EXHIBIT 10.18
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT, dated as of September 23, 2003, is by and
among Oak Street Financial Services, Inc., a Maryland corporation (the
"Company"), Oak Street Operations LLC, a Delaware limited liability company
("OSO") and unitholders ("Unitholders") of Oak Street Mortgage LLC, a Delaware
limited liability company ("OSM").
RECITALS
A. OSO proposes to offer one of its units in exchange for each
unit of OSM held by the Unitholders. Voting units of OSM will be exchanged for
voting units of OSO, and non-voting units of OSM will be exchanged for
non-voting units of OSO. Units of OSM are hereinafter referred to as "OSM
Units." Units of OSO are hereinafter referred to as "OSO Units."
B. Immediately following the exchange of units in Paragraph A,
the Company proposes to offer 1,000 shares of its common stock, $.01 par value
per share ("Common Stock"), in exchange for each OSO Unit held by the
Unitholders, except for the 113,999.95 non-voting OSO Units owned by Sotseks
Corp. ("Sotseks") which shall be the subject of a stock purchase option
referenced in Article II, Section 7. Voting shares of Common Stock will be
exchanged for voting OSO Units on a 1,000 share to one unit basis. Non-voting
shares of Common Stock will be exchanged for non-voting OSO Units on a 1,000
share to one unit basis.
C. Each Unitholder owns the OSM Units listed opposite his, her,
or its name on Exhibit A hereto.
D. OSO desires to acquire the OSM Units from each Unitholder, and
each Unitholder is willing to transfer to OSO, the OSM Units set forth beside
such Unitholder's name on Exhibit A hereto, in exchange, in each case, for the
OSO Units set forth opposite the name of the Unitholder on Exhibit A.
E. The Company desires to acquire the OSO Units from each
Unitholder except Sotseks, and each Unitholder is willing to transfer to the
Company, the OSO Units set forth beside such Unitholder's name on Exhibit A
hereto, in exchange, in each case, for the shares of Common Stock of the Company
set forth opposite the name of such Unitholder on Exhibit A (the "Shares").
F. The parties to this Agreement want to reduce to writing their
agreement with respect to the foregoing.
THEREFORE, in consideration of the mutual covenants contained in this
Agreement and the acts to be performed under this Agreement, the parties hereby
agree to the following:
ARTICLE I - EXCHANGE OF OSM UNITS FOR OSO UNITS
AND OF OSO UNITS FOR SHARES
1. TRANSFER OF THE OSM UNITS. Subject to the terms and conditions
of this Agreement, each Unitholder agrees to transfer to OSO on the Closing Date
(as defined in Section 3) all of the Unitholder's right, title and interest in
and to the OSM Units set forth beside such Unitholder's name on Exhibit A
attached to this Agreement.
2. ISSUANCE OF OSO UNITS. As consideration for the OSM Units, on
the Closing Date OSO shall issue to each Unitholder the OSO Units set forth
opposite such Unitholder's name on Exhibit A.
3. TRANSFER OF OSO UNITS. Subject to the terms and upon the
conditions of this Agreement, each holder of OSO Units except Sotseks agrees to
transfer to the Company on the Closing Date all of such holder's right, title
and interest in and to the OSO Units set forth opposite his, her or its name on
Exhibit A.
4. ISSUANCE OF SHARES. As consideration for the OSO Units
transferred to it on the Closing Date, the Company shall issue to each holder of
OSO Units transferring such OSO Units to the Company, the number and class of
Shares set forth opposite such person's name on Exhibit A.
5. CLOSING. The closing (the "Closing") of the transfer of the
OSM Units and the OSO Units and the acquisition of the OSO Units and the Shares
described in this Agreement shall be held as soon as practicable after OSO and
the Company receive signed signature pages and the OSM Unit Assignment Form from
each Unitholder and the OSO Unit Assignment Form and a signed Form 2553 from
each Unitholder except Sotseks (the "Closing Date"), at the offices of the
Company, 00000 X. Xxxxxxxx Xxxxxx, Xxxxx 000, Xxxxxx, Xxxxxxx 00000, or at such
other time and place as is mutually agreed to by the parties to this Agreement.
6. SUBCHAPTER S PROVISIONS.
(a) The Company intends to elect to be an S Corporation for and
after its date of organization.
(b) Each shareholder of the Company, agrees to sign a Form 2553
including any attachments thereto to make such an election.
The Company will provide each such Unitholder with a copy of
the Form 2553 to be signed by such Unitholder.
7. REPRESENTATIONS AND WARRANTIES OF THE UNITHOLDERS. Each
Unitholder hereby represents and warrants to OSO and to the Company with respect
to the OSM Units and OSO Units set forth beside such Unitholder's name on
Exhibit A, as follows:
(a) The Unitholder is the record and beneficial owner of the OSM
Units.
(b) The transfer of the OSM Units by the Unitholder to OSO
hereunder will vest in OSO good and valid right, title and
interest in and to the OSM Units, free and clear of all
claims, liens, pledges, charges, security interests and
encumbrances of
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any nature. The transfer of the OSO Units to the Company
hereunder will vest in the Company good and valid right, title
and interest in and to the OSO Units, free and clear of all
claims, liens, pledges, charges, security interests and
encumbrances of any nature.
(c) The Unitholder has the full right, power and authority to
execute, deliver and perform this Agreement and to transfer
the OSM Units and, in the case of all Unitholders but Sotseks,
the OSO Units in accordance herewith.
(d) This Agreement constitutes the legal, valid and binding
obligation of the Unitholder, enforceable against such
Unitholder in accordance with its terms, except as such
enforcement may be limited by bankruptcy, insolvency, or other
laws or equitable principles affecting the enforcement of
creditors' rights generally.
(e) The Unitholder has the financial ability to bear the economic
risk of an investment in the OSO Units and in the Shares, as
applicable, has adequate means of providing for his, her or
its current needs and personal contingencies, has no need for
liquidity in such investment and could afford the complete
loss of such investment. The Unitholder's overall commitment
to investments that involve a high degree of risk or that are
not readily marketable is not disproportionate to the
Unitholder's net worth, and the Unitholder's investment in OSO
or in the Company will not cause such overall commitment to
become excessive.
(f) The Unitholder has such knowledge, skill and experience in
business, financial and investment matters that the Unitholder
is capable of evaluating independently the merits and risks of
an investment in OSO Units or in the Shares. To the extent the
Unitholder has determined it to be necessary, the Unitholder
has retained, at the Unitholder's own expense, and relied
upon, appropriate professional advice regarding the
investment, tax and legal merits and consequences of this
Agreement and ownership of the OSO Units or the Shares.
(g) All representations, warranties and covenants contained in
this Agreement shall survive the Closing Date and the death or
disability of the Unitholder if an individual, and shall be
binding on such Unitholder's successors and assigns.
(h) The Unitholder hereby covenants and agrees to notify the
Company upon the occurrence of any event prior to the Closing
Date which would cause any representation or warranty of the
Unitholder contained in this Agreement to be false or
incorrect.
8. REPRESENTATION AND WARRANTIES OF OSO. OSO hereby represents
and warrants to the Unitholders as follows:
(a) OSO is duly formed, validly existing and in good standing
under the laws of the State of Delaware, with full power and
authority to conduct its business and to execute and deliver
this Agreement and to perform its obligations hereunder.
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(b) OSO has duly authorized the sale and issuance of the OSO Units
upon the terms set forth herein by all requisite corporate
action, and this Agreement has been duly authorized, executed
and delivered by it.
(c) this Agreement constitutes the legal, valid and binding
obligation of OSO, enforceable against OSO in accordance with
its terms, except as such enforcement may be limited by
bankruptcy, insolvency or other laws or equitable principles
affecting the enforcement of creditors' rights generally.
9. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to the Unitholders as follows:
(a) The Company is duly formed, validly existing and in good
standing under the laws of the State of Maryland, with full
power and authority to conduct its business and to execute and
deliver this Agreement and to perform its obligations
hereunder.
(b) The Company has duly authorized the sale and issuance of the
Shares upon the terms set forth herein by all requisite
corporate action, and this Agreement has been duly authorized,
executed and delivered by it.
(c) This Agreement constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in
accordance with its terms, except as such enforcement may be
limited by bankruptcy, insolvency or other laws or equitable
principles affecting the enforcement of creditors' rights
generally.
10. COVENANTS. Each Unitholder agrees to the following:
(a) The Unitholder understands and agrees that, unless the
Unitholder notifies the Company in writing to the contrary on
or before the Closing Date, all of the Unitholder's
representations and warranties contained in this Agreement
will be deemed to have been reaffirmed and confirmed as of the
Closing Date.
(b) The Unitholder understands that no federal or state agency has
made any findings or determination as to the fairness of an
investment in, or any recommendation or endorsement of, the
OSO Units or the Shares.
(c) The Unitholder acknowledges that OSO and the Company have the
right in their sole and absolute discretion to abandon this
offer at any time prior to the Closing Date and to return to
the Unitholder his, her or its Units.
(d) Each of the Unitholders acknowledges receipt of the letter
dated September ___, 2003, from Xxxxxx Xxxxxx describing the
transactions contemplated by this Agreement, and the
enclosures referred to in that letter (the "Documentation").
Each Unitholder represents that the decision he, she or it has
made regarding whether or not to assign OSM Units to OSO in
exchange for OSO Units, and OSO Units to the Company in
exchange for Shares pursuant to this Agreement ("Exchange
Decision") has been made by such Unitholder independently
after
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considering the Documentation, the tax consequences of that
decision, and other relevant information, and after consulting
any professional advisors deemed appropriate by such
Unitholder. Each Unitholder covenants that he, she or it will
assert no claim against OSM, OSO, the Company, their
subsidiaries, or their officers, directors or agents based on
such Unitholder's Exchange Decision or the disclosures made to
such Unitholder in connection with that Exchange Decision.
Each Unitholder hereby indemnifies and holds harmless OSM, OSO
and the Company, their subsidiaries, and their officers,
directors or agents from and against any loss or liability
occasioned by any such claim of such Unitholder or such
Unitholder's representatives.
11. INFORMATION CONCERNING OSO AND THE COMPANY.
(a) The Unitholder has had the opportunity to obtain information
or documents from, and to ask questions of, representatives of
OSO and the Company in connection with the offering of the OSO
Units and the Shares and any aspect of the business of OSO and
the Company, to the extent necessary to evaluate the merits
and risks (both economic and legal) related to the
Unitholder's investment in OSO and in the Company, and has
received answers therefrom that the Unitholder considers to be
responsive to such questions. Prior to making an investment in
OSO and in the Company, the Unitholder has had the opportunity
to verify the accuracy of any information that has been
provided.
(b) The Unitholder understands that no public market is available
for the sale of the OSO Units or the Shares at this time.
12. RESTRICTIONS ON TRANSFER OR SALE OF OSO UNITS AND SHARES UNDER
SECURITIES LAWS.
(a) The Unitholder is acquiring the OSO Units and, thereafter as
to each Unitholder except Sotseks, the Shares solely for the
Unitholder's own beneficial account, for investment purposes,
and not with a view to, or for resale in connection with, any
distribution of the OSO Units or the Shares (other than in
accordance with applicable federal or state law). The
Unitholder understands that neither the OSO Units nor the
Shares have been registered under the Securities Act of 1933
(the "Securities Act") or any state securities laws by reason
of specific exemptions under the provisions thereof which
depend in part upon the investment intent of the Unitholder
and of the other representations, warranties and covenants
made by the Unitholder in this Agreement. The Unitholder
understands that OSO and the Company are relying upon the
representations, warranties and covenants of the Unitholder
contained in this Agreement for the purpose of determining
whether this transaction meets the requirements for such
exemptions.
(b) The Unitholder understands that the OSO Units and the Shares
are "restricted securities" as that term is defined in Rule
144 promulgated under the Securities Act by the Securities and
Exchange Commission (the "Commission") and that the Securities
Act and Rule 144 and other rules promulgated by the Commission
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provide in substance, if a public market for such securities
develops later, that the Unitholder may dispose of the OSO
Units and the Shares only pursuant to an effective
registration statement under the Securities Act or an
exemption therefrom, and the Unitholder understands that the
Company has no obligation or intention to register any of the
OSO Units or the Shares, or to take action so as to permit
sales pursuant to the Securities Act (including Rule 144).
Accordingly, the Unitholder understands that, under the
Commission's rules, the Unitholder may dispose of the OSO
Units and the Shares principally only in "private placements"
which are exempt from registration under the Securities Act,
in which event the transferee will acquire "restricted
securities" subject to the same limitations as in the hands of
the Unitholder.
(c) With the exception of the transfer of OSO Units to the Company
as contemplated by this Agreement, no Unitholder may offer,
sell or transfer OSO Units or Shares acquired by him, her or
it under this Agreement unless, at the expense of the
transferring Unitholder, the Company, in the case of a
transfer of Shares, or OSO, in the case of a transfer of OSO
Units, has received an opinion of counsel for the Company or
OSO or counsel acceptable to the Company or OSO, as the case
may be, to the effect that such transfer is exempt from
registration requirements under the Securities Act and state
securities laws. OSO's Management Committee as to the OSO
Units and the Company's Board of Directors, as to the Shares,
may, in its sole discretion, waive the requirement for a legal
opinion, but any such waiver will not constitute a waiver of
any such requirement for any subsequent transfer of such OSO
Units or Shares or any interest therein.
(d) With the exception of the transfer of OSO Units to the
Company, as contemplated by this Agreement, the Unitholder
acknowledges and agrees that the Unitholder will not sell,
assign, pledge, give, transfer or otherwise dispose of the OSO
Units or the Shares or any interest therein, or make any offer
or attempt to do any of the foregoing, except pursuant to a
registration of the OSO Units or the Shares, as applicable,
under the Securities Act and all applicable state securities
laws or in a transaction which is exempt from the registration
provisions of the Securities Act and all applicable state
securities laws.
(e) The Unitholder has not offered or sold any portion of the OSO
Units or the Shares and has no present intention of dividing
the OSO Units or the Shares with others or of reselling or
otherwise disposing of any portion of the OSO Units or the
Shares either currently or after the passage of a fixed or
determinable period of time or upon the occurrence or
nonoccurrence of any predetermined event or circumstance.
13. CONDITIONS PRECEDENT TO THE UNITHOLDERS' OBLIGATIONS. All
obligations of the Unitholders under this Agreement are subject to the
fulfillment, prior to or on the Closing Date, of each of the following
conditions:
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(a) OSO's representations and warranties contained in this
Agreement shall be true at the time of Closing as though such
representations and warranties were made at such time;
(b) OSO shall have delivered to Sotseks a certificate representing
the non-voting OSO Units to which such Unitholder is entitled
under this Agreement;
(c) The Company's representations and warranties contained in this
Agreement shall be true at the time of Closing as though such
representations and warranties were made at such time; and
(d) The Company shall have delivered to each Unitholder except
Sotseks the stock certificates representing the number and
class of Shares to which such Unitholder is entitled under
this Agreement.
14. CONDITIONS PRECEDENT TO OSO'S OBLIGATIONS. All obligations of
OSO under this Agreement are subject to the fulfillment, prior to or on the
Closing Date, of each of the following conditions:
(a) The Unitholders' representations and warranties contained in
this Agreement shall be true at the time of Closing as though
such representations and warranties were made at such time;
and
(b) Each Unitholder shall have delivered to OSO on or before the
Closing an OSM Unit Assignment Form which assigns the OSM
Units to OSO.
15. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS. All
obligations of the Company under this Agreement are subject to the fulfillment,
prior to or on the Closing Date, of each of the following conditions:
(a) The Unitholders' representations and warranties contained in
this Agreement shall be true at the time of Closing as though
such representations and warranties were made at such time;
(b) Each Unitholder except Sotseks shall have delivered to the
Company on or before the Closing an OSO Unit Assignment Form
which assigns his, her or its OSO Units to the Company, a
signed signature page of this Agreement and an executed Form
2553 for such Unitholder; and
(c) OSO shall have delivered to the Company a certificate
representing the non-voting and voting units to which the
Company is entitled under this Agreement.
16. EFFECT OF CONDITIONS PRECEDENT. In the event the conditions
precedent to consummation of this Agreement are satisfied or waived by the party
they are to benefit on or before September 30, 2003, then the Unitholders, OSO,
and the Company shall proceed with the consummation of this Agreement;
otherwise, the obligations of the Unitholders, the Company, and OSO hereunder
shall be terminated.
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17. COVENANT OF FURTHER ASSURANCES. The Unitholders agree, upon
reasonable request, to deliver such additional documents to OSO or to the
Company or take such additional actions as may be necessary or appropriate to
vest in OSO ownership of the OSM Units and in the Company ownership of the OSO
Units held by unitholders other than Sotseks.
18. OSM OPERATING AGREEMENT. With regard to the exchange of OSM
Units for OSO Units pursuant to this Agreement by any Unitholder of OSM, the
undersigned Unitholder hereby waives any compliance with any and all covenants,
agreements, or requirements set forth in the Limited Liability Company Operating
Agreement of OSM (the "OSM Operating Agreement") or the Redemption Agreements by
and between OSM and certain Unitholders governing or otherwise restricting the
sale, transfer, and assignment of the OSM Units, including, without limitation,
any rights of first refusal or purchase that such Unitholder may have under
Article VII of the OSM Operating Agreement and Section 5 of the Redemption
Agreement. With regard to the exchange of OSM Units for OSO Units pursuant to
this Agreement by any Unitholder of OSM, OSM hereby unanimously waives any
compliance with (i) any and all covenants, agreements, or requirements set forth
in the OSM Operating Agreement governing or otherwise restricting the sale,
transfer, and assignment of the OSM Units, including, without limitation, the
provisions of Sections 7.2 and 7.3 of the OSM Operating Agreement, and (ii) any
and all covenants, agreements, or requirements set forth in the Redemption
Agreements by and between OSM and certain of its Unitholders governing or
otherwise restricting the sale, transfer, and assignment of their OSM Units,
including, without limitation, the provisions of Section 2, 3, 4 and 5 of the
Redemption Agreements. At the Closing, since OSO shall have acquired all OSM
Units, the Unitholders, in their capacity as Unitholders, shall no longer be
subject to the OSM Operating Agreement or the Redemption Agreements.
19. OSO OPERATING AGREEMENT. OSO and Sotseks agree as soon as
practicable after the Closing Date to enter into a Limited Liability Operating
Company Agreement of OSO in the form attached hereto as Exhibit B. Sotseks and
OSO agree not to transfer any OSO Units they receive pursuant to this Agreement
until the OSO Operating Agreement attached hereto as Exhibit B is executed, at
which point they will be subject to the transfer restrictions contained therein.
ARTICLE II - ADDITIONAL TRANSFER
RESTRICTIONS APPLICABLE TO THE SHARES
1. GENERAL RESTRICTIONS. Following the Closing, the Unitholders
acquiring Shares hereunder (the "Shareholders") shall have no right to sell,
assign or in any manner transfer all or any part of the Shares and the
Shareholders hereby agree that the Shareholders will not sell, assign or in any
manner transfer all or any part of the Shares, except as otherwise provided in
this Agreement, without the prior written consent of the Board of Directors of
the Company. The Board of Directors of the Company may require, as a condition
of such a sale, assignment or transfer of Shares, that the transferee execute an
agreement substantially identical in form to this Agreement (other than Article
I) (which may be accomplished by a certificate of acceptance and adoption of
this Agreement (other than Article I), that provides that all of the
transferee's Shares shall be subject to the restrictions on transfer set forth
in this Agreement (other than Article I).
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2. RESTRICTIONS APPLICABLE TO SHAREHOLDERS OTHER THAN EMPLOYEE
SHAREHOLDERS. Except as specifically permitted in this Section 2, no holder of
Shares following the Closing Date who is not an Employee Shareholder, as defined
in Section 3 hereof, subject to the transfer restrictions in Section 3 hereof (a
"Non-Employee Shareholder") may sell, assign or in any manner transfer all or
any part of his, her or its Shares in the Company, without the unanimous written
consent of the Company's Board of Directors.
(a) Permitted Transfers. Notwithstanding anything to the contrary
in this Section 2 and except as provided in this Section 2,
any Non-employee Shareholder (including without limitation
such Non-employee Shareholder's legal guardian, executor or
administrator in the case of an individual Non-employee
Shareholder) desiring to sell, transfer, exchange or encumber
all or part of such Non-employee Shareholder's Shares,
including transfers by gift or by reason of death, may do so
only if such Non-employee Shareholder has complied with the
provisions of this Section 2 unless such provisions have been
waived in writing by the unanimous consent of the Company's
Board of Directors. Upon the transfer by a Non-employee
Shareholder of his, her, or its Shares in accordance with this
Section 2, said Non-employee Shareholder shall promptly
surrender to the Company any and all certificates evidencing
the transferred Shares, and the Company shall thereafter issue
to the new Shareholder a certificate evidencing the number of
Shares so acquired.
(b) Transfers to Family or Affiliates. Any Non-employee
Shareholder may, with the unanimous consent of the Board of
Directors of the Company, which consent shall not be
unreasonably withheld, transfer the Shares held by such
Non-employee Shareholder to persons related by blood to such
Non-employee Shareholder or to an entity in which a majority
of the equity interests or beneficial interests is held by
persons related by blood to such Non-employee Shareholder;
provided however that Xxxx X. Xxxxxx (or at his death, his
personal representative) may transfer his voting Shares to
Xxxxx X. Xxxxxxxx without seeking such consent and Xxxxxx X.
Xxxxxxx (or at his death, his personal representative) may
transfer his voting Shares to Xxxxxx Xxxxxxx Xxxxxxx without
seeking such consent. Such transfer may be made by the
Non-employee Shareholder or, in the event of the Non-employee
Shareholder's death or disability, by his or her personal
representative. A condition of such transfer shall be that
such prospective transferee shall agree to be bound by the
provisions in this Agreement (other than Article I).
(c) Response to Third Party Offer. The Xxxxxx Group shall mean
Xxxx X. Xxxxxx, trusts for the benefit of his children, his
children, and any transferee from any of such persons pursuant
to the provisions of this Section 2. The Skestos Group shall
mean Xxxxxx X. Xxxxxxx, Sotseks and any transferee from any of
such persons pursuant to the provisions of this Section 2. The
Alonso group shall mean Xxxxxx Xxxxxx and any transferee from
him pursuant to the provisions of this Section 2. Such Groups
shall be bound by the majority vote of the Group of which they
are a part. If either the Xxxxxx Group, the Skestos Group or
the Alonso Group receives a written offer, by its terms
irrevocable for at least 30
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days, to purchase all of the Shares and outstanding options of
such Group and such Group wishes to accept such offer, a
representative of such Group shall advise the members of the
other Groups of the terms of such offer within 10 days
following receipt thereof. The other Groups shall have the
right, for a period of 15 days following such receipt, to give
notice in writing to such Group that the other Groups elect to
purchase all of the Shares and outstanding options of such
Group at the price and on the terms proposed by the third
party purchaser, supported by credible financial assurances
that the other Groups are able to do so. Alternatively, the
other Groups may in a writing delivered within the same time
period elect to require that all of their Shares and
outstanding options be purchased at the same price and on the
same terms by the proposed third party purchaser. If the
proposed third party purchaser is unwilling to purchase all of
such offered Shares and outstanding options, then any Group
may reject such offer in its entirety or the Groups may agree
to sell, on a pro rata allocation, such number of Shares and
outstanding options as the proposed third party purchaser is
willing to buy.
(d) Transfer in the Event of the Death or Disability of Xxxxxx
Xxxxxx. In the event of the death or disability of Xxxxxx
Xxxxxx, the Company shall purchase all of the Shares of the
Alonso Group at the value established in accordance with the
valuation procedure described in subsection (g); provided,
however, that Xx. Xxxxxx'x personal representative, in the
event of his death or disability, may by written notice to the
Company elect within 90 days following such event to defer
establishment of the value of the Shares of the Alonso Group
for a period of 36 months following such event. Any purchase
by the Company shall be on a time schedule which accords with
available liquid assets of the Company and covenants in the
Company's financing agreements.
(e) Transfer in the Event of Bankruptcy or Divorce of a
Non-employee Shareholder. In the event of the bankruptcy of a
Non-employee Shareholder or in the event of a transfer of
Shares incident to a divorce, the Company shall purchase all
of the Shares of such Non-employee Shareholder at the value
established in accordance with subsection (g). Any purchase
shall be on a time schedule which accords with the available
liquid assets of the Company and complies with covenants in
its financing agreements.
(f) Other Disposition of Shares. If either the Xxxxxx Group, the
Skestos Group or the Alonso Group wishes to offer for sale all
of its Shares and outstanding options but has not received an
offer from a third party or if either group wishes to
liquidate the Company in order to terminate its interests in
the Company, the value of such interest shall be established
in accordance with the valuation procedure described in
subsection (g). The Groups which did not take the initial
action leading to such valuation (the "non-offering groups")
may elect to tender such Shares and outstanding options for
sale as part of a uniform sales effort or to purchase such
Shares and outstanding options at the value determined
pursuant to subsection (g). In the event that the non-offering
groups do not take action as described above, the Company may
elect to purchase the interest of the offering group at the
value
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determined pursuant to subsection (g). Notice of such group's
election and the Company's election shall be given in writing
to the offering group within 15 days following delivery to it
of such valuation. In the event that the Alonso Group wishes
to offer for sale its Shares, the non-offering group does not
elect to purchase such Shares, and the Company is not willing
or financially able to purchase such Shares except in
accordance with a time schedule which is not acceptable to the
Alonso Group, the Company shall be liquidated.
(g) Valuation Procedures. In all events where the value of Shares
held by a given group is to be determined by independent
experts, the offering group shall select a person and the
non-offering groups shall jointly select a person, each said
person being qualified by experience to value businesses and
these two persons shall undertake to mutually agree upon the
value of such Shares. In the event that such persons are not
able to reach mutual agreement as to such value, they shall
select a third person qualified by experience to value
businesses to provide such valuation and that person's
valuation shall be conclusive.
3. RESTRICTIONS APPLICABLE TO EMPLOYEE SHAREHOLDERS. The
restrictions in this Section 3 shall apply to those holders of Units who are
currently employees of OSM, other than Xxxxxx Xxxxxx (the "Employee
Shareholders"). They are designated as Employee Shareholders on the signature
pages to this Agreement.
(a) Upon the termination of an Employee Shareholder's employment
for any reason, the following actions shall take place:
(i) The Employee Shareholder shall assign and transfer to
the Company all right, title and interest in the
Shares he or she owns, free and clear of all liens,
encumbrances and other claims. Within 10 days of such
termination of employment, the Employee Shareholder
shall deliver to the Company any and all certificates
representing the Shares for redemption and repurchase
by the Company.
(ii) Upon delivery of the Share certificates, the Company
shall redeem and repurchase such Shares at the
Redemption Price. The Redemption Price per Share
shall be an amount equal to the greater of (1) the
Per Share Earnings multiplied by 3 or (2) the book
value of a Share on the date of repurchase by the
Company determined in accordance with generally
accepted accounting principles. "Per Share Earnings"
means the Company's Profit for the 12 consecutive
calendar months preceding the month in which a
termination of employment of the Employer Shareholder
shall occur or the month in which a Transfer Notice
is received by the Company, divided by the total
number of Shares of the Company which are outstanding
on the date of such redemption and repurchase.
"Profit" shall mean the sum of the Company's total
items of income set forth in Section 1367(a)(1)(A)
through (C) of the Code for the period in question
reduced by the sum of the Company's total items of
loss and deduction set forth in Section 1367(a)(2)(B)
through (E) of the Code for the period in question.
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(iii) The Company shall pay the Redemption Price to the
Employee Shareholder in cash or other immediately
available funds no later than 10 days after the
Employee Shareholder's delivery to the Company of the
certificates representing the Shares.
(b) In the event that an Employee Shareholder's employment is
terminated as a result of the Employee Shareholder's death,
all of the obligations of the Employee Shareholder shall be
performed by the Employee Shareholder's personal
representative and the Redemption Price paid by the Company
shall be paid to such personal representative. For this
purpose, the term "personal representative" shall mean an
administrator, executor, trustee, or other personal
representative who is vested with the responsibility for
administering the disposition of any Shares on account of the
Purchaser's death, or any individual who holds such Shares as
a legatee, distributee, or successor in interest, or trustee
where no executor, administrator, or similar fiduciary is
appointed or where any appointed executor, administrator, or
fiduciary does not have control over any of the deceased
Employee Shareholder's Shares.
(c) In the event that an Employee Shareholder desires to sell,
assign or otherwise transfer all or any part of his or her
Shares or if his or her Shares are subject to an involuntary
transfer incident to a divorce or bankruptcy, the Employee
Shareholder shall first comply with the following procedures:
(i) The Employee Shareholder shall deliver to the Company
a written notice of intention to transfer the Shares
(the "Transfer Notice") which shall specify the
number of Shares (the "Subject Shares") that the
Employee Shareholder desires to transfer and such
information regarding the identity of the proposed
transferee as the Company shall require.
(ii) Upon receipt of the Transfer Notice, the Company
shall have a period of 30 days (the "Company Purchase
Period") to redeem and repurchase the Subject Shares
at a per Share price equal to the greater of (1) the
Per Share Earnings multiplied by 3 or (2) the book
value of a Share on the date of repurchase by the
Company determined in accordance with generally
accepted accounting principles. If the Company
notifies the Employee in writing, on or before the
30th day of the Company Purchase Period, that it
intends to redeem and repurchase the Subject Shares,
then the Employee Shareholder shall tender the
Subject Shares, and the Company shall pay the price
set forth above, in the manner described in
Subsection (i), (ii) and (iii) of subsection (a) of
this Section 3.
(iii) If the Company does not notify the Employee
Shareholder in writing that it intends to redeem and
repurchase the Subject Shares on or before the 30th
day of the Company Purchase Period, then the Employee
Shareholder shall be permitted, for a period of 30
days after the expiration of the Company Purchase
Period, to sell, assign or transfer the Subject
Shares to the proposed transferee identified in the
Transfer Notice, subject to the
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transfer restrictions described in this Article II.
The transferee shall, as a condition of such a sale,
assignment or transfer of Shares, execute an
agreement substantially identical in form to this
Agreement (other than Article I) which may be
accomplished by a certificate of acceptance and
adoption of this Agreement (other than Article I).
(iv) If the Employee Shareholder shall fail to sell,
assign or transfer any or all of the Subject Shares
to the proposed transferee identified in the Transfer
Notice on or before the 30th day following the
Company Purchase Period, then the Employee
Shareholder shall not be permitted to sell, assign or
otherwise transfer any Subject Shares not sold,
assigned or transferred during such 30-day period
unless the Purchaser first provides the Company with
a new Transfer Notice and again complies with the
procedures of this subsection (c).
4. INVALIDITY OF TRANSFERS WHICH WOULD TERMINATE COMPANY'S STATUS
AS S CORPORATION. Notwithstanding anything herein contained to the contrary, no
Shareholder shall transfer any of his Shares, or any interest therein if, as a
result of such transfer, any of the following occurs:
(a) The Company's status as an S Corporation would terminate.
Without limiting the generality of the foregoing, no
Shareholder shall transfer any of his, her or its Shares to,
and no Shares shall be acquired by, any person falling within
any of the following categories:
(i) A non-resident alien;
(ii) A corporation, a partnership or a trust which does
not satisfy the requirements of Code
Sections 1361(c)(2), (c)(6), (d) or (e), or their
successor provisions; or
(iii) Any other person or entity, a transfer to whom or
which would result in the termination of the
Company's election to be taxed as an S Corporation
under the applicable Internal Revenue Code
provisions.
(b) Moreover, no Shareholder may transfer any of his, her or its
Shares so as to cause the total number of "shareholders" of
the Corporation, as determined under Section 1361(c) of the
Internal Revenue Code, to exceed seventy-five (75), or such
larger number as may at that time be permitted for S
Corporations by applicable Internal Revenue Code sections or
Internal Revenue Service regulations.
5. ATTEMPTED TRANSFERS IN VIOLATION OF SHARE TRANSFER
RESTRICTIONS. Any purported transfer of Shares in violation of this Article II
shall be null and void and shall have no legal effect. An attempt to transfer an
interest in the Shares of the Company in violation of this Agreement shall be
ineffective and the Company shall refuse to register the Shares in question in
the name of the transferee. Any Shareholder who causes or authorizes a
revocation or transfer that terminates the Company's S election in violation of
Section 1362(a) of the Code (whether in
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his, her, or its capacity as a Shareholder, director, officer, employee or agent
for the Company or otherwise) shall be liable to the Company and to every other
Shareholder for any and all damages, liabilities or costs resulting directly and
indirectly therefrom, including, without limitation, any additional federal or
state tax liability incurred by the Corporation or any other Shareholder as a
result of the improper revocation or termination and any attorneys' fees or
other costs incurred in computing and collecting any such damages; provided,
however, that no Shareholder shall be liable for damages under this Section 5
for making a transfer that terminates the election if the Shareholder acted,
after obtaining a written waiver from the Company's Board of Directors, in
compliance with this Agreement. The additional federal and state tax liability
caused by the improper revocation or termination shall be computed by the
accountant that regularly prepares the Company's tax returns and such
accountant's determination of such liability shall, except as otherwise provided
in this action, be conclusive and binding on all parties hereto for all
purposes.
6. INADVERTENT TERMINATION OF S CORPORATION ELECTION. In the
event that the Company's election to be taxed as an S Corporation is terminated,
except in accordance with this Agreement, the Corporation shall immediately seek
a waiver of such termination from the Internal Revenue Service under Sections
1362(f)(3) and 1362(f)(4) of the Internal Revenue Code, and each Shareholder
agrees to take any action as may be required by the Internal Revenue Service to
obtain such a waiver. The Company shall bear the expense of procuring the
waiver, including the legal, accounting and tax costs of taking such steps and
of making such adjustments as may be required, except to the extent that
Shareholders are required to bear such costs, or any portion of such costs, as a
condition to receiving the waiver. If the Company fails to receive such a
waiver, the Company shall request the consent of the Internal Revenue Service to
re-file an election to be taxed as an S Corporation prior to the time specified
in Section 1362(g) of the Code, and each Shareholder agrees to take any action
as may be required to obtain the consent of the Internal Revenue Service to such
an early re-election by the Corporation to be taxed as an S Corporation.
7. SOTSEKS OPTION. Notwithstanding anything to the contrary in
this Agreement, at such time as Sotseks shall have distributed OSO Units to
persons entitled to become shareholders of the Company pursuant to the
provisions of Code Section 1361(b) or its successor provisions, such persons
shall have the right to transfer all or part of the OSO Units to the Company in
exchange for a number of non-voting OFS Shares equal to 1,000 times the number
of OSO Units which shall be exchanged, subject to appropriate adjustments for
stock splits, stock dividends, recapitalizations and similar events occurring
after the date hereof which may affect the OFS Shares. The Company agrees to
issue the OFS Shares to which such persons would be entitled upon such an
exchange when it receives an appropriate assignment of the OSO Units and
customary representations and warranties from such persons and, if necessary,
from Sotseks as to such exchange.
ARTICLE III - DISTRIBUTIONS
1. DISTRIBUTION OF NET CASH FLOW TO MEET ESTIMATED TAX
OBLIGATIONS. Except in connection with the dissolution and liquidation of the
Company and except as prevented by applicable state law, a dividend distribution
shall be made to each Shareholder, no later than January 1, April 1, June 1 and
September 1 of each year in an amount equal to 43% of the
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estimated income attributable to the pro rata shares of the Company's net long
term and Section 1231 capital gains and non-separately stated items of income
pursuant to Section 1366(a) of the Internal Revenue Code, as amended (as
determined by the Board of Directors of the Company) for the applicable periods
for which estimated federal and state income tax payments must be made by the
Shareholder and, to the extent feasible, all loan agreements and other
arrangements with lenders shall contain a reservation of right on the part of
the Company to make such payments.
2. DISTRIBUTION PROCEDURE. Distributions shall be made to
Shareholders (or to their estates, personal representatives, successor or
assigns, as appropriate) of record on the record date for the dividend
distribution, regardless of whether they hold Shares on the date of
distribution. Any pro rata dividend distributions made during the taxable year
in question to shareholders in excess of 43% of actual tax distribution made in
Section 1 above for the applicable periods can be taken into account in
determining the extent of the future minimum mandatory dividends for the balance
of a taxable year.
3. DISTRIBUTIONS IN THE EVENT OF TERMINATION OF S CORPORATION
STATUS. It is the intent of this Article III to protect Shareholders to the
extent allowed by law and the Company's financing agreements, against the
possibility that they may be subjected to federal or state income taxes based
upon income of the Company for taxable periods but not have adequate payments
from the Company to satisfy such taxes or a timely basis, and to require the
Company to make periodic payments to the Shareholders in the form of dividends
in amounts sufficient to allow them to pay such taxes. In the event that the
status of the Company as an S Corporation terminates for any reason, the Company
shall nonetheless pay sufficient dividends to permit Shareholders to pay any
such taxes attributable to the period prior to the termination of such status.
4. ALLOCATIONS. Allocations of income, gain, deduction and loss
shall be made on a pro rata basis to all persons who were Shareholders at any
time during the taxable year on a per share per diem basis in accordance with
Section 1377(a) of the Internal Revenue Code, or in accordance with such other
methodology as may be permitted by the Code. To the extent permitted under
Section 1377(a)(2), by signing below or subsequently agreeing to be bound by
this Agreement (other than Article I), the "affected Shareholders" hereby
consent in advance to any Company closing of the books election whenever the
Company's Board of Directors deems it appropriate to make such an election.
ARTICLE IV - GENERAL PROVISIONS
1. ENTIRE AGREEMENT. This Agreement, including any document
delivered by the Company, OSO, or the Unitholders in accordance herewith,
constitutes the entire agreement and supersedes all prior agreements and
understandings, oral and written, between the parties to this Agreement with
respect to the subject hereof.
2. BENEFITS; ASSIGNMENT. This Agreement will inure to the benefit
of the parties to this Agreement and shall be binding upon them and their
respective successors and assigns. Neither this Agreement nor any right, remedy,
obligation or liability arising hereunder or by reason hereof shall be
assignable by either the Company, OSO, a Unitholder, or a Shareholder
-15-
without the prior consent of the other parties, except to the extent it is
assigned in connection with transfers of Shares or OSO Units permitted
hereunder.
3. GOVERNING LAW. The parties to this Agreement agree that this
Agreement shall be construed as to both the validity and performance and shall
be enforced in accordance with and governed by the laws of the State of Indiana.
4. LEGEND ON STOCK CERTIFICATES. The certificates for Company
Shares to be acquired by the Unitholders at the Closing shall be endorsed as
follows:
This certificate is transferable only in compliance with the provisions
of the Exchange Agreement dated as of September 23, 2003, affecting the
shares represented hereby, a copy of which is on file in the office of
the Secretary of the Company.
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or the securities laws of
any state. As a result, the securities represented by this certificate
may not be sold or transferred in the absence of registration under
such laws or an opinion from legal counsel satisfactory to the Company
that such registration is not required.
All certificates for Shares hereafter issued to the Shareholders shall bear the
same endorsement. The legend concerning the Exchange Agreement shall be removed
from the certificates following termination of this Agreement.
5. AMENDMENT. This Agreement may be amended prior to the Closing
Date only by unanimous agreement of the Unitholders, the Company, and OSO. From
and after the Closing Date, this Agreement may be amended for the sole purpose
of reflecting a transfer of Shares made in accordance with the terms of the
Agreement by a written amendment signed only by the Company and the transferee.
This Agreement may also be amended by the Company's Board of Directors (a)
solely for the purpose of clarification without substantive change, and (b) if
the amendment is, in the opinion of counsel for the Company, necessary or
appropriate to satisfy current requirements of the Internal Revenue Code with
respect to S Corporations or any federal or state securities laws or
regulations. Shareholders will be notified of any such amendments not requiring
Shareholder approval. No other amendment or modification of this Agreement shall
be valid unless it is approved by the Company's directors, is in writing and
signed by Shareholders holding 100% of the Company's voting Shares then
outstanding, and is duly executed by the Company. Except as to amendments for
the sole purpose of reflecting a transfer of Shares made in accordance with the
terms of this Agreement, all Shareholders shall be given written notice at least
five (5) business days in advance of the effective date of any proposed
amendment.
6. TERM. This Agreement may be terminated at any time prior to
the Closing Date by the Company or by OSO. Following the Closing, Articles II
and II of this Agreement shall terminate, and the certificates representing
Shares subject to this Agreement shall be released from the restrictions on
transferability set forth in Article II hereof, by written agreement signed by
the Company and Shareholders owning not less than 100% of the Company's voting
Shares then outstanding. Articles II and III of this Agreement shall also
terminate if, notwithstanding
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the good faith efforts of all parties, the status of the Company as an S
Corporation is finally and irrevocably terminated, by operation of law or
otherwise, or if the Company closes a public offering of its Shares in a
transaction that results in more than 75 shareholders or in nonqualifying S
Corporation shareholders. Upon the termination of this Agreement, each
Shareholder shall surrender to the Company the certificates for his, her or its
Shares, and the Company shall issue to such Shareholder new certificates for an
equal number of Shares without the legend concerning the Exchange Agreement set
forth in section 4 of this Article IV.
IN WITNESS WHEREOF, this Agreement was executed by the Company and the
Unitholders as of the date first written above.
OAK STREET OPERATIONS LLC OAK STREET FINANCIAL SERVICES, INC.
By: /s/ Xxxxx Xxxxxx By: /s/ Xxxxx Xxxxxx
------------------------------- --------------------------------
Xxxxx Xxxxxx, President Xxxxx Xxxxxx, President
UNITHOLDERS:
/s/ Xxxxx Xxxxxx /s/ Xxxx X. Xxxxxx
------------------------------- --------------------------------
Xxxxxx Xxxxxx Xxxx X. Xxxxxx
/s/ Xxxxx X. Xxxxxxxx /s/ Xxxx X. Xxxxxx
------------------------------- --------------------------------
Xxxxx X. Xxxxxxxx Xxxx X. Xxxxxx
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/s/ Xxxxxx X. Xxxxxx National City Bank, Agent U/A with
Xxxxxx X. Xxxxxx Xxxxxxx X. Nick
By: /s/ Xxxxx X. Xxxxxxx III
National City Bank, Agent U/A with Xxxxx X. Xxxxxxx III, Trust Manager
Xxxxxx X.Xxxxxx
By: /s/ Xxxxx X. Xxxxxxxx
By: /s/ Xxxxx X. Xxxxxxx III Xxxxx X. Xxxxxxxx, Special Trustee
Xxxxx X. Xxxxxxx III, Trust Manager
/s/ Xxxxxx X. Xxxxxxx
By: /s/ Xxxx X. Xxxxxx Xxxxxx X. Xxxxxxx
Xxxx X. Xxxxxx, Special Trustee
By: /s/ Philipp D. Nick /s/ Xxxxx X. Xxxxxxx
Xxxxxxx X. Xxxx, Special Trustee Xxxxx X. Xxxxxxx*
By: /s/ Xxxxxxx X. Xxxxx /s/ Xxxx Xxxxxxx
Xxxxxxx X. Xxxxx, Special Trustee Xxxx Xxxxxxx*
/s/ D. Xxxxx Xxxxx
D. Xxxxx Xxxxxx* /s/ Xxxxxx X. Xxxxx
Xxxxxx X. Xxxxx*
/s/ Xxxx X. Xxxxxxx
Xxxx X. Xxxxxxx* /s/ Xxxxxxx Xxxxx
Xxxxxxx Xxxxx*
/s/ Xxxxx X. Royal
Xxxxx X. Royal* /s/ Xxxxxxx X. Xxxxxxxx
Xxxxxxx X. Xxxxxxxx*
/s/ Xxxxxx Xxxxxxx XX
Xxxxxx Xxxxxxx XX* /s/ Xxxx X. Xxxxx
Xxxx X. Xxxxx*
/s/ Xxxxxxx Xxxxx
Xxxxxxx Xxxxx* SOTSEKS CORP.
/s/ Xxxxxxx Xxxxxx /s/ Xxxxxx X. Xxxxxxx
Xxxxxxx Xxxxxx*
By:
/s/ Xxxx Xxxx
Xxxx Xxxx*
*Employee Shareholders
18
AMENDMENT NO. 1 TO EXCHANGE AGREEMENT
This AMENDMENT NO. 1 TO EXCHANGE AGREEMENT, dated as of April 30, 2004
(the "Amendment"), amends that certain Exchange Agreement, dated as of September
23, 2003 (the "Exchange Agreement"), entered into by and among Oak Street
Financial Services, Inc., a Maryland corporation (the "Company"), Oak Street
Operations LLC, a Delaware limited liability company ("OSO") and the
then-existing unitholders ("Unitholders") of Oak Street Mortgage LLC, a Delaware
limited liability company ("OSM").
RECITALS
A. The Company, OSO and the then-existing unitholders of OSM entered
into the Exchange Agreement pursuant to which (i) all of the members of OSM
exchanged their OSM ownership units for OSO ownership units, and (ii) all of the
OSO unitholders other than Sotseks Corp. exchange their OSO ownership units for
shares of the Company's common stock.
B. The Company's Board of Directors has authorized this Amendment
pursuant to Section 5 of the Exchange Agreement solely to clarify the intent of
the parties with regard to the effective date, for accounting purposes, of the
transactions described therein.
AMENDMENT
1. The Exchange Agreement is hereby amended by replacing the first
introductory paragraph thereof, in its entirety, with the following:
"THIS EXCHANGE AGREEMENT, dated as of September 23, 2003, is by and
among Oak Street Financial Services, Inc., a Maryland corporation (the
"Company"), Oak Street Operations LLC, a Delaware limited liability
company ("OSO") and unitholders ("Unitholders") of Oak Street Mortgage
LLC, a Delaware limited liability company ("OSM"), to be effective for
accounting purposes as of the close of business on September 30, 2003,
so that the results of operations and financial position shall be
included in the Company's consolidated financial statements beginning
September 30, 2003 as if the transactions set forth herein were
effective September 30, 2003."
2. Except as set forth herein, all other terms and provisions set forth in
the Exchange Agreement remain in full force and effect.
IN WITNESS WHEREOF, this Amendment was executed by the undersigned as
of the date first written above.
OAK STREET FINANCIAL SERVICES, INC.
/s/ Xxxxxx Xxxxxx
-------------------------------------
By: Xxxxxx Xxxxxx
President and Chief Executive Officer
