Exhibit 10.48
STOCK TRANSFER RESTRICTION
AND
SHAREHOLDERS AGREEMENT
This Stock Transfer Restriction and Shareholders Agreement (this
"Agreement") dated as of January 1, 1998, by and among American Physicians
Service Group, Inc., a Texas corporation ("APS"), Xxxxxx Acquisition, Inc., a
Texas corporation (the "Corporation"), Xxxxxx House, Ltd., a Texas limited
partnership ("Xxxxxx House"), Xxxxxx House at Oakwell Farms, Ltd., a Texas
limited partnership ("Oakwell"), Uncommon Care, Inc., a Texas corporation (the
"General Partner"), Xxxxxx X. Xxxxxxxx ("Xxxxxxxx"), Xxxx X. Xxxxxx ("Xxxxxx"),
Uncommon Partners, Ltd., a Texas limited partnership (the "Limited Partner") and
the additional parties listed on Appendix I hereto (each an "Additional
Purchaser" and collectively the "Additional Purchasers"). Xxxxxx House and
Oakwell are sometimes collectively referred to herein as the "Partnerships."
PRELIMINARY STATEMENT
The parties hereto desire to enter into this Agreement to control the
distribution of ownership interests in the Corporation and to promote the
harmonious management of the Corporation's affairs.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good, valuable and binding consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound hereby, agree as follows:
ARTICLE I
DEFINITIONS; PERMISSIBLE TRANSFERS
For purposes of this Agreement, each party hereto, other than the
Corporation, is hereinafter sometimes referred to as a "Shareholder" and
collectively as the "Shareholders." For purposes of this Agreement all issued
and outstanding capital stock of the Corporation, together with any hereafter
acquired, whether common, preferred or otherwise, is hereinafter referred to as
the "Shares."
The parties hereto acknowledge and agree that, as of the date this
Agreement is initially entered into, the General Partner, Xxxxxxxx, Xxxxxx and
the Limited Partner do not own any Shares of the Corporation. However, all
parties hereto agree that any and all Shares which either of the Partnerships
obtains, either directly or indirectly, pursuant to the transactions consummated
in connection with the execution of this Agreement, that certain Contribution
and Stock Purchase Agreement dated effective January 1, 1998 (the "Contribution
Agreement") or any other document, agreement or instrument executed in
connection with or contemplated
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by the Contribution Agreement, shall be promptly
transferred to the General Partner, Xxxxxxxx, Trevey and/or the Limited Partner,
as the case may be, and that neither of the Partnerships shall continue to own
any Shares as a result of this Agreement, the Contribution Agreement or such
other agreements. All parties hereto agree that such transfer of Shares by
either of the Partnerships to the General Partner, Xxxxxxxx, Xxxxxx and/or the
Limited Partner, in a single transaction, shall be a permissible transfer for
purposes of this Agreement. However, except for the transfer of Shares by Trevey
or Xxxxxxxx to any of the APS Indemnified Parties (as defined in the
Contribution Agreement) in payment of an indemnity obligation under the
Contribution Agreement (which shall also be a permissible transfer for purposes
hereof), any other or further transfer, assignment, pledge, hypothecation or
other alienation of any Shares or any interest therein, shall in every respect
be subject to the terms and conditions of this Agreement. The parties hereto
further acknowledge and agree that if, upon the permissible transfer of all
Shares owned by the Partnerships to the other parties hereto as described above,
so that neither of the Partnerships own any Shares or any interest therein, each
of the Partnerships shall no longer be bound by the terms of this Agreement and
shall no longer have any rights hereunder.
The parties hereto further acknowledge and agree that APS shall have
unrestricted rights to freely assign or transfer any of its Shares to any
entity, the majority of whose voting equity securities is then owned directly or
indirectly by APS (an "APS Entity"); provided, however, that such entity must
sign a counterpart of this Agreement, and provided further such entity must
transfer any Shares transferred to it (and may do so without any consent or
option arising hereunder) back to APS or another APS Entity (who must then sign
a counterpart hereof) in the event, but prior to, such entity no longer being
majority owned, directly or indirectly, by APS.
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ARTICLE II
RESTRICTIONS AGAINST TRANSFER
Except as otherwise provided in this Agreement, a Shareholder shall not
transfer, assign, pledge, hypothecate or in any way alienate any Shares, or any
interest therein, whether voluntarily or by operation of law, or by gift or
otherwise, without (a) the prior unanimous written consent of APS, Xxxxxxxx and
Trevey or (b) in the case of a pledge or hypothecation, the written
acknowledgment of the lender, in form and substance reasonably acceptable to
APS, Xxxxxxxx and Xxxxxx, that the lender will hold such Shares (or interest
therein) subject to all of the terms and provisions of this Agreement, and will
not foreclose upon or otherwise transfer any such Shares, or interest therein,
without complying with the provisions hereof, including those relating to
options to purchase the Shares by the other parties hereto. Any purported
transfer in violation of any provision of this Agreement shall be void and
ineffectual, shall not operate to transfer any interest or title to the
purported transferee and shall give the Corporation and the other Shareholders
options to purchase such Shares in the manner and on the conditions hereinafter
provided.
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ARTICLE III
OPTIONS
Section 3.1 Option Upon Voluntary Transfer.
(a) Notice of Intention to Transfer. Subject to (e) below and except
for a transfer of Shares by APS pursuant to Article I hereof, no voluntary
transfer of any Shares or any interest therein, shall, without the prior
unanimous written consent of APS, Trevey and Xxxxxxxx in each instance, be
allowed for a period of two (2) years after the date of this Agreement.
Thereafter, if a Shareholder intends to voluntarily transfer any of its Shares
to any person other than the Corporation and does not obtain the written
consents required in Article II hereof, the Shareholder shall give written
notice to the Corporation and the other Shareholders stating (i) the intention
to transfer Shares, (ii) the number of Shares to be transferred, (iii) the name,
business and residence address of the proposed transferee, (iv) the nature and
amount of the consideration and (v) the other terms of the proposed sale.
(b) Option to Purchase. The Corporation shall have, and may exercise
within 60 days after receipt of the notice of intent to transfer, an option to
purchase all or any portion of the Shares owned by the transferring Shareholder
for the price and upon the other terms stated in the notice of intent to
transfer. If the Corporation elects not to purchase all or any portion of such
Shares, it shall, prior to the expiration of said 60-day period, notify the
other Shareholders in writing of its election, and the other Shareholders shall
have, and may exercise within 30 days of
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receipt of the Corporation's notice of
election, an option to purchase such unpurchased Shares upon the same terms and
conditions.
(c) Death Before Closing. If a Shareholder who proposed to transfer
Shares dies prior to the closing of the sale and purchase contemplated by this
Section, the Shares of such deceased Shareholder shall be the subject of sale
and purchase under Section 3.3 hereof.
(d) Allowable Consideration. All parties hereto acknowledge and agree
that it would be impractical to exercise an option to purchase arising pursuant
to this Section whenever the proposed consideration to be received by the
transferring Shareholder is other than cash, cash equivalents or an obligation
to pay cash by a person whose credit worthiness and financial status is such
that performance of the payment obligation would be reasonably assured.
Therefore, the parties agree that no transfer shall be permitted and no option
shall arise pursuant to this Section whenever the consideration to be received
from the proposed transferee is other than cash, cash equivalents or an
obligation to pay cash by a person whose credit worthiness and financial status
is such that performance of the payment obligation would be reasonably assured.
(e) Certain Exempted Voluntary Transfers. Notwithstanding the foregoing
or any other provision of this Agreement, upon providing written notice (and
without any requirement of consent), as provided for herein, to the Corporation
and all other Shareholders: (i) any Shareholder may transfer Shares to any other
Shareholder, at any time, without obtaining the written consent hereunder and
without giving rise to any Options provided for hereunder; (ii) Xxxxxxxx, Trevey
and the Limited Partner Permitted Assigns (as hereinafter defined) may transfer
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their Shares to their spouse, children, siblings, parents or trust(s) created
exclusively for the benefit of their spouse, children, siblings or parents, but
only to the extent of, and subject to, the provisions described below; and (iii)
the Limited Partner may transfer its Shares to the following parties (but only
to the extent of, and subject to, the provisions described below): LTZ, Inc.,
Lebermann Investment, J.V., Xxxxx Xxxxxx, Xxxxxxx Xxxxxxx, Xxxx XxXxxxxxx, and
Xxxx Xxxxxxx (the "Limited Partner Permitted Assigns"). For purposes of this
subsection (e), "trust" shall be deemed to include a family limited partnership,
joint venture or other entity, as long as all of the equity interests of such
family limited partnership, joint venture or other entity are owned by the
transferring Shareholder's spouse, children, siblings or parents.
The transfer rights of Trevey and Xxxxxxxx described in clause (ii)
above may only be made as follows: (A) prior to January 1, 2000, no such
transfer shall be allowed and (B) during each calendar year beginning January 1,
2000, Trevey and Xxxxxxxx shall each be entitled to transfer the number of
Shares, whether received directly or indirectly, representing up to twenty five
percent (25%) of his initial proportionate ownership interest in the Corporation
as determined immediately following the consummation of all transactions
contemplated in connection with this Agreement (including the permissible
transfers from the Partnerships under Article I hereof) and the Contribution
Agreement, on a cumulative basis.
Furthermore, the transferee receiving such Shares as described in
clause (ii) of the first sentence of this Section, whether an individual or
trust, (X) shall grant (and maintain in place thereafter) an irrevocable proxy
to the transferring Shareholder in form and substance reasonably acceptable to
APS, (Y) shall execute and deliver a counterpart of this Agreement, and (Z)
shall not receive by reason of such transfer any rights to benefits from, or
under, the provisions for registration rights contained in Article X of this
Agreement; provided, however, that the original transferring Shareholder (either
Trevey, Xxxxxxxx or any of the Limited Partner Permitted
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Assigns, as the case
may be), in their sole discretion, may elect (by notifying the Corporation to
that effect in writing during the 10-day period for giving notice of intent to
include Covered Shares in a registration as contemplated in Section 10.1) to
allow the transferee hereunder to assume such registration rights, but only with
respect to such Shares described in clause (ii) above and only as, and to the
extent, otherwise provided in Article X.
Each of the Limited Partner Permitted Assigns which may receive Shares
described in clause (iii) above, whether an individual or other entity, shall
execute and deliver a counterpart of this Agreement and shall receive, by reason
of such transfer, registration rights pursuant to Article X of this Agreement.
Section 3.2 Option Upon Certain Involuntary Transfers.
(a) Exercise Event and Notice. The filing of a voluntary or involuntary
petition of bankruptcy by or on behalf of a Shareholder, an assignment by a
Shareholder of any of its Shares, or of any right or interest therein, for the
benefit of creditors, or the voluntary transfer, transfer by law or any other
transfer, of any Shares, or of any right or interest therein (other than
transfers governed by Article I, Article II, Section 3.1, Section 3.3 or Section
3.4 hereof), shall give the Corporation and the other Shareholders the option to
purchase the Shares of such bankrupt Shareholder or such transferred Shares as
provided herein. Upon the filing of a voluntary or involuntary petition of
bankruptcy by or on behalf of a Shareholder or an assignment by Shareholder of
any of its Shares, or of any right or interest therein, for the benefit of
creditors, the Shareholder or its personal representative shall promptly give
written notice of
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such occurrence to the Corporation and to the other
Shareholders. In the event of a transfer of Shares, as described above, the
Shareholder transferring such Shares shall promptly give written notice of such
transfer to the Corporation and to the other Shareholders.
(b) Option to Purchase. The Corporation shall have, and may exercise
within 60 days after receipt of the notice of the applicable exercise event, an
option to purchase all or any portion of the Shares owned by the bankrupt or
transferring Shareholder for the price and upon the other terms hereinafter
provided. If the Corporation elects not to purchase all or any portion of such
Shares, it shall, prior to the expiration of said 60-day period, notify the
other Shareholders in writing of its election. The other Shareholders shall
have, and may exercise within thirty (30) days of receipt of the notice of
election, an option to purchase such unpurchased Shares for the price and upon
the other terms hereinafter provided.
Section 3.3 Transfer of Shares Upon Death. Upon the death of a
Shareholder, any transfer of Shares of the deceased Shareholder pursuant to the
Shareholder's last will or the laws of descent and distribution shall be a
permitted transfer for purposes of this Agreement and shall not give rise to any
option to purchase or require the acquiror to execute a counterpart of this
Agreement.
Section 3.4 Option Upon Death of a Shareholder's Spouse, Termination of
Marital Relationship or Partition of Community Property.
(a) Death of Shareholder's Spouse. Each Shareholder and each
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Shareholder's spouse agree that in the event the spouse of a Shareholder
predeceases such Shareholder and such Shareholder does not succeed by the
spouse's last will and testament or by operation of law to any interest
(including, without limitation, a community property interest) of the spouse in
the Shares, such Shareholder shall have, and may exercise within 60 days after
the death of the spouse, an option to purchase all or any portion of the
spouse's interest for the price and upon the other terms hereinafter provided.
If the Shareholder spouse elects not to purchase all or any portion of the
deceased spouse's interest, it shall, prior to expiration of said 60-day period,
notify the Corporation and the other Shareholders in writing of its election.
The Corporation shall then have, and may exercise within 30 days of receipt of
the election, an option to purchase the unpurchased, deceased spouse's interest
for the price and upon the other terms hereinafter provided. If the Corporation
elects not to purchase all or any portion of the deceased spouse's interest, it
shall, prior to expiration of said 30-day period, notify the other Shareholders
in writing of its election and the other Shareholders shall have, and may
exercise within 30 days of receipt of election, an option to purchase the
unpurchased, deceased spouse's interest for the price and upon the other terms
hereinafter provided.
(b) Termination of Marital Relationship or Partition of Community
Property. In the event a divorce, annulment or other proceeding for termination
of the marital relationship is filed by or against a Shareholder, or upon the
initiation of any voluntary or involuntary attempt to partition the community
property estate between a Shareholder and such Shareholder's spouse for any
reason, the Shareholder shall promptly give written notice to the Corporation
and the other Shareholders of such event. The Shareholder shall have, and may
exercise within sixty (60) days of giving of such notice, an option to purchase
all or any portion of the spouse's right to or
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interest in such Shares
(including without limitation any community property interest), for the price
and upon the other terms hereinafter provided. If the Shareholder elects not to
purchase all or any portion of the spouse's interest, it shall, prior to
expiration of said 60-day period, notify the Corporation in writing of its
election and the Corporation shall have, and may exercise within thirty (30)
days of receipt of such election, an option to purchase the unpurchased spouse's
interest for the price and upon the other terms hereinafter provided. If the
Corporation elects not to purchase all or any portion of the spouse's interest,
it shall, prior to expiration of said 30-day period, notify the other
Shareholders in writing of its election and the other Shareholders shall have,
and may exercise within thirty (30) days of receipt of such election, an option
to purchase the unpurchased spouse's interest for the price and upon the other
terms hereinafter provided.
Section 3.5 Alternate Notices. The failure of any person, whether a
party to this Agreement or otherwise, to give notice of the occurrence of an
Exercise Event (as defined in Section 5.3 hereof) as contemplated herein shall
not operate to prevent the creation of any option which would otherwise arise
pursuant to this Article. Any party to this Agreement who has actual knowledge
of the occurrence of an Exercise Event may give the required written notice of
the occurrence of an Exercise Event, and upon the giving of such written notice
the options shall be created and become exercisable to the same extent as if
such notice was given by the party initially contemplated above.
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ARTICLE IV
EXERCISE OF OPTIONS; EFFECT OF NON-EXERCISE;
CO-SALE RIGHTS
Section 4.1 Manner of Exercise of Options. All options granted in, or
arising pursuant to, Article III hereof shall be exercised by a written notice
to that effect delivered within the time provided for the exercise of the
option.
Section 4.2 Complete Exercise of Options. The holders of options
granted in, or arising pursuant to, Article III hereof must, either alone or in
the aggregate, exercise the options in such a manner as to purchase all of the
Shares (or interest therein) subject to such options, and failure to do so shall
cause a forfeiture of the options. Where one or more Shareholders elect not to
exercise such options, the other Shareholders shall be entitled to assume the
options not exercised on a pro rata basis pursuant to Section 4.3.
Section 4.3 Multiple Option Holders. In cases where an option is held
by more than one Shareholder, each purchasing Shareholder shall be entitled to
purchase his or her proportionate share of the Shares subject to the option. A
Shareholder's proportionate share shall equal the total number of Shares subject
to the option multiplied by a fraction the numerator of which is the number of
Shares held by such Shareholder and the denominator of which shall be the number
of Shares held by all Shareholders electing to exercise the option.
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Section 4.4 Effect of Non-Exercise of Options. If the holders of
options granted or arising pursuant to this Agreement do not exercise their
options, or such options are forfeited, as provided herein, the person or
persons acquiring the Shares (or interest therein) that were the subject of the
options shall execute a counterpart of this Agreement and become a party hereto
and shall hold such Shares subject to all the terms and conditions provided
herein, and any transfer of such Shares (or interest therein) shall only be made
in accordance with the terms and conditions provided herein. In the event the
person or persons acquiring the Shares (or interest therein) fail to execute a
counterpart of this Agreement and become a party hereto, such transfer shall be
void and ineffectual and shall not operate to transfer any interest or title to
the purported transferee, and such Shares shall thereafter be subject to
cancellation and extinguishment by the Corporation, without consideration
therefor. In addition, in the event of a transfer subject to the provisions of
Article III hereof, upon the lapse or forfeiture of all the options arising
pursuant to that Article, the transferor shall have the right to effectuate the
transfer of Shares in accordance with the terms stated in the notice of intent
to transfer or notice of Exercise Event (as applicable), and the transferee of
such Shares shall execute and become a party to this Agreement and shall hold
such Shares subject to all of its terms and conditions. Provided further,
however, any such transfer of Shares shall be void and ineffectual and shall not
operate to transfer any interest or title to the purported transferee, if (a)
for voluntary transfers under Section 3.1 hereof, the transfer is not upon the
terms or is not to the transferee stated in the notice of intent to transfer or
(b) for all transfers giving rise to options pursuant hereto, the transfer is
not closed within thirty (30) days of receipt of written notice of the election
not to exercise, or the forfeiture of, all applicable options; and upon the
occurrence of events or conditions described in (a) or (b) the transferor
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desiring to effect such transfer must again comply with the notice, option and
other requirements of this Agreement prior to any transfer of any Shares or
interest therein.
Section 4.5 Co-Sale Rights. In the event of a voluntary transfer
pursuant to the provisions of Section 3.1 (except for transfers pursuant to
subsection (e) of Section 3.1) by Bouchard, Trevey, APS or the Limited Partner,
the holders not exercising their options granted pursuant to Section 3.1 shall
be entitled to include, upon the same terms and conditions as provided in the
notice required by Section 3.1(a), their Shares in such voluntary transfer, on a
pro rata basis based on the ratio of total Shares owned by those having these
co-sale rights and the Shareholder receiving the voluntary transfer offer.
ARTICLE V
PURCHASE PRICE
Section 5.1 Purchase Price. The purchase price of Shares to be
purchased pursuant to options granted, held or exercised pursuant to Section 3.2
and Section 3.4 hereof, shall be the amount calculated in accordance with
Section 5.2 hereof.
Section 5.2 Calculation of Purchase Price. When determined in
accordance with this Section, the purchase price for Shares or any portion
thereof or spouse's interest therein shall be equal to an amount agreed upon by
the seller and the buyer or buyers electing to purchase such Shares hereunder.
In the event that no such agreement is reached within thirty (30) days prior to
the closing of such purchase and sale, the purchase price per Share shall equal
the Book Value
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(as hereinafter defined) of the Shares to be transferred
determined as of the Valuation Date (as hereinafter defined). However, at the
written request of either the seller or any of the proposed purchasers, the
purchase price shall equal the Appraised Value (as hereinafter defined) of the
Shares as of the Valuation Date, reduced when necessary to reflect the purchase
of less than a one hundred percent (100%) interest in each of the Shares to be
transferred (for example: reduced by one-half when a spouse's interest is only
an undivided one-half community property interest in each of the Shares of a
Shareholder spouse). For purposes of this Agreement, the "Book Value" per Share
shall be determined by subtracting the total liabilities of the Corporation as
of the Valuation Date from the total assets of the Corporation as of the
Valuation Date, and dividing such amount by the aggregate number of Shares
issued and outstanding as of the Valuation Date. Book Value per Share shall be
determined using the Corporation's unaudited, internally generated financial
statements prepared on the accrual basis of accounting consistent with past
practices. The Book Value per Share so computed shall be reduced when necessary
to reflect the purchase of less than a one hundred percent (100%) interest in
each of the Shares to be transferred. For purposes of this Agreement, the
"Appraised Value" per Share shall be the fair market value per Share which a
willing buyer would pay a willing seller for all issued and outstanding shares
of capital stock of the Corporation where neither is under any compunction to
act (without any premium or discount for controlling interests, or lack thereof,
or lack of established market for such capital stock). The Appraised Value shall
be determined by a certified business appraiser, selected by the Corporation,
that is a member of either the American Society of Appraisers or the Institute
of Business Appraisers; but if a Shareholder disagrees with such determination
that Shareholder may, at its expense, have another certified business appraiser
that is a member of one or both of the above named professional organizations
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determine the value, and if the two appraisers cannot agree upon a value, they
shall mutually select a third certified business appraiser (that meets the above
described membership requirements) who shall, together with the first two
appraisers, determine the value of the Shares by majority vote. The combined
expenses of all appraisals shall be paid solely by the party or parties
requesting to utilize such method of determining the purchase price.
Section 5.3 Certain Definitions. As used herein, the term "Valuation
Date" shall mean and refer to the end of the calendar quarter preceding the
Exercise Event. As used herein, the term "Exercise Event" shall mean and refer
to the event or circumstance described in Article III hereof, as a result of
which the Corporation or a Shareholder, as the case may be in the first
instance, become entitled to exercise a purchase option hereunder.
ARTICLE VI
PAYMENT OF THE PURCHASE PRICE
Section 6.1 Payment. Except as otherwise provided in this Agreement,
including Section 3.1 hereof, the purchase price for Shares to be purchased from
a selling party shall either: (a) be paid in cash at the closing; or (b) at the
option of the purchasing party, up to seventy percent (70%) of the purchase
price may be deferred with the remainder paid in cash at the closing. However,
option (b) of the foregoing sentence shall not be available if the selling
Shareholder is the Limited Partner or any of the Limited Partner Permitted
Assigns.
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Section 6.2 Promissory Note. If the purchasing party elects to defer
part of the purchase price by the execution and delivery of a promissory note,
the deferred portion of the price shall be evidenced by the promissory note of
the purchasing party to the order of the selling party payable in sixty (60)
equal monthly installments of principal and interest on or before the first day
of each month beginning the month next following the date of closing. The
interest rate for such installment promissory note shall be equal to the prime
or base rate on corporate loans at large U.S. money center commercial banks as
published in the "Money Rates" column of the Wall Street Journal on the date of
exercise of the option to purchase (or, if such option is not exercised on a
date on which such rate is published, the next following date on which such rate
is published). In no event shall the interest rate exceed the maximum legal
interest rate then prevailing for such obligations in the state of Texas. The
note shall be secured by a first lien security interest in the Shares
transferred and the purchasing party shall deliver certificates evidencing the
Shares to the selling party and take such further action as is reasonably
necessary to perfect the security interest.
ARTICLE VII
THE CLOSING
Unless otherwise agreed by the parties, the closing of the sale and
purchase of Shares shall take place at the principal offices of the Corporation
within sixty (60) days after the exercise of any option provided by this
Agreement. Each party hereto (including the spouses of the Shareholders) shall
bear its own transaction costs, including legal and accounting fees, if any,
attributable to any transfer of Shares, or any interest therein, pursuant to
this Agreement. Upon
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the closing, the selling party shall deliver its Shares to
the purchaser free and clear of all liens and encumbrances, and shall deliver to
the Corporation its resignation and that of all of its nominees, if any, as
officers and directors of the Corporation and any of the Corporation's
subsidiaries. The selling party shall deliver to the purchasing party at
closing, all appropriate documents of transfer, including without limitation
bills of sale, assignments or other instruments of conveyance. As a condition to
any closing of the sale and purchase of Shares (or any interest therein)
pursuant to this Agreement: (a) the selling party shall be indemnified by the
purchasing party (in a form reasonably satisfactory to the selling party) for
all the Corporation's liabilities, whether fixed or contingent, to lenders and
others, incurred prior to the closing of the transaction, (b) the purchasing
party and/or the Corporation shall cause the release of any personal guaranties,
either directly incurred or assumed, (i) which may have been granted by the
selling party to the Corporation's lenders or other creditors or the lenders or
other creditors of the Partnerships or the General Partner whose obligations
where assumed by the Corporation or (ii) which may have otherwise been provided
by the selling party for the benefit of the Corporation, and (c) if the selling
party is a creditor of the Corporation, the purchasing party shall
unconditionally guarantee the debt of the Corporation to the selling party and
execute such documents and instruments of guarantee as may be necessary in
connection therewith. Furthermore, and as a condition to closing, in the event
the selling party owes any amounts to the Corporation at the time of closing,
such indebtedness shall be paid in full by the selling party at or prior to the
closing, or may be deducted from and offset against the purchase price by the
purchasing party, in the purchasing party's sole discretion. In the event of a
failure to close as a result of the non-satisfaction of the conditions to
closing set forth herein, this Agreement shall remain in full force and effect
and all Shares shall remain subject to the restrictions contained herein and, in
addition, the parties hereto
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shall be entitled to such other remedies as may be
available in the event the failure to close constitutes a breach hereof.
ARTICLE VIII
STRUCTURE OF BOARD OF DIRECTORS; MAJOR DECISIONS
Each of the parties hereto agrees to vote their Shares as necessary to
provide for the following. The number of directors of the corporation shall be
no fewer than four (4) and no more than seven (7), two (2) of which (the "BT
Designees") shall be designated by Xxxxxx X. Xxxxxxxx ("Xxxxxxxx") and Xxxx X.
Xxxxxx ("Xxxxxx"), and two (2) of which (the "APS Designees") shall be
designated, subject to the provisions contained in the Corporation's Bylaws
regarding the rights of the holders of Preferred Stock, by APS. The initial
directors shall be four (4), comprised of the initial BT Designees and the
initial APS Designees. Any increase in the number of directors shall require the
unanimous consent of all directors, and shall be effected only be means of an
increase in the number of directors from four to seven. The additional three
directors (the "Group Designees") shall initially be unanimously agreed upon by
Xxxxxxxx, Trevey and APS. Upon written notice from both Xxxxxxxx and Xxxxxx
(acting jointly) to the Corporation and other Shareholders, Xxxxxxxx and Trevey
shall be entitled to replace any two (2) members of the Group Designees with
persons mutually acceptable to both Xxxxxxxx and Xxxxxx, as indicated in the
written notice (but who may not be officers or employees of the Corporation),
and the Shareholders agree to vote their Shares to accomplish such replacement.
The parties all agree to vote their Shares, and to take such other and further
action (including, without limitation, the removal of Board members they may
designate pursuant hereto and replacement thereof) as
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necessary to amend the
Bylaws to increase the size of the Board of Directors to allow the addition of
the Group Designees, and to elect (or remove) the Group Designees as provided
herein. Until February 1, 2001, and upon written notice from APS to the
Corporation and other Shareholders, APS shall be entitled to designate any
member of the Board of Directors as Chairman of the Board, and the Shareholders
agree to vote their Shares and to take such other actions as necessary
(including, without limitation, the removal and replacement of any other
existing Chairman of the Board and any directors they may designate pursuant
hereto) to cause the election and retention in office of such designee of APS.
The following acts or transactions by the Corporation will require, in addition
to the approval of a majority of the Board of Directors of the Corporation, the
approval of at least three (3) members from among the BT Designees and the APS
Designees:
(a) amending the Corporation's Articles of Incorporation or the
Corporation's Bylaws;
(b) causing a merger, consolidation or combination of the Corporation
with another corporation or entity, or engaging in any stock splits, reverse
stock splits or recapitalizations;
(c) purchase by the Corporation of any interest in the Corporation
irrespective of the source of such interest;
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(d) disposition, sale, assignment or other transfer by the Corporation
of any interest it owns in the Corporation, except that such interest may be
extinguished without the approval required under this Article;
(e) sale or issuance of any additional equity ownership interests of
the Corporation, including any instrument or security convertible into, or
exchangeable or exercisable for, any equity ownership interest of the
Corporation;
(f) dissolving, liquidating or filing bankruptcy or seeking relief
under any debtor relief law;
(g) election or removal of officers and establishing or changing the
compensation for officers;
(h) making any distributions, whether in cash or property, including
dividends, to any of the directors or Shareholders with respect to the their
ownership interests;
(i) selling, leasing or otherwise transferring all or substantially all
of the Corporation's assets, or any asset(s) with a fair market value exceeding
$10,000 in a single transaction or series of related transactions;
(j) initiating or settling any litigation or regulatory proceeding
, or confessing any judgment;
21
(k) hiring or changing the Corporation's auditors, accountants or
primary legal counsel;
(l) hiring, contracting with, terminating (with or without cause) and
setting and/or modifying the compensation of any employees or consultants of the
Corporation whose annualized rate of compensation would exceed $65,000,
including without limitation, Xxxxxxxx and Trevey (provided that Xxxxxxxx and
Xxxxxx may vote in their capacity as director, if applicable, in any such
employment related decision, only with respect to one another, whether or not
such decision affects or relates to either or both of Xxxxxxxx or Trevey);
(m) borrowing or incurring any indebtedness or granting any collateral
or security (by way of guaranty or otherwise) for any indebtedness or
obligation, other than (i) open accounts payable to unaffiliated third parties
in the ordinary course of the Corporation's business, (ii) in connection with
that certain Line of Credit, as defined in the Contribution Agreement and (iii)
any first-lien mortgages to unaffiliated third parties, or purchase money
security interests in favor of unaffiliated vendors or unaffiliated lenders, for
(x) the acquisition and/or construction of real property or fixtures purchased
as a site for the operation of residences to provide assisted living services to
senior citizens with dementia, and directly related services, or (y) fixed
assets or personal property to be located at, and used in connection with the
operation of, such residences;
22
(n) engaging in any transaction or line of business other than
investments in the ownership and/or operation of residences to provide assisted
living services to senior citizens with dementia, and directly related services;
(o) purchasing or leasing assets or property, or entering into any
contract or obligation, which obligates the Corporation to pay in excess of
$10,000 in the aggregate in one or any series of related installments, except
for the purchase of real property, acquired as a site for the operation of
residences to provide assisted living services to senior citizens with dementia,
and directly related services and fixed assets or personal property to be
located at, and used in connection with the operation of, such residences;
(p) causing a change in the nature of the business or the legal name
of the Corporation;
(q) engaging in any transaction with any relative, affiliate or related
party of any equity owner, director, officer or other member of the
Corporation's management body, including without limitation the employment of
any such party;
(r) except as otherwise expressly provided in the Contribution
Agreement, paying or reimbursing the legal fees and costs incurred by any of the
parties hereto or to the Contribution Agreement (and any of the transactions
contemplated by, or consummated pursuant to, the Contribution Agreement),
including any such costs associated with any dissolution, liquidation or
distribution of shares of capital stock of the Corporation, by the Partnerships;
23
(s) acting (or failing or refusing to act) in contravention of,
amending or waiving any rights granted to any party pursuant to this Agreement,
the Corporation's Bylaws, the Contribution Agreement (and any agreement executed
by the Corporation in connection therewith), or any other governance document of
the Corporation, and any rights under such documents;
(t) authorizing any party to disclose, divulge, reveal or use, pursuant
to the provisions of Section 9.2 of the Contribution Agreement, any Proprietary
Information (as defined therein);
(u) altering, changing or amending, or not renewing, any directors and
officers insurance policy of the Corporation; and
(v) adopting, creating, altering or amending any stock option plan or
issuing stock options or other rights under any such plan, in each instance.
Each director may, with respect to any vote, consent, or approval that
it is entitled to grant pursuant to this Agreement, grant or withhold such vote,
consent, or approval in its sole discretion. Notwithstanding the foregoing or
any other provision of this Agreement, the conversion of Preferred Stock by any
holder thereof pursuant to the Articles of Incorporation of the Corporation
shall not require action by the Board of Directors or other shareholders or
consents by any party, in any capacity, and the Corporation shall be, and hereby
is, fully authorized to take any and all action required to effect such a
conversion.
24
ARTICLE IX
PREFERRED RETURN
For purposes hereof, the parties acknowledge and agree that APS and the
Additional Purchasers, in the aggregate, initially acquired their Shares for
$2,200,000 (the "Initial Capital Contribution"), allocated amongst them as
provided in the Contribution Agreement. All parties hereto acknowledge and agree
that upon any dissolution or liquidation of the Corporation, APS and the
Additional Purchasers (or their successors in interest or assigns pursuant to
any transfers permitted pursuant to this Agreement), in the aggregate, will
receive from the Corporation in respect of the 760,000 shares of Preferred Stock
and Common Stock issued to them at the Closing and any shares of Common Stock
issued without consideration in respect of any such shares, to the extent the
Corporation has funds legally available therefor, an amount equal to the greater
of (a) that percentage (the "Applicable Percentage") of the cash and fair market
value of property and other assets owned by the Corporation at that time
determined by dividing the sum of (i) 760,000 plus the number of shares of
Preferred Stock and Common Stock issued without consideration in respect of any
of the 760,000 shares of Preferred Stock and Common Stock issued to APS and the
Additional Purchasers at the Closing by (ii) the total number of shares of
Preferred Stock and Common Stock outstanding, with the amount of assets and
property so determined reduced by the amount of all liquidated liabilities of
the Corporation and all reasonable amounts (the "Contingency Funds") held back
to make provision for unliquidated liabilities (excluding the amount of any
indebtedness assumed by, or assigned to, APS and the Additional Purchasers in
connection with such dissolution or liquidation) or (b) an amount equal to the
25
Initial Capital Contribution plus interest on the weighted average unreturned
balance of their Initial Capital Contribution at the rate of twelve percent
(12%) per annum, compounded annually, from the Closing Date; provided, however,
that all distributions made to APS, the Additional Purchasers and their
successors in interest, with respect to their ownership interests in the
Corporation, shall be deducted in calculating the amount of dissolution and
liquidation proceeds due such parties under the preferred return provisions
described above and shall be considered in calculating the weighted average
unreturned balance of their Initial Capital Contribution. Upon satisfaction of
all liabilities for which the Contingency Funds were reserved, or upon any other
release of the Contingency Funds no longer reserved for unliquidated
liabilities, APS and the Additional Purchasers shall receive the Applicable
Percentage of the Contingency Funds not expended, if any, in satisfaction of
liabilities that were unliquidated when the Contingency Funds were originally
reserved, but only if all such payments from the Contingency Funds would cause
the aggregate amount due under clause (a) above to exceed the aggregate amount
due under clause (b) above.
All proceeds payable under this Article shall be allocated amongst APS
and Additional Purchasers, and their successors and assigns, pro rata, based on
their respective percentage ownership of Shares originally acquired under the
Contribution Agreement. All parties hereto agree to vote their Shares and
execute and deliver such additional documents and instruments as may be
necessary to cause the foregoing preferred return to be paid by the Corporation
to APS and the Additional Purchasers as contemplated above. Provided, nothing
contained in this Section shall require that any party make any payment to the
Corporation, or execute any note, to enable the Corporation to make any payments
required under this Section.
26
All parties hereto acknowledge and agree that the Corporation shall not
make any distributions, whether in cash or property, including dividends, to any
of the directors, shareholders or parties hereto unless such distributions are
made in strict compliance with the terms of this Agreement, the Bylaws and the
Contribution Agreement.
ARTICLE X
REGISTRATION RIGHTS
Section 10.1 Incidental Registration Rights. Only the original parties
to this Agreement (other than the Corporation) shall have the registration
rights granted pursuant to this Article, and it is expressly understood and
agreed that no Shareholder who subsequently executes this Agreement, and no
permitted transferee of any Shareholder (other than (i) transferees of transfers
expressly provided for pursuant to Article I hereof, (ii) transferees permitted
pursuant to the prior written consent contemplated in Article II hereof wherein
such written consent also extends expressly to the registration rights included
in this Article X hereof, (iii) transferees of Trevey, Xxxxxxxx and the Limited
Partner Permitted Assigns permitted pursuant to clause (ii) of the first
sentence of Section 3.1(e) hereof, if Trevey, Xxxxxxxx or the Limited Partner
Permitted Assigns, as applicable, give the written authorization to extend
registration rights as contemplated in Section 3.1(e), and (iv) the Limited
Partner Permitted Assigns expressly named in Section 3.1(e) hereof) shall have
any of the registration rights provided by this Article, regardless of whether
they execute and become bound by a counterpart of this Agreement. For purposes
of this Article X hereof, the above described
27
persons and entities having the
registration rights described herein are collectively referred to as the
"Covered Parties" and individually as a "Covered Party." Each of the Covered
Parties shall have the incidental registration rights and other rights provided
under this Article. The incidental registration rights described in this Article
shall apply with respect to any and all shares owned by any of the Covered
Parties; and any reference in this Article to "Shares" shall be deemed to refer
to the Shares of the Covered Parties only (including any Shares subsequently
acquired by any Covered Parties).
If the Corporation at any time proposes to register any of its common
stock under the Act for sale to the public, whether for its own account or for
the account of other security holders or both (except with respect to
registration statements on Forms S-4 or S-8 or another form not available for
registering the Shares for sale to the public or in connection with mergers,
acquisitions, exchange offers, dividend reinvestment plans or stock option or
other employee benefit plans of the Corporation), it will give written notice to
the Covered Parties of its intention so to do, which notice shall include a list
of the jurisdictions in which the Corporation intends to attempt to qualify the
common stock under the applicable state securities laws. Upon the written
request of one or more Covered Parties, given within 10 days after receipt of
any such notice, to register any of their Shares, the Corporation will, subject
to the limitations and conditions contained herein, use its best efforts to
cause the Shares as to which registration shall have been so requested ("Covered
Shares"), pro rata between the Covered Parties in a ratio equal to the
respective number of Shares then owned and requested to be registered by them,
or such other ratio as may have been agreed upon among the Covered Parties, to
be included in the securities to be covered by the registration statement
proposed to be filed by the Corporation, all to the
28
extent requisite to permit
the sale or other disposition by the Covered Parties; provided, however, that:
(a) Each Covered Party shall each have the right to request inclusion
of its Shares (and have such Shares included) in two (2) registration statements
that are declared effective by the Securities and Exchange Commission (the
"Commission").
(b) If, at any time after giving such 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, the Corporation shall
determine for any reason not to register any securities at all (and in fact does
not do so), the Corporation may, at its election, give written notice of such
determination to the Covered Parties who made a request as hereinabove provided
and thereupon the Corporation shall be relieved of its obligation to register
any Shares in connection with that proposed registration; provided, however,
that any election by the Corporation and the exercise of its rights pursuant to
this subsection shall not otherwise affect the rights granted herein as to
future registrations.
(c) If such registration involves an underwritten offering, the Covered
Parties requesting to be included in the Corporation's registration must sell
their Covered Shares to the underwriters selected by the Corporation on the same
terms and conditions as apply to the Corporation and other selling parties under
the registration statement (except as otherwise set forth herein).
29
The number of Covered Shares to be included in such an offering may be
reduced if and to the extent that the managing underwriter, if any, shall be of
the opinion that such inclusion would adversely affect the marketing of the
securities to be sold by the Corporation therein (pro rata between the Covered
Parties in a ratio equal to the respective amounts of Covered Shares held by
each). Notwithstanding anything to the contrary contained in this Section, in
the event that there is an underwritten public offering of securities of the
Corporation pursuant to a registration covering Shares, and a Covered Party does
not elect to sell its Covered Shares to the underwriters of the Corporation's
securities in connection with such offering, such Covered Party shall refrain
from selling such Covered Shares during the period of distribution of the
Corporation's securities by such underwriters, the period in which the
underwriting syndicate participates in the after market and during any lock-up
period requested by such underwriters; provided, however, that the Covered
Parties shall, in any event, be entitled to sell their Shares commencing on the
180th day after the effective date of such registration statement.
Section 10.2 Registration Procedures. If and whenever the Corporation
is required by the provisions of this Article to effect the registration of any
of the Covered Shares under the Act, the Corporation will, as expeditiously as
possible:
(a) prepare and file with the Commission a registration statement
(which, in the case of an underwritten public offering shall be on such form of
general applicability as may be satisfactory to the managing underwriter) with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective for the period of the distribution
contemplated thereby (determined as hereinafter provided);
30
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus filed in
connection therewith as may be necessary to keep such registration statement
effective for the period of distribution and as may be necessary to comply with
the provisions of the Act with respect to the disposition of all securities
covered by such registration statement in accordance with the Corporation's
intended method of disposition set forth in such registration statement for such
period;
(c) furnish to the Covered Parties, as applicable, and each underwriter
such number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as they may reasonably request
in order to facilitate the public sale or other disposition of the Covered
Shares covered by such registration statement;
(d) use its best efforts to register or qualify the Covered Shares
covered by such registration statement under the securities or blue sky laws of
such jurisdictions as the Covered Parties, as applicable, or, in the case of an
underwritten public offering, the managing underwriter, shall reasonably request
(provided that the Corporation will 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 subsection, (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction);
(e) promptly notify the Covered Parties, as applicable, under such
registration statement and each underwriter, at any time when a prospectus
relating thereto is required to be
31
delivered under the Act when it becomes aware
of the happening of any event as a result of which the prospectus contained in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements contained therein not misleading in
light of the circumstances then existing;
(f) use its best efforts (if the offering is underwritten) to furnish,
at the request of the Covered Parties, as applicable, on the date that the
Covered Shares are delivered to the underwriters for sale pursuant to such
registration: (i) an opinion dated such date of counsel representing the
Corporation for the purposes of such registration, addressed to the underwriters
and in customary form and covering such matters as are customarily covered by
opinions of counsel in similar registrations and as may be required in the
underwriting agreement relating thereto, as may reasonably be requested by the
underwriters or by the Covered Parties, as applicable; and (ii) a comfort letter
dated such date from the independent public accountants retained by the
Corporation, addressed to the underwriters, in customary form and covering such
matters as are customarily covered by such comfort letters in similar
registrations and as may be required in the underwriting agreement relating
thereto, as such underwriters or the Covered Parties, as applicable, may
reasonably request; and
(g) make available for inspection by the Covered Parties, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by the Covered
Parties or underwriter, all financial and other records, pertinent corporate
documents and properties of the Corporation, and cause the Corporation's
32
officers, directors and employees to supply all information reasonably requested
by any such Covered Party, underwriter, attorney, accountant or agent in
connection with such registration statement.
For purposes of paragraphs (a) and (b) above, the period of
distribution of Covered Shares in an underwritten public offering shall be
deemed to extend until each underwriter has completed the distribution of all
securities purchased by it, and the period of distribution of Covered Shares in
any other registration shall be deemed to extend until the earlier of the sale
of all Covered Shares or 180 days after the effective date thereof.
In connection with each registration hereunder, the Covered Parties, as
applicable, will furnish to the Corporation in writing such information with
respect to themselves and the proposed distribution by them as shall be
requested by the Corporation in order to assure compliance with federal and
applicable state securities laws.
In connection with each registration covering an underwritten public
offering, the Corporation agrees to enter into a written agreement with the
managing underwriter selected in the manner herein provided in such form and
containing such provisions as are customary in the securities business for such
an arrangement between major underwriters and companies of the Corporation's
size and investment stature; provided that such agreement shall not contain any
such provision applicable to the Corporation that is inconsistent with the
provisions hereof and, further, provided that the time and place of the closing
under such agreement shall be as mutually agreed upon between the Corporation
and such managing underwriter.
33
The Corporation will not be obligated to include any Shares owned by
the Covered Parties requesting that a proposed registration include such Shares
if the Corporation delivers to the requesting Covered Parties the opinion of the
Corporation's counsel (such counsel and the form of such opinion having been
approved by the Covered Parties in their reasonable discretion) to the effect
that the requested registration is not required to permit the proposed
disposition or any resale of such Shares, without restrictions on subsequent
transfer, under the Act, which opinion may be furnished to and relied upon by
any broker through which the Covered Parties may elect to sell any Shares.
Section 10.3 Conditions to Obligation to Register Shares. The
Corporation's obligations under this Article shall be subject to the following
limitations and conditions:
(a) The Corporation shall have received from the Covered Parties, as
applicable, all such information as the Corporation may reasonably request from
the Covered Parties concerning each of them and each of their methods of
distribution of the Covered Shares to enable the Corporation to include in the
registration statement all material facts required to be disclosed therein.
(b) Any request by the Covered Parties pursuant to this Agreement for
registration of the offering, sale and delivery of Shares shall provide that
each Covered Party, as applicable, (i) has a present intention to sell such
Shares; (ii) agrees to execute all consents, powers of attorneys and other
documents required in order to cause such registration statement to become
34
effective; (iii) agrees, if the offering is at the market, to give the
Corporation written notice of the first bona fide offering of such Shares and to
use the prospectus forming a part of such registration statement only for a
period of 180 days after the effective date of the registration statement unless
the offering is pursuant to a continuous registration pursuant to Rule 415
promulgated under the Act; (iv) subject to adverse events regarding the selling
price of the Shares, agrees to utilize its proposed method of distribution of
the registered securities; and (v) agrees to promptly notify the Corporation and
each underwriter, if any, with regard to any registration statement, at any time
when it becomes aware of the happening of any event as a result of which any
prospectus contained in such registration statement that has been provided to
the Covered Party includes an untrue statement of a material fact regarding the
Covered Party or omits to state a material fact regarding the Covered Party
required to be stated therein or necessary to make the statements contained
therein regarding such Covered Party not misleading in light of the
circumstances then existing.
Section 10.4 Distribution Arrangements. Each Covered Party, as
applicable, agrees that, in disposing of its Shares in the registered public
offering, such Covered Party will comply with applicable rules promulgated by
the Commission.
Section 10.5 Expenses. All expenses incurred by the Corporation in
preparing and complying with a registration covering any Shares, including,
without limitation, all registration, qualification and filing fees, blue sky
fees and expenses, printing expenses, fees and disbursements of legal counsel
and independent public accountants for the Corporation, the reasonable fees and
expenses of one law firm serving as legal counsel for the participating Covered
36
Parties, fees of the National Association of Securities Dealers, Inc., transfer
taxes, escrow fees, fees of transfer agents and registrars and costs of
insurance, but excluding any Selling Expenses, are herein called "Registration
Expenses." All underwriting discounts and selling commissions applicable to the
sale of Covered Shares are herein called "Selling Expenses."
The Corporation shall pay all Registration Expenses in connection with
any registration statement. All Selling Expenses in connection with any
registration statement shall be borne by each participating Covered Party in
proportion to the number of Covered Shares sold by each.
Section 10.6 Indemnification. In the event of a registration of any of
the Covered Shares under the Securities Act, the Corporation shall indemnify and
hold harmless the Covered Party, as applicable, thereunder and each underwriter
and each associate, if any, of the Covered Parties, or underwriter, against any
losses, claims, damages or liabilities, joint or several, to which the Covered
Parties, or underwriter or associate thereof may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Covered Shares were registered under the Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Corporation of
any rule or regulation promulgated under the Act applicable to the Corporation
and relating to action or inaction by
36
the Corporation in connection with any
such registration, and shall reimburse the Covered Parties, each underwriter
and/or associate thereof for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Corporation will not be liable
in any such case if and to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in conformity with information
furnished by the Covered Parties, each underwriter and/or associate thereof in
writing specifically for use in such registration statement or prospectus.
In the event of a registration of any of the Covered Shares under the
Act, each of the Covered Parties, as applicable, severally and not jointly, will
indemnify and hold harmless the Corporation and its affiliates, if any, and each
underwriter and each associate of any underwriter against all losses, claims,
damages or liabilities, joint or several, to which the Corporation or such
underwriter or associate may become subject under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the registration statement under which such
Covered Shares were registered under the Act, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereof, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Corporation, each
underwriter and/or associate thereof for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that a Covered Party will
37
be liable hereunder in any such case if and only to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with information pertaining to such Covered
Party, furnished in writing to the Corporation by that Covered Party
specifically for use in such registration statement or prospectus; and provided
further, however, that the liability of any Covered Party hereunder shall be
limited to the proportion of any such loss, claim, damage, liability or expense
that is equal to the proportion that the public offering price of Covered Shares
sold by such Covered Party, under such registration statement bears to the total
public offering price of all securities sold thereunder, but not to exceed the
proceeds received by such Covered Party from the sale of Covered Shares covered
by such registration statement.
Promptly after receipt by an indemnified party hereunder of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability it may have to any
indemnified party other than under this Section. In case any such action shall
be brought against any indemnified party and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate in and, to the extent it shall wish, to assume and undertake the
defense thereof with counsel reasonably satisfactory to such indemnified party,
and, after notice from the indemnifying party to such indemnified party of its
election so to assume and undertake the defense thereof, the indemnifying party
shall not be liable to such indemnified party under this Section for any legal
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of
38
investigation and of liaison with
counsel so elected; provided, however that, if the defendants in any such action
include both the indemnified party and the indemnifying party and if the
interests of the indemnified party reasonably may be deemed to conflict with the
interests of the indemnifying party, the indemnified party shall have the right
to select separate counsel and to assume its defense and otherwise to
participate in the defense of such action, with the expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred. The indemnifying party will
not be subject to any settlement made without its consent, which consent shall
not be unreasonably withheld. The indemnifying party will pay to the indemnified
party all sums due hereunder within 10 days of a final non-appealable judgment
or pursuant to the terms of a settlement agreement.
Section 10.7 Limitation on Subsequent Registration Rights. From and
after the date of this Agreement, the Corporation shall not, without the
unanimous written consent of APS, Trevey and Xxxxxxxx in each instance, enter
into any agreement with any holder or prospective holder of any securities of
the Corporation (nor shall the Corporation, in the absence of any such prior
agreement, permit any such holder or prospective holder) to include such
securities in any registration contemplated by this Agreement other than
incidental (non-demand) registration rights that are expressly subordinate to
those granted the Covered Parties in this Agreement.
39
ARTICLE XI
LEGEND ON CERTIFICATES
All Shares now or hereafter owned by the Shareholders shall be subject
to the provisions of this Agreement, and the certificates representing same
shall bear the following legend:
"THE SHARES REPRESENTED HEREBY AND THE VOTING, SALE, ASSIGNMENT,
TRANSFER, PLEDGE OR OTHER DISPOSITION THEREOF ARE SUBJECT TO
CERTAIN RESTRICTIONS CONTAINED IN A STOCK TRANSFER RESTRICTION AND
SHAREHOLDERS AGREEMENT AMONG THE CORPORATION AND ITS SHAREHOLDERS,
AND ANY AMENDMENT THERETO. THE AGREEMENT LIMITS THE USE OF THIS
STOCK AS COLLATERAL FOR ANY LOAN WHETHER BY PLEDGE, HYPOTHECATION
OR OTHERWISE. A COPY OF THE STOCK TRANSFER RESTRICTION AGREEMENT
AND ALL APPLICABLE AMENDMENTS THERETO WILL BE FURNISHED BY THE
CORPORATION TO THE HOLDER HEREOF WITHOUT CHARGE UPON WRITTEN
REQUEST TO THE CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS OR
REGISTERED OFFICE."
40
ARTICLE XII
TERMINATION OF AGREEMENT
This Agreement and all restrictions on stock transfer created hereby
shall terminate on the occurrence of any of the following events:
(a) The bankruptcy or dissolution of the Corporation.
(b) The ownership by one person of all of the Shares of the Corporation
which are then subject to this Agreement.
(c) The execution of a written instrument by APS, Xxxxxxxx and Trevey
which terminates the same.
(d) The date twenty-one (21) years after the death of the last
survivor of all individuals who are parties to this Agreement.
(e) The occurrence of an underwritten, registered public offering of
the common stock of the Corporation.
41
ARTICLE XIII
FUTURE EQUITY FINANCINGS
Section 13.1 Right of First Refusal. Each party to this Agreement shall
be entitled to a right of first refusal in the event that APS, Trevey or
Xxxxxxxx participate in any future equity financing by the Corporation,
including any instrument or security convertible into, or exchangeable or
exercisable for, any equity ownership interest of the Corporation. The
Corporation shall, not less than 30 days prior to the consummation of such
equity financing, notify the Shareholders in writing of the contemplated
transaction, including the terms and conditions of the issuance of capital stock
contemplated thereunder. Each Shareholder shall have, and may exercise within 15
days of receipt of such notice, a right to purchase, upon the same terms and
conditions, that proportion of such capital stock equal to its proportionate
ownership of the Corporation as determined on the date of dispatch of notice of
such transaction. Each Shareholder choosing to participate in such equity
financing must exercise to the fullest extent the rights granted pursuant to
this Section. The exercise or non-exercise of any rights arising pursuant to
this Section shall be governed by (and treated in a like manner to options
under) the provisions of Article IV hereof. Payment for any shares of capital
stock purchased pursuant to this Section shall be in cash at the closing.
Section 13.2 Limitations on Right of First Refusal. The provisions of
this Article shall not apply to (a) any issuance of stock or options pursuant to
any stock option or stock purchase plan properly adopted and administered by the
Corporation pursuant to this Agreement and the Corporation's Bylaws, (b) any
issuance of stock, stock purchase rights, options, stock warrants or similar
42
rights validly issued by the Corporation to any party hereto as compensation for
services, for providing guarantees of Corporation obligations, or otherwise not
in connection with the Corporation raising additional cash through the sale of
equity interests, or (c) any transaction by the Corporation entirely with
unrelated third parties.
ARTICLE XIV
BOARD MEETING ATTENDANCE RIGHTS
Section 14.1 Observer. According to the terms of and subject to the
conditions contained in this Article, the Limited Partner shall be entitled to
designate not more than one individual (the "Observer") who shall be allowed to
attend meetings of the Board of Directors of the Corporation (or listen in the
case of telephonic meetings). The Limited Partner must select the Observer from
the following individuals: Xxxxxx Xxxxxxxxx, Xxxxx Xxxxxx, Xxxxxxx Xxxxxxx, Xxxx
XxXxxxxxx or Xxxx Xxxxxxx.
Section 14.2 Conditions, Terms and Limitations. The Limited Partner's
and the Observer's rights under this Article shall be conditional upon,
qualified by, or subject to the following:
(a) the Observer shall not, on account of being the Observer or
attending any meeting of the Board of Directors, be entitled to compensation,
reimbursement, or indemnification of any kind from the Corporation or any party;
43
(b) the Observer shall use his best efforts to comply with any
reasonable demand or directive of the Chairman of the Board or other officer who
shall preside at and govern meetings of the Board of Directors;
(c) the Observer shall not be entitled to any vote on any matter and
shall comply with the rules of order and decorum as established by the presiding
officer, which may be Robert's Rules of Order, and which are generally
applicable to all parties at such meeting;
(d) the Observer shall not be entitled to delay any meeting regardless
of circumstances, and the presiding officer shall have no obligation to
accommodate or consider any such request; and
(e) in the event the Observer fails to comply with all of the
conditions, terms and qualifications hereunder, the Observer may be required,
upon request from the presiding officer, to leave or not attend the meeting.
Section 14.3 Confidentiality. Prior to attending any meeting of the
Board of Directors, the Observer must execute, in his or her individual
capacity, a confidentiality agreement in form and substance reasonably
acceptable to Corporation and its counsel. Pursuant to such agreement, the
Observer shall be prohibited from disclosing, divulging, revealing or using any
Proprietary Information (as defined in the Contribution Agreement) except for
the sole purpose of informing the Limited Partner and the Limited Partner
Permitted Assigns of the Corporation's affairs and of the activities occurring
during the meetings observed or pursuant to one of the exceptions set forth in
44
the Contribution Agreement. All of the rights granted pursuant to this Article
XIV shall be forever forfeited in the event that (a) any Observer breaches any
of the conditions of this Article XIV, or (b) any Observer breaches any
provision of the confidentiality agreement entered into pursuant to this
Section. Any breach by any Observer of the confidentiality agreement required
under this Section shall also constitute a breach by the Limited Partner of its
obligations with respect to confidentiality arising under the Contribution
Agreement.
Section 14.4 Notice. On or before January 1 of each year, the
Corporation will, in writing, provide the Limited Partner with the anticipated
dates (subject to change) of the regular meetings, if any, of the Board of
Directors for the following year (the "Annual Meeting Notice"). Within thirty
(30) days after receipt of the Annual Meeting Notice, the Limited Partner must
notify the Corporation of the name, address, facsimile number and phone number
of the designated Observer, and only such designated Observer shall be permitted
to attend any meeting of the Board of Directors during such following year,
without exception. For all meetings not set forth in the Annual Meeting Notice,
the Limited Partner shall be given notice at the same time and manner as notice
is provided generally to the members of the Board of Directors, but in no event
less than one (1) hour preceding such meeting.
Section 14.5 Exception Upon Opinion of Counsel. Upon obtaining a
reasoned opinion of counsel for the Corporation (or any Shareholder) which
advises that only members of the Board of Directors should attend a specified
meeting or meetings or portion of a meeting, the Chairman of the Board, at his
sole discretion, may notify the Observer that the Observer shall be excluded
45
from such meeting or meetings whereupon the attendance rights under this Article
with respect thereto shall not apply and the Observer shall not be allowed to
attend.
ARTICLE XV
GENERAL PROVISIONS
Section 15.1 Financial Statements. Each of the parties hereto hereby
agrees that the Corporation, at its sole cost and expense, shall (a) be audited
every calendar year-end by a national CPA firm and (b) prepare unaudited
quarterly financial statements. In addition, the audited annual financial
statements shall be due not later than ninety (90) days following year-end, and
the unaudited quarterly financial statements shall be due not later than
forty-five (45) days following quarter-end. All financial statements required by
this Section shall be prepared in accordance with generally accepted accounting
principles consistently applied. The Corporation shall, promptly upon receipt,
deliver to each party hereto full and complete copies of such annual and
quarterly financial statements. Each of the parties hereto hereby agrees that
KPMG shall serve as the auditor of the Corporation until such time as a
successor auditor has been elected pursuant to Article VIII hereof and the
Corporation's Bylaws.
Section 15.2 Directors and Officers Insurance. During the term of this
Agreement, the Corporation shall purchase and maintain directors and officers
liability insurance providing coverage of at least Three Million Dollars
($3,000,000) for each director and officer of the Corporation.
46
Section 15.3 Remedies for Breach. The Shares are unique chattels, and
each party to this Agreement shall have the remedies which are available to him,
her or it for the violation of any of the terms of this Agreement, including,
but not limited to, the equitable remedy of specific performance.
Section 15.4 Binding Effect. This Agreement is binding upon and inures
to the benefit of the Corporation, its successors and permitted assigns and to
the Shareholders and their respective heirs, personal representatives,
successors and permitted assigns. This Agreement may not be assigned, in whole
or in part, by any party hereto without the express written consent of all
parties hereto.
Section 15.5 Collateral Agreements and Waivers. This Agreement
(together with all documents delivered pursuant hereto, executed in connection
herewith, or contemplated herein) supersedes all other documents, understandings
and agreements, oral or written and constitutes the entire understanding among
the parties with respect to the subject matter hereof.
Section 15.6 Governing Laws. This Agreement is executed under, and in
conformity with, the laws of the State of Texas and shall be governed thereby.
If any provision of this Agreement shall be determined to be invalid or
unenforceable or prohibited by the laws of the State of Texas, this Agreement
shall be considered divisible as to such provisions and such provisions shall be
inoperative and shall not be a part of the consideration moving from any party
to another party and there shall be substituted in place thereof a provision
which parallels, as closely as allowed by law, the invalid, unenforceable or
prohibited provision, and the remaining
47
provisions shall be valid and binding
upon the parties and be of like effect as though such invalid, unenforceable or
prohibited provisions were not included herein.
Section 15.7 Amendment. This Agreement may be amended in whole or in
part only by the written consent of all the parties. Such amendment shall be
effective as of the date then determined by the parties and shall supersede any
provisions herein contained which are in conflict.
Section 15.8 Captions and Gender. The captions and titles herein are
for convenience only and are not intended to include or conclusively define the
subject matter of the text. All pronouns and references thereto shall refer to
the masculine, feminine and neuter genders, singular or plural, as the
identification of the persons, entities and corporations may require. The term
"person" as used in this Agreement shall include natural persons, corporations,
partnerships, trusts, estates and any other form of entity.
Section 15.9 Notices. All notices required to be given hereunder shall
be deemed to be duly given by personally delivering such notice or by mailing it
by certified mail, to the Corporation and to the Shareholders at the following
addresses (which may be changed by giving written notice of such change to all
other parties hereto):
48
To the Corporation, APS or American Physicians Service Group, Inc.
the Additional Purchasers: 0000 Xxxxxxx xx Xxxxx Xxxxxxx, Xxxxx X-000
Xxxxxx, Xxxxx 00000
Attention: President
Fax: (000) 000-0000
with a copy to: Xxxxxxx X. XxXxxx
Akin, Gump, Strauss, Xxxxx & Xxxx, L.L.P.
000 Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Fax: (000) 000-0000
To the Partnerships, Uncommon Care
the General Partner, 000 X. 0xx Xxxxxx, Xxxxx 000
Xxxxxxxx xx Trevey: Xxxxxx, Xxxxx 00000
with a copy to: Xxxx Xxx Xxxx
000 Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Fax: (000) 000-0000
49
To Limited Partner: Uncommon Partners, Ltd.
000 Xxxx 00xx Xxxxxx
Xxxxxx, Xxxxx 00000
Attn: Xxxx Xxxxxxx
Fax: (000) 000-0000
With a copy to: J. Xxxxxxx Xxxxxxxxx
Jenkens & Xxxxxxxxx
2200 One American Center
000 Xxxxxxxx Xxxxxx
Xxxxxx, Xxxxx 00000
Fax: (000) 000-0000
Section 15.10 Binding Effect of this Agreement on Additional Shares
Acquired By a Shareholder. In the event a Shareholder acquires, contracts to
acquire or receives any Shares of the Corporation's capital stock which are not
subject to this Agreement at the time of acquisition, such additional Shares of
the Shareholder shall be automatically subject to this Agreement and the
certificates representing such Shares shall bear the legend prescribed herein
and this Agreement shall be amended, if necessary, to reflect the acquisition of
such Shares by the Shareholder.
Section 15.11 Execution of Documents. Whenever Shares are to be
50
purchased by the Corporation or a Shareholder pursuant to this Agreement, the
transferor shall do all things and execute and deliver all documents and make
all transfers as may be necessary to consummate such purchase. In the event that
the transferor refuses to abide by the terms and conditions specified herein,
the purchaser(s) may tender payment for such Shares by mailing payment to the
transferor's attention at the address of the Corporation's registered office on
file at the office of the Texas Secretary of State. After payment is tendered
accordingly, the Corporation shall be entitled to cancel such Shares on its
books, and reissue such Shares to the purchaser(s) or, if the purchaser is the
Corporation, the Corporation may hold such Shares as treasury stock or cancel
such Shares.
[Signature pages follow]
51
SIGNATURE PAGES
STOCK TRANSFER RESTRICTION
AND
SHAREHOLDERS AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered on the day and year first written above.
CORPORATION: XXXXXX ACQUISITION, INC.
By: /s/ Xxxx X Xxxxxx
Print Name: Xxxx X Xxxxxx
Print Title: CEO
APS: AMERICAN PHYSICIANS SERVICE GROUP, INC.
By: /s/ Xxxxx X. Xxxx, Xx.
Print Name: Xxxxx X. Xxxx, Xx.
Print Title: Senior VP
S-1
XXXXXX HOUSE: XXXXXX HOUSE, LTD.
By: Uncommon Care, Inc., its General Partner
By: /s/ Xxxxxx X. Xxxxxxxx
Print Name: Xxxxxx X. Xxxxxxxx
Print Title: President
OAKWELL: XXXXXX HOUSE AT OAKWELL FARMS, LTD.
By: Uncommon Care, Inc., its General Partner
By: /s/ Xxxxxx X. Xxxxxxxx
Print Name: Xxxxxx X. Xxxxxxxx
Print Title: President
S-2
GENERAL PARTNER: UNCOMMON CARE, INC.
By: /s/ Xxxxxx X. Xxxxxxxx
Print Name: Xxxxxx X. Xxxxxxxx
Print Title: President
XXXXXXXX:
/s/ Xxxxxx X. Xxxxxxxx
XXXXXX:
/s/ Xxxx X. Xxxxxx
S-3
LIMITED PARTNER: UNCOMMON PARTNERS, LTD.
By: LTZ, Inc., its General Partner
By: /s/ Xxxx Xxxxxxx
-------------------------------
Xxxx Xxxxxxx, President
[Signature pages for Additional Purchasers follow]
S-4
ADDITIONAL
PURCHASERS:
Xxxxxxx X. Xxxxx
XXXXX X. XXXX, XX. TRUST
By /s/ Xxxxx X. Xxxx., Jr. Trustee
-------------------------------
Xxxxx X. Xxxx, Xx., Trustee
/s/ Xxxxxx X. Xxxx
----------------------
Xxxxxx X. Xxxx
X. X. XXXXXX DESCENDANTS' TRUST
By BANK OF BERMUDA, TRUSTEE
By /s/ Xxxxxx CH Masters
Name Xxxxxx X. X. Xxxxxxx
Title Trust Manager
/s/ Xxxxxxx X. Xxxxxxx
-------------------------
Xxxxxxx X. Xxxxxxx
/s/ Xxxxxxx X. Xxxxxxx
-------------------------
Xxxxxxx X. Xxxxxxx
/s/ Xxxxxx Xxxxxxx
-------------------------
Xxxxxx Xxxxxxx
S-5
/s/ X. X. Xxxxx
-------------------------
X. X. Xxxxxx, III
[Signature pages for spouses of Additional Purchasers follow]
S-6
SIGNATURE PAGES
STOCK TRANSFER RESTRICTION
AND
SHAREHOLDERS AGREEMENT
SPOUSES:
The undersigned spouse of Xxxxxxx X. Xxxxx hereunto subscribes her
name in evidence of her agreement and consent to the disposition made of any
interest she may have, including any community property interests, in the
capital stock of Xxxxxx Acquisition, Inc., referred to in the foregoing
Agreement, and to all other provisions of such Agreement.
/s/ Xxxxx X. Xxxxx
--------------------
Xxxxx X. Xxxxx
The undersigned spouse of Xxxxxx X. Xxxx hereunto subscribes her
name in evidence of her agreement and consent to the disposition made of any
interest she may have, including any community property interests, in the
capital stock of Xxxxxx Acquisition, Inc., referred to in the foregoing
Agreement, and to all other provisions of such Agreement.
/s/ Xxxxxx X. Xxxx
------------------
Xxxxxx X. Xxxx
The undersigned spouse of Xxxxxxx X. Xxxxxxx hereunto subscribes
her name in evidence of her agreement and consent to the disposition made of any
interest she may have, including any community property interests, in the
capital stock of Xxxxxx Acquisition, Inc., referred to in the foregoing
Agreement, and to all other provisions of such Agreement.
/s/ Xxxxxx Xxxxxxx
-------------------
Xxxxxx Xxxxxxx
The undersigned spouse of Xxxxxx Xxxxxxx hereunto subscribes her
name in evidence of her agreement and consent to the disposition made of any
interest she may have, including any community property interests, in the
capital stock of Xxxxxx Acquisition, Inc., referred to in the foregoing
Agreement, and to all other provisions of such Agreement.
/s/ Xxxxxxx X. Xxxxxxx
---------------------
Xxxxxxx X. Xxxxxxx
S-8
The undersigned spouse of X. X. Xxxxx hereunto subscribes her name
in evidence of her agreement and consent to the disposition made of any interest
she may have, including any community property interests, in the capital stock
of Xxxxxx Acquisition, Inc., referred to in the foregoing Agreement, and to all
other provisions of such Agreement.
/s/ Xxxxxxx X. Xxxxx
--------------------
Xxxxxxx X. Xxxxx
The undersigned spouse of X. X. Xxxxxx, III hereunto subscribes her
name in evidence of her agreement and consent to the disposition made of any
interest she may have, including any community property interests, in the
capital stock of Xxxxxx Acquisition, Inc., referred to in the foregoing
Agreement, and to all other provisions of such Agreement.
/s/ Xxxxxxx Xxxxxx
--------------------
Xxxxxxx Xxxxxx
S-8
APPENDIX I
ADDITIONAL PURCHASERS
Xxxxxxx X. Xxxxx
Xxxxx X. Xxxx, Xx. Trust
Xxxxxx X. Xxxx
X. X. Xxxxxx Descendants' Trust
Xxxxxxx X. Xxxxxxx
Xxxxxxx X. Xxxxxxx
Xxxxxx Xxxxxxx
X. X. Xxxxx
X. X. Xxxxxx, III
A-1
