxxx (Acct. 15051)) until the first to occur
of the following: (A) the third anniversary of the Preferred Stock Issue Date;
or (B) the affirmative vote or consent of the holders of at least a majority of
the shares of Preferred Stock then outstanding voting or consenting as the case
may be, as one class.
(h) Reports. The Corporation will deliver to the holders of the
Preferred Stock, promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent or made available
generally by the Corporation to its security holders in their capacity as such
or by any subsidiary of the Corporation to the Corporation's security holders.
(i) Amendment. Except as specifically set forth herein, amendments to
this Article III, Section 5 of the Articles of Incorporation may be made by the
Corporation with the consent of the holders of ninety percent (90%) of the
outstanding shares of Preferred Stock and any other approvals required by
Florida law.
34
(j) Exclusion of Other Rights. Except as may otherwise be required by
law, the shares of Preferred Stock shall not have any voting powers, preferences
and relative, participating, optional or other special rights, other than those
specifically set forth in this Section 5 (as may be amended from time to time)
and in the Articles of Incorporation, generally. The shares of Preferred Stock
shall have no preemptive or subscription rights.
(k) Headings of Subdivisions. The headings of the various subdivisions
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
(l) Severability of Provisions. If any powers, preferences and
relative, participating, optional and other special rights of the Preferred
Stock and qualifications, limitations and restrictions thereof set forth in this
Section 5 (as may be amended from time to time) is invalid, unlawful or
incapable of being enforced by reason of any rule of law or public policy, all
other powers, preferences and relative, participating, optional and other
special rights of Preferred Stock and qualifications, limitations and
restrictions thereof set forth in this Article III, Section 5 of these Articles
of Incorporation (as so amended) which can be given effect without the invalid,
unlawful or unenforceable powers, preferences and relative, participating,
optional or other special rights of Preferred Stock and qualifications,
limitations and restrictions thereof shall, nevertheless, remain in full force
and effect and no powers, preferences and relative, participating, optional or
other special rights of Preferred Stock and qualifications, limitations and
restrictions thereof herein set forth shall be deemed dependent upon any other
such powers, preferences and relative, participating, optional or other special
rights of Preferred Stock and qualifications, limitations and restrictions
thereof unless so expressed herein.
(m) Re-issuance of Preferred Stock. Shares of Preferred Stock that have
been issued and reacquired in any manner, including shares purchased or redeemed
or exchanged or converted, shall (upon compliance with any applicable provisions
of the laws of Florida) have the status of authorized but unissued shares of
preferred stock of the Corporation undesignated as to series and may be
designated or re-designated and issued or reissued, as the case may be, as part
of any series of preferred stock of the Corporation, provided that any issuance
of such shares as Preferred Stock must be in compliance with the terms hereof.
(n) Mutilated or Missing Preferred Stock Certificates. If any of the
Preferred Stock certificates shall be mutilated, lost, stolen or destroyed, the
Corporation shall issue, in exchange and in substitution for and upon
cancellation of the mutilated Preferred Stock certificate, or in lieu of and
substitution for the Preferred Stock certificate lost, stolen or destroyed, a
new Preferred Stock certificate of like tenor and representing an equivalent
amount of shares of Preferred Stock, but only upon receipt of evidence of such
loss, theft or destruction of such Preferred Stock certificate and indemnity, if
requested, satisfactory to the Corporation and the transfer agent (if other than
the Corporation).
(o) Certain Definitions. As used in this Article III, Section 5 of the
Articles of Incorporation, the following terms shall have the following meanings
(with terms defined in the singular having comparable meanings when used in the
plural and vice versa), unless the context otherwise requires:
35
"Accrued Dividends" to a particular date (the "Applicable Date") means
(A) all dividends accrued but not paid on the Preferred Stock pursuant to
Section 5(b)(iii), whether or not declared, prior to the Applicable Date, plus
(B) all dividends or distributions payable pursuant to Section 5(b)(ii) which
were not paid or made, and the record date for which occurred, on or prior to
the Applicable Date.
"Adoption Date" means January ___, 2001.
"Business Day" means any day except a Saturday, a Sunday, or any day on
which banking institutions in Jacksonville, Florida are required or authorized
by law or other governmental action to be closed.
"Closing Price" shall mean the closing price of a share of Common
Stock, as reported in the Wall Street Journal, on the Nasdaq Stock Market or
other national quotation system or other national securities exchange on which
the Common Stock is then traded or quoted.
"Common Stock" means the Common Stock, par value $.025 per share, of
the Corporation as presently constituted.
"Conversion Price" shall initially mean $2.42 per share and thereafter
shall be subject to adjustment from time to time pursuant to the terms of
Section 5(c) hereof.
"Dividend Commencement Date" means, as to each share of Preferred
Stock, means the date on which the Preferred Stock is originally issued by the
Corporation under this Section 5.
"Dividend Payment Date" means each December 1.
"Dividend Period" means each annual period from a Dividend Payment Date
to the next following Dividend Payment Date (but without including such later
Dividend Payment Date), provided that the first Dividend Period shall be the
period from the Dividend Commencement Date to the next following Dividend
Payment Date (but without including such later Dividend Payment Date).
"Market Value" means the closing bid price of a share of Common Stock
on the Nasdaq Stock Market.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization, government or any Agency or political subdivision
thereof or any other entity.
"Preferred Stock Issue Date" means the first and earliest date on which
any of the Preferred Stock is originally issued by the Corporation under this
Section 5.
"Surviving Person" shall mean the continuing or surviving Person of a
merger, consolidation or other corporate combination, the Person receiving a
transfer of all or substantially all of the assets of the Corporation, or the
Person consolidating with or merging into the Corporation in a merger,
consolidation or other corporate combination in which the Corporation is the
36
continuing or surviving Person, in connection with which the Common Stock of the
Corporation is exchanged, converted or reinstated into the securities of any
other Person or cash or any other property; provided, however, if such Surviving
Person is a direct or indirect subsidiary of a Person, the parent entity also
shall be deemed to be a Surviving Person.
4. That the foregoing amendment was adopted by all members of the Board of
Directors of this Corporation, without shareholder approval, on January ___,
2001, pursuant to Sections 607.1002 and 607.0602, Florida Statutes. Shareholder
action was not required.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
duly executed by J. Xxxx Xxxxxxx, President and Chief Executive Officer of the
Corporation, on this ___ day of January, 2001.
FORTUNE FINANCIAL, INC.
By:
-----------------------------------
J. Xxxx Xxxxxxx
President and Chief Executive
Officer
37
Exhibit B
Form of Opinion of Akerman, Senterfitt & Xxxxxx, P.A.
January __, 2001
The Crown Group, Inc.
000 Xxxx Xxxx Xxxxxxx
Xxxxxxxxxxx, XX 00000
Re: Fortune Financial, Inc.
Gentlemen:
We have acted as counsel for Fortune Financial, Inc., a Florida corporation
(the "Company"), in connection with that certain Preferred Stock Purchase
Agreement effective as of December ___, 2000 (the "Purchase Agreement"), by and
between the Company and The Crown Group, Inc., a Florida corporation, Hawkeye,
Inc., a Florida corporation, and Mid-Ohio Securities Corp., FBO R. Xxx Xxxxx
(Acct. 15051) (collectively, the "Purchaser"). We have been requested by the
Company to give you our opinion with respect to certain legal matters concerning
the Purchase Agreement and the transactions contemplated thereby. All
capitalized terms used and not otherwise defined in this opinion shall have the
meanings ascribed to them in the Purchase Agreement. This opinion is delivered
to you pursuant to Section 4.3 of the Purchase Agreement.
Basis of Opinions
In rendering the opinions hereinafter expressed, we have examined
the following materials:
A. Purchase Agreement;
B. Articles of Amendment to the Company's Articles of Incorporation,
dated January ___, 2001 (the "Articles of Amendment");
C. Form of Series A Convertible Preferred Stock Certificate;
D. The Amended and Restated Bylaws of the Company as certified by the
Secretary of the Company as of the date hereof as being correct,
complete and in effect (the "Bylaws");
E. A certificate of the Secretary of State of the State of Florida,
dated January __, 2001, with a verbal bring down as of the date
hereof, to the effect that the Company is duly formed and existing as
a corporation under the laws of the State of Florida and is in good
standing and duly authorized to transact business in such State; and
38
F. Resolutions of the Board of Directors of the Company adopted on
January __, 2001 as certified by the Secretary of the Company as of
the date hereof as being complete, correct and in effect.
The foregoing documents and instruments are sometimes referred to collectively
herein as the "Documents." In rendering the opinions hereinafter expressed, we
have also examined such other documents, corporate records and certificates of
public officials, officers of the Company and its subsidiaries and of other
persons, and have considered such matters of law as we have considered necessary
or appropriate for the expression of such opinions.
Assumptions
In rendering the opinions hereinafter expressed, we have for purposes
of rendering such opinions relied as to factual matters, without independent
investigation, solely upon and assumed the truth and accuracy as to factual
matters of the representations, warranties and statements contained in the
Purchase Agreement and each of the other Documents and the agreements,
documents, instruments and certificates being delivered in connection with the
transactions contemplated by the Purchase Agreement, and on statements and
certificates of public officials and certificates of officers of the Company and
its subsidiaries. We have not undertaken any lien, intellectual property,
litigation or judgment searches or searches of court dockets in any
jurisdiction. We have made no examination or investigation to verify the
accuracy or completeness of any documentation or information furnished to the
Purchaser, and express no opinion, view or belief with respect thereto, except
as and to the extent expressly set forth herein.
In rendering the opinions hereinafter expressed, we have assumed (1)
the legal existence of all parties to the Purchase Agreement other than the
Company; (2) the power and authority of each person other than the Company to
execute and deliver the Purchase Agreement and to perform its obligations
thereunder; (3) the authorization, execution and delivery of the Purchase
Agreement by each person other than the Company; (4) that the Purchase Agreement
is valid, binding and enforceable against all of the parties thereto other than
the Company; (5) that the Purchaser has full power, authority and legal right,
under its charter and other governing documents and all applicable laws to
execute, deliver and perform its obligations under the Purchase Agreement; (6)
there has been no undisclosed prior waiver of any right or remedy contained in
any agreements, documents, instruments or certificates reviewed by us in
connection with the rendering of the opinions hereinafter expressed; and (7) the
genuineness of all signatures of all persons other than the officers of the
Company executing agreements, instruments, documents or certificates examined
and relied upon by us, the authenticity of each agreement, instrument, document
and certificate examined and relied upon by us as an original and the conformity
with the original of each agreement, instrument, document and certificate
examined and relied upon by us as a copy.
We are members of the Bar of the State of Florida and do not hold
ourselves out as being conversant with, or expressing any opinion with respect
to, the laws of any jurisdiction other than the federal laws of the United
States of America and the internal laws of the State of Florida. Accordingly,
the opinions expressed herein are expressly limited to the Federal laws of the
United States of America and the internal laws of the State of Florida.
39
Opinions
Based upon and subject to the foregoing and the comments, assumptions,
limitations, qualifications and exceptions hereinafter set forth, we hereby
advise you that in our opinion:
A. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Florida. The Company has all
requisite corporate power and authority to carry on its business as now
conducted and to enter into and perform all of its obligations under the
Purchase Agreement and to carry out the transactions contemplated thereby.
B. The Company has taken all corporate action required to execute and
deliver the Purchase Agreement, and the Purchase Agreement constitutes the valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium or other similar laws relating
to or affecting creditors' rights generally, or by general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law).
C. The authorized capital stock of the Company consists of 18,000,000
shares of common stock, par value $.025 per share (the "Common Stock"), and
500,000 shares of preferred stock, par value $.001 per share (the "Preferred
Stock"). To the best of our knowledge, as of the date hereof, there were
7,467,542 shares of Common Stock and no shares of Series A Convertible Preferred
Stock issued and outstanding. All of the issued and outstanding shares of Common
Stock and Series A Convertible Preferred Stock have been duly authorized and
validly issued and are fully paid and nonassessable.
D. The Company has all requisite power and authority to issue, sell and
deliver the Shares of Series A Convertible Preferred Stock (the "Series A
Preferred Stock") in accordance with and upon the terms and conditions set forth
in the Purchase Agreement, all corporate action required to be taken by the
Company for the due and proper authorization, issuance, sale and delivery of the
Preferred Shares has been validly and sufficiently taken; excepting shareholder
approval which must be had prior to valid conversion of the Series A Preferred
Stock into Common Stock. Upon payment by the Purchaser of the purchase price for
the Shares of Series A Preferred Stock being purchased pursuant to the Purchase
Agreement, the Series A Preferred Stock will be, and the Common Stock issuable
upon conversion thereof, upon issuance and delivery in the manner described in
the Articles of Amendment attached thereto, will be, duly authorized, validly
issued, fully paid and nonassessable. The Articles of Amendment, in the form
attached to the Purchase Agreement, shall be duly filed with the Secretary of
State of the State of Florida.
E. The form of stock certificate representing the shares of Series A
Preferred Stock to be issued to the Purchaser complies with the applicable
requirements of Florida law.
40
4. Comments, Assumptions, Limitations, Qualifications and Exceptions
The foregoing opinions are subject to the following additional
comments, assumptions, limitations, qualifications and exceptions:
A. As used in the opinions expressed herein, the expressions "to our
knowledge," "known to us" and other similar words or phrases (whether or not
modified by any additional phrases) mean that, after an examination of
documents, records and certificates referred to in this opinion, documents in
our files and documents provided to us by the Company and after such inquiry of
officers of the Company as we have deemed appropriate (including through
obtaining representations and certificates), we have no reason to believe that
the conclusion to which such expression applies is factually incorrect, but
beyond that we have made no independent factual investigation. Moreover, such
expression is limited to the knowledge of attorneys employed by our firm who
have represented the Company in connection with the matters described in the
first paragraph of this letter or otherwise spent time representing the Company.
B. In rendering the opinions relating to the existence, good standing
and qualification to conduct business of any entity, we have relied solely on
certificates of public officials included in the Documents and have conducted no
further investigation.
C. Notwithstanding anything to the contrary set forth herein, no
opinion is expressed as to consents, approvals, authorizations or orders
required under state securities or blue sky laws or of the National Association
of Securities Dealers, Inc. or the Nasdaq National Market in connection with the
purchase and distribution of the Shares.
D. References to the "internal laws" of a jurisdiction are to the laws
of that jurisdiction other than that jurisdiction's conflict-of-law
statutes and rules.
E. Although we have acted as counsel to the Company in connection with
certain other matters, our engagement is limited to certain matters about which
we have been consulted. Consequently, there may exist matters of a legal nature
involving the Company in connection with which we have not been consulted and
have not represented the Company.
F. This opinion letter is limited to the matters stated herein and no
opinions may be implied or inferred beyond the matters expressly stated herein.
G. The opinions expressed herein are as of the date hereof, and we
assume no obligation to update or supplement such opinions to reflect any facts
or circumstances that may hereafter come to our attention or any changes in law
that may hereafter occur.
H. This opinion letter has been issued solely for the benefit of the
Purchaser, and no other party or entity shall be entitled to rely hereon without
the express written consent of this firm. Without our prior written consent,
this opinion letter may not be quoted in whole or in part or otherwise referred
to in any document or report and may not be furnished to any person or entity.
Very truly yours,
41
AKERMAN, SENTERFITT & XXXXXX, P.A.
42
Exhibit C
FORM OF
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of January ___, 2001 by and between Fortune Financial, Inc., a
Florida corporation ("Fortune"), and The Crown Group, Inc., a Florida
corporation ("CGI"), CGI and its permitted assigns being the "Holders").
Capitalized terms used herein are defined in Section 9 and throughout this
Agreement.
WHEREAS, Fortune and the Holders, among others, have entered into a
Preferred Stock Purchase Agreement dated as of the date hereof (the "Stock
Purchase Agreement"), pursuant to which Fortune agrees to issue 133,333 shares,
and conditionally issue an additional 66,667 shares, of its Series A Convertible
Preferred Stock, par value $.001 per share (the "Preferred Stock") to the
Holders; and
WHEREAS, the Preferred Stock is convertible into Fortune common stock,
par value $.025 per share (the "Common Stock"), as provided in the Stock
Purchase Agreement; and
WHEREAS, Fortune has agreed to provide to the Holders the registration
rights provided herein with respect to the Registrable Securities;
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements set forth herein and in the Stock Purchase Agreement, the parties
agree as follows:
1. Demand Registration.
(a) Registration on Request. At any time after the 90th day
following the Closing (as defined in the Stock Purchase Agreement), upon written
request by the Holders of at least a majority (by number of shares) of the
Registrable Securities, Fortune shall use reasonable efforts to cause, as soon
as practicable following the date of such notice, a registration statement to be
filed under the Securities Act or a pending registration statement to be amended
for the purpose of registering the Registrable Securities for resale by the
requesting Holders in accordance with the intended method of disposition stated
in such request; provided that Fortune shall not be required to effect any
registration pursuant to this Section 1(a) on more than two (2) separate
occasions. Each request for a demand registration shall specify the approximate
number of Registrable Securities requested to be registered and the anticipated
per share price range for such offering. Fortune shall give all other Holders
written notice of such written request within ten (10) days thereof and give all
other Holders the opportunity to request that their Registrable Securities be
included in the registration statement filed with the SEC. No request for
registration may be made pursuant to this Section 1(a) unless the Registrable
Securities requested to be registered on behalf of requesting Holders total at
least 25% of the aggregate number of Registrable Securities acquired by the
Holders in the Closing (as defined in the Stock Purchase Agreement) or have a
market value (based upon the closing price of such Registrable Securities quoted
43
on the securities exchange or over-the-counter quotation system on which such
Registrable Securities are listed or quoted, as the case may be, on the trading
day immediately preceding any request pursuant to this Section 1(a)) of at least
$5 million at the close of the last trading day prior to such request.
(b) Registration Statement Form. Registrations under Section
1(a) shall be on such appropriate registration form of the SEC as shall permit
the disposition of such Registrable Securities in accordance with the intended
method or methods of disposition specified in the request for such registration
and as shall be permitted under the Securities Act.
(c) Effective Registration Statement. A registration requested
pursuant to Section 1(a) shall be deemed to have been effected if a registration
statement with respect thereto has become effective, provided that a
registration statement which does not become effective after Fortune has filed a
registration statement with respect thereto solely by reason of the refusal by
the Holders to proceed (other than a refusal to proceed based upon the written
advice of counsel relating to a material matter regarding Fortune) shall be
deemed to have been effected by Fortune at the request of such Holders, unless
(i) after it has become effective, such registration statement becomes subject
to any stop order, injunction or other order or requirement of the Commission or
other governmental agency or court for any reason, other than by reason of an
act or omission attributable to such Holders with respect thereto; provided that
upon the lifting of any such order registration will be deemed to be effective,
or (ii) unless the conditions to closing specified in the underwriting agreement
entered into in connection with such registration are not satisfied, other than
by reason of an act or omission attributable to the Holders.
(d) Selection of Underwriters. If a requested registration
pursuant to Section 1(a) involves an underwritten public offering, the managing
or lead underwriter shall be selected by Fortune and shall be reasonably
acceptable to the Holders of a majority (by number of shares) of the Registrable
Securities as to which registration has been requested, which shall not
unreasonably withhold their acceptance of any such underwriters, and one
co-managing or co-lead underwriter may be selected by the Holders of a majority
(by number of shares) of the Registrable Securities as to which registration has
been requested and shall be reasonably acceptable to Fortune, which shall not
unreasonably withhold its acceptance of any such co-managing or co-lead
underwriter.
(e) Priority on Demand Registrations. If a requested
registration pursuant to Section 1(a) involves an underwritten public offering
and the managing or lead underwriter advises Fortune in writing, with a copy to
each Holder requesting registration, that in its opinion the number of
securities requested to be included in such registration (including securities
to be sold by Fortune or by other persons who are not Holders of Registrable
Securities) exceeds the number of securities which can be sold in an orderly
manner in such offering within a price range acceptable to the Holders of a
majority (by number of shares) of the Registrable Securities that are requested
to be included in such registration without adversely affecting the
marketability of the offering, Fortune shall include in such registration prior
to the inclusion of any securities which are not Registrable Securities the
number of Registrable Securities requested to be included which in the opinion
of such underwriters can be sold in an orderly manner within the price range of
such offering, pro rata among the respective holders thereof on the basis of the
amount of Registrable Securities requested to be included.
44
(f) Restrictions on Demand Registration. Fortune shall not be
obligated to effect any registration pursuant to Section 1(a) during any of the
following periods: (i) 30 days prior to the anticipated commencement of an
underwritten public offering by Fortune of its equity securities and 90 days
subsequent to the consummation of such underwritten public offering unless, in
the good faith judgment of the managing or lead underwriter or underwriters
thereof, which is confirmed in writing, such filing would not have an adverse
effect on such offering, (ii) if such filing is prohibited by applicable law or
(iii) if Fortune determines in good faith that the filing or effectiveness of
such registration statement would require Fortune to disclose a material
financing, acquisition or other corporate transaction or development, and the
proper officers of Fortune shall have determined in good faith that such
disclosure is not in the best interests of Fortune, provided that Fortune may
not delay the filing or effectiveness of any registration statement pursuant to
this Section 1(f) for more than an aggregate of 180 days in any twelve-month
period; provided, further, that Fortune shall file the registration statement
and cause it to become effective as soon as reasonably practicable after it
shall determine in its good faith judgment that such registration will not
materially interfere with or materially adversely affect the financing,
acquisition or other corporate transaction or development.
2. Piggyback Registration.
(a) Right to Piggyback. Whenever Fortune proposes to file a
registration statement, other than pursuant to Section 1(a) above, for the
registration of shares of its Common Stock in connection with an underwritten
primary public offering on behalf of Fortune or an underwritten secondary public
offering on behalf of other persons who are not the Holders of Registrable
Securities, Fortune will, prior to such filing, give fifteen (15) days prior
written notice to the Holders of its intention to do so and, upon the written
request of the Holders given within ten (10) days after receipt of such notice,
Fortune shall, subject to the terms of this Agreement, use its reasonable
efforts to cause the Registrable Securities which Fortune has been requested to
register by such Holder to be registered under the Securities Act to the extent
necessary to permit their sale. If, at any time after giving written notice of
its intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, Fortune shall
determine for any reason (other than by reason of acts or omissions attributable
to any of the Holders) either not to register or to delay registration of such
securities, Fortune may, at its election, give written notice of such
determination to each Holder and, thereupon, (i) in the case of a determination
not to register, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from its obligation to
pay the Registration Expenses (as defined below) in connection therewith),
without prejudice, however, to the rights of any Holders, if entitled to do so,
to request that such registration be effected as a registration under Section
1(a), and (ii) in the case of a determination to delay registration, shall be
permitted to delay registering any Registrable Securities, for the same period
as the delay in registering such other securities. No registration effected
under this Section 2(a) shall relieve Fortune of its obligation to effect any
registration upon request under Section 1(a), nor shall any such registration
hereunder be deemed to have been effected pursuant to Section 1(a).
(b) Priority in Piggyback Registrations. In a requested
registration pursuant to Section 2(a), if the managing or lead underwriters
advise Fortune in writing that in their opinion the number of securities
45
requested to be included in such registration exceeds the number which can be
sold in an orderly manner in such offering within a price range acceptable to
Fortune or the other persons who are not Holders of Registrable Securities who
requested the filing of a registration statement pursuant to Section 2(a) above,
Fortune shall include in such registration (i) first, the securities Fortune
proposes to sell, and (ii) second, the Registrable Securities and securities
held by other persons who are not Holders of Registrable Securities requested to
be included in such registration, pro rata among the Holders of Registrable
Securities and the other persons who are not Holders of Registrable Securities
on the basis of the number of shares requested by each such Holder of
Registrable Securities and each other person who is not a Holder of Registrable
Securities to be included in such offering.
3. Holdback Agreements.
(a) So long as a Holder and its Affiliates own Common Stock
and/or Preferred Stock convertible into Common Stock exceeding 5% of the Common
Stock of Fortune then outstanding or such Holder has the right to designate one
or more directors to the board of directors of Fortune (unless otherwise
required by the underwriters), such Holder of Registrable Securities shall not
effect any public sale or distribution (including sales pursuant to Rule 144) of
equity securities of Fortune, or any securities convertible into or exchangeable
or exercisable for such securities, during the seven (7) days prior to and the
90-day period beginning on the effective date of any underwritten registration
(except as part of such underwritten registration), unless the underwriters
managing the registered public offering agree to a shorter restricted period.
(b) Fortune (i) shall not effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven (7) days prior
to and during the 90-day period beginning on the effective date of any
underwritten demand registration or any underwritten piggyback registration
(except as part of such underwritten registration), unless the underwriters
managing the registered public offering otherwise agree, and (ii) shall use best
reasonable efforts to cause each holder of at least 5% (on a fully-diluted
basis) of its Common Stock, or any securities convertible into or exchangeable
or exercisable for Common Stock, purchased or acquired from Fortune at any time
after the date of this Agreement (other than in a registered public offering) to
agree not to effect any public sale or distribution (including sales pursuant to
Rule 144) of any such securities during such period (except as part of such
underwritten registration, if otherwise permitted), unless the underwriters
managing the registered public offering otherwise agree.
4. Registration Procedures. Whenever the Holders of Registrable Securities have
requested that any Registrable Securities be registered pursuant to this
Agreement, Fortune shall use its reasonable efforts to effect the registration
and the sale of such Registrable Securities in accordance with the intended
method of disposition thereof, and pursuant thereto Fortune shall as
expeditiously as possible:
(a) prepare and as soon as reasonably practicable file with
the SEC a registration statement with respect to such Registrable Securities and
use its reasonable efforts to cause such registration statement to become and
remain effective (provided that before filing a registration statement or
prospectus or any amendments or supplements thereto, Fortune shall furnish to
46
the counsel selected by the Holders of at least a majority (by number of shares)
of the Registrable Securities covered by such registration statement copies of
all such documents proposed to be filed, which documents shall be subject to the
review and reasonable comment of such counsel);
(b) notify each seller of Registrable Securities of the
effectiveness of each registration statement filed hereunder and prepare and
file with the SEC such amendments and supplements to such registration statement
and the prospectus used in connection therewith as may be necessary to keep such
registration statement effective for a period of not less than 180 days and
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;
(c) furnish to each seller of Registrable Securities such
number of copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use its reasonable efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such seller
to consummate the disposition of the Registrable Securities owned by such seller
in such jurisdictions (provided that Fortune shall not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph, (ii) subject itself
to taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction);
(e) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances under which they were made, and, at the request of any such
seller, Fortune shall promptly prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to the Purchaser of such Registrable
Securities, such prospectus shall not contain an untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances under which they were made;
(f) use its best reasonable efforts to cause all such
Registrable Securities to be listed on each securities exchange or
over-the-counter quotation system on which securities of the same class are then
listed or quoted;
(g) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement;
47
(h) otherwise use its best reasonable efforts to comply with
all applicable rules and regulations of the SEC, and make available to its
stockholders, as soon as reasonably practicable, an earnings statement covering
the period of at least twelve months beginning with the first day of Fortune's
first full calendar quarter after the effective date of the registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 thereunder;
(i) if and to the extent that any seller of Registrable
Securities, in its sole and exclusive judgment, might be deemed to be an
underwriter or a controlling person of Fortune, permit such seller to
participate in the preparation of such registration or comparable statement and
require the insertion therein of material, furnished to Fortune in writing,
which in the reasonable judgment of such seller and its counsel should be
included;
(j) in the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any Common Stock included in such registration statement for sale in any
jurisdiction, use its best reasonable efforts promptly to obtain the withdrawal
of such order; and
(k) use its best reasonable efforts to cause such Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable sellers thereof to consummate the disposition of such Registrable
Securities.
5. Registration Expenses. Fortune will pay or cause to be paid all Registration
Expenses (as defined below) in connection with any registration of Registrable
Securities requested pursuant to this Agreement. "Registration Expenses" means
all expenses incident to Fortune's performance of or compliance with this
Agreement, including without limitation, all registration and filing fees, fees
and expenses of compliance with securities or blue sky laws, listing expenses,
printing expenses, messenger and delivery expenses, fees and disbursements of
custodians, fees and disbursements of counsel for Fortune and all independent
certified public accountants, underwriters (excluding discounts and commissions)
and other persons retained by Fortune. Registration Expenses shall not include
any taxes payable in connection with the resale of the Registrable Securities.
6. Indemnification.
(a) Indemnification by Fortune. Fortune agrees to indemnify,
to the extent permitted by law, each Holder of Registrable Securities, its
officers, directors, partners, members, affiliates and each person who controls
such Holder (within the meaning of the Securities Act) against all losses,
claims, damages, liabilities and expenses arising out of or based upon any
untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and, except as otherwise provided herein, Fortune will reimburse
such Holder, officer, director, partner, member, affiliate and controlling
person for any legal or any other expenses reasonably incurred by them in
connection with investigating or defending against any such loss, claim, damage,
48
liability or expense, except insofar as the same arise from or are based upon
any information made in reliance upon and in conformity with written information
provided to Fortune by such Holder for use therein or by such Holder's failure
to deliver a copy of the final prospectus or any amendments or supplements
thereto after Fortune has furnished such Holder with a sufficient number of
copies of the same. In connection with an underwritten offering, Fortune shall
indemnify such underwriters, their officers and directors and each person who
controls such underwriters (within the meaning of the Securities Act) to the
same extent as provided above with respect to the indemnification of the Holders
of Registrable Securities.
(b) Indemnification by the Holders. In connection with any
registration statement in which a Holder of Registrable Securities is
participating, each such Holder shall furnish to Fortune in writing such
information and affidavits as Fortune reasonably requests for use in connection
with any such registration statement or prospectus and, to the extent permitted
by law, shall indemnify Fortune, its directors and officers and each person who
controls Fortune (within the meaning of the Securities Act) against any losses,
claims, damages, liabilities and expenses arising out of or based upon any
untrue or alleged untrue statement of material fact contained in the
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, but only to the extent that such untrue statement or omission is
made in reliance upon and in conformity with information furnished to Fortune by
such Holder for use in the preparation of such registration statement,
prospectus or preliminary prospectus, amendment or supplement; provided that the
obligation to indemnify shall be individual, not joint and several, for each
Holder. In connection with an underwritten offering, the Holder, if selling
Registrable Securities, shall indemnify such underwriters, their officers and
directors and each person who controls such underwriters (within the meaning of
the Securities Act) to the same extent as provided above with respect to the
indemnification of Fortune.
(c) Notice of Claims. Any person entitled to indemnification
hereunder shall (i) give prompt written notice to the indemnifying party of any
claim with respect to which it seeks indemnification (provided that the failure
to give prompt notice shall not impair any person's right to indemnification
hereunder to the extent such failure has not prejudiced the indemnifying party)
and (ii) unless in such indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying parties may exist with
respect to such claim, permit such indemnifying party to assume the defense of
such claim with counsel reasonably satisfactory to the indemnified party;
provided, however, that any indemnified party may, at its own expense, retain
separate counsel to participate in such defense. If such defense is assumed, the
indemnifying party shall not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent shall not be
unreasonably withheld). No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect to such claim or litigation or which requires action other than the
payment of money by the indemnifying party. An indemnifying party who is not
entitled to, or elects not to, assume the defense of a claim shall not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in the
reasonable judgment
49
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
(d) Survival of Indemnification. The indemnification provided
for under this Agreement shall remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified party or any officer,
director, partner, member, affiliate or controlling person of such indemnified
party and shall survive the transfer of securities.
(e) Contribution. If the indemnification provided for in this
Section 6 is unavailable to an indemnified party in respect of any loss, claim,
damage, liability or expense referred to herein, then each indemnifying party,
in lieu of indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such loss, claim,
damage, liability or expense (i) in such proportion as is appropriate to reflect
the relative benefits received by Fortune on the one hand and the Holder or
other person, as the case may be, on the other from the distribution of the
Registrable Securities or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of Fortune on the one hand and of the Holder or other person, as
the case may be, on the other in connection with the statements or omissions
which resulted in such loss, claim, damage, liability or expense, as well as any
other relevant equitable considerations. The relative benefits received by
Fortune on the one hand and the Holder or other person, as the case may be, on
the other in connection with the distribution of the Registrable Securities
shall be deemed to be in the same proportion as the total net proceeds received
by Fortune from the initial sale of the Registrable Securities by Fortune to the
Holder pursuant to the Stock Purchase Agreement bear to the gain, if any,
realized by the selling Holder or the underwriting discounts and commissions
received by the underwriter, as the case may be. The relative fault of Fortune
on the one hand and of the Holder or other person, as the case may be, on the
other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or omission to state a
material fact relates to information supplied by Fortune, by the Holder or by
the other person and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission,
provided that the foregoing contribution agreement shall not inure to the
benefit of any indemnified party if indemnification would be unavailable to such
indemnified party by reason of the provisions contained in the first sentence of
Section 6(a), and in no event shall the obligation of any indemnifying party to
contribute under this Section 6(e) exceed the amount that such indemnifying
party would have been obligated to pay by way of indemnification if the
indemnification provided for under this Section 6 had been available under the
circumstances.
Fortune and the Holders of Registrable Securities agree that it would
not be just and equitable if contribution pursuant to this Section 6(e) were
determined by pro rata allocation (even if the Holders and any underwriters were
treated as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities or expenses
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth in the preceding sentence and Section 6(c),
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
50
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
7. Participation in Underwritten Registrations. No Holder may participate in any
registration hereunder which involves an underwritten offering unless such
Holder (i) agrees to sell the Holder's Registrable Securities on the basis
provided in any underwriting arrangements approved by the parties entitled
hereunder to approve such arrangements and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
8. Other Agreements. Fortune shall not enter into any agreement or instrument
which would conflict with or result in a material breach or violation of any of
the terms or provisions of this Agreement. In addition, Fortune shall not enter
into any agreement or instrument with any person which grants such person demand
registration rights similar to those in Section 1(a) which preclude the Holders
of Registrable Securities from exercising their rights pursuant to Section 2(a)
hereof in connection with any registration statement filed pursuant to which
such person will sell securities of Fortune.
9. Definitions. As used in this Agreement, the following terms shall have
the following respective meanings:
"Affiliate" shall have the meaning attributed thereto under
Rule 12b-2 under the Exchange Act.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations
promulgated thereunder, all as the same shall be in effect at the time.
"Registrable Securities" shall mean, as of any date of
determination, outstanding shares of Common Stock that were issued by Fortune
upon the conversion of the Preferred Stock, shares of Common Stock issuable by
Fortune upon conversion of any Preferred Stock and any other shares of capital
stock of Fortune issued in respect of any of the foregoing as a result of stock
splits, stock dividends, reclassification, recapitalization, mergers,
consolidations or similar events; provided that any such securities shall no
longer be Registrable Securities if such securities have been resold or
exchanged pursuant to an effective registration statement or pursuant to Rule
144 of the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar federal statute, and the rules and regulations promulgated
thereunder, all as the same shall be in effect at the time.
51
10. Miscellaneous.
(a) Notice Generally. Any notice, request, consent, approval,
declaration, delivery or other communication hereunder to be made pursuant to
the provisions of this Agreement shall be sufficiently given or made if in
writing and either delivered in person with receipt acknowledged, delivered by
reputable overnight courier, telecopied and confirmed separately in writing by a
copy mailed or sent by registered or certified mail, return receipt requested,
postage prepaid, to the appropriate address or addresses set forth in the Stock
Purchase Agreement.
(b) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the parties
hereto; provided that none of the Holders may assign, delegate or otherwise
transfer any of its rights, interests or obligations under this Agreement,
without the prior written consent of Fortune, except to another Holder or an
Affiliate of any of the Holders.
(c) Governing Law. This Agreement shall be governed by the
laws of the State of Florida, without regard to the provisions thereof relating
to conflict of laws.
(d) Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provisions shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
(e) Entire Agreement. This Agreement, together with the Stock
Purchase Agreement, is intended by the parties as a final expression of their
agreement and intended to be a complete exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and therein. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to the subject matter hereof.
(f) Counterparts. This Agreement may be executed in separate
counterparts, each of which shall collectively and separately, constitute one
agreement.
(g) Amendment and Waivers. Any term of this Agreement may be
amended or modified and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) only with the written consent of Fortune and Holders of at least
two-thirds (by number of shares) of the Registrable Securities; provided that
the observance of a term of this Agreement may in any event be waived in writing
by the party that will lose the benefit of such term as a result of the waiver.
52
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
FORTUNE FINANCIAL, INC.
By:
-------------------------------------------
J. Xxxx Xxxxxxx
President and Chief Executive Officer
THE CROWN GROUP, INC.
By:
-------------------------------------------
Xxxx X. Xxxxxx
President
53
Exhibit D
FORM OF
SHAREHOLDERS' AGREEMENT
THIS SHAREHOLERS' AGREEMENT (this "Agreement") is dated as of the ___ day
of January, 2001, by and among the shareholders set forth on Exhibit A attached
hereto (hereinafter each individually referred to as "Shareholder" and
collectively referred to as "Shareholders"), Xxxxxx X. Xxxxxx ("Xxxxxx"), R. Xxx
Xxxxx ("Xxxxx"), Fortune Financial, Inc., a Florida corporation ("FFI"), The
Crown Group, Inc., a Florida corporation ("CGI"), Hawkeye, Inc., a Florida
corporation ("Hawkeye") and Mid-Ohio Securities Corp., FBO R. Xxx Xxxxx (Acct.
15051) ("Xxxxx XXX").
W I T N E S S E T H :
WHEREAS, Shareholders collectively own, or have voting power with respect
to, in excess of 51% of the outstanding common stock of FFI ("Common Stock");
WHEREAS, Shareholders desire to terminate that certain Shareholders'
Agreement dated November 15, 2000 among FFI and the Shareholders (the "Previous
Shareholders' Agreement"); and
WHEREAS, Shareholders and FFI believe it to be in their respective best
interests to enter into an agreement pursuant to Florida Statute ss. 607.0731 to
provide for the manner in which the Shareholders will vote their shares with
respect to: (i) approval or ratification of a transaction involving the
investment by Hawkeye and Xxxxx XXX in certain convertible notes and warrants
exercisable for the acquisition of Common Stock as set forth in that certain
Securities Purchase Agreement dated November 15, 2000 among FFI, Hawkeye and
Xxxxx XXX (the "Phase I Transaction"); (ii) approval or ratification of a
transaction involving CGI's investment in FFI pursuant the purchase of FFI
Series A Convertible Preferred Stock ("Preferred Stock") as set forth in that
certain Preferred Stock Purchase Agreement effective as of December 29, 2000
between FFI and the Investors (the "Phase II Transaction," together with the
Phase I Transaction hereinafter referred to as the "Transactions"); (iii)
expansion and reduction of the number of directors that comprise the FFI Board
of Directors (the "Board") and filling the vacancy on the Board created by the
expansion and thereafter creating a staggered Board and agreeing on FFI director
nominees; and (iv) authorization of additional shares of Common Stock.
In consideration of the mutual benefits to be derived from the covenants
and agreements herein contained, and for other good and valuable consideration,
receipt of which is hereby acknowledged, the parties hereto agree as follows:
1. Termination of Previous Shareholder Agreement. The Shareholders hereby
terminate the Previous Shareholders' Agreement.
2. Approval of Transactions. FFI agrees to cause ratification and/or
approval of the Transactions to be placed on the agenda and proxy statement for
a special meeting of FFI's shareholders ("Special Meeting") or the 2001 Annual
54
Meeting of FFI's shareholders (the "2001 Annual Meeting") to be held in 2001,
whichever occurs first. At the Special Meeting or the 2001 Annual Meeting, each
Shareholder agrees (pursuant to Florida Statute ss. 607.0731) to vote all of the
shares of Common Stock then owned (beneficially or otherwise) by such
Shareholder and all such shares as to which such Shareholder is then entitled to
exercise voting power in favor of ratification and/or approval of the
Transactions.
3. Authorization of Additional Shares. FFI agrees to cause authorization of
an additional 17,000,000 shares (the "Additional Shares") of Common Stock (such
that the total authorized shares of Common Stock, $.025 par value, shall be
increased to 35,000,000) to be placed on the agenda and proxy statement for a
Special Meeting or the 2001 Annual Meeting, whichever occurs first. At the
Special Meeting or the 2001 Annual Meeting, each Shareholder agrees (pursuant to
Florida Statute ss. 607.0731) to vote all of the shares of Common Stock then
owned (beneficially or otherwise) by such Shareholder and all such shares as to
which such Shareholder is then entitled to exercise voting power in favor of
authorization of the Additional Shares.
4. Expansion and Reduction of the Board; Staggered Board; Election of
Directors.
(a) Prior to the 2001 Annual Meeting, each Shareholder shall use its best
efforts to cause its designee(s) on the Board to: (i) increase by one the number
of directors that serve on the Board such that the total number of FFI directors
shall be nine until the 2001 Annual Meeting, at which time the number of FFI
directors shall decrease by one such that the total number of FFI directors
shall be eight, and (ii) fill the vacancy caused by such increase in the number
of directors by appointing Xxxx X. Xxxxxx to serve as an FFI director until the
2001 Annual Meeting.
(b) FFI agrees to cause a proposed amendment to FFI's bylaws that provides
for the election of directors to staggered terms of three years (the "Bylaw
Amendment") to be placed on the agenda and proxy statement for a Special Meeting
or the 2001 Annual Meeting, whichever occurs first. At the Special Meeting or
the 2001 Annual Meeting, whichever occurs first, each Shareholder agrees
(pursuant to Florida Statute ss. 607.0731) to vote all of the shares of Common
Stock then owned (beneficially or otherwise) by such Shareholder and all such
shares as to which such Shareholder is then entitled to exercise voting power in
favor of approval of the Bylaw Amendment.
55
(c) Prior to the 2001 Annual Meeting, each Shareholder shall use its best
efforts to cause its designee(s) on the Board to propose the following slate of
directors for election to the Board:
Director Class Board Seats Composition Term Expires
-------------------------- ------------------------- ----------------------------- ----------------------
I 2 1 XxXxxxxx Nominee 2002
1 Xxxxx Nominee
-------------------------- ------------------------- ----------------------------- ----------------------
II 3 1 XxXxxxxx Nominee
1 Xxxxx Nominee
Xxxxxx 2003
-------------------------- ------------------------- ----------------------------- ----------------------
III 3 3 CGI nominees 2004
-------------------------- ------------------------- ----------------------------- ----------------------
The nominees listed in this table immediately above in this Section 4(c) shall
be hereinafter referred to as the "Director Nominees."
(d) At the 2001 Annual Meeting, each party to this Agreement that
beneficially owns any capital stock of FFI at any time during the term of this
Agreement hereby agrees (pursuant to Florida Statute ss. 607.0731) to vote all
of the shares of capital stock of FFI then owned (beneficially or otherwise) by
such Shareholder and all such shares as to which such party is then entitled to
exercise voting power in favor of election of the Director Nominees to the
Board.
(e) As long as the XxXxxxxx Family (as defined below) owns (beneficially or
otherwise) at least fifteen percent (15%) of the outstanding shares of Common
Stock, each party to this Agreement that beneficially owns any capital stock of
FFI at any time during the term of this Agreement hereby agrees to (i) use its
best efforts to cause its designee(s) on the Board to make nominations of
persons for election to the Board and (ii) vote all of the shares of capital
stock of FFI then owned (beneficially or otherwise) by such party and all such
shares as to which such party is then entitled to exercise voting power in a
manner so that at all times the Board is composed of: the XxXxxxxx Nominees (as
defined below), at least two persons nominated by Xxxxx ("Xxxxx Nominee") and
Xxxxxx. For purposes of this Agreement, the following definitions shall apply:
(w) "XxXxxxxx Nominees" shall mean two nominees of Xxxxx X. XxXxxxxx (or in the
event he is deceased or declared incompetent, the two nominees designated
jointly by Xxxxx X. XxXxxxxx and the trustees of the marital trust established
by Xxxxx X. XxXxxxxx); (x) "XxXxxxxx Family" shall mean each member of the
family of Xxxxx X. XxXxxxxx, each Affiliate (as defined below) of Xxxxx X.
XxXxxxxx, and any entity (including trusts) in which Xxxxx X. XxXxxxxx or any
member of his family owns in excess of a five percent (5%) beneficial interest
in Common Stock or over which Xxxxx X. XxXxxxxx or any member of his family has
the power to exercise control; (y) the term "member of the family" shall include
any person related directly or indirectly, by blood, marriage, adoption or any
combination thereof, to Xxxxx X. XxXxxxxx or Xxxxx X. XxXxxxxx; and (z)
"Affiliate" shall have the meaning attributed thereto under Rule 12b-2 under the
Securities Exchange Act of 1934, as amended. This Section 4(e) shall survive
termination and expiration of this Agreement as long as the XxXxxxxx Family owns
(beneficially or otherwise) at least fifteen percent (15%) of the outstanding
shares of Common Stock.
5. No Proxy Contests. During the term of this Agreement, each Shareholder
agrees (i) not to solicit, initiate, encourage or participate in any
solicitation of proxies or take any action by written consent as a Shareholder
the purpose of which would be inconsistent with the provisions of this
Agreement, and (ii) not to assist, advise, encourage or act in concert with any
person with respect to any such conduct.
6. Term. This Agreement shall begin on the date hereof and shall continue
until the first to occur of (i) the sale by CGI of more than 50% of the shares
of Preferred Stock acquired by CGI in connection with the Phase II Transaction
to a non-Affiliate of CGI or (ii) the conversion of any such shares of Preferred
Stock held by CGI into Common Stock. Notwithstanding the foregoing, the term of
this Agreement shall not end prior to the conclusion of the 2001 Annual Meeting
and in any event shall expire on December 31, 2003. 56
56
7. Transfers. Until the conclusion of the 2001 Annual Meeting: (i) this
Agreement shall be binding upon the transferees, direct or indirect, of any
shares of Common Stock held by Shareholders; (ii) any transferor Shareholder
shall, as a condition to such transfer, require the transferee to acknowledge in
writing that such transferee agrees to all the terms and conditions of this
Agreement and promptly deliver a copy of such writing to the Investors and FFI;
(iii) Shareholders agree to maintain, in aggregate, ownership or voting power
for at least 51% of the outstanding Common Stock; and (iv) each Shareholder
agrees not to sell, gift, transfer or convey any shares of Common Stock in
excess of such Shareholder's pro rata share of the shares of Common Stock owned
by the Shareholders in excess of 51% of the outstanding shares of Common Stock.
8. Notice to Transfer Agent. FFI and Shareholders shall jointly notify the
Company's transfer agent of the existence of this Agreement.
9. Specific Performance. Shareholders, the Investors and FFI acknowledge
that the parties hereto would not have an adequate remedy at law for money
damages in the event that this Agreement is not performed in accordance with its
terms, and therefore the parties agree that any party hereto shall be entitled
to specific performance of the terms hereof in addition to any other remedy to
which the parties may be entitled at law or in equity.
10. Further Assurances. Each Shareholder agrees, upon the request of FFI or
the Investors, to execute such further documents, including proxies, as FFI or
the Investors may reasonably request from time to time and to take such other
actions as may be reasonably necessary or desirable to carry out the intent of
this Agreement. The parties acknowledge that any proxies so executed and
delivered constitute proxies coupled with interest and may not be revoked during
the term of this Agreement.
11. Notices. Any notice or other communication required or permitted to be
delivered under this Agreement shall be (i) in writing, (ii) delivered
personally, by nationally recognized overnight courier service or by certified
or registered mail, first-class postage prepaid and return receipt requested,
(iii) deemed to have been received on the date of delivery, and (iv) addressed
as follows (or to such other address as the party entitled to notice shall
hereafter designate in accordance with the terms hereof):
If to Company, to:
Fortune Financial, Inc.
00000 Xxxxxxx Xxxxxxx, Xxxxx 000
Xxxxxxxxxxxx, Xxxxxxx 00000
Attention: President
Facsimile: (000) 000-0000
If to CGI, to:
The Crown Group, Inc.
000 Xxxx Xxxx Xxxxxxx
Xxxxxxxxxxx, Xxxxxxx 00000
Attention: President
Facsimile: (000) 000-0000
57
If to Hawkeye:
Hawkeye, Inc.
c/o Xxxxxx X. Xxxxxx or R. Xxx Xxxxx
Rock Creek Capital
0000 Xxxxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxxxxxx, Xxxxxxx 00000
Facsimile: (000) 000-0000
If to Xxxxx XXX:
Mid-Ohio Securities Corp., FBO R. Xxx Xxxxx
0000 Xxxxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxxxxxx, Xxxxxxx 00000
Attention: Xxxxxxx X. Xxxxx, Vice-President
Facsimile: (000) 000-0000
If to a Shareholder, to the respective Shareholder's as set
forth on Exhibit A attached hereto.
12. Invalid Provision. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect other provisions hereof, and the
Agreement shall be construed in all respects as if such invalid, unenforceable
provisions were omitted.
13. Modification. No change or modification of this Agreement shall be
valid unless the same be in writing and signed by all of the parties hereto.
14. Conflict. In the event of a conflict between the provisions of this
Agreement and that certain Shareholder Agreement dated May 24, 1999 among FFI,
Xxxxx X. XxXxxxxx and R. Xxx Xxxxx (the "Other Shareholder Agreement"), the
provisions of this Agreement shall govern. FFI, Xxxxx X. XxXxxxxx and R. Xxx
Xxxxx hereby agree that the Other Shareholder Agreement is and has been in full
force and effect continuously since its inception.
15. Amendment of Other Shareholder Agreement. FFI, Xxxxx X. XxXxxxxx and R.
Xxx Xxxxx hereby agree that this Agreement hereby amends the Other Shareholder
Agreement as follows and such amendment shall survive termination of this
Agreement:
(a) Section 2 is deleted and replaced in its entirety with the following
language:
Voting of Shares. At each annual or special meeting of the
Company's shareholders at which directors are to be elected,
each Shareholder agrees to vote all of the shares of common
stock of the Company then beneficially owned by the
Shareholder and all such shares as to which the Shareholder is
58
then entitled to exercise voting power as follows (and to use
best efforts to cause to be voted all shares other than
Excluded Shares as to which the Shareholder shares voting
power as follows):
a. Agreed Director Nominees. In favor of the nomination
and election of director nominees (the "Agreed Director
Nominees") such that at all times the Company's Board of
Directors is composed of: (i) two nominees of XxXxxxxx (or
in the event he is deceased or declared incompetent, the two
nominees designated jointly by Xxxxx X. XxXxxxxx and the
trustees of the marital trust established by XxXxxxxx),
collectively, the "XxXxxxxx Nominees"); (ii) two nominees of
R. Xxx Xxxxx (referred to herein collectively as the "Xxxxx
Nominees"); and (iii) Xxxxxx X. Xxxxxx ("Xxxxxx").
b. Vacancies. In the event of a vacancy on the Board of
Directors with respect to the Xxxxx Nominees, in favor of an
individual nominated in writing by 75% of a group comprised
of the remaining Xxxxx Nominee directors and Xxxxxx; in the
event of a vacancy on the Board of Directors with respect to
the XxXxxxxx Nominee directors, in favor of an individual
nominated in writing by XxXxxxxx (or in the event he is
deceased or declared incompetent, the two nominees
designated jointly by Xxxxx X. XxXxxxxx and the trustees of
the marital trust established by XxXxxxxx);
c. Anti-Takeover Measures. Against any anti-takeover measures
such as a common stock dividend or distribution plan intended
to dilute the interest of a purchaser of the Company's stock,
contracts providing for golden parachute payments to the Xxxxx
Nominee directors, limitations on shareholder rights to act by
written consent or to otherwise propose or take corporate
action (other than 30 days notice of any nominee for election
as a director), or amend or repeal Article II, Section 8 of
the Bylaws, which measures the Company hereby agrees not to
adopt without the consent of the Shareholders.
d. Definition of "XxXxxxxx Family". For purposes of this
Agreement, the term "XxXxxxxx Family" shall mean each member
of the family of XxXxxxxx, each affiliate (as that term is
defined under Rule 12b-2 under the Securities Exchange Act of
1934, as amended) of XxXxxxxx, and any entity (including
trusts) in which XxXxxxxx or any member of his family owns
in excess of a five percent (5%) beneficial interest or over
which XxXxxxxx or any member of his family has the power to
exercise control. A "member of the family" includes any
59
person related directly or indirectly, by blood, marriage,
adoption or any combination thereof, to XxXxxxxx or Xxxxx X.
XxXxxxxx. For purposes of this Agreement, the term
"Affiliate" shall have the meaning attributed thereto under
Rule 12b-2 under the Securities Exchange Act of 1934, as
amended.
(b) Section 5 of the Other Shareholder Agreement is deleted and replaced in
its entirety with the following language:
Term. This Agreement shall begin on the date hereof and shall
continue until the first to occur of the following events: (i)
the XxXxxxxx Family owns (beneficially or otherwise) less than
fifteen percent (15%) of the outstanding shares of common
stock of the Company; (ii) at the option of XxXxxxxx, evidence
by written notice to the Company and Xxxxx, default by the
Company under its Consulting and Non-Competition Agreement
(the "Consulting Agreement") or Director Indemnification with
XxXxxxxx, each dated the date hereof, after receipt of written
notice thereof and a failure to cure within the later of 10
days of receipt of such notice by the Company or 10 days after
resolution of any bona fide dispute with respect thereto;
(iii) at the option of XxXxxxxx, evidence by written notice to
the Company and Xxxxx, the occurrence of a Material Adverse
Change; or (iv) at the option of XxXxxxxx, evidence by written
notice to the Company and Xxxxx, the Company's Board fails to
nominate the Family Directors and Xxxxxx, or his successor
selected pursuant to this Section, for election at an Annual
Meeting prior to the 2003 Annual Meeting.
For purposes of the foregoing, Material Adverse Change shall
mean (i) if any time after the closing of The Crown Group,
Inc.'s investment of at least $10,000,000 in the Company
pursuant to that certain Preferred Stock Purchase Agreement
effective as of December 29, 2000 between the Company and The
Crown Group, Inc., the Company's shareholders' equity as
reflected in the Company's quarterly or annual financial
statements filed with the Securities and Exchange Commission
in its Form 10-Q or 10-K is less than such shareholders'
equity as of December 31, 2000 (x) plus $10,000,000 and minus
(y) 20% multiplied by the sum of such shareholders' equity as
of December 31, 2000 and $10,000,000; (ii) the Company is in
default under an Employment Agreement or Consulting and
Non-Competition Agreement with Xxxxxx X. XxXxxxxx, both of
even date herewith, after receipt of written notice thereof
and a failure to cure within the later of 10 days of receipt
of such notice by the Company or 10 days after resolution of
any bona fide dispute with respect thereto; (iii) any local,
state or federal regulatory authority takes control of the
Company or Fortune Insurance Company under administrative
60
supervision or receivership; (iv) any outstanding
indebtedness of the Company for money borrowed is
accelerated or matures and is not paid, extended or
reinstated with 60 days; (v) the Company files a petition
for relief under federal bankruptcy laws or an involuntary
petition is filed against the Company and is not dismissed
within 90 days; or (vi) Xxxxxx resigns, is removed, dies or
otherwise ceases to serve as Chairman of the Board or as
director of the Company and the Board fails to appoint a
successor reasonably satisfactory to XxXxxxxx.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which shall
together constitute one and the same instrument.
17. Applicable Law. This Agreement shall be interpreted and enforced
pursuant to the laws of the State of Florida, without application of principles
of conflicts of laws.
18. Construction. Wherever the context shall permit, the singular shall
include the plural, the plural shall include the singular, and the use of any
gender shall be deemed to include all or no genders.
[signatures on next page]
61
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the date first above written.
------------------------------------ ----------------------------------------
Xxxxx X. XxXxxxxx J. Xxxxxxx Xxxxxxx
------------------------------------ ----------------------------------------
X. Xxx Xxxxx Xxxxxx X. Xxxxx
------------------------------------ ----------------------------------------
Xxxxxx Xxxxxx III Xxxxx X. XxXxxxxx
------------------------------------ ----------------------------------------
Xxxxxx X. XxXxxxxx Xxxxxx X. Xxxxxx
------------------------------------ ----------------------------------------
THE CROWN GROUP, INC., a Florida FORTUNE FINANCIAL, INC., a Florida
corporation corporation
By: By:
--------------------------------- ----------------------------------
Xxxx X. Xxxxxx J. Xxxx Xxxxxxx,
President President and Chief Executive Officer
------------------------------------ ----------------------------------------
HAWKEYE, INC., a Florida corporation MID-OHIO SECURITIES CORP., FBO R.
XXX XXXXX (Acct. 15051)
By: By:
--------------------------------- -------------------------------------
Xxxxxx X. Xxxxxx Xxxxxxx X. Xxxxx
President Vice-President
------------------------------------ ----------------------------------------
J. Xxxx Xxxxxxx
------------------------------------ ----------------------------------------
62
EXHIBIT A
Shareholders
Xxxxx X. XxXxxxxx J. Xxxxxxx Xxxxxxx
00000 Xxxxxxx Xxxx 000 Xxxxx Xxxxxx Xxxxx, Xxxx 0000
Xxxxxxxxxxxx, Xxxxxxx 00000 Xxxxxxx, Xxxxxxxx 00000
Telephone: (000) 000-0000 Telephone: (000) 000-0000
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
X. Xxx Xxxxx Xxxxxx X. Xxxxx
0000 Xxxxxxxxxx Xxxxxxxxx, Xxxxx 000 000 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxx 00000 Xxxxxxxxxxx, XX 00000
Telephone: (000) 000-0000 Telephone: (000) 000-0000
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
Xxxxxx Xxxxxx III Xxxxx X. XxXxxxxx
000 Xxxxx Xxxxx Xxxxxx 00000 Xxx Xxxx Xxxxxxxxx
Xxxxxxxxxxx, Xxxxxxx 00000 Xxxxxxxxxxxx, Xxxxxxx 00000
Telephone: (000) 000-0000 Telephone: (000) 000-0000
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
Xxxxxx X. XxXxxxxx Xxxxxx X. Xxxxxx
0000 Xxxxx Xxxxxxxxxx Xxxxx 0000 Xxxxxxxxxx Xxxxxxxxx, Xxxxx 000
Bldg. 1, Apt. 208 Jacksonville, Florida 32207
Xxxxxxx, Xxxxxxx 00000 Telephone: (000) 000-0000
Telephone: (000) 000-0000 Facsimile: (000) 000-0000
Facsimile: (000) 000-0000
J. Xxxx Xxxxxxx
00000 Xxxxxxx Xxxxxxx, Xxxxx 000
Xxxxxxxxxxxx, Xxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
63
EXHIBIT E
Copy of
Rule 501 -- Definitions and Terms Used in Regulation D, Securities Act of 1933
As used in Regulation D, the following terms shall have the meaning indicated:
a. Accredited investor. Accredited investor shall mean any person who comes
within any of the following categories, or who the issuer reasonably
believes comes within any of the following categories, at the time of the
sale of the securities to that person:
1. Any bank as defined in section 3(a)(2) of the Act, or any savings and loan
association or other institution as defined in section 3(a)(5)(A) of the
Act whether acting in its individual or fiduciary capacity; any broker or
dealer registered pursuant to section 15 of the Securities Exchange Act of
1934; any insurance company as defined in section 2(13) of the Act; any
investment company registered under the Investment Company Act of 1940 or a
business development company as defined in section 2(a)(48) of that Act;
any Small Business Investment Company licensed by the U.S. Small Business
Administration under section 301(c) or (d) of the Small Business Investment
Act of 1958; any plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, if such plan has total
assets in excess of $5,000,000; any employee benefit plan within the
meaning of the Employee Retirement Income Security Act of 1974 if the
investment decision is made by a plan fiduciary, as defined in section
3(21) of such act, which is either a bank, savings and loan association,
insurance company, or registered investment adviser, or if the employee
benefit plan has total assets in excess of $5,000,000 or, if a
self-directed plan, with investment decisions made solely by persons that
are accredited investors;
2. Any private business development company as defined in section 202(a)22 of
the Investment Advisers Act of 1940;
3. Any organization described in section 501(c)3 o the Internal Revenue Code,
corporation, Massachusetts or similar business trust, or partnership, not
formed for the specific purpose of acquiring the securities offered, with
total assets in excess of $5,000,000;
4. Any director, executive officer, or general partner of the issuer of the
securities being offered or sold, or any director, executive officer, or
general partner of a general partner of that issuer;
5. Any natural person whose individual net worth, or joint net worth with that
person's spouse, at the time of his purchase exceeds $1,000,000;
6. Any natural person who had an individual income in excess of $200,000 in
each of the two most recent years or joint income with that person's spouse
in excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current year;
7. Any trust, with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person as described in Rule 506(b)(2)(ii); and
8. Any entity in which all of the equity owners ar accredited investors.
64
Schedule 5.2
SUBSIDIARIES
Table of Subsidiaries:
Name Jurisdiction of Parent % of issued and
Incorporation outstanding shares
owned by Parent
------------------------------ ----------------------------- ----------------------------- -----------------------------
Mobile America Florida Fortune Financial, 100%
Insurance Group, Inc. Inc.
------------------------------ ----------------------------- ----------------------------- -----------------------------
Fortune Insurance Florida Mobile America 100%
Company Insurance Group, Inc.
------------------------------ ----------------------------- ----------------------------- -----------------------------
Fortune Life Arizona Fortune Financial, 100%
Insurance Company Inc.
------------------------------ ----------------------------- ----------------------------- -----------------------------
Pegasus Insurance Oklahoma Fortune Financial, 100%
Company Inc.
------------------------------ ----------------------------- ----------------------------- -----------------------------
Fortune Premium Florida Fortune Financial, 100%
Finance, Inc. Inc.
------------------------------ ----------------------------- ----------------------------- -----------------------------
Fortune Services, Inc. Florida Fortune Financial, 100%
Inc.
------------------------------ ----------------------------- ----------------------------- -----------------------------
Tote-The-Note, Inc. Florida Fortune Financial, 100%
Inc.
------------------------------ ----------------------------- ----------------------------- -----------------------------
Lien on Stock of Subsidiaries:
Pursuant to that certain (a) Credit Agreement dated as of October 24, 1995
between Fortune Financial, Inc. (f/k/a Mobile America Corporation) and
SouthTrust Bank of Alabama, N.A., (b) Pledge and Security dated as of October
24, 1995 between Fortune Financial, Inc. (f/k/a Mobile America Corporation) and
SouthTrust Bank of Alabama, N.A. and (c) Pledge and Security dated as of October
24, 1995 between Mobile Insurance Group, Inc. and SouthTrust Bank of Alabama,
N.A., Fortune Financial, Inc. and Mobile Insurance Group, Inc. pledged as
security for the payment of a $12,000,000 term note all of the capital stock of
Mobile America Insurance Group, Inc., Fortune Insurance Company, Pegasus
Insurance Company, Fortune Premium Finance, Inc. (f/k/a Big Gorilla, Inc.),
Fortune Services, Inc. (f/k/a Fortune Financial Corporation) and Tote-the-Note,
Inc.
65
Schedule 5.6
CAPITAL STOCK AND RELATED MATTERS
Obligation to Repurchase:
During 1999, in order to encourage equity ownership in the Company by senior
management, the Company sold 150,000 shares of common stock to Xxxxxx X. Xxxxxx,
who served as interim President and CEO for approximately two months and who
serves as Chairman of the Board, and sold 150,000 shares to J. Xxxx Xxxxxxx, who
joined the Company as President and CEO in July 1999. The stock sales, which
took place pursuant to the Company's Incentive Plan, were 100% financed with
purchase money loans from the Company. The original principal amounts of the
loans were $431,250 in the case of Xx. Xxxxxx and $412,500 in the case of Xx.
Xxxxxxx. The loans are limited recourse and secured by pledges of the purchased
shares. The Company may, but is not obligated to, repossess the shares of common
stock pursuant to its security interest therein (under the Uniform Commercial
Code of Florida) in the case of an event of default of the loans.
As the Hawkeye, Inc. and Mid-Ohio Securities Transactions, please see the
Company's Form 8- K dated November 30, 2000 attached to this Schedule 5.6.
66
Schedule 5.8
INDEBTEDNESS
Indebtedness Outstanding Principal Balance
as of October 24, 2000
---------------------------------------------------------------------------- -----------------------------------------
$12,000,000 term loan from SouthTrust Bank of Alabama,
N.A. pursuant to Promissory Note dated as of October 24,
1995 $2,800,000.00
---------------------------------------------------------------------------- -----------------------------------------
$1,200,000 Convertible Promissory Note to Hawkeye, Inc. $1,200,000.00
---------------------------------------------------------------------------- -----------------------------------------
$800,000 Convertible Promissory Note to Mid-Ohio $800,000.00
Securities Corp. FBO R. Xxx Xxxxx dated November 15, 2000
---------------------------------------------------------------------------- -----------------------------------------
67
Schedule 5.9
LIENS AND LEASE AGREEMENT
Liens:
Real Property and Personal Property
Pursuant to that certain Credit Agreement dated as of October 24, 1995 between
Fortune Financial, Inc. (f/k/a Mobile America Corporation) and SouthTrust Bank
of Alabama, N.A., that certain Pledge and Security dated as of October 24, 1995
between Fortune Financial, Inc. (f/k/a Mobile America Corporation) and
SouthTrust Bank of Alabama, N.A. and that certain Pledge and Security dated as
of October 24, 1995 between Mobile Insurance Group, Inc. and SouthTrust Bank of
Alabama, N.A., Fortune Financial, Inc. and Mobile Insurance Group, Inc. pledged
as security for the payment of a $12,000,000 term note all of the capital stock
of Mobile America Insurance Group, Inc., Fortune Insurance Company, Pegasus
Insurance Company, Fortune Premium Finance, Inc. (f/k/a Big Gorilla, Inc.),
Fortune Services, Inc. (f/k/a Fortune Financial Corporation) and Tote-the-Note,
Inc.
Attached to this Schedule 5.9 is a copy of the lease agreement relating to the
premises located at 00000 Xxxxxxx Xxxxxxx, Xxxxxxxxxxxx, Xxxxxxx 00000.
68
Schedule 5.10
LITIGATION
Arbitration:
Fortune Insurance Company v. Clarendon National Insurance Co.
The substance of this reinsurance arbitration is subject to a confidentiality
agreement. However, the procedural matters such as timing and scheduling are not
confidential. Certain non- confidential matters have been disclosed in the
Company's filing of Commission Documents with the Securities and Exchange
Commission.
Pending Litigation:
Xxxxxx
This lawsuit involves an excess judgment rendered against an insured of the
Florida Residential Property and Casualty Joint Underwriting Association
(FRPCJUA) involving a May 7, 1996 claim. Fortune Insurance Company was a
servicing carrier to the FRPCJUA and may have some liability. This claim has
been filed with Fortune's reinsurance carriers.
USA Diagnostic v. Fortune Insurance Company
This is class action lawsuit involves the payment of interest on personal injury
protection claims. The lawsuit was filed in 1994 and the litigation is expected
to continue for several more years. The class has not been certified.
Other:
Sirius Reinsurance Corporation
The reinsurance treaty with Sirius has been terminated. Fortune has made a
demand for funds currently due and will make a subsequent demand after the
run-off period. Sirius has not acknowledged Fortune's demand.
69
Schedule 5.13
CERTAIN FEES
The Company engaged Heritage Capital Group, Inc. ("Heritage") to provide
exclusive financial advisor services. The Company is obligated to pay Heritage
an engagement fee of $20,000, payable in four installments of $5,000 per month.
Of the total engagement fee, $15,000 has already been paid. In addition to such
engagement fee, the Company must pay Heritage in cash at Closing a finder's fee
of 1 1/2% of the Purchase Price.
70
Schedule 5.17
ENVIRONMENTAL MATTERS
Fortune Insurance Company has two sites in Florida's environmental cleanup
program. One site is in Xxxxxxx, Florida and the other in Belleview, Florida.
Both sites' cleanup is being funded under the Florida Department of
Environmental Protection's Abandoned Tank Restoration Program.
71
