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SECURITIES PURCHASE AGREEMENT
BY AND BETWEEN
ANCHOR PACIFIC UNDERWRITERS, INC.,
a Delaware corporation
AND
XXXX NORTH AMERICA HOLDING, INC.,
a California corporation
Dated as of March 9, 2000
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SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT is made and entered into as of March 9,
2000 (the "Effective Date") by and between Anchor Pacific Underwriters, Inc., a
Delaware corporation (the "Company"), and Xxxx North America Holding, Inc., a
California corporation ("Purchaser"). The parties hereby agree as follows:
1. PURCHASE AND SALE OF SECURITIES.
1.1 Sale and Issuance of Senior Convertible Debentures.
(a) Purchaser has purchased and the Company has issued and sold
to Purchaser (i) Series E Convertible Debentures (the "Debentures"), in the form
attached hereto as Exhibit A, in the principal amount of $500,000 (the
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"Debentures Purchase Price") and (ii) five year term Warrants attached thereto
for the purchase of 300,000 shares of the Common Stock of the Company
exercisable at $.50 per share (the "Debenture Warrants").
(b) The Company acknowledges that Purchaser has already
delivered $500,000 in cash to the Company as payment for the Debentures
(including the Debenture Warrants), and Purchaser acknowledges that the Company
has already delivered to Purchaser $500,000 of the Debentures (including the
Debenture Warrants), pursuant to the terms and conditions of that certain Letter
Agreement by and between the Company and Purchaser dated November 29, 1999 (the
"Letter Agreement") and the subsequent letter agreement between the Company and
Purchaser dated February 18, 2000 (the "later Letter Agreement").
(c) The payment provision of the Debentures shall be amended to
provide for repayment on July 1, 2000. The Debentures shall be convertible at
all times prior to repayment by the Company and following the Closing (as
defined in Section 1.5 below) the payment date may be extended at Purchaser's
election to a date no later than December 31, 2002.
1.2 Sale and Issuance of Preferred Stock.
(a) The Company shall, on or before the Closing, adopt and file
a Certificate of Designation (the "Certificate of Designation") in the form
attached hereto as Exhibit B with the Delaware Secretary of State, creating a
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Series A Convertible Preferred Stock, $.02 par value per share ("Series A
Preferred Stock"), which series shall initially consist of 1,853,300 shares.
(b) Subject to the terms and conditions of this Agreement,
Purchaser agrees to purchase at the Closing, and the Company agrees to sell and
issue to Purchaser at the Closing, 1,853,300 shares of the Company's Series A
Preferred Stock (the "Shares") for the purchase price of One Dollar and
079156/100 ($1.079156) per share, for a total purchase price for the Shares of
$2,000,000. Purchaser has previously made a convertible bridge loan (the "Bridge
Loan") in the amount of $200,000 to the Company and Purchaser may apply the
principal amount of the Bridge Loan and any accrued interest thereon toward the
purchase price of the Shares and the remainder of the purchase price shall be
paid in cash.
1.3 Execution and Delivery of Secured Convertible Loan Facility.
Subject to the terms and conditions of this Agreement, Purchaser
agrees to execute and deliver at the Closing, and the Company agrees to execute
and deliver to Purchaser at Closing, a Secured Convertible Loan Facility (the
"Loan Facility"), in the form attached hereto as
Exhibit C, which shall permit the Company to borrow from Purchaser the principal
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amount of up to $1,000,000 at an interest rate of 10% per annum. The Loan
Facility shall initially be convertible into that number of shares of the
Company that when added to all other convertible securities held by Purchaser of
the Company, shall allow Purchaser to acquire on a fully diluted basis 74.5% of
the Company's Common Stock assuming the full $1,000,000 was borrowed.
1.4 Standstill.
During the 36 month period commencing on the date of the Closing,
Purchaser shall not acquire any securities of the Company except pursuant to the
conversion or exercise of the Shares, the Debentures, the Loan Facility or the
Debenture Warrants, until Purchaser has either (i) made a tender offer (the
"Tender Offer") pursuant to Regulation 14D as promulgated under the Exchange
Act, as defined below, for the purchase of all the shares of Common Stock of the
Company outstanding and not owned by Purchaser or its affiliates, or (ii)
Purchaser has made an offer to acquire all remaining securities of the Company
outstanding by way of a cash merger (the "Merger"). The price per share offered
in the Tender Offer or in the Merger shall be the greater of (i) $.80 per share
(as adjusted for stock splits, combinations or dividends with respect to such
shares) or (ii) a price per share determined by assuming the value of the
Company to be equal to the Company's earnings before interest and taxes for the
last twelve months most recently ended immediately prior to such Tender Offer or
Merger, multiplied by six and divided by the number of shares outstanding of the
Company on a fully diluted basis.
1.5 The Closing.
(a) The purchase and sale of the Shares and the execution and
delivery of the Loan Facility shall take place at the offices of Xxxxxxxxx Xxxxx
Xxxxxxx & Xxxxx, 000 Xxxxxxx Xxxxxx Xxxxx, Xxxxx 0000, Xxxxxxx Xxxxx, Xxxxxxxxxx
00000, on March 10, 2000, or at such other time and place as the Company and
Purchaser mutually agree upon orally or in writing (which time and place are
designated as the "Closing").
(b) At the Closing, the Company shall deliver to the Purchaser a
stock certificate registered in Purchaser's name evidencing the Shares against
delivery to the Company by Purchaser of $2,000,000 (the "Stock Purchase Price"
and collectively with the Debentures Purchase Price and the Stock Purchase
Price, the "Total Purchase Price").
(c) Except as provided in Section 1.2(b) above, the Total
Purchase Price (less the $500,000 previously paid by the Purchaser for the
Debentures and the $200,000 previously advanced by the Purchaser in the form of
a Bridge Loan) shall be paid by a wire transfer of funds to an account
designated by the Company, which account shall be designated no later than three
(3) days prior to the Closing.
1.6 Reservation of Common Stock. Any shares of Common Stock of the
Company issuable upon conversion of the Series A Preferred Stock when issued,
issuable upon conversion of the Loan Facility or the Debentures when issued or
issuable upon exercise of the Debenture Warrants are herein referred to as the
"Underlying Common Stock." The Debentures, the Debenture Warrants, the Shares,
the Loan Facility and the Underlying Common Stock are sometimes herein referred
to collectively as the "Securities." The Board of Directors of the Company will,
prior to the Closing, vote to authorize an increase in the number of shares of
Common Stock the Company is authorized to issue and shall reserve and authorize
the continued reservation of, free of preemptive rights and other preferential
rights, (a) a sufficient number of its authorized but unissued shares of Series
A Preferred Stock to satisfy the purchase hereunder, and (b) a sufficient number
of its
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authorized but unissued shares of Common Stock to satisfy the rights of
conversion of all the Debentures, the Shares, the Loan Facility, and the
exercise of the Debenture Warrants.
1.7 Further Stockholder Action. Prior to the Closing, the Company
will (a) secure the written consent of the holders of a sufficient number of
shares of its Common Stock to authorize an increase in the number of shares of
Common Stock the Company is authorized to issue to at least 50,000,000; and (b)
prepare and file a Certificate of Designation to reflect the specific terms and
conditions of the Series A Preferred Stock. Subsequent to the Closing, the
Company will also take the necessary steps to promptly prepare, file and
circulate an Information Statement (the "Information Statement") in conformity
with the requirements of Section 14(c) of the Securities Exchange Act of 1934,
as amended, and the regulations promulgated thereunder (the "Exchange Act").
Approximately, twenty-one (21) days after the circulation of the Information
Statement, the Company will take the necessary steps to amend its Certificate of
Incorporation by filing an amendment with the Delaware Secretary of State to
increase the number of shares of Common Stock the Company is authorized to issue
to 50,000,000.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as otherwise set forth on the Schedule of Exceptions attached
hereto as Exhibit D specifically identifying the relevant subparagraph hereof,
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which exceptions shall be deemed to be representations and warranties hereunder,
the Company hereby represents and warrants to Purchaser as follows:
2.1 Organization and Standing; Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, has all requisite corporate or similar power and
authority to own and operate its properties and assets and to carry on its
business as now conducted and as presently proposed to be conducted. The Company
is duly qualified and is authorized to transact business and is in good standing
as a foreign corporation in each jurisdiction in which the failure so to qualify
would have a material adverse effect on the business, financial condition,
properties, operations or results of operations of the Company.
2.2 Authority. The Company has taken all corporate action necessary
in order, to execute, deliver and perform its obligations under this Agreement,
the Investor Rights Agreement and any other agreement to which the Company is a
party the execution and delivery of which is contemplated hereby (the "Ancillary
Agreements"), to issue and sell the Debentures, the Debenture Warrants, the
Shares and the Loan Facility and to carry out the provisions of this Agreement
and the Investor Rights Agreement or any Ancillary Agreement. This Agreement,
the Investor Rights Agreement and each Ancillary Agreement is a legal, valid and
binding obligation of the Company, enforceable in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
2.3 Capitalization. The authorized capital stock of the Company,
immediately prior to the Closing, will consist of 16,000,000 shares of Common
Stock, $0.02 par value, of which 4,710,055 shares are issued and outstanding as
of the Closing; 2,000,000 shares of Preferred Stock, $0.02 par value, 1,853,300
of which have been designated as Series A Preferred Stock, none of which are
currently issued and outstanding. All issued and outstanding shares of the
Company's capital stock have been duly authorized and validly issued, are fully
paid and nonassessable, and are free and clear of any lien, mortgage, pledge,
security interest, claim or other encumbrances (collectively, "Encumbrances").
Except as set forth in the Schedule of Exceptions, there are no outstanding
rights of first refusal, preemptive rights or other rights, options, warrants,
conversion
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rights, or other agreements either directly or indirectly for the purchase or
acquisition from the Company of any shares of its capital stock. All of the
outstanding shares of Common Stock, Preferred Stock, options and warrants have
been duly and validly issued in compliance with all applicable federal and state
securities laws.
2.4 Validity. The sale of the Debentures, the Debenture Warrants and
the Shares, and the subsequent conversions and/or exercise, as applicable, of
the Debentures, the Debenture Warrants, the Shares and the Loan Facility are not
and will not be subject to any preemptive rights or rights of first refusal that
have not been waived and, when issued, sold and delivered in compliance with the
provisions of this Agreement and the Company's Certificate of Incorporation, the
Securities will be validly issued, fully paid and nonassessable, and will be
free of any Encumbrances; provided, however, the parties recognize and
understand that further action is required following the Closing with respect to
the preparation, filing and circulation of the Information Statement by the
Company as required under the Exchange Act.
2.5 SEC Filings. The Company has filed with the Securities and
Exchange Commission (the "SEC") all reports, schedules, forms, statements and
other documents required pursuant to the Exchange Act, since January 1, 1997
(collectively, and in each case including all exhibits and schedules thereto and
documents incorporated by reference therein, the "SEC Documents"). As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such SEC Documents.
As of their respective dates, none of the SEC Documents (including any and all
financial statements included therein) filed pursuant to the Exchange Act or any
rule or regulation thereunder contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. Except to the extent that information
contained in any SEC Document has been revised or superseded by a later filed
SEC Document, none of the SEC Documents (including any and all financial
statements included therein) contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. The consolidated financial statements of
the Company included in all SEC Documents filed since January 1, 1997 (the "SEC
Financial Statements") comply in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto). The SEC Financial Statements
fairly present the consolidated financial position of the Company as of the
dates thereof and the consolidated results of its operations and cash flows for
the periods then ended (subject, in the case of unaudited quarterly statements,
to normal recurring audit adjustments). Except as set forth on the Schedule of
Exceptions, the Company does not have any material liabilities or obligations of
any nature (whether accrued, absolute, contingent or otherwise) required by
generally accepted accounting principles to be recognized or disclosed on a
consolidated balance sheet of the Company or in the notes thereto, except (i)
liabilities reflected in the consolidated audited balance sheet of the Company
as of December 31, 1998 or the notes thereto, (ii) liabilities reflected in the
consolidated unaudited balance sheet of the Company as of September 30, 1999, or
any notes thereto, and (iii) liabilities disclosed in any SEC Documents filed by
the Company prior to the date of this Agreement with respect to any period
ending, or date occurring, after September 30, 1999.
2.6 Absence of Changes or Events. Except as set forth on the Schedule
of Exceptions, since September 30, 1999, the Company has conducted its business
only in the ordinary
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course consistent with past practice, and there is not and has not been: (i)
since September 30, 1999, any condition, event or occurrence which has had a
material adverse effect on the business, properties, financial condition or
results of operations of the Company (a "Material Adverse Effect"); (ii) since
September 30, 1999, any condition, event or occurrence which as of the date of
this Agreement, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect with respect to the Company; or (iii) since
September 30, 1999, any condition, event or occurrence which, individually or in
the aggregate, could reasonably be expected to prevent or materially delay the
ability of the Company to consummate the transactions contemplated by this
Agreement or perform its obligations hereunder.
2.7 Material Contracts and Agreements.
(a) The Schedule of Exceptions lists the following accounts,
agreements, leases, contracts, notes, mortgages, indentures, arrangements or
other obligations (individually, a "Contract," collectively, the "Contracts") to
which the Company is a party on the date hereof:
(i) any Contract the performance of which is expected to
involve consideration payable either to or by the Company in excess of $25,000
per annum;
(ii) any Contract which restricts or contains limitations on
the ability of the Company to freely conduct business in any area within the
United States;
(iii) any collective bargaining agreement to which the Company
is a party ;
(iv) any employment agreement to which the Company is a party;
and
(v) any Contract which relates to indebtedness owed by the
Company having a principal amount of $25,000 or more, or the guarantee thereof.
(b) The Company has made available to Purchaser a correct and
complete copy of each Contract listed in the Schedule of Exceptions, together
with any and all amendments or modifications thereto. Each such Contract is
valid, binding, enforceable, and in full force and effect, and the Company is
not in breach or default under any such Contract and no event has occurred
which, with notice or lapse of time or both, would constitute a breach or
default, or permit termination, modification, or acceleration, under such
Contract.
(c) The Company owns each and every Contract to which it is a party
and no employee or agent producer has any ownership in any Contract, account or
business of the Company.
2.8 Accounts Receivable. All accounts receivable of the Company have and
will have arisen from the provision of services by the Company in the ordinary
course of business. The Company has not received any notice of, nor does the
Company know of any counterclaim or set-off with respect to any accounts
receivable or any facts or circumstances that would be the basis for, any such
counterclaim or set-off which is not reflected or taken into account in the
contractual allowance or bad debt reserves set forth in the SEC Financial
Statements.
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2.9 Fixed Assets. The fixed assets of the Company used in its
operations, including, but not limited to, all vehicles, materials, equipment,
and computers are in good working order and condition in all material respects.
2.10 Title to Properties and Assets; Liens; etc. The Company has
good and marketable title to its properties and assets, and good title to all
its leasehold estates, in each case free of all Encumbrances other than (a)
liens resulting from taxes which have not yet become delinquent, (b) minor
liens, encumbrances, or defects of title which do not, individually or in the
aggregate, materially detract from the value of the property subject thereto or
materially impair the Company's ownership or use of such property or assets, or
(c) as set forth on the Schedule of Exceptions. With respect to property it
leases, the Company is in compliance with such leases in all material respects.
2.11 Compliance with Other Instruments. Other than as set forth on
the Schedule of Exceptions, the Company is not in violation or default of any
term or provision of its Certificate of Incorporation or Bylaws, any Contract,
judgment, decree or order to which it is a party or by which it is bound or, to
the best of its knowledge, any statute, rule or regulation applicable to the
Company. Other than as set forth on the Schedule of Exceptions, the execution,
delivery and performance of this Agreement, the Investor Rights Agreement or any
Ancillary Agreement by the Company do not, and the consummation by the Company
of the transactions contemplated hereby and thereby will not, constitute or
result in (A) a breach or violation of, or a default under, the Certificate of
Incorporation or By-laws of the Company, (B) a breach or violation of, or a
default under, the acceleration of any obligations or the creation of a lien,
pledge, security interest or other encumbrance on the assets of the Company
(with or without notice, lapse of time or both) pursuant to any Contracts
binding upon the Company, (C) a violation of any law, rule, regulation,
judgment, injunction, order, decree or other restriction of any court or
governmental entity ("Law") or any governmental or non-governmental permit or
license to which the Company is subject or (D) any change in the rights or
obligations of any party under any Contract binding upon the Company.
2.12 Litigation, etc. Other than as set forth on the Schedule of
Exceptions, there are no actions, suits, proceedings, or investigations before
any court, or administrative agency pending or, to the best of the Company's
knowledge, currently threatened by, against or with respect to the Company. The
Company is not a party or subject to, and none of its assets are bound by, the
provisions of any order, writ, injunction, judgment, or decree of any court or
governmental agency or instrumentality. There is no action, suit, proceeding,
or investigation by the Company currently pending or that the Company intends to
initiate.
2.13 Tax Returns, Payments and Elections. The Company has filed all
tax returns and reports as required by law. These returns and reports are true
and correct in all material respects. The Company has paid all taxes and other
assessments due, except those contested by it in good faith that are listed in
the Schedule of Exceptions. The provision for taxes of the Company as shown in
the SEC Financial Statements is adequate for taxes due or accrued as of the date
thereof. The Company has not elected to be treated as a collapsible corporation
pursuant to Section 1362(a) or Section 341(f) of the Code, nor has it made any
other elections pursuant to the Code (other than elections that relate solely to
methods of accounting, depreciation or amortization) that would have a material
effect on the Company, its financial condition, its business as presently
conducted or proposed to be conducted or any of its properties or material
assets. The Company has never had any tax deficiency proposed or assessed
against it and has not executed any waiver of any statute of limitations on the
assessment or collection of any tax or governmental charge. None of the
Company's federal income tax returns and none of its state income or franchise
tax or sales or use tax returns has ever been audited by governmental
authorities. Since the date of the SEC Financial
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Statements, the Company has made adequate provisions on its books of account for
all taxes, assessments and governmental charges with respect to its business,
properties and operations for such period. The Company has withheld or collected
from each payment made to each of its employees, the amount of all taxes
(including, but not limited to, federal income taxes, Federal Insurance
Contribution Act taxes and Federal Unemployment Tax Act taxes) required to be
withheld or collected therefrom, and has paid the same to the proper tax
receiving officers or authorized depositaries.
2.14 Employees. No employee of the Company is obligated under any
contract (including licenses, covenants, or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any Court or
administrative agency that would conflict with such employee's obligation to use
his or her best efforts to promote the interests of the Company or that would
conflict with the Company's business as conducted or as proposed to be
conducted. To the Company's knowledge, no employee of the Company is in
violation of any term of any employment contract, proprietary information and
inventions agreement, non-competition agreement, or any other contract or
agreement relating to the relationship of any such employee with the Company or
any previous employer. The Company has no collective bargaining agreements with
any of its employees and to the best of the Company's knowledge there is no
labor union organizing activity pending or threatened with respect to the
Company. Except as set forth on the Schedule of Exceptions, there is no
pension, health, profit sharing, bonus, stock purchase, stock option,
hospitalization, insurance, severance, or any other employee benefit or welfare
benefit plan with respect to any officer or employee of the Company. Other than
as set forth on the Schedule of Exceptions, the employment of each officer and
employee of the Company is terminable at the will of the Company. To the
Company's knowledge, the Company has complied in all material respects with all
applicable state and federal equal employment opportunity and other laws related
to employment.
2.15 Insurance. The Company has adequate insurance, with
financially sound and reputable insurers, with respect to its properties that
are of a character customarily insured by entities engaged in the same or a
similar business similarly situated, against loss or damage of the kinds
customarily insured against by such entities, which insurance is of such types
(including public liability and errors and omissions insurance) as are
customarily carried under similar circumstances by such other entities. No
policy of insurance held by the Company has been cancelled nor has any requested
coverage been refused by the Company's insurance carrier.
2.16 Registration Rights. Except as required by the Investor Rights
Agreement (as described herein) or as set forth in the Schedule of Exceptions,
the Company is not under any obligation to register (as defined in the Investor
Rights Agreement) any of its presently outstanding securities or any of its
securities which may hereafter be issued.
2.17 Governmental Consents. All consents, approvals, orders, or
authorizations of, or registrations, qualifications, designations, declarations,
or filings with, any governmental authority, required on the part of the Company
in connection with the valid execution and delivery of this Agreement and the
offer, sale or issuance of the Securities, or the consummation of any other
transaction contemplated hereby have been obtained, or will be effective at the
Closing, except for notices required or permitted to be filed with certain state
and federal securities commissions after the Closing, which notices will be
filed on a timely basis.
2.18 Offering. Assuming the accuracy of the representations and
warranties of the Purchaser contained in Section 3.3 hereof, the offer, issue,
and sale of the Securities are and will be exempt from the registration and
prospectus delivery requirements of the Securities Act of 1933, as
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amended (the "1933 Act"), and have been registered or qualified (or are exempt
from registration and qualification) under the registration, permit, or
qualification requirements of all applicable state securities laws.
2.19 Operating Rights. To the knowledge of the Company, the Company
has all operating authority, licenses, franchises, permits, certificates,
consents, rights and privileges (collectively "Licenses") as are necessary or
appropriate to the operation of its business as now conducted and, except as set
forth in the Schedule of Exceptions, as proposed to be conducted. To the
knowledge of the Company, such Licenses are in full force and effect, no
violations have been or are expected to have been recorded in respect of any
such Licenses, and no proceeding is pending or threatened that could result in
the revocation or limitation of any of such Licenses. The Company has conducted
its business so as to comply in all material respects with all such Licenses.
2.20 Protection of Proprietary Information.
(a) The Company has taken all reasonable security measures to
protect the secrecy, confidentiality, and value of all trade secrets, know-how,
inventions, designs, processes, and technical data required to conduct its
business.
(b) Each officer, employee, or consultant of the Company has
signed a proprietary information agreement substantially in the Company's
standard form of such agreement, each of which agreements remains in full force
and effect as of the date hereof. To the best of the Company's knowledge, none
of the Company's current or former officers, employees, or consultants is or
will be in violation thereof, and the Company will use its best efforts to
prevent any such violation.
2.21 Rights in Proprietary Information. To the knowledge of the
Company, the Company has sufficient right, title and interest in and to all
proprietary rights necessary for its business as now conducted, without any
known conflict or infringement of the rights of others. The Company has not
received any communications alleging that the Company has violated or, by
conducting its business as proposed, would violate any of the patents,
trademarks, service marks, trade names, or other proprietary rights of any other
person or entity, nor does the Company have reason to believe that it has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, or other proprietary rights of
any person or entity.
2.22 Minute Books. The minute books of the Company made available
to the Purchaser's counsel for review contain a complete summary of all meetings
of and actions by directors and stockholders of the Company, from the time of
incorporation to the date hereof, and reflect all transactions referred to in
such minutes accurately in all material respects.
2.23 Voting Agreements. There exists no voting agreements or voting
trusts involving shares of the Company's stock or any stockholder of the
Company, other than those included in the Investor Rights Agreement.
2.24 Full Disclosure. Neither this Agreement, the representations
and warranties by the Company contained herein, the Exhibits hereto, the
Investor Rights Agreement or any Ancillary Agreement, nor any other written
statement or certificate delivered or to be furnished to the Purchaser in
connection herewith or therewith, when read together, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein not misleading. There
is no fact known to the Company which has not been
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disclosed to Purchaser that would materially adversely affect the Company's
business or financial condition or its ability to perform its obligations under
this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
Purchaser hereby represents and warrants to the Company as follows:
3.1 Legal Power. It has the requisite legal power to enter into
this Agreement, the Investor Rights Agreement, the Loan Facility and any
Ancillary Agreement, to purchase the Debentures, the Debenture Warrant and the
Shares and to carry out and perform its obligations under the terms of this
Agreement, the Investor Rights Agreement, the Loan Facility and any Ancillary
Agreement.
3.2 Due Execution. This Agreement has been duly authorized,
executed and delivered by it, and, upon due execution and delivery by the
Company, this Agreement, the Investor Rights Agreement and any Ancillary
Agreement, will be valid and binding agreements of it enforceable in accordance
with their respective terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and subject to the availability
of equitable remedies.
3.3 Representations.
(a) It is acquiring the Securities for its own account, not as
nominee or agent, for investment and not with a view to, or for resale in
connection with, any distribution or public offering thereof within the meaning
of the 1933 Act.
(b) It understands that (i) the Securities have not been
registered under the 1933 Act by reason of a specific exemption therefrom, that
they must be held by it indefinitely, and that it must, therefore, bear the
economic risk of such investment indefinitely, unless a subsequent disposition
thereof is registered under the 1933 Act or is exempt from such registration;
(ii) the Debentures, the Shares, the Loan Facility, the Debenture Warrants, and
each certificate representing the Underlying Common Stock will be endorsed with
the following legend:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED UNLESS PURSUANT TO SEC RULE 144 OR RULE 144A OR
THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT COVERING
SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING
THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT."
and (iii) the Company will instruct any transfer agent not to register the
transfer of any of the Shares, the Loan Facility, the Debentures, the Debenture
Warrants or the Underlying Common Stock unless the conditions specified in the
foregoing legend are satisfied; provided, however, that no such opinion of
counsel shall be necessary if the sale, transfer or assignment is made pursuant
to SEC Rule 144 or Rule 144A and Purchaser provides the Company with evidence
reasonably satisfactory to the Company and its counsel that the proposed
transaction satisfies the requirements of Rule 144 or Rule 144A. The Company
agrees to remove the foregoing legend from any securities if the
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requirements of SEC Rule 144(k) (or any successor rule or regulation) apply with
respect to such securities and the Company and its counsel are provided with
reasonably satisfactory evidence that the requirements of Rule 144(k) apply.
(c) It has not been offered the Securities by any form of
advertisement, articles, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio.
(d) It is an "accredited investor" within the meaning of Rule
501 of Regulation D of the 1933 Act.
(e) It was not formed for the specific purpose of acquiring the
Securities offered hereunder.
4. CERTAIN COVENANTS.
4.1 Access and Information. The Company shall permit Purchaser and
its representatives to have access, upon reasonable advance notice, to the real
property owned or leased by the Company and to the offices of the Company, and
shall furnish, or cause to be furnished, to Purchaser any financial and
operating data and other information that is available with respect to the
business and properties of the Company, including, but not limited to, all
books, records and contracts, as Purchaser shall from time to time request.
4.2 Confidentiality. Each party acknowledges that it may have
access to various items of proprietary and confidential information of the other
in the course of investigations and negotiations prior to Closing. Each party
agrees that any such information received from the other party shall be kept
confidential and shall not be used for any purpose other than to facilitate the
consummation of the transactions contemplated herein. Confidential and
proprietary information shall include any business or other information which is
delivered by one party to the other, unless such information (i) is already
public knowledge, (ii) becomes public knowledge through no fault, action or
inaction of the receiving party or (iii) was known by the receiving party, or
any of its directors, officers, employees, representatives, agents or advisors,
as applicable, prior to the disclosure of such information by the disclosing
party to the receiving party. No party hereto, nor its respective officers,
directors, employees, accountants, attorneys, or agents, as applicable, shall
intentionally disclose the existence or nature of, or any of the terms and
conditions relating to, the transactions referred to herein, to any third person
without the written consent of all other parties.
4.3 Public Disclosure. Except as may be required to comply with the
requirements of applicable law or the rules and regulations of a stock exchange
upon which the securities of a party may be listed, no press release or similar
public announcement or communication will be made or caused to be made
concerning the execution or performance of this Agreement unless specifically
approved in advance by all parties hereto; provided, however, that to the extent
that either party to this Agreement is required by law or the rules and
regulations of any stock exchange upon which the securities of one of the
parties is listed to make such a public disclosure, such public disclosure shall
only be made after prior consultation with the other party to this Agreement.
5. CONDITIONS TO CLOSING.
5.1 Conditions to Obligations of Purchaser at the Closing.
Purchaser's obligation to purchase the Shares and enter into the Loan Facility
at the Closing is subject to the
10
fulfillment to the Purchaser's satisfaction, at or prior to the Closing, of the
following conditions, any of which may be waived by Purchaser:
(a) Approval by Board of Directors of Purchaser. The Board of
-------------------------------------------
Directors of Purchaser shall have approved the execution and performance of
this Agreement and all documents related thereto;
(b) Approval by Stockholders of the Company. The Company shall seek
---------------------------------------
a written consent from a majority of the Stockholders of the Company approving
an amendment of the Company's Certificate of Incorporation to increase the
authorized capital from 16,000,000 shares of Common Stock authorized to
50,000,000 shares of Common Stock authorized;
(c) Delivery of the Debentures, the Debenture Warrants, the Shares
--------------------------------------------------------------
and the Loan Facility. The Company shall have delivered to Purchaser the
----------------------
Debentures, the Debenture Warrants, the Shares and the Loan Facility;
(d) Certificate of Secretary. The Company shall have delivered to
------------------------
Purchaser a certificate of the Secretary of the Company, dated as of the Closing
Date, certifying a copy of the resolutions of the board of directors of the
Company authorizing the execution and performance of this Agreement and all
documents related thereto, and that such resolutions were duly adopted and are
in full force and effect;
(e) Certificate of Officers. Each of the representations and
-----------------------
warranties of the Company contained in this Agreement shall be true in all
material respects when made and as of the Closing Date, in each case with the
same effect as though such representations and warranties had been made on and
as of the Closing Date (except that representations and warranties that are made
as of a specific date need be true in all material respects only as of such
date); each of the covenants, conditions and agreements of the Company to be
performed on or prior to the Closing Date shall have been duly performed in all
material respects; and Purchaser shall have received at the Closing a
certificate to the foregoing effect, dated as of the Closing Date and executed
on behalf of the Company by its President and its Chief Financial Officer;
(f) Due Diligence; Financial Verification. Purchaser shall have
-------------------------------------
completed to its satisfaction its due diligence investigation of the Company,
including financial and legal due diligence;
(g) Fiduciary Cash. The Company shall have, as of the date of the
--------------
Closing, Fiduciary Cash equal to or greater than Fiduciary Obligations, as
calculated in accordance with California Department of Insurance Regulations;
(h) Opinion of Counsel. Purchaser shall have received from Xxxxxxxx,
------------------
Xxxxxx, Xxxxxxx & Xxxxxxx LLP, counsel to the Company, an opinion letter
substantially in the form attached hereto as Exhibit E, addressed to Purchaser,
---------
dated the date of the Closing;
(i) Certificate of Designation. The Certificate of Designation, in
--------------------------
the form set forth as Exhibit B hereto, shall have been filed with the
---------
Secretary of State of the State of Delaware;
(j) Investor Rights Agreement. The Company and Purchaser shall have
-------------------------
entered into the Investor Rights Agreement in the form of Exhibit F attached
---------
hereto;
11
(k) Other Documents; Consents. Purchaser shall have received such
-------------------------
other documents and instruments as Purchaser or Purchaser's counsel reasonably
may request to better evidence or effectuate the transactions contemplated
hereby, including but not limited to, all consents required on the part of the
Company in connection with the valid execution and delivery of this Agreement
and the offer, sale or issuance of the Securities, or the consummation of any
other transaction contemplated hereby; and
(l) No Material Adverse Change. Since December 31, 1999, there
--------------------------
shall not have been (i) any condition, event or occurrence which individually or
in the aggregate, has had a Material Adverse Effect on the Company; (ii) any
condition, event or occurrence which, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect with respect to the
Company; or (iii) any condition, event or occurrence which, individually or in
the aggregate, could reasonably be expected to prevent or materially delay the
ability of the Company to consummate the transactions contemplated by this
Agreement or perform its obligations hereunder.
5.2 Conditions to Obligations of the Company at the Closing. The
Company's obligation to issue and sell the Shares and enter into the Loan
Facility under this Agreement is subject to the fulfillment to the Company's
satisfaction, at or prior to the Closing, of the following conditions, any of
which may be waived by the Company:
(a) Total Purchase Price. Purchaser shall have delivered the Total
--------------------
Purchase Price to the Company in the manner set forth in Section 1.5 above;
(b) Certificate of Secretary. Purchaser shall have delivered to the
------------------------
Company a certificate of the Secretary of the Purchaser, dated as of the Closing
Date, certifying a copy of the resolutions of the board of directors of the
Purchaser authorizing the execution and performance of this Agreement and all
documents related thereto, and that such resolutions were duly adopted and are
in full force and effect;
(c) Certificate of Officers. Each of the representations and
-----------------------
warranties of Purchaser contained in this Agreement shall be true in all
material respects when made and as of the Closing Date, in each case with the
same effect as though such representations and warranties had been made on and
as of the Closing Date (except that representations and warranties that are made
as of a specific date need be true in all material respects only as of such
date); each of the covenants, conditions and agreements of Purchaser to be
performed on or prior to the Closing Date shall have been duly performed in all
material respects; and the Company shall have received at the Closing a
certificate to the foregoing effect, dated as of the Closing Date and executed
on behalf of Purchaser by its President or any of its Vice Presidents and its
Secretary or any of its Assistant Secretaries; and
(d) Other Documents; Consents. The Company shall have received such
-------------------------
other documents and instruments as the Company or Company's counsel reasonably
may request to better evidence or effectuate the transactions contemplated
hereby, including but not limited to, all consents required on the part of the
Purchaser in connection with the valid execution and delivery of this Agreement
and the consummation of any other transaction contemplated hereby.
6. TERMINATION.
6.1 Termination. This Agreement may be terminated at any time prior to
the Closing:
(a) by the mutual agreement of the Company and Purchaser;
12
(b) by either the Company or Purchaser, by giving written notice of
such termination to the other party, if such other party shall breach any of its
material obligations or agreements under this Agreement and such breach shall be
incapable of cure or has not been cured within thirty (30) days following the
giving of written notice of such breach to the breaching party;
(c) by either the Company or Purchaser, by giving written notice of
such termination to the other party, if there shall be in effect any law or
regulation that prohibits the consummation of the Closing or if consummation of
the Closing would violate any non-appealable final order, decree or judgment of
any court or governmental body having competent jurisdiction; or
(d) by either the Company or Purchaser, by giving written notice of
such termination to the other party, if the Closing shall not have occurred on
or prior to March 15, 2000.
6.2 Effect of Termination. In the event of the termination of this
Agreement in accordance with Section 6.1 hereof, this Agreement shall thereafter
become void and have no effect, and no party hereto shall have any liability to
the other party hereto or their respective Affiliates, directors, officers or
employees, except for the obligations of the parties hereto contained in this
Section 6.2 and Sections 4.2 and 4.3 hereof, and except that nothing herein will
relieve any party from liability for any breach of this Agreement prior to such
termination.
7. INDEMNIFICATION.
7.1 Survival. Unless otherwise set forth in this Agreement, the
warranties representations and agreements of the Company and Purchaser contained
herein shall survive the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Company or Purchaser.
7.2 Indemnification by the Company. The Company shall indemnify and hold
harmless Purchaser against any and all losses, liabilities, claims and expenses,
including reasonable attorneys' fees ("Losses"), sustained by Purchaser
resulting from, arising out of, or connected with any inaccuracy in, breach of,
or nonfulfillment of any representation, warranty, covenant or other obligation
of the Company contained in this Agreement. Notwithstanding the foregoing, the
Company shall not be liable for any of Purchaser's lost profits or any
incidental or consequential damages.
7.3 Indemnification by Purchaser. Purchaser shall indemnify and hold
harmless the Company against any and all Losses sustained by the Company
resulting from, arising out of, or connected with any inaccuracy in, breach of,
or nonfulfillment of any representation, warranty, covenant or agreement made by
or other obligation of Purchaser contained in this Agreement. Notwithstanding
the foregoing, Purchaser shall not be liable for any of the Company's lost
profits or any incidental or consequential damages.
8. MISCELLANEOUS.
8.1 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents, made and to be performed entirely within the State of
California.
8.2 Attorneys' Fees. In the event that any party to this Agreement
institutes any legal proceeding to enforce any of the provisions of this
Agreement, then the prevailing party in such
13
proceeding shall be entitled to collect and receive its reasonable attorneys'
fees and costs, through and including all appeals, and the other party shall pay
for same.
8.3 Arbitration; Venue and Jurisdiction. The parties hereto agree that
any dispute arising out of or relating to this Agreement or the breach,
termination or the validity hereof, shall be settled by binding arbitration in
accordance with the rules of the American Arbitration Association ("AAA") by a
neutral arbitrator who shall be a former superior court or appellate court judge
or justice with experience in resolving business disputes. The arbitration
shall be governed by the California Code of Civil Procedure Section 1280 et seq.
and the parties intend this procedure to be specifically enforceable in
accordance with such provisions. Judgment upon the award rendered by the
arbitrator may be entered by any court having jurisdiction thereof. The parties
agree that the judgment or decision of the arbitrator shall be final and
binding. The parties agree that the venue for the arbitration shall be in the
County of San Diego, California. The arbitrator shall be required to follow the
applicable law as set forth in the governing law section of this Agreement. The
arbitrator shall award reasonable attorneys' fees and costs of arbitration to
the prevailing party in such arbitration. The parties hereto consent to the
personal jurisdiction of any court in the County of San Diego, California for
the enforcement of this agreement to arbitrate and any award granted pursuant to
said arbitration or settlement of any dispute related hereto.
8.4 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto.
8.5 Entire Agreement. This Agreement, the Exhibits hereto, and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement among the parties with regard to the subjects hereof and
supersedes all prior agreements and understandings, oral or written, with
respect to such matters, including, but not limited to, the Letter Agreement;
provided, however, that Paragraph 1(g) of the Letter Agreement shall remain in
effect in accordance with its terms. Nothing in this Agreement, express or
implied, is intended to confer upon any party, other than the parties hereto and
their respective successors and assigns, any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
8.6 Separability. In case any provision of this Agreement shall be
invalid, illegal, or unenforceable, it shall, to the extent practicable, be
modified so as to make it valid, legal and enforceable and to retain as nearly
as practicable the intent of the parties, and the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
8.7 Amendment and Waiver. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance, either retroactively or prospectively, and either for
a specified period of time or indefinitely), only with the written consent of
the Company and Purchaser.
8.8 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery or on the third day following mailing by registered or
certified mail, return receipt requested, postage prepaid, addressed: (a) if to
Purchaser, at its address set forth at the end or this Agreement, or at such
other address as Purchaser shall have furnished to the Company in writing in
each case with a copy to Xxxxx Xxxxxxxx, Xxxxxxxxx Xxxxx Xxxxxxx & Xxxxx, 000
Xxxxxxx Xxxxxx Xxxxx, Xxxxx 0000, Xxxxxxx Xxxxx, Xxxxxxxxxx 00000, or (b) if to
the Company, at its address as set forth at the end of this
14
Agreement, or at such other address as the Company shall have furnished to the
Purchasers in writing, in each case with a copy to A. Xxxx Xxxxxx, Sheppard,
Mullin, Xxxxxxx & Xxxxxxx LLP, Xxxx Xxxxxxxxxxx Xxxxxx, Xxxxx 0000, Xxx
Xxxxxxxxx, Xxxxxxxxxx 00000.
8.9 Finders' Fees.
(a) The Company (i) represents and warrants that it has retained no
finder or broker in connection with the transactions contemplated by this
Agreement, and (ii) hereby agrees to indemnify and to hold Purchaser harmless of
and from any liability for any commission or compensation in the nature of a
finder's fee to any broker or other person or firm (and the costs and expenses,
including reasonable attorneys' fees, of defending against such liability or
asserted liability) for which the Company or any of its employees or
representatives is responsible.
(b) Purchaser (i) represents and warrants that it has retained no
finder or broker in connection with the transactions contemplated by this
Agreement, other than Xxxxx & Company, who shall be paid by Purchaser, and (ii)
hereby agrees to indemnify and to hold the Company harmless of and from any
liability for any commission or compensation in the nature of a finder's fee to
any broker or other person or firm (and the costs and expenses, including
reasonable attorneys' fees, of defending against such liability or asserted
liability) for which such Purchaser or any of its employees or representatives
are responsible.
8.10 Fees and Expenses. Except as otherwise expressly provided in this
Agreement, whether or not the transactions contemplated by this Agreement are
consummated, the parties shall bear their own respective expenses (including,
but not limited to, all compensation and expenses of counsel, financial
advisors, consultants, actuaries and independent accountants) incurred in
connection with this Agreement and the transactions contemplated hereby.
8.11 Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
8.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
15
The foregoing Securities Purchase Agreement is hereby executed as of the
date first above written.
000 Xxxx Xxx Xxxxxx, Xxxxx 0000 XXXX XXXXX XXXXXXX HOLDING, INC.
Xxx Xxxxx, Xxxxxxxxxx 00000
By: /s/ Xxxxxxx X. Xxxx
--------------------------
Xxxxxxx X. Xxxx,
President and Chief Executive Officer
0000 Xxxxxx Xxxxxx, Xxxxx 000 XXXXXX PACIFIC UNDERWRITERS, INC.
Xxxxxxx, Xxxxxxxxxx 00000
By: /s/ Xxxxx X. Xxxxxxxx
--------------------------
Xxxxx X. Xxxxxxxx,
President and Chief Executive Officer
16
EXHIBIT A
---------
FORM OF DEBENTURE
17
EXHIBIT B
---------
CERTIFICATE OF DESIGNATION
CERTIFICATE OF DESIGNATIONS OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
ANCHOR PACIFIC UNDERWRITERS, INC.,
A DELAWARE CORPORATION
(Pursuant to Section 151(g) of the
Delaware General Corporation Law)
The undersigned, Xxxxx X. Xxxxxxxx and Xxxx Xxxxxxx hereby certify that:
I. They are the duly elected and acting President and Secretary,
respectively, of Anchor Pacific Underwriters, Inc., a Delaware corporation (the
"Corporation").
II. The Certificate of Incorporation of the Company authorizes 2,000,000
shares of preferred stock, par value $0.02 per share ("Preferred Stock"), of
which none are outstanding.
III. The following is a true and correct copy of resolutions duly adopted
by the Board of Directors at a meeting duly held on March 9, 2000, which
constituted all requisite action on the part of the Corporation for adoption of
such resolutions.
RESOLUTIONS
WHEREAS, the Board of Directors of the Corporation (the "Board of
Directors") is authorized to provide for the issuance of shares of Preferred
Stock in series, and by filing a certificate pursuant to the applicable law of
the State of Delaware, to establish from time to time the number of shares to be
included in each such series, and to fix the designations, powers, preferences
and rights of the shares of each such series and the qualifications, limitations
or restrictions thereof; and
WHEREAS, the Board of Directors desires, pursuant to its authority as
aforesaid, to designate a new series of Preferred Stock, set the number of
shares constituting such series and fix the rights, preferences, privileges and
restrictions of such series;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby
designates a new series of Preferred Stock and the number of shares constituting
such series and fixes the rights, preferences, privileges and restrictions
relating to such series as follows:
1. Designation, Amount, Par Value, and Dividends. The series of Preferred
Stock shall be designated as the Series A Convertible Preferred Stock (the
"Series A Preferred Stock"), and the number of shares so designated shall be
1,853,300. The par value of each share of Series A Preferred Stock shall be
$0.02. The holders of shares of Series A Preferred Stock, in preference to the
holders of shares of Common Stock and any other Junior Stock, shall be entitled
to receive, when, as and if declared by the Board of Directors, out of the
Available Assets, cumulative cash dividends at an annual rate per share equal to
8%, compounded annually, of the Series A Liquidation Value from and after the
Series A Issue Date, as adjusted for any stock splits, combinations or dividends
with respect to such share of Series A Preferred Stock, and provided that no
dividends shall be paid on or declared and set apart on the Common Stock or
Junior Stock until all
accumulated and unpaid dividends with respect to the shares of Series A
Preferred Stock shall have been paid or declared and set aside. Dividends
payable pursuant to this Section shall begin to accrue and be cumulative from
the Series A Issue Date, whether or not earned or declared. The amount of
dividends so payable shall be determined on the basis of twelve 30-day months
and a 360-day year. Dividends paid on the shares of Series A Preferred Stock in
an amount less than the total amount of such dividends at the time accrued on
such shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, or in the event of its
insolvency, the holders of the Series A Preferred Stock shall be entitled to be
paid out of the Available Assets, prior and in preference to any distribution to
the holders of Common Stock or any other Junior Stock, and subject to the
liquidation rights and preferences of any class or series of preferred stock
designated in the future to be senior to, or on a parity with, the Series A
Preferred Stock with respect to liquidation preferences, an amount equal to the
greater of (i) the Series A Liquidation Value for each outstanding share of
Series A Preferred Stock, or (ii) an amount per share equal to the amount such
holders would have received had the Series A Preferred Stock been converted to
Common Stock immediately prior to such liquidation, dissolution or winding up.
If, upon liquidation, dissolution or winding up of the Corporation, the
Available Assets shall be insufficient to pay the holders of Series A Preferred
Stock the full amount to which they otherwise would be entitled to receive, the
holders of Series A Preferred Stock shall share ratably in any distribution of
Available Assets pro rata in proportion to the respective liquidation preference
amounts to which they would otherwise be entitled to receive upon liquidation if
all liquidation preference dollar amounts owing to the holders of Series A
Preferred Stock were paid in full.
(b) After payment to the holders of the Series A Preferred Stock of the
amount set forth in subsection 2(a), the then remaining assets and funds of the
Corporation legally available for distribution, if any, shall be distributed to
the holders of the Common Stock.
(c) The amounts set forth above and throughout this Section shall be
subject to equitable adjustment whenever there shall occur a stock dividend,
stock split, reverse stock split, combination, reorganization, recapitalization,
reclassification or other similar event involving a change in the capital
structure of the Series A Preferred Stock.
(d) For purposes of this Section, a liquidation, dissolution or winding
up of the Corporation shall be deemed to be occasioned by, or to include (i) the
acquisition of the Corporation by another entity by means of any transaction or
series of related transactions (including, without limitation, any
reorganization, merger or consolidation but, excluding any merger effected
exclusively for the purpose of changing the domicile of the Corporation), or
(ii) a sale of all or substantially all of the assets of the Corporation; or
(iii) a sale of authorized and unissued shares of the Corporation, unless in any
of the cases described in clauses (i), (ii) or (iii), the Corporation's
shareholders of record as constituted immediately prior to such acquisition or
sale will, immediately after such acquisition or sale (by virtue of securities
issued as consideration for the Corporation's acquisition or sale or otherwise)
hold at least 50% of the voting power of the surviving or acquiring entity. Each
holder of Series A Preferred Stock, upon the occurrence of an event described in
the
-2-
immediately preceding sentence, shall have the option of electing treatment
of his shares of Series A Preferred Stock under either this Section 2 or under
Section 5(g) hereof by giving the Corporation written notice of such election at
least ten days prior to the close of such transaction, unless such holders
received notice of the transaction less than 20 days prior to the close of such
transaction, and then the notice of election shall be given within 10 days after
such notice of the transaction. In any of such events, if the consideration
received by the Corporation is other than cash, its value will be deemed to be
such consideration's fair market value, as determined reasonably by the Board of
Directors.
3. Redemption. The Series A Preferred Stock shall not be redeemable.
4. Voting Rights; Directors.
(a) Except as expressly provided herein, including Section 7, or by
the Certificate of Incorporation, by the bylaws of the Corporation or as
required by law, the holder of each share of the Series A Preferred Stock shall
be entitled to the number of votes equal to the number of full shares of Common
Stock into which such shares of Series A Preferred Stock could be converted and
(except as expressly provided herein or required by law, voting together with
the Common Stock as a single class) shall have voting rights and powers equal to
the voting rights and powers of the Common Stock and shall be entitled to notice
of any shareholders' meeting, which shall be given in accordance with the bylaws
of the Corporation. Fractional votes shall not, however, be permitted and any
fractional voting rights available on an as-converted basis (after aggregating
all shares into which shares of Series A Preferred Stock held by each holder
could be converted) shall be rounded to the nearest whole number (with one-half
being rounded downward).
(b) In addition to those persons entitled to call a special meeting of
the Corporation's shareholders pursuant to the Delaware Corporation Laws,
special meetings of the Corporation's shareholders may be called by vote of not
less than a majority of the outstanding shares of Series A Preferred Stock.
(c) The Board of Directors of the Corporation shall consist of between
seven (7) and thirteen (13) members, with the exact number to be fixed from time
to time by the affirmative vote of a majority of the Board of Directors. At each
meeting or pursuant to each consent of the Corporation's shareholders for the
election of directors, the holders of the Series A Preferred Stock, voting
together as a separate class, shall be entitled to elect five (5) directors to
the Board of Directors. In the case of any vacancy (other than a vacancy caused
by removal) in the office of a director occurring among the directors elected by
the holders of the Series A Preferred Stock pursuant to this Section, the
remaining directors so elected by the Series A Preferred Stock may by
affirmative vote of a majority thereof (or the remaining director so elected if
there be but one, or if there are no such directors remaining, by the
affirmative vote of the Series A Preferred Stock), elect a successor or
successors to hold office for the unexpired term of the director or directors
whose place or places shall be vacant. Any director who shall have been elected
by the holders of the Series A Preferred Stock or any directors so elected as
provided in the immediately preceding sentence hereof may be removed during the
aforesaid term of office, either with or without cause, by, and only by, the
affirmative vote of the holders of the Series A Preferred Stock, given either at
a special meeting of such shareholders duly called for that purpose or pursuant
to a written consent
-3-
of shareholders, and any vacancy thereby created may be filled
by the holders of the Series A Preferred Stock represented at the meeting or
pursuant to unanimous written consent.
5. Conversion. The holders of the Series A Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock shall be
----------------
convertible, at the option of the holder thereof, at any time after the Series A
Issue Date, at the office of the Corporation or any transfer agent for such
stock, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing the Series A Stated Value by the then applicable
Conversion Price, determined as hereinafter provided, in effect on the date the
certificate is surrendered for conversion (hereinafter sometimes the "Conversion
Rate"). The initial Conversion Price per share for Series A Preferred Stock (as
from time to time in effect, the "Conversion Price") shall be $.1079156. Such
initial Conversion Price shall be adjusted as hereinafter provided.
(b) Automatic Conversion. Each share of Series A Preferred Stock shall
--------------------
automatically be converted into shares of Common Stock at the then effective
Conversion Price as provided in Section 5(a) above, after adjustment as provided
elsewhere in this Section 5,
(i) immediately prior to the closing of an underwritten public
offering of the Corporation's Common Stock (A) immediately following which
offering the Corporation's Common Stock trades on the New York Stock Exchange or
the Nasdaq National Market or any national securities exchange with recognition
by regulatory authorities not materially different from, and listing standards
not less stringent than those imposed by, the Nasdaq National Market and (B) at
a price per share of Common Stock (adjusted for any stock splits, stock
dividends and recapitalizations of or on the Common Stock) not less than Five
Dollars ($5.00) for each share of Common Stock into which the Series A Preferred
Stock would then convert, and which results in gross proceeds to the Corporation
of at least Ten Million Dollars ($10,000,000); or
(ii) at the election of the holders of at least a majority of the
Series A Preferred Stock, voting as a separate class, to automatically convert
all of the outstanding shares of Series A Preferred Stock.
(c) Mechanics of Conversion. Before any holder of Series A Preferred
Stock shall be entitled to convert the same into shares of Common Stock, such
holder shall surrender the certificate or certificates therefor, duly endorsed,
at the office of the Corporation or of any transfer agent for such stock, and
shall give written notice to the Corporation at such office that it elects to
convert the same and shall state therein the name or names in which it wishes
the certificate or certificates for shares of Common Stock to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder a certificate or certificates for the number of shares of
Common Stock to which it shall be entitled as aforesaid. Such conversion shall
be deemed to have been made immediately prior to the close of business on the
date of surrender of the shares of Series A Preferred Stock to be converted, and
the person or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date.
-4-
(d) Conversion Price Adjustments of Preferred Stock for Certain Dilutive
Issuances, Splits and Combinations.
(i) The Conversion Price of Series A Preferred Stock shall be subject
to adjustment from time to time as follows:
(A) Upon each issuance by this Corporation of any Additional
Stock (as defined below) after the date the first share of Series A Preferred
Stock was originally issued, without consideration or for a consideration per
share less than the Conversion Price for such series in effect immediately prior
to the issuance of such Additional Stock, the Conversion Price for such series
in effect immediately prior to each issuance shall forthwith (except as
otherwise provided in this clause (i)) be adjusted to a price determined by
multiplying such Conversion Price by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock that the aggregate
consideration received by the Corporation for such issuance would purchase at
such Conversion Price; and the denominator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issuance plus the
number of shares of such Additional Stock.
(B) No adjustment of the Conversion Price for Series A Preferred
Stock shall be made in an amount less than one cent ($.01) per share, provided
that any adjustments that are not required to be made by reason of this sentence
shall be carried forward and shall be either taken into account in any
subsequent adjustment made prior to three (3) years from the date of the event
giving rise to the adjustment being carried forward, or shall be made at the end
of three (3) years from the date of the event giving rise to the adjustment
being carried forward, and upon such adjustment the Conversion Price for such
Preferred Stock shall be rounded up or down to the nearest cent. Except to the
limited extent provided for in subsections 5(d)(i) (E)(3), or (E)(4) or
5(d)(iv), no adjustment of such Conversion Price pursuant to this subsection
5(d)(i) shall have the effect of increasing the Conversion Price above the
Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid
or incurred by this Corporation for any underwriting or otherwise in connection
with the issuance and sale thereof.
(D) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined in good faith by
the Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance of options to purchase or rights
to subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock or options to purchase or rights to subscribe for
such convertible or exchangeable securities, the following provisions shall
apply for all purposes of this subsection 5(d)(i) and subsection 5(d)(ii):
(1) The aggregate maximum number of shares of Common Stock
deliverable upon exercise (whether or not then exercisable) of such options to
-5-
purchase or rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a consideration
equal to the sum of the consideration (determined in the manner provided in
subsections 5(d)(i)(C) and (d)(i)(D)), if any, received by the Corporation upon
the issuance of such options or rights, and the exercise price provided for in
such options or rights for the Common Stock covered thereby.
(2) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange (whether or not then convertible
or exchangeable) for any such convertible or exchangeable securities or upon the
exercise of options to purchase or rights to subscribe for such convertible or
exchangeable securities and subsequent conversion or exchange thereof shall be
deemed to have been issued at the time such securities were issued or such
options or rights were issued and for a consideration equal to the sum of the
consideration, if any, received by the Corporation for any such securities and
related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), and the additional consideration, if any, to be
received by the Corporation upon the conversion or exchange of such securities
(other than the principal amount of convertible securities to the extent the
Corporation has received such consideration as of the issuance thereof) or the
exercise of any related options or rights.
(3) In the event of any change in the number of shares of
Common Stock deliverable upon exercise of such options or rights or upon
conversion of or in exchange for such convertible or exchangeable securities,
including, but not limited to, a change resulting from the antidilution
provisions thereof, the Conversion Price of the Series A Preferred Stock, to the
extent in any way affected by or computed using such options, rights or
securities, shall be recomputed to reflect such change.
(4) Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration of any
options or rights related to such convertible or exchangeable securities, the
Conversion Price of the Series A Preferred Stock, to the extent in any way
affected by or computed using such options, rights or securities, shall be
recomputed to reflect the issuance of only the number of shares of Common Stock
(and convertible or exchangeable securities that remain in effect) actually
issued upon the exercise of such options or rights, upon the conversion or
exchange of such securities or upon the exercise of the options or rights
related to such securities.
(ii) "Additional Stock" shall mean any shares of Common Stock issued
(or deemed to have been issued pursuant to subsection 5(d)(i)(E)) by this
Corporation after the date the first share of Series A Preferred Stock was
originally issued other than:
(A) Common Stock issued pursuant to a transaction described in
subsection 5(d)(iii) hereof;
(B) Common Stock issuable or issued to employees or service
providers of this Corporation directly or pursuant to a stock option plan or
restricted stock plan at the then current fair market value, as approved and
determined by the Board of Directors of this Corporation; or
-6-
(C) Common Stock issued upon conversion of shares of Series A
Preferred Stock.
(iii) In the event the Corporation should at any time or from time to
time after the date the first share of Series A Preferred Stock was originally
issued fix a record date for the effectuation of a split or subdivision of the
outstanding shares of Common Stock or the determination of holders of Common
Stock entitled to receive a dividend or other distribution payable in additional
shares of Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly, additional
shares of Common Stock (hereinafter referred to as "Common Stock Equivalents")
without payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional shares of
Common Stock issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend distribution, split or subdivision if
no record date is fixed), the Conversion Price of the Series A Preferred Stock
shall be appropriately decreased so that the number of shares of Common Stock
issuable on conversion of each share of such series shall be increased in
proportion to such increase of the aggregate of shares of Common Stock
outstanding and those issuable with respect to such Common Stock Equivalents.
(iv) If the number of shares of Common Stock outstanding at any time
after the date the first share of Series A Preferred Stock was originally issued
is decreased by a reverse-split or combination of the outstanding shares of
Common Stock, then, following the record date of such combination, the
Conversion Price for the Series A Preferred Stock shall be appropriately
increased so that the number of shares of Common Stock issuable on conversion of
each share of such series shall be decreased in proportion to such decrease in
outstanding shares.
(e) Other Distributions. In the event this Corporation shall declare a
-------------------
distribution payable in securities of other entities, evidences of indebtedness
issued by this Corporation or other entities, assets (excluding cash dividends)
or options or rights not referred to in subsection 5(d)(iii), then, in each such
case for other purposes of this subsection 5(e), the holders of Series A
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Corporation into which their shares of Series A Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time there shall be
-----------------
a recapitalization of the Common Stock (other than a subdivision, combination or
merger or sale of assets transaction provided for elsewhere in this Section 5 or
Section 2), provision shall be made so that the holders of Series A Preferred
Stock shall thereafter be entitled to receive upon conversion of such Preferred
Stock the number of shares of stock or other securities or property of the
Corporation or otherwise, to which a holder of such number of shares of Common
Stock deliverable upon conversion immediately prior to that recapitalization
would have been entitled on such recapitalization. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 5
with respect to the rights of the holders of Series A Preferred Stock after the
recapitalization to the end that the provisions of this Section 5 (including
adjustment of the Conversion Price then in effect and the number of shares
purchasable upon conversion of Series A Preferred Stock) shall be applicable
after that event as nearly equivalent as may be practicable.
-7-
(g) Capital Reorganization, Merger or Sale of Assets. If at any time or
------------------------------------------------
from time to time there shall be a capital reorganization of the Common Stock
(other than a subdivision, combination, reclassification or exchange of shares
provided for elsewhere in this Section 5) or a merger or consolidation of the
Corporation with or into another corporation, or the sale of all or
substantially all of the Corporation's properties and assets to any other
person, then, as a part of such reorganization, merger, consolidation or sale,
provision shall be made so that the holders of the Series A Preferred Stock
shall thereafter be entitled to receive upon conversion of the Series A
Preferred Stock, the number of shares of stock or other securities or property
of the Corporation, or of the successor corporation resulting from such merger,
consolidation or sale, to which a holder of Common Stock issuable upon
conversion would have been entitled on such capital reorganization, merger,
consolidation, or sale or an amount of cash receivable as if the Series A
Preferred Stock had converted into shares of Common Stock. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 5 with respect to the rights of the holders of the Series A
Preferred Stock after the reorganization, merger, consolidation or sale to the
end that the provisions of this Section 5 shall be applicable after that event
in as nearly equivalent a manner as may be practicable. Each holder of Series A
Preferred Stock upon the occurrence of an event set forth in this Section 5(g),
shall, subject to automatic conversion pursuant to subsection 5(b), have the
option of electing treatment of his shares of Series A Preferred Stock under
either this Section 5(g) or Section 2 hereof, if applicable, by giving the
Corporation written notice of such election at least ten days prior to the close
of such transaction unless such holders received notice of the transaction less
than 20 days prior to the close of such transaction, then the notice of election
shall be given within 10 days after such notice.
(h) Certificates as to Adjustments. Upon the occurrence of each
------------------------------
adjustment or readjustment of the Conversion Price pursuant to this Section 5,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and cause independent public
accountants selected by the Corporation to verify such computation and prepare
and furnish to each holder of Series A Preferred Stock a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. The Corporation shall, upon the
written request at any time of any holder of Series A Preferred Stock furnish or
cause to be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price at the time in effect,
and (iii) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of Series A
Preferred Stock.
(i) Issue Taxes. The Corporation shall pay any and all issue and other
-----------
taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of shares of Series A Preferred Stock pursuant
hereto; provided, however, that the Corporation shall not be obligated to pay
any transfer taxes resulting from any transfer requested by any holder in
connection with any such conversion.
(j) Reservation of Stock Issuable Upon Conversion. The Corporation shall
---------------------------------------------
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of
-8-
all then outstanding shares of the Series A Preferred Stock, the Corporation
will take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose, including, without
limitation, engaging in best efforts to obtain the requisite stockholder
approval of any necessary amendment to its Certificate of Incorporation. For the
purpose of increasing the number of shares of Common Stock authorized to provide
enough Common Stock to fully convert the Series A Preferred Stock, the Series A
Preferred Stock shall vote in favor of such amendment to the Certificate of
Incorporation.
(k) No Fractional Shares. No fractional share shall be issued upon the
--------------------
conversion of any share or shares of Series A Preferred Stock. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more than
one share of Series A Preferred Stock by a holder thereof shall be aggregated
for purposes of determining whether the conversion would result in the issuance
of any fractional share. If, after the aforementioned aggregation, the
conversion would result in the issuance of a fraction of a share of Common
Stock, the Corporation shall, in lieu of issuing any fractional share, pay the
holder otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of conversion (as determined in good
faith by the Board of Directors of the Corporation).
6. Amendment. Any term relating to the Series A Preferred Stock may be
amended and the observance of any term relating to the Series A Preferred Stock
may be waived (either generally or in a particular instance) only with the vote
or written consent of holders of a majority of the outstanding shares of the
Series A Preferred Stock. Any amendment so effected shall be binding upon the
Corporation and any holder of the Series A Preferred Stock.
7. Protective Provisions. (a) So long as any shares of Series A
Preferred Stock remain outstanding, the Corporation shall not, without the vote
or written consent by the holders of a majority of the outstanding shares of
Series A Preferred Stock, voting as a separate class, authorize:
(i) the declaration, setting aside or payment of any dividend or
distribution with respect to any shares of equity securities of the Corporation;
(ii) any increase in the authorized number of shares of any class or
series of capital stock of the Corporation;
(iii) the redemption or repurchase of any shares of equity securities,
except for the repurchase of shares at cost or without cost pursuant to rights
granted to the Corporation under employee stock option or stock repurchase
agreements;
(iv) any amendment to, or waiver of, any provision of the Certificate
of Incorporation or bylaws of the Corporation or any corporate action that would
change any of the rights, preferences, privileges of the Series A Preferred
Stock or limitations provided for herein for the benefit of the Series A
Preferred Stock or which would materially adversely affect the rights of the
holders of the Series A Preferred Stock;
(v) the creation or issuance of, or the obligation to create or
issue, any shares of any class or series of capital stock of the Corporation, or
any other securities convertible into capital stock of the Corporation, other
than (i) capital stock issuable or issued to employees or
-9-
service providers of this Corporation directly or pursuant to a stock option or
restricted stock plan approved by the Board of Directors of this Corporation or
(ii) capital stock issuable upon the conversion or exchange of any convertible
or exchangeable securities outstanding as of the date hereof or the issuance of
which was approved pursuant to this subsection;
(vi) the sale, lease, exchange or transfer, in one transaction or a
series of related transactions, of assets of the Corporation having a fair
market value in excess of $100,000, unless the Corporation's stockholders
immediately prior to such sale, lease, exchange or transfer will, as a result of
such transaction hold (by virtue of securities issued as consideration in such
transaction) at least 50% of the voting power of the purchasing entity);
(vii) any liquidation, dissolution or winding up of the Corporation;
(viii) any reorganization, merger or consolidation in which the
Corporation is not the surviving entity, or which will result in the
Corporation's stockholders immediately prior to such transaction not holding at
least 50% of the voting power of the surviving or continuing entity;
(ix) any change in the primary business of the Corporation and its
subsidiaries from the business of providing insurance claims management,
administration and related services to third parties;
(x) any transaction which would result in the Corporation, or any
Subsidiary of the Corporation, incurring, assuming or suffering to exist, any
new bank indebtedness that exceeds existing bank indebtedness of the Corporation
on the Series A Issue Date by an amount in excess of one hundred thousand
dollars ($100,000);
(xi) the acquisition (including by merger or consolidation with the
Corporation or any of its Subsidiaries) by the Corporation or any of its
Subsidiaries of shares of capital stock of or any other ownership interest in,
or the acquisition (including by purchase, lease or exchange) of all or any
substantial portion of the assets of, any entity (other than the formation of
any new Subsidiary or joint venture in the ordinary course of the Corporation's
business which has been approved by a majority of the Board of Directors);
(xii) the creation or issuance of any stock options, warrants or
other Common Stock Equivalents, other than options issued to employees or
service providers of this Corporation directly or pursuant to a stock option
plan approved by the Board of Directors of this Corporation granted at the then
fair market value of such Common Stock as determined by the Board of Directors;
or
(xiii) any transaction substantially similar to any of those
enumerated in this Section.:
(b) In addition to any other rights provided by law or otherwise provided
herein, so long as shares of the Series A Preferred Stock remain outstanding.
(i) the Board of Directors of the Corporation shall not exceed nine
members; and
-10-
(ii) the holders of the Series A Preferred shall elect a majority of
the Corporation's Board of Directors voting separately as a single class.
8. No Reissuances of Series A Preferred Stock. No share or shares of
Series A Preferred Stock acquired by the Corporation by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares shall
be returned to the status of undesignated shares of Preferred Stock.
9. Certain Covenants. Any registered holder of Series A Preferred Stock
may proceed to protect and enforce its rights and the rights of such holders by
any available remedy by proceeding at law or in equity to protect and enforce
any such rights, whether for the specific enforcement of any provision contained
herein or in aid of the exercise of any power granted herein, or to enforce any
other proper remedy.
10. No Dilution or Impairment. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
capital stock or assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of the Series A Preferred Stock set forth
herein, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of such Preferred
Stock against dilution or other impairment.
11. Notices. In the event of:
(a) Any taking by the Corporation of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of capital stock of any
class or any other securities or property, or to receive any other right, or
(b) Any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation to any other Corporation, or
any other entity or person, or
(c) Any voluntary or involuntary dissolution, liquidation or winding
up of the Corporation,
then and in each such event the Corporation shall mail or cause to be
mailed to each holder of Series A Preferred Stock a notice specifying (i) the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right and a description of such dividend, distribution or right
and (ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective. Such notice shall be mailed by
first class mail, postage prepaid, at least 20 days prior to the date specified
in such notice on which such action is to be taken.
-11-
12. Certain Definitions.
"Available Assets" shall mean, upon the liquidation, dissolution or winding
up of the Corporation, all assets of the Corporation available for distribution
to holders of all classes of the Corporation's capital stock, whether such
assets are capital, surplus or earnings.
"Junior Stock" shall mean any capital stock of the Corporation ranking
junior (either as to dividends or upon liquidation, dissolution or winding up)
to the Series A Preferred Stock.
"Series A Issue Date" shall mean, as to any share of Series A Preferred
Stock, the date of original issuance of such share of Series A Preferred Stock.
"Series A Liquidation Value" as of any date shall mean an amount per share
equal to the Series A Stated Value, plus all accrued and unpaid dividends
thereon.
"Series A Stated Value" shall mean $1.079156.
"Subsidiary" of any Person means any corporation or other entity of which a
majority of the voting power of the voting equity securities or equity interest
is owned, directly or indirectly, by such Person.
RESOLVED FURTHER, that the President and Secretary of the Corporation be,
and they hereby are, authorized and directed to prepare, execute, verify, and
file in Delaware, a Certificate of Designation in accordance with these
resolutions and as required by law.
IN WITNESS WHEREOF, the undersigned declare under penalty of perjury that
they have read the foregoing Certificate of Designations and know the contents
thereof, and that the statements therein are true and correct of their own
knowledge.
Executed at Concord, California, on March 9, 2000.
By:
-----------------------------------
Xxxxx X. Xxxxxxxx, President
By:
-----------------------------------
Xxxx Xxxxxxx, Secretary
-12-
EXHIBIT C
---------
FORM OF LOAN FACILITY
THIS CONVERTIBLE PROMISSORY NOTE AND LOAN AGREEMENT (THE "NOTE") AND THE
SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY APPLICABLE
STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
ANCHOR PACIFIC UNDERWRITERS, INC.
CONVERTIBLE PROMISSORY NOTE AND LOAN AGREEMENT
$1,000,000 March 10, 2000
FOR VALUE RECEIVED, ANCHOR PACIFIC UNDERWRITERS, INC., a Delaware
corporation (the "Company"), hereby promises to pay to XXXX NORTH AMERICA
HOLDING, INC., a California corporation ( "Holder"), or registered assigns, on
March 10, 2002, subject to earlier conversion as described below, the principal
sum of One Million Dollars ($1,000,000), or such lesser amount as shall equal
the unpaid principal amount of the advances made by Holder to the Company
pursuant to Section 2 below, and to pay interest from the date of each advance
on the whole amount of such advance remaining unpaid at a rate per annum equal
to the lesser of (a) ten percent (10.0%) per annum, or (b) the maximum rate
permitted by law.
Interest on each advance shall accrue from the date of such advance, and
shall be due and payable quarterly on the first day of each calendar quarter
during the term hereof, with all remaining accrued and unpaid interest due and
payable at such time as the outstanding principal amount is due or has been
converted. All accrued and unpaid interest shall be paid in cash upon the
payment in cash of the principal outstanding hereunder or the conversion of this
Note as provided herein. Nothing contained in this Note shall require the
Company at any time to pay interest at a rate exceeding the maximum rate
allowable under California law. Principal and interest shall be payable at the
principal office of Holder, located at 000 Xxxx Xxx Xxxxxx, Xxxxx 0000, Xxx
Xxxxx, Xxxxxxxxxx 00000, or at such other place as Holder may designate from
time to time in writing to the Company. Interest shall be computed on the basis
of the actual number of days elapsed over a 360-day year.
1. Other Agreements and Documents.
------------------------------
(a) Purchase Agreement and Related Documents. This Note is issued
----------------------------------------
pursuant to and is entitled to the benefits and subject to the conditions of
that certain Securities Purchase Agreement of even date herewith, among the
Company and Holder, as the same may be amended from time to time (the "Purchase
Agreement").
In connection with the Purchase Agreement (i) the Company and Holder
entered into that certain Investor Rights Agreement of even date herewith, as
the same may be amended from time to time (the "Investor Rights Agreement"),
(ii) Holder purchased from the Company certain convertible debentures (the
"Debentures"), as described in the Purchase Agreement, (iii) the Company issued
to Holder certain warrants to purchase shares of common stock of the Company
(the "Debenture Warrants"), as defined in the Purchase
Agreement, and (iv) the Company filed with the Delaware Secretary of State that
certain Certificate of Designations of Series A Convertible Preferred Stock (the
"Certificate").
(b) This Note, the Purchase Agreement, the Investor Rights Agreement,
the Debentures, the Debenture Warrants, and the Certificate are sometimes
collectively referred to herein as the "Transaction Documents".
2. Line of Credit Amount and Terms
-------------------------------
(a) Facility Amount.
---------------
(i) During the availability period described below in Section
2(b), Holder will provide a line of credit (the "Facility") to The Company.
The amount of the Facility (the "Commitment") is $1,000,000.
(ii) All or a portion of the Facility shall be made available as
needed. Each advance shall be made available to the Company within three
(3) Business Days following the Company's request therefor in accordance
with Section 2(c).
(b) Availability Period. The Facility is available commencing on the
-------------------
date this Convertible Promissory Note and Loan Agreement is signed by the
parties hereto and ending on March 10, 2002 (the "Expiration Date"), so long as
no Event of Default (as defined below), or event or condition with the giving of
notice or passage of time or both would constitute an Event of Default shall
have occurred and is continuing.
(c) Requests for Advances. Each request for an advance must be in
---------------------
writing and received by Holder at least three (3) Business Days prior to the
Business Day of the requested advance.
(d) Business Days. Unless otherwise provided in this Agreement, a
-------------
Business Day is a day other than a Saturday or a Sunday on which commercial
banks are open for business in California. All payments and disbursements which
would be due on a day which is not a Business Day will be due on the next
Business Day. All payments received on a day which is not a Business Day will
be applied to the credit of the Company on the next Business Day.
(e) Taxes. Payments made by the Company to Holder will be made
-----
without deduction of withholding or similar taxes. If the Company is required
to pay such taxes, the Company will pay such taxes in addition to the amounts
due to Holder under this Agreement. If the Company fails to make such tax
payments when due, the Company indemnifies Holder against any liability for such
taxes, as well as for any related interest, expenses, additions to tax, or
penalties asserted against or suffered by Holder with respect to such taxes.
(f) Condition to Each Advance. Before each advance under the
-------------------------
Facility, including the first:
(i) the Company must furnish Holder with a request for an
advance as contemplated by Section 2(c);
(ii) each representation and warranty set forth in the Purchase
Agreement shall be true and correct in all material respects as if made on the
date of such advance;
2
(iii) no material adverse change in the operations, business or
condition (financial or otherwise) of the Company and its subsidiaries shall
have occurred from that existing as of March 1, 2000; and
(iv) no Event of Default, or event or condition with the giving
of notice or passage of time or both would constitute an Event of Default shall
have occurred and be continuing on the date of such advance.
Each request for an advance shall be deemed a representation and warranty
by the Company that the conditions referred to in clauses (ii), (iii) and (iv)
above have been met.
(g) Required Advance. Notwithstanding the foregoing, the Holder
----------------
shall have the right, at any time, to require the Company to accept an advance
equal to the remaining unadvanced amount of the Facility.
(h) Application of Payments. Payments by the Company hereunder shall
-----------------------
be applied as follows: first, to the payment of expenses due hereunder; second,
----- ------
to the payment of interest accrued on this Note; and third, to the payment of
-----
the outstanding principal balance of advances made hereunder, in the order such
advances were borrowed.
3. Default. If any of the following events (hereafter called "Events of
-------
Default") shall occur:
(a) If the Company shall default in the payment of any principal or
interest due under this Note when the same shall become due and payable, whether
at maturity or by acceleration or otherwise; or
(b) If the Company shall make a general assignment for the benefit of
creditors; or
(c) If the Company shall file a voluntary petition in bankruptcy, or
shall be adjudicated a bankrupt or insolvent, or shall file any petition or
answer seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under the present or any future
federal bankruptcy act or other applicable federal, state or other statute, law
or regulation, or shall file any answer admitting the material allegation of a
petition filed against the Company in such proceeding, or shall seek or consent
to or acquiesce in the appointment of any trustee, receiver or liquidator of the
Company of all or any substantial part of the properties of the Company, or the
Company shall commence the winding up or the dissolution or liquidation of the
Company; or
(d) If, within sixty (60) days after a court of competent
jurisdiction shall have entered an order, judgment or decree approving any
complaint or petition against the Company seeking reorganization, dissolution or
similar relief under the present or any future federal bankruptcy act or other
applicable federal, state or other statute, law or regulation, such order,
judgment or decree shall not have been dismissed or stayed pending appeal, or
if, within sixty (60) days after the appointment, without the consent or
acquiescence of the Company, of any trustee, receiver or liquidator of the
Company or of all or any substantial part of the properties of the Company, such
appointment shall not have been vacated or
3
stayed pending appeal, or if, within sixty (60) days after the expiration of any
such stay, shall not have been vacated; or
(e) If the Company should breach any of the covenants,
representations, warranties, terms or conditions contained in this Note (other
than as provided in paragraphs (a), (b), (c), (d), (f), (g), (h) or (i) of this
Section), any of the other Transaction Documents, or in any statement or
certificate at any time given or made to Holder pursuant thereto or in
connection therewith, and, if such breach is of a type that is curable, such
breach is not cured within fifteen (15) days after the Company becomes aware of
such breach; or
(f) If the Company should fail to pay when due any amount due under
any of the Transaction Documents; or
(g) If the Company shall fail to pay when due (whether upon
acceleration or otherwise) and after passage of any applicable notice and cure
periods, any payment due with respect to indebtedness for borrowed money having
an aggregate principal amount of more than $50,000 when due; or
(h) If the Company shall fail to comply with (i) any agreement
pursuant to which the Company shall be liable for an amount in excess of $50,000
upon any default thereof, or (ii) any indenture, mortgage, deed of trust, or
other agreement binding on it or affecting its properties, and in any such case
such failure continues after the applicable grace or notice period, if any,
specified in such agreement on the date of such failure; or
(i) If any judgment, writ, warrant or attachment or execution or
similar process which calls for payment or presents liability in excess of
$50,000 shall be rendered, issued or levied against the Company or its property
and such process shall not be waived, stayed, vacated or fully bonded within
thirty (30) days after its issuance or levy, unless such judgment is covered by
insurance and the insurer has acknowledged coverage in writing with respect
thereto;
then, and in each and every such case, Holder may by notice in writing to the
Company declare all amounts under this Note to be forthwith due and payable
(except that, in the case of an Event of Default under either Section 3(c) or
Section 3(d), this Note shall become immediately due and payable without notice)
and thereupon the balance shall become so due and payable, without presentation,
protest or further demand or notice of any kind, all of which are hereby
expressly waived.
4. Conversion. Subject to and upon compliance with the provisions of
----------
this Section 4, at the option of Holder, at any time or from time to time, this
Note may be converted, in whole or in part, into shares of Series A Preferred
Stock of the Company by the surrender of this Note in the manner specified in
Section 4(a) below. The number of shares of Series A Preferred Stock into which
this Note shall be convertible shall equal the principal amount of the Note
being converted divided by the "Conversion Price" (as hereinafter defined). The
Conversion Price shall initially be $4.5045 per share, and shall be subject to
adjustment pursuant to Section 4(b) below.
(a) Mechanics of Conversion. Before Holder shall be entitled to
-----------------------
convert this Note, Holder shall surrender this Note, duly endorsed, at the
Company's principal
4
corporate office, together with written notice of Holder's election to convert
the same, and shall state therein the name or names in which the certificate or
certificates for shares of Series A Preferred Stock are to be issued. The
Company shall, as soon as practicable thereafter, issue and deliver to Holder,
or to the nominee or nominees of Holder, a certificate or certificates for the
number of shares of Series A Preferred Stock to which Holder shall be entitled
as aforesaid. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the Note to be
converted, and the person or persons entitled to receive the shares of Series A
Preferred Stock issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such shares of Series A Preferred Stock as of
such date. If this Note is converted in part, this Note must be converted for a
number of whole shares of Series A Preferred Stock and Holder shall be entitled
to receive a new Note covering the remaining principal amount in respect of
which this Note has not been converted. Upon such surrender of this Note, the
Company will issue a certificate or certificates in the name of Holder for the
largest number of whole shares of Series A Preferred Stock to which Holder shall
be entitled and, if this Note is converted in whole, in lieu of any fractional
share of Series A Preferred Stock to which Holder shall be entitled, cash equal
to the remaining amount due hereunder. If the conversion is in connection with
an underwritten offering of securities registered pursuant to the Securities Act
of 1933, the conversion may, at the option of Holder, be conditioned upon the
closing with the underwriters of the sale of securities pursuant to such
offering, in which event the person or persons entitled to receive the shares of
Series A Preferred Stock or Common Stock, as applicable, issuable upon
conversion of this Note shall not be deemed to have converted this Note until
immediately prior to the closing of such sale of securities.
(b) Conversion Price Adjustments for Certain Dilutive Issuances,
------------------------------------------------------------
Splits and Combinations. The Conversion Price shall be subject to adjustment
-----------------------
from time to time as follows:
(i) In the event the Company should at any time or from time to
time after the date of execution of this Convertible Promissory Note and Loan
Agreement (the "Effective Date") fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Series A Preferred Stock or
the determination of holders of Series A Preferred Stock entitled to receive a
dividend or other distribution payable in additional shares of Series A
Preferred Stock, Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly, additional
shares of Series A Preferred Stock or Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Series A Preferred Stock, Common Stock or the
Common Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such record date (or
the date of such dividend distribution, split or subdivision if no record date
is fixed), the Conversion Price shall be appropriately decreased so that the
number of shares of Series A Preferred Stock issuable on conversion of this Note
shall be increased in proportion to such increase of the aggregate of shares of
Series A Preferred Stock and Common Stock outstanding and those issuable with
respect to such Common Stock Equivalents.
(ii) If the number of shares of Series A Preferred Stock
outstanding at any time after the Effective Date is decreased by a combination
of the outstanding shares of Series A Preferred Stock, then, following the
record date of such
5
combination, the Conversion Price shall be appropriately increased so that the
number of shares of Series A Preferred Stock issuable on conversion of this Note
shall be decreased in proportion to such decrease in outstanding shares of
Series A Preferred Stock.
(c) Other Distributions. In the event the Company shall declare a
-------------------
distribution payable in securities of other persons, evidences of indebtedness
issued by the Company or other persons, assets (excluding cash dividends) or
options or rights not referred to in Section 4(b)(i), then, in each such case
for other purposes of this Section 4(c), Holder shall be entitled to a
proportionate share of any such distribution as though they were the holder of
the number of shares of Series A Preferred Stock of the Company into which this
Note is convertible as of the record date fixed for the determination of the
holders of Series A Preferred Stock of the Company entitled to receive such
distribution in respect of shares of Series A Preferred Stock.
(d) Recapitalizations. If at any time or from time to time there
-----------------
shall be a recapitalization of the Series A Preferred Stock (other than a
subdivision, combination or merger or sale of assets transaction or like
transaction provided for elsewhere in this Section 4), provision shall be made
so that Holder shall thereafter be entitled to receive upon conversion of the
Note the number of shares of stock or other securities or property of the
Company, or otherwise, to which a holder of Series A Preferred Stock would have
been entitled on such recapitalization. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 4
with respect to the rights of Holder after the recapitalization to the end that
the provisions of this Section 4 (including adjustment of the Conversion Price
then in effect and the number of shares purchasable upon conversion of the
Notes) shall be applicable after that event as they were before as nearly
equivalent as may be practicable.
(e) No Impairment. The Company will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company but will at all times in good faith assist in the carrying out of all
the provisions of this Section 4 and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion rights of Holder
against impairment.
(f) Certificate as to Adjustment. Upon the occurrence of each
----------------------------
adjustment or readjustment of the Conversion Price pursuant to this Section 4,
the Company, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and cause its chief financial
officer to verify such computation and prepare and furnish to Holder a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Company
shall, upon the written request at any time of Holder, furnish or cause to be
furnished to Holder a like certificate setting forth (A) such adjustment and
readjustment, (B) the Conversion Price at the time in effect, and (C) the number
of shares of Series A Preferred Stock and the amount, if any, of other
securities and/or property which at the time would be receivable upon the
conversion of the Note. Such certificate shall set forth in reasonable detail
such facts as may be necessary to show the reason for and manner of computing
such adjustment. If demanded by Holder, the Company shall provide Holder a
verification or confirmation of
6
the calculation of such adjustment signed by an independent certified public
accountant, which may be the firm of independent certified public accountants
servicing the Company.
(g) Notices of Record Date. In the event of any taking by the
----------------------
Company of a record of the holders of any class of securities for the purpose of
determining if Holder is entitled to receive any dividend or other distribution,
any right to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right,
the Company shall mail to Holder, at least 20 days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right.
(h) Taxes on Conversion. The issue of share certificates on
-------------------
conversion of this Note shall be made without charge to Holder for any tax in
respect of the issue thereof. The Company shall not, however, be required to
pay any tax which may be payable in respect of any transfer involved in the
issue and delivery of shares in any name other than that of Holder, and the
Company shall not be required to issue or deliver any certificate in respect of
such shares unless and until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
(i) Reservation of Conversion Securities. The Company agrees that it
------------------------------------
will use its best efforts to have its stockholders authorize, and once so
authorized it will at all times have authorized and reserved, and will keep
available, solely for issuance or delivery upon the conversion of this Note, the
shares of Series A Preferred Stock and other securities and properties as from
time to time shall be receivable upon the conversion of this Note, and the
shares of Common Stock issuable upon conversion of the Series A Preferred Stock.
(j) No Rights as Stockholders. Prior to the conversion of this Note,
-------------------------
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote, to receive dividends or other
distributions or to exercise any pre-emptive rights, and shall not be entitled
to receive any notice of any proceedings of the Company, except as provided
herein or in the Purchase Agreement or as otherwise agreed.
5. Merger, Consolidation.
---------------------
(a) Acceleration on Merger, Consolidation. In the event of (i) any
-------------------------------------
consolidation or merger of the Company with or into any other corporation or
other entity or person, or any other corporate reorganization in which the
Company shall not be the continuing or surviving entity, or any transaction or
series of related transactions by the Company in which in excess of 50% of the
Company's voting power is issued for the purpose of combining with or
acquisition by one or more corporations or other entities or persons; or (ii) a
sale, conveyance or disposition of all or substantially all of the assets of the
Company, then, at the election of Holder made by written notice given to the
Company, the principal and accrued interest on this Note shall be due and
payable at the closing of any such transaction.
(b) Notices. The Company shall give Holder written notice of such
-------
impending transaction not later than twenty (20) days prior to the stockholders'
meeting
7
called to approve such transaction, or twenty (20) days prior to the closing of
such transaction, whichever is earlier. The first of such notices shall describe
the material terms and conditions of the impending transaction and the
provisions of this Section 5 and the Company shall thereafter give Holder prompt
notice of any material changes. The transaction shall in no event take place
sooner than twenty (20) days after the Company has given the first notice
provided for herein or sooner than ten (10) days after the Company has given the
notice provided for herein of any material changes.
6. Transfer. Subject to the restrictions and limitations set forth in
--------
the Purchase Agreement, upon surrender of this Note for transfer or exchange, a
new Note or new Notes of the same tenor, dated the date to which interest has
been paid on the surrendered Note and in an aggregate principal amount equal to
the unpaid principal amount of the Note so surrendered, will be issued to and
registered in the name of the transferee or transferees. The Company may treat
the person in whose name this Note is registered as the owner hereof for the
purpose of receiving payments and for all other purposes.
7. Prepayment of Note. This Note may not be pre-paid by the Company
------------------
without the express written consent of Holder.
8. Notices. Any notices and other communications required or permitted
-------
in this Agreement shall be effective if in writing and delivered personally or
sent by telecopier, Federal Express, or registered or certified air mail,
postage prepaid, addressed as follows:
If to the Company, addressed to:
Anchor Pacific Underwriters, Inc.
0000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxxx, President & Chief Executive Officer
If to Holder, addressed to:
Xxxx North America Holding
000 Xxxx Xxx Xxxxxx, Xxxxx 0000
Xxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxx, President & Chief Executive Officer
Unless otherwise specified herein, such notices or other communications
shall be deemed effective (a) on the date delivered, if delivered personally,
(b) two (2) business day after being sent by Federal Express, if sent by Federal
Express, (c) one (1) business day after being delivered, if delivered by
telecopier, and (d) three (3) business days after being sent, if sent by
registered or certified air mail. Each of the parties hereto shall be entitled
to specify a different address by giving notice as aforesaid to each of the
other parties hereto.
9. Amendment, Waiver Etc. The terms of this Note may be amended or
----------------------
waived only upon the written consent of the Company and Holder.
10. Waivers. The Company hereby waives diligence, presentment for
-------
payment, demand, protest, notice of non-payment, notice of dishonor, notice of
protest, and any and all other notices
8
and demands whatsoever. The Company agrees to remain bound until all principal
and interest payable hereunder are paid in full, notwithstanding any extensions
or renewals granted with respect to this Note or the release of any party liable
hereunder. The Company, and any and all endorsers hereof, also waive the right
to plead any and all statutes of limitations as a defense to any demand on this
Note or any and all obligations or liabilities arising out of or in connection
with this Note, to the fullest extent permitted by law.
11. No Waiver by Holder. Any delay or omission on the part of Holder to
-------------------
exercise any of its rights or remedies hereunder, including, without limitation,
the right to accelerate amounts owing under this Note, shall not be deemed a
continuing waiver of that right or remedy or any other right or remedy of Holder
in respect thereof. The acceptance by Holder of any payment pursuant to the
terms of this Note which is less than payment in full of all amounts due and
payable at the time of such payment shall not constitute a waiver of the right
to exercise any of Holder's rights or remedies under this Note at that time or
at any subsequent time or nullify any prior exercise of any such rights or
remedies without the express written consent of Holder, except as and to the
extent otherwise provided by law.
12. Costs of Enforcement. If the Company fails to pay any amounts due
--------------------
hereunder when due, or if an Event of Default occurs under this Note, then the
Company shall pay all costs of enforcement and collection, including, without
limitation, reasonable attorneys' fees and costs, whether or not enforcement and
collection includes the filing of a lawsuit, and whether or not that lawsuit is
prosecuted to judgment.
13. Binding Nature. The provisions of this Note shall be binding upon and
--------------
inure to the benefit of the respective successors and assigns of the Company and
Holder.
14. Usury Savings. The Company and Holder intend to contract in
-------------
compliance with all state and federal usury laws governing the loan evidenced by
this Note. Both parties agree that none of the terms of this Note or any other
agreement between the Company and Holder shall be construed as a contract for or
a requirement to pay interest under this Note at a rate in excess of the maximum
interest rate, or in an amount that exceeds the maximum amount of interest,
allowed by any applicable state or federal usury laws. If Holder receives sums
which constitute interest that would increase the effective interest rate or the
amount of interest received on this Note to a rate or an amount in excess of
that permitted by any applicable law, then all such sums constituting interest
in excess of that permitted to be paid under applicable law shall at Holder's
option either be credited to the payment of principal or returned to the
Company. The provisions of this Paragraph control the other provisions of this
Note and any other agreement between the Company and Holder.
15. Assignment. This Note is not assignable or transferable by the
----------
Company.
16. Governing Law. This Note shall be governed by and construed under the
-------------
laws of the State of California as applied to agreements among California
residents, made and to be performed entirely within the State of California.
17. Jurisdiction; Venue. Each party hereto agrees that all actions or
-------------------
disputes arising directly or indirectly as a result or in consequence of this
Agreement, shall be instituted and litigated only in courts having situs in San
Diego County and the United States District Court for the Southern District of
California, and the Company and Holder each hereby consent to the exclusive
jurisdiction and venue of any state or federal court located and having its
situs in San Diego County.
9
18. WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY HERETO KNOWINGLY AND
--------------------------------
WILLINGLY WAIVES ITS RIGHT TO A TRIAL BY JURY IN ANY ACTION OR DISPUTE ARISING
DIRECTLY OR INDIRECTLY AS A RESULT OR IN CONSEQUENCE OF THIS NOTE, AND AGREES
THAT ANY SUCH ACTION OR DISPUTE SHALL BE HEARD BEFORE A JUDGE ONLY.
19. Severability. All provisions hereof are severable. If any provision
------------
hereof is declared invalid for any reason, that invalidity shall not affect any
other provision of this Note, all of which shall remain in full force and
effect.
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by
its duly authorized officer as of the day and year first above written.
ANCHOR PACIFIC UNDERWRITERS, INC.
By: ____________________________________
Xxxxx X. Xxxxxxxx, President & CEO
AGREED (as to Section 2):
XXXX NORTH AMERICA HOLDING, INC.
By: __________________________________
Xxxxxxx X. Xxxx, President and CEO
10
EXHIBIT D
---------
SCHEDULE OF EXCEPTIONS
----------------------
2.1 Organization and Standing; Qualification.
None.
2.2 Authority.
The Company must authorize additional shares of Common Stock.
2.3 Capitalization.
(a) Warrants.
Warrants to purchase shares of Common Stock were granted as follows:
The Imperial Bank Note/Warrants, specifically set forth below, include
a net exercise feature, a repurchase on sale provision, and an anti-dilution
feature for adjusting the price and number of issuable common shares, as are
more fully set forth in the specific warrant agreements provided to Purchaser.
Exception 2.16 is incorporated herein.
Anchor Pacific Underwriters
Warrant Log
-----------------------------------------------------------------------------
Participant Warrant Maturity Strike Outstanding
Date Date Price Warrants
-----------------------------------------------------------------------------
Subordinated Notes/Warrants
-----------------------------------------------------------------------------
Xxxxx Xxxxxxxxx Aug-96 Aug-01 $1.35 10,000
-----------------------------------------------------------------------------
Xxxxxxxxx and Xxxxxxxx, Inc. Aug-96 Aug-01 $1.35 10,000
-----------------------------------------------------------------------------
Xxxxxxxxx Xxxxxxx - APU 401-K Sep-96 Sep-01 $1.35 2,000
-----------------------------------------------------------------------------
Xxxxx Xxxxxxxx - APU 401-K Sep-96 Sep-01 $1.35 2,000
-----------------------------------------------------------------------------
Xxxx Xxxxxxx-APU 401-K Sep-96 Sep-01 $1.35 2,000
-----------------------------------------------------------------------------
Xxxxx Xxxxxxx - APU 401-K Sep-96 Sep-01 $1.35 4,000
-----------------------------------------------------------------------------
Xxxxxx Xxxxxx - APU 401-K Sep-96 Sep-01 $1.35 4,000
-----------------------------------------------------------------------------
Xxxxx Xxxx Sep-96 Sep-01 $1.35 2,000
-----------------------------------------------------------------------------
TOTAL: 36,000
-----------------------------------------------------------------------------
-1-
-----------------------------------------------------------------------------------
Participant Warrant Maturity Strike Outstanding
Date Date Price Warrants
-----------------------------------------------------------------------------------
Subscription Agreements/Warrants
-----------------------------------------------------------------------------------
Xxxx Xxxxxxx Jan-97 Jan-02 $0.90 11,111
-----------------------------------------------------------------------------------
Xxxxx Xxxxxxxxx Jan-97 Jan-02 $0.90 55,555
-----------------------------------------------------------------------------------
Xxxxxx Xxxxxx Jan-97 Jan-02 $0.90 33,333
-----------------------------------------------------------------------------------
Xxxx Xxxxxxx Feb-97 Feb-02 $0.90 5,555
-----------------------------------------------------------------------------------
Xxxxx Xxxxxxx Feb-97 Feb-02 $0.90 27,777
-----------------------------------------------------------------------------------
Xxxxx Xxxxx Xxx-00 Xxx-00 $0.90 22,222
-----------------------------------------------------------------------------------
Xxxxxxxx X'Xxxxx Xxx-00 Xxx-00 $0.90 17,000
-----------------------------------------------------------------------------------
Xxxx Xxxxxxx Apr-97 Apr-02 $0.90 11,111
-----------------------------------------------------------------------------------
Xxxx Xxxxxxx Apr-97 Apr-02 $0.90 22,222
-----------------------------------------------------------------------------------
Xxxxxxx Xxxxxxxx Apr-97 Apr-02 $0.90 22,222
-----------------------------------------------------------------------------------
Xxxxx Xxxxx Apr-97 Apr-02 $0.90 22,222
-----------------------------------------------------------------------------------
Xxxx Xxxxxx Apr-97 Apr-02 $0.90 11,111
-----------------------------------------------------------------------------------
Xxxxxx Xxxxxxx Apr-97 Apr-02 $0.90 10,000
-----------------------------------------------------------------------------------
Xxxx Xxxxxxx Apr-97 Apr-02 $0.90 10,000
-----------------------------------------------------------------------------------
Xxxxxxxx X'Xxxxx Jul-97 Jul-02 $0.90 13,000
-----------------------------------------------------------------------------------
Xxxxxxxx Xxxxx Aug-97 Aug-02 $0.90 11,111
-----------------------------------------------------------------------------------
Xxxxxx Xxxxxxx Aug-97 Aug-02 $0.90 11,111
-----------------------------------------------------------------------------------
Xxxxxx Xxxxxxx Sep-97 Sep-02 $0.90 27,777
-----------------------------------------------------------------------------------
TOTAL: 344,440
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
10% Note/Warrants
-----------------------------------------------------------------------------------
Xxxxx Xxxxxxxxx Sep-97 Sep-02 $0.90 30,000
-----------------------------------------------------------------------------------
Xxxx Xxxxxxx Sep-99 Sep-04 $0.50 12,000
-----------------------------------------------------------------------------------
TOTAL: 42,000
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
Engagement Letter/Warrants
-----------------------------------------------------------------------------------
Xxxxx Xxxxxxxx Aug-97 Aug-02 $0.90 30,000
-----------------------------------------------------------------------------------
TOTAL: 30,000
-----------------------------------------------------------------------------------
Imperial Bank Note/Warrants
-----------------------------------------------------------------------------------
Imperial Bank* (see note above) Oct-97 Oct-02 $1.75* 95,000*
-----------------------------------------------------------------------------------
Nov-98 Nov-03 $0.50* 80,000*
-----------------------------------------------------------------------------------
Apr-99 May-04 $0.60* 100,000*
-----------------------------------------------------------------------------------
Dec-99 Dec-04 $0.50* 80,000*
-----------------------------------------------------------------------------------
TOTAL: 355,000*
-----------------------------------------------------------------------------------
-2-
Participant Warrant Maturity Strike Outstanding
Date Date Price Warrants
------------------------------------------------------------------------------------
System Industries/Warrants
------------------------------------------------------------------------------------
Unsecured Creditors unknown unknown $3.00 195,789
------------------------------------------------------------------------------------
TOTAL: 195,789
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Series B Warrants
------------------------------------------------------------------------------------
Xxxxxx Xxxxxxxxxxx Oct-98 Oct-03 $0.50 6,000
------------------------------------------------------------------------------------
Xxxx Xxxxxxx Oct-98 Oct-03 $0.50 6,000
------------------------------------------------------------------------------------
Xxxxxx Xxxxxx Oct-98 Oct-03 $0.50 6,000
------------------------------------------------------------------------------------
Xxxxxx Xxxxxxx Xxx-00 Xxx-00 $0.50 6,000
------------------------------------------------------------------------------------
Xxxxxx Xxxx Xxx-00 Xxx-00 $0.50 10,000
------------------------------------------------------------------------------------
Xxx Xxxxxxx Xxx-00 Xxx-00 $0.50 6,000
------------------------------------------------------------------------------------
Xxxxxx Xxxxxxxxx Dec-98 Dec-03 $0.50 6,000
------------------------------------------------------------------------------------
Xxxxxx Xxxxxxxxxxx Dec-98 Dec-03 $0.50 6,000
------------------------------------------------------------------------------------
Xxxxxx Xxxxxxx Dec-98 Dec-03 $0.50 22,750
------------------------------------------------------------------------------------
Xxxx Xxxxxxx Trust Dec-98 Dec-03 $0.50 22,750
------------------------------------------------------------------------------------
Xxxxxx Xxxxxxx Jan-99 Jan-04 $0.50 20,000
------------------------------------------------------------------------------------
TOTAL: 117,500
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Series D Warrants
------------------------------------------------------------------------------------
Xxxxxxx Xxxxx Xxx-00 Xxx-00 $0.50 30,000
------------------------------------------------------------------------------------
Guarantee Life May-99 May-04 $0.50 36,000
------------------------------------------------------------------------------------
Xxxxx Xxxxxxxx - APU 401-K Jun-99 Jun-04 $0.50 5,400
------------------------------------------------------------------------------------
Xxxxxxx Xxxxxxxxxx Jul-99 Jul-04 $0.50 15,000
------------------------------------------------------------------------------------
Xxxxx Xxxxxxxx Sep-99 Sep-04 $0.50 21,000
------------------------------------------------------------------------------------
Xxxxxx Xxxxxxx Oct-99 Oct-04 $0.50 60,000
------------------------------------------------------------------------------------
TOTAL: 167,400
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Series E Warrants
------------------------------------------------------------------------------------
Xxxx X.X. Xxx-00 Xxx-00 $0.50 90,000
------------------------------------------------------------------------------------
Xxxx X.X. Dec-99 Dec-04 $0.50 90,000
------------------------------------------------------------------------------------
Xxxx X.X. Dec-99 Dec-04 $0.50 60,000
------------------------------------------------------------------------------------
Xxxx X.X. Jan-00 Jan-05 $0.50 39,000
------------------------------------------------------------------------------------
Xxxx X.X. Feb-00 Feb-05 $0.50 21,000
------------------------------------------------------------------------------------
TOTAL: 300,000
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
TOTAL WARRANTS: 1,588,129
------------------------------------------------------------------------------------
-3-
(b) Options.
In accordance with the approval of the shareholders at the Company's
annual shareholder meeting held on May 12, 1998, the Company's 1994
Stock Option Plan ("Plan") must be amended to reflect the authorized
Common Stock to be 16,000,000, authorized Preferred Stock to be
2,000,000, with 1,000,000 shares of Common Stock reserved for the
Plan.
The following is a list of the outstanding options of the Company:
--------------------------------------------------------------------------------------
Anchor Pacific Underwriters
Option Log
--------------------------------------------------------------------------------------
Optionee Grant Date Number of Options Option Price Vested Options
--------------------------------------------------------------------------------------
Xxxxxxxx, Xxxxx 6/20/95 54,350 $1.50 54,350
--------------------------------------------------------------------------------------
6/24/96 1,000 $1.60 750
--------------------------------------------------------------------------------------
5/13/97 1,000 $0.90 500
--------------------------------------------------------------------------------------
8/16/97 50,000 $0.90 50,000
--------------------------------------------------------------------------------------
5/12/98 1,000 $0.81 250
--------------------------------------------------------------------------------------
12/21/98 10,000 $0.90 10,000
--------------------------------------------------------------------------------------
12/21/98 6,000 $0.50 6,000
--------------------------------------------------------------------------------------
Xxxxxxx, Xxxx 6/20/95 45,000 $1.50 45,000
--------------------------------------------------------------------------------------
6/24/96 1,000 $1.45 750
--------------------------------------------------------------------------------------
5/13/97 1,000 $0.90 500
--------------------------------------------------------------------------------------
5/12/98 1,000 $0.81 250
--------------------------------------------------------------------------------------
Xxxxxxxxx, Xxxxx 6/20/95 15,000 $1.50 15,000
--------------------------------------------------------------------------------------
5/14/96 1,000 $1.63 750
--------------------------------------------------------------------------------------
5/13/97 1,000 $0.90 500
--------------------------------------------------------------------------------------
5/12/96 1,000 $0.81 250
--------------------------------------------------------------------------------------
Xxxxxxx, Xxxxxxx 6/20/95 35,000 $1.50 35,000
--------------------------------------------------------------------------------------
5/14/96 1,000 $1.63 750
--------------------------------------------------------------------------------------
5/13/97 1,000 $0.90 500
--------------------------------------------------------------------------------------
5/12/98 1,000 $0.81 250
--------------------------------------------------------------------------------------
MacCullough, R. 6/20/95 35,000 $1.50 35,000
--------------------------------------------------------------------------------------
5/14/96 1,000 $1.63 750
--------------------------------------------------------------------------------------
5/13/97 1,000 $0.90 500
--------------------------------------------------------------------------------------
5/12/98 1,000 $0.81 250
--------------------------------------------------------------------------------------
Xxxxxxxxxxx, Xxxxxx 3/10/97 15,000 $1.00 7,500
--------------------------------------------------------------------------------------
5/13/97 1,000 $0.90 500
--------------------------------------------------------------------------------------
5/12/98 1,000 $0.81 250
--------------------------------------------------------------------------------------
-4-
------------------------------------------------------------------------------------
Anchor Pacific Underwriters
Option Log
------------------------------------------------------------------------------------
Optionee Grant Date Number of Options Option Price Vested Options
------------------------------------------------------------------------------------
Xxxxx, Xxxxx X. 6/20/95 35,000 $1.50 35,000
------------------------------------------------------------------------------------
5/14/96 1,000 $1.63 750
------------------------------------------------------------------------------------
5/13/97 1,000 $0.90 500
------------------------------------------------------------------------------------
5/12/98 1,000 $0.81 250
------------------------------------------------------------------------------------
Xxxxxx, Xxxxxx X. 6/20/95 25,000 $1.65 25,000
------------------------------------------------------------------------------------
6/24/96 1,000 $1.60 750
------------------------------------------------------------------------------------
5/13/97 1,000 $1.00 500
------------------------------------------------------------------------------------
5/12/98 1,000 $0.89 250
------------------------------------------------------------------------------------
Xxxxxxx, Xxxxx X. 6/20/95 25,000 $1.65 25,000
------------------------------------------------------------------------------------
6/24/96 1,000 $1.60 750
------------------------------------------------------------------------------------
5/13/97 1,000 $1.00 500
------------------------------------------------------------------------------------
5/12/96 1,000 $0.89 250
------------------------------------------------------------------------------------
Xxxxx, Xxxxxxxx 10/28/96 15,000 $1.45 11,250
------------------------------------------------------------------------------------
5/13/97 1,000 $0.90 500
------------------------------------------------------------------------------------
5/12/96 1,000 $0.81 250
------------------------------------------------------------------------------------
Xxx Xxxxxx, X.X. 6/20/95 35,000 $1.50 35,000
------------------------------------------------------------------------------------
Xxxxxxx, Xxxxxx 6/20/95 1,500 $1.50 1,500
------------------------------------------------------------------------------------
Xxxxxxxx, Xxxxx X. 6/20/95 10,000 $1.50 10,000
------------------------------------------------------------------------------------
Xxxxxxxx, Xxxxxx 6/20/95 1,000 $1.50 1,000
------------------------------------------------------------------------------------
5/12/98 1,500 $0.81 375
------------------------------------------------------------------------------------
Xxxxxxx, Xxxx 6/20/95 5,000 $1.50 5,000
------------------------------------------------------------------------------------
X'Xxxxxxx, Xxxxxxxx 6/20/95 2,000 $1.50 2,000
------------------------------------------------------------------------------------
Xxxxxxxx, Xxxxxxx 6/20/95 10,000 $1.50 10,000
------------------------------------------------------------------------------------
Xxxxxxxxxx, Xxx 6/20/95 1,000 $1.50 1,000
------------------------------------------------------------------------------------
Xxxxx, Xxxxx 6/20/95 1,000 $1.50 1,000
------------------------------------------------------------------------------------
Xxxxxx, Xxxxx 6/20/95 1,000 $1.50 1,000
------------------------------------------------------------------------------------
Xxxxxxxxx, Xxx 6/20/95 1,000 $1.50 1,000
------------------------------------------------------------------------------------
Xxxxx, Xxxxxxx 8/19/95 1,000 $2.19 1,000
------------------------------------------------------------------------------------
Xxxxx, Xxxxx 6/20/95 500 $1.50 500
------------------------------------------------------------------------------------
XxXxxxx, Xxxxx 6/20/95 500 $1.50 500
------------------------------------------------------------------------------------
Xxxxxx, Xxxxx 6/20/95 500 $1.50 500
------------------------------------------------------------------------------------
Xxxxxxx, Xxxxx 6/20/95 500 $1.50 500
------------------------------------------------------------------------------------
Xxxxxxxx, Xxxxx 6/20/95 500 $1.50 500
------------------------------------------------------------------------------------
Xxxxxxx, Xxxxxx 6/20/95 100 $1.50 100
------------------------------------------------------------------------------------
Xxxxx, Xxxxx 6/20/95 100 $1.50 100
------------------------------------------------------------------------------------
Xxxxxx, Xxxxxx 6/20/95 100 $1.50 100
------------------------------------------------------------------------------------
-5-
------------------------------------------------------------------------------------
Anchor Pacific Underwriters
Option Log
------------------------------------------------------------------------------------
Optionee Grant Date Number of Options Option Price Vested Options
------------------------------------------------------------------------------------
Xxxxxxxx, Xxxxx 6/20/95 100 $1.50 100
------------------------------------------------------------------------------------
Xxxxxxxx, Xxxxx 6/20/95 100 $1.50 100
------------------------------------------------------------------------------------
Xxxxxxx, Xxxxxx 6/24/96 100 $1.45 1,875
------------------------------------------------------------------------------------
Xxxxxx, Xxxxxxxxx 6/24/96 100 $1.45 75
------------------------------------------------------------------------------------
Xxxxx, Xxxxxxx 6/24/96 100 $1.45 75
------------------------------------------------------------------------------------
Xxxxxxxxxx, Xxxxxxx 6/24/96 100 $1.45 75
------------------------------------------------------------------------------------
Xxxxx, Xxxxx 6/26/97 1,000 $0.90 500
------------------------------------------------------------------------------------
Xxxxxxx, Xxxxxxx 6/26/97 500 $0.90 250
------------------------------------------------------------------------------------
Xxxx, Xxxx X. 6/20/95 10,000 $1.50 10,000
------------------------------------------------------------------------------------
Xxxxxxx, Xxxxx 5/12/98 100 $0.81 25
------------------------------------------------------------------------------------
Xxxxxxxxx, Xxxxxx 5/12/98 100 $0.81 25
------------------------------------------------------------------------------------
Xxxx, Xxxxx 5/12/98 100 $0.81 25
------------------------------------------------------------------------------------
Xxxxxxx, Xxxxxxx 5/12/98 100 $0.81 25
------------------------------------------------------------------------------------
Tomajan, Penne 5/12/98 100 $0.81 25
------------------------------------------------------------------------------------
Xxxxx, Xxxx 5/12/98 25 $0.81 25
------------------------------------------------------------------------------------
Fish, Xxxxxx X. 6/20/95 500 $1.50 500
------------------------------------------------------------------------------------
Xxxxxx, Xxxxx 6/24/96 100 $1.45 75
------------------------------------------------------------------------------------
Xxxxxxx, Xxxxxxx 6/24/96 100 $1.45 75
------------------------------------------------------------------------------------
Xxxxxx, Xxxxxxxxx 6/26/97 100 $0.90 50
------------------------------------------------------------------------------------
Xxxx, Xxxxxx 6/26/97 10,000 $0.90 5,000
------------------------------------------------------------------------------------
Xxxxxx, Xxxxx 5/12/96 5,000 $0.81 1,250
------------------------------------------------------------------------------------
Xxxxxxxxxx, Xxxxxx 5/12/98 2,500 $0.81 625
------------------------------------------------------------------------------------
Xxxxxxx, Xxxxxxxx 5/12/98 100 $0.81 25
------------------------------------------------------------------------------------
Xxxxx, Xxxxxxx 5/12/98 100 $0.81 25
------------------------------------------------------------------------------------
Xxxx, Xxx 1/29/99 2,500 $1.00 625
------------------------------------------------------------------------------------
Xxxxxx Xxxxxxx 1/19/98 12,500 $0.88 6,250
------------------------------------------------------------------------------------
Xxxxxxx Xxxxx 1/19/98 2,500 $0.88 1,250
------------------------------------------------------------------------------------
Xxxxxx Xxxxxxxxx 1/19/98 7,500 $0.88 3,750
------------------------------------------------------------------------------------
Xxxx, Xxxxxxx 1/29/99 2,500 $1.00 625
------------------------------------------------------------------------------------
Xxxxx, Xxx 1/29/99 2,500 $1.00 625
------------------------------------------------------------------------------------
Xxxxxx, Xxxxxx 1/29/99 2/500 $1.00 625
------------------------------------------------------------------------------------
Xxxxxx, Xxxxx 1/29/99 1,500 $1.00 375
------------------------------------------------------------------------------------
May, Xxxxxx 1/29/99 1,500 $1.00 375
------------------------------------------------------------------------------------
Xxxxxxx, Xxxxxxx 1/29/99 1,000 $1.00 250
------------------------------------------------------------------------------------
Xxxxxxx, Xxxxxx 1/29/99 500 $1.00 125
------------------------------------------------------------------------------------
Xxxxxxxx, Xxxxx 1/29/99 100 $1.00 25
------------------------------------------------------------------------------------
-6-
------------------------------------------------------------------------------------
Anchor Pacific Underwriters
Option Log
------------------------------------------------------------------------------------
Optionee Grant Date Number of Options Option Price Vested Options
------------------------------------------------------------------------------------
Xxxxx, Xxxxx 1/29/99 100 $1.00 25
------------------------------------------------------------------------------------
Xxxxxxx, Xxx 1/29/99 100 $1.00 25
------------------------------------------------------------------------------------
Xxxxxxx, Xxxx 1/29/99 100 $1.00 25
------------------------------------------------------------------------------------
Xxxxxx, Xxxxx 1/29/99 100 $1.00 25
------------------------------------------------------------------------------------
Xxxxx, Xxxx 1/29/99 100 $1.00 25
------------------------------------------------------------------------------------
Xxxxx, Xxxxxxx 1/29/99 100 $1.00 25
------------------------------------------------------------------------------------
XxXxxx, Xxxxxxxx 1/29/99 100 $1.00 25
------------------------------------------------------------------------------------
Xxxxxxx, Xxxxxxx 1/29/99 100 $1.00 25
------------------------------------------------------------------------------------
Xxxxxx, Xxxx 1/29/99 100 $1.00 25
------------------------------------------------------------------------------------
Xxxxx, Xxxxxx 1/29/99 100 $1.00 25
------------------------------------------------------------------------------------
Xxxxx, Xxxx 1/29/99 100 $1.00 25
------------------------------------------------------------------------------------
Xxxxx, Xxxxx 1/29/99 100 $1.00 25
------------------------------------------------------------------------------------
Xxxxxxxxx, Xxxxxxx 1/29/99 100 $1.00 25
------------------------------------------------------------------------------------
Xxxx, Xxxxx 1/29/99 100 $1.00 25
------------------------------------------------------------------------------------
Xxxxxxxx, Xxxxxxxx 1/29/99 100 $1.00 25
------------------------------------------------------------------------------------
Xxxxxxx, Xxxxxxx 1/29/99 100 $1.00 25
------------------------------------------------------------------------------------
Xxxxx, Xxx 1/29/99 100 $1.00 25
------------------------------------------------------------------------------------
Xxxxxxx, Xxxxxxxx 1/29/99 100 $1.00 25
------------------------------------------------------------------------------------
Xxxxx, Xxxxxx 1/29/99 100 $1.00 25
------------------------------------------------------------------------------------
Xxxxxx, Xxxxxx 1/29/99 100 $1.00 25
------------------------------------------------------------------------------------
X'Xxxxx, Xxxxxxx 1/29/99 25 $1.00 25
------------------------------------------------------------------------------------
Xxxxxx, Xxxxx 1/29/99 100 $1.00 25
------------------------------------------------------------------------------------
Xxxxxx, Xxxxx 1/29/99 100 $1.00 25
------------------------------------------------------------------------------------
Xxxxxx, Xxxxxxx 1/29/99 100 $1.00 25
------------------------------------------------------------------------------------
Xxxxxxxxx, Xxxxx 1/29/99 100 $1.00 25
------------------------------------------------------------------------------------
Zhu, Xia 1/29/99 100 $1.00 25
------------------------------------------------------------------------------------
2.4 Validity.
None.
2.5 SEC Filings.
The Company did not file a 1999 Proxy Statement with the SEC, however,
the information was otherwise contained in the Company's subsequent 10-K filing
with the SEC.
-7-
2.6 Absence of Changes or Events.
None.
2.7 Material Contracts and Agreements.
(i) Office Lease for property located at 0000 Xxxxxx Xxxxxx,
Xxxxx 000, Xxxxxxx, Xxxxxxxxxx.
Sublease dated January 1, 1999 by and between the Company and
Talbot Agency of California, Inc. for space located at 0000
Xxxxxx Xxxxxx, 0xx Xxxxx, Xxxxxxx, Xxxxxxxxxx.
Payment and Security Agreement dated October 6, 1999 by and
between Xxxxxx Center, Inc. as agent for Xxxxxx Aluminum Chemical
Corporation and Company.
Schedule 2.8 is incorporated herein.
(ii) A two (2) year non-compete provision is included in the Purchase
Agreement dated January 15, 1999, effective December 21, 1998, by
and between the Company and Talbot Agency of California, Inc.
relating to the sale of the assets of Xxxxxx Xxxxxxx & Xxxxxxx,
Inc. (the "PKW Agreement"). The PKW Agreement was provided to
Purchaser.
(iv) The Company has employment agreements with all of its employees.
Copies of those employment agreements have been provided to the
Purchaser.
(v) The Company has provided to the Purchaser the Contracts relating
to the following aggregate debt obligations, of which the Company is
currently a party:
1. Imperial Bank Notes: $881,985.75
$200,000.00
2. Subordinated Notes: $80,000.00
3. Debentures: Series A $ 60,000.00
Series B $250,000.00
Series D $244,000.00
Series E $500,000.00
-8-
4. 10% Notes: JR Dunathan $ 25,000.00
Xxxx Xxxxxxxx $ 20,000.00
2.8 Accounts Receivable.
Under the terms of the PKW Agreement, the Company is claiming a right
to receive certain 1998 Direct Xxxx Receivables from Talbot Agency of
California. The Company is currently negotiating with Talbot to
resolve this claim.
2.9 Fixed Assets.
None.
2.10 Title to Properties and Assets; Liens; etc.
None.
2.11 Compliance with Other Instruments.
The Company must amend its Certificate of Incorporation to authorize
additional shares of Common Stock to comply with the terms and
conditions of the Purchase Agreement. Further, the Bylaws of the
Company must be amended to reduce the number of members on the Board
of Directors.
2.12 Litigation, etc.
The Company entered into a Payment and Security Agreement dated
October 6, 1999 by and between Xxxxxx Center, Inc. as agent for Xxxxxx
Aluminum Chemical Corporation and Company relating to certain claims
arising out of certain lease obligations of the Company.
Schedule 2.8 is incorporated herein by reference.
2.13 Tax Returns, Payments and Elections.
None.
2.14 Employees.
None.
2.15 Insurance.
None.
-9-
2.16 Registration Rights.
The Warrant Agreements with Imperial Bank are subject to a requirement
that the Company enter into a Registration Rights Agreement with
Imperial Bank.
2.17 Governmental Consents.
None.
2.18 Offering.
None.
2.19 Operating Rights.
None.
2.20 Protection of Proprietary Information.
None.
2.21 Rights in Proprietary Information.
None.
2.22 Minute Books.
None.
2.23 Voting Agreements.
None.
2.24 Full Disclosure.
None.
-10-
EXHIBIT E
---------
FORM OF LEGAL OPINION OF COMPANY COUNSEL
March 10, 0000
Xxxx Xxxxx Xxxxxxx Holding, Inc.
000 Xxxx Xxx Xxxxxx, Xxxxx 0000
Xxx Xxxxx, XX 00000
Re: Securities Purchase Agreement
-----------------------------
Ladies and Gentlemen:
We have acted as counsel to Anchor Pacific Underwriters, Inc., a
Delaware corporation (the "Company"), in connection with that certain Securities
Purchase Agreement (the "Agreement") dated March 9, 2000, between the Company
and Xxxx North America Holding, Inc. ("Xxxx"). This letter is delivered
pursuant to Section 5.1(h) of the Agreement.
In the preparation of this opinion, we have examined originals or
copies of such documents and instruments as we have deemed appropriate,
including the following:
A. The Agreement;
B. The Registration Rights Agreement dated March 9, 2000, between
the Company and Xxxx (the "Registration Rights Agreement");
C. The Investor Rights Agreement dated March 9, 2000, between the
Company and Xxxx (the "Investor Rights Agreement");
D. The Convertible Promissory Note and Loan Agreement dated March
9, 2000, between the Company and Xxxx (the "Note");
E. The Certificate of Designations of Series A Convertible
Preferred Stock of Anchor Pacific Underwriters, Inc. dated
March 9, 2000 (the "Certificate of Designations");
F.
G. The Certificate of Amendment to the Certificate of
Incorporation of the Company (the "Certificate of Amendment");
H. A copy of the Amended and Restated Certificate of Incorporation
of the Company, as filed with the Secretary of State of the
State of Delaware;
I. A copy of the Bylaws of the Company, certified by an officer of
the Company;
J. A copy of the resolutions of the shareholders of the Company
approving the Certificate of Amendment certified by an officer
of the Company; and
K. A copy of the resolutions of the directors of the Company,
certified by an officer of the Company.
The Agreement, the Registration Rights Agreement, the Investor Rights
Agreement, and the Note are hereinafter collectively referred to as the
"Transaction Documents."
In rendering the opinions set forth below, we have assumed:
a. The genuineness of all signatures (other than those signed by
or on behalf of the Company), the authenticity of all documents submitted to us
as originals, the conformity to the originals of all documents submitted to us
as copies, and the authenticity of all such originals.
b. The due authorization, execution and delivery of the
Transaction Documents by and on behalf of Xxxx.
c. That the Transaction Documents are the legal, valid and binding
obligation of Xxxx, and that Xxxx has all requisite power and authority and has
taken any and all action necessary to be taken by Xxxx to execute and deliver
the Transaction Documents.
Xxxx North America Holding, Inc.
March 10, 2000
Page 3
Based upon the foregoing, and subject to the assumptions, exceptions,
qualifications and limitations set forth herein, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. The Company has
the corporate power and authority to own its properties and assets, to carry on
its business as presently conducted, and to enter into the Transaction Documents
and perform its obligations thereunder, including without limitation the sale
and issuance of the shares of Series A Preferred Stock being purchased by the
Xxxx.
2. Except as disclosed in the schedules to the Agreement, the
Company is duly qualified to do business as a foreign corporation and is in good
standing in each other state in which the nature of its activities or of its
properties owned or leased makes such qualification necessary, except to the
extent that failure to so qualify would not have a material adverse effect on
the Company.
3. Each of the Transaction Documents has been duly authorized by
all necessary corporate action on the part of the Company and has been duly
executed and delivered by the Company.
4. Each of the Transaction Documents is a legal, valid and binding
obligation of the Company enforceable against it in accordance with its terms,
except as the enforceability thereof may be subject to or limited by (a)
bankruptcy, insolvency, reorganization, arrangement, moratorium, or other
similar laws relating to or affecting rights of creditors and (b) general
equitable principles, regardless of whether the issue of enforceability is
considered in a proceeding in equity or at law.
5. The authorized capital stock of the Company consists of (a)
16,000,000 shares of Common Stock (the "Common Stock") of which 4,710,055 shares
are issued and outstanding, and (b) 2,000,000 shares of Preferred Stock (the
"Preferred Stock"), none of which are outstanding. All presently outstanding
shares of the Company's capital stock have been duly authorized and validly
issued, and are fully paid and nonassessable. Except as disclosed in or
contemplated by the Agreement or the exhibits and schedules delivered in
connection therewith, there are, to our current actual knowledge, (x) no
outstanding subscriptions, warrants, options, calls, claims, commitments,
Xxxx North America Holding, Inc.
March 10, 2000
Page 4
convertible securities or other agreements or arrangements under which the
Company is or may be obligated to issue shares of its capital stock, and (y) no
preemptive or similar rights to subscribe for or to purchase capital stock of
the Company.
6. Subject to the Delaware Secretary of State accepting for filing
the Certificate of Designations, the shares of Series A Preferred Stock to be
issued to Xxxx pursuant to the Agreement have been duly authorized and, when
issued and paid for in accordance with the terms of the Agreement will be
validly issued, fully paid and nonassessable.
7. Based in part upon the representations of Xxxx contained in the
Agreement, the offer, sale, issuance and delivery of the shares of Series A
Preferred Stock to Xxxx under the circumstances contemplated by the Agreement
are exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), and the qualification requirements of the
California Corporate Securities Law of 1968, as amended.
8. The execution and delivery of the Transaction Documents and the
performance by the Company of their respective terms (a) will not breach or
result in a violation of the Company's Amended and Restated Certificate of
Incorporation or Bylaws, or any judgment, order or decree of any court or
arbitrator, known to us, to which the Company is a party or is subject, (b) is
neither prohibited by, nor subjects the Company to, a fine, penalty or similar
sanction under, nor will result in the creation of any lien, charge or
encumbrance upon any of the assets of the Company pursuant to, any statute or
regulation of the type which are typically applicable to transactions similar to
those transactions contemplated by the Agreement, (c) will not constitute a
material breach of the terms, conditions or provisions of, or constitute a
default under, or result in the creation of any lien, charge or encumbrance upon
any of the assets of the Company pursuant to, any contract, undertaking,
indenture or other agreement or instrument identified in Schedule 2.7 to the
Agreement.
9. No consent, approval or authorization of, or designation,
declaration or filing with, any governmental authority is required in connection
with the valid execution, delivery and performance by the Company of the
Transaction Documents, other than such consents, approvals,
Xxxx North America Holding, Inc.
March 10, 2000
Page 5
authorizations, designations, declarations or filings as have been mode or
obtained on or before the date hereof or which are not required to be made or
obtained until after the date hereof.
1. Except as disclosed in the Agreement or the exhibits and
schedules delivered in connection therewith, there is, to our current actual
knowledge, no action, suit or proceeding pending against the Company or its
properties in any court or before any governmental authority or agency, or
arbitration board or tribunal (a) which seeks to restrain, enjoin, prevent the
consummation of, or otherwise challenge the Agreement or any of the transactions
contemplated thereby, or (b) which, if adversely determined, could have a
material adverse effect on the Company or its business or properties.
Our opinion set forth above is subject to the qualification that
certain further corporate actions must be taken by the Company to enable it to
perform fully all of its obligations under the Transaction Documents. As noted
above, the Certificate of Designations must be filed with the Secretary of State
of Delaware. The Certificate of Amendment must also be filed with the Secretary
of State of Delaware, which may not be done until at least 20 days after the
Company has distributed an information statement to its shareholders. Finally,
before additional shares of Series A Preferred Stock can be issued upon the
conversion of the Note, the directors of the Company must adopt resolutions
designating additional shares of such stock, and an appropriate document must be
filed with the Secretary of State of Delaware.
Our opinion set forth above speaks only as of the date hereof and is
based solely upon the existing laws of the State of California, the General
Corporation Law of the State of Delaware (the "DGCL") and the federal laws of
the United States, and we express no opinion, and none should be inferred, as to
any other laws. We are not passing upon the applicability of the laws of any
states to the Agreement, and our opinions above are limited to the substantive
state laws of the State of California, the DGCL and the federal laws of the
United States. We disclaim any obligation to update this opinion letter for
events occurring after the date of this opinion letter.
This opinion letter is provided at your request and solely to you for
use in connection with the transactions provided for in the Agreement. This
opinion letter may not be relied upon by any other person or for any other
purpose, nor may it be
Xxxx North America Holding, Inc.
March 10, 2000
Page 6
quoted from or referred to, or copies delivered to any other person, without our
prior written consent.
Very truly yours,
EXHIBIT F
---------
FORM OF INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT ("Agreement") is entered into as of March
10, 2000, by and among Anchor Pacific Underwriters, Inc., a Delaware corporation
(the "Company") and Xxxx North America Holding, Inc. ("Holder").
WHEREAS, the Company and Holder are parties to that certain Securities
Purchase Agreement dated as of March 9, 2000 (the "Purchase Agreement"),
pursuant to which Holder purchased from the Company convertible debentures (the
"Debentures") and Series A Convertible Preferred Stock (the "Series A Preferred
Stock") and entered into a Convertible Facility Loan (the "Facility Loan").
WHEREAS, in connection with the Company's issuance of the Series A
Preferred Stock and entering into the Facility Loan with Holder pursuant to the
Purchase Agreement, the Company has agreed to enter into this Investor Rights
Agreement as a condition to the Closing thereunder.
NOW THEREFORE, in consideration of the mutual agreements, covenants and
conditions and releases contained herein, the Company and Holder hereby agree as
follows:
1. REGISTRATION RIGHTS
Holder shall have the right to cause the Company to register its
Registrable Securities in accordance with the following provisions:
1.1 Demand Registration.
-------------------
(a) Upon the written request of Holder, the Company will use its best
efforts to cause the prompt Registration under the Securities Act, subject to
the provisions of this Section 1, of all Registrable Securities Holder has
requested the Company to register, and in connection therewith, prepare and file
on such appropriate form as the Company, in its reasonable discretion, shall
determine, a Registration Statement under the Securities Act to effect such
Registration; provided, however, that the Company shall not be required to
-------- -------
effect such Registration unless the market value of the Registrable Securities
to be sold in such Registration shall be estimated to be at least $1,000,000 at
the time of filing such Registration Statement.
With respect to any Registration Statement filed, or to be filed,
pursuant to this Section 1.1(a), if the Company shall furnish to Holder a
certified resolution of its Board of Directors stating that in the Board of
Directors' good faith judgment it would (because of the existence of, or in
anticipation of, any acquisition or financing, merger, sale or assets,
recapitalization or other similar corporate activity, or the unavailability for
reasons beyond the Company's control of any required audited financial
statements, or any other event or condition of similar significance to the
Company) be materially disadvantageous (a "Disadvantageous Condition") to the
Company or its stockholders for such a Registration Statement to be declared
Effective, or to be filed and become Effective, and setting forth the general
reasons for such judgment, the Company shall be entitled to cause such
Registration Statement to be withdrawn and the effectiveness of such
Registration Statement terminated, or, in the event no Registration Statement
has yet been filed, shall be entitled not to file any such Registration
Statement, until such Disadvantageous Condition no longer exists (notice of
which the Company shall promptly deliver to Holder); provided, however, that the
-------- -------
Company may not exercise such right morethan one (1) time in any twelve (12)
month period. Upon
1
receipt of any such notice of a Disadvantageous Condition, Holder will forthwith
discontinue use of the disclosure document contained in such Registration
Statement and, if so directed by the Company, Holder shall deliver to the
Company all copies, other than permanent file copies then in Holder's
possession, of the disclosure document then covering such Registrable Securities
current at the time of receipt of such notice, and, in the event no Registration
Statement has yet been filed, all drafts of the disclosure document covering
such Registrable Securities. In the event that the Company shall give any notice
of a Disadvantageous Condition, the Company shall at such time as it in good
xxxxx xxxxx appropriate and in any event within 180 days of such notice file a
new Registration Statement covering the Registrable Securities that were covered
by such withdrawn Registration Statement, and such Registration Statement shall
be maintained Effective for such time as may be necessary so that the period of
effectiveness of such new Registration Statement, when aggregated with the
period during which such initial Registration Statement was Effective, shall be
such time as may be otherwise required by Section 1.1(c).
Holder may, at any time prior to the Effective Date of the
Registration Statement relating to such Registration, revoke such request by
providing a written notice to the Company revoking such request; provided,
--------
however, that the Company shall not be obligated to pay the Registration
-------
Expenses relating to such withdrawn Registration unless Holder agrees to have
such withdrawn Registration deemed to be one of the Registrations with respect
to which the Company bears Registration Expenses.
(b) Number of Registrations; Expenses. The Company shall not be
---------------------------------
obligated to effect more than one (1) Effective Registration of Registrable
Securities pursuant to a request from Holder under this Section 1.1 during the
term of this Agreement. The Company shall pay all Registration Expenses in
connection with such Registration which Holder is entitled to request pursuant
to this Section 1.1. However, Holder shall pay all underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or disposition of
Holder's Registrable Securities pursuant to this Section 1.1. Notwithstanding
any other provisions contained in this Section 1.1, the Company shall not be
required to register any Registrable Securities in connection with a request for
such Registration made in accordance with this Section 1.1 within 180 days
following the effective date of any registration statement (other than a
registration statement on Form S-8) filed by the Company.
(c) Effective Registration Statement. A Registration required
--------------------------------
pursuant to this Section 1.1 shall not be deemed to have been effected unless
the Registration Statement relating thereto (i) has become Effective under the
Securities Act, and (ii) has remained Effective for a period of at least 90 days
(or such shorter period in which all Registrable Securities included in such
Registration have actually been sold thereunder); provided, however, that if an
-------- -------
Effective Registration Statement requested pursuant to this Section 1.1 is
discontinued in connection with a Disadvantageous Condition, such Registration
Statement shall not be included as the Registration which may be requested
pursuant to Section 1.1(b); provided further, that if after a Registration
-------- -------
Statement requested pursuant to this Section 1.1 becomes Effective such
Registration Statement is subject to any stop order, injunction or other order
or requirement of the Commission or other governmental agency or court solely
due to the actions or omissions to act of the Company, such Registration shall
not be the Registration which Holder is entitled to request pursuant to Section
1.1(b).
(d) Selection of Underwriters. If the requested Registration pursuant
-------------------------
to this Section 1.1 is in the form of an underwritten offering, the Company
shall have the right to select the
2
investment banker and manager or co-managers that will administer the offering,
subject to the reasonable approval of Holder.
(e) Priority in Requested Registrations. If the requested
-----------------------------------
Registration pursuant to this Section 1.1 involves an underwritten offering and
the managing underwriter shall advise the Company that, in its view, the number
of equity securities requested to be included in such Registration exceeds the
largest number of securities which can be sold without having an adverse effect
on such offering, including the price at which such securities can be sold, the
Company will include in such Registration (i) first, Registrable Securities
-----
proposed to be registered by Holder and (ii) second, securities that the Company
------
proposes to issue and sell for its own account and all other securities proposed
to be registered by the holders thereof, pro rata based on the number of
securities proposed to be registered by each such Person; provided, however,
-------- -------
that if in any such underwritten offering the Company includes in
such Registration Statement less than 80% of the Registrable Securities
requested to be included therein by Holder, then such Registration Statement
shall not be treated as the Registration which Holder is entitled to request
pursuant to Section 1.1(b).
1.2 Incidental Registration.
-----------------------
(a) If the Company at any time proposes to register any of its equity
securities under the Securities Act (other than a registration (i) relating to
shares of Common Stock issuable upon exercise of employee stock options or in
connection with any employee benefit or similar plan of the Company, (ii) in
connection with an acquisition by the Company of another company, or (iii)
pursuant to Section 1.1), it shall each such time, subject to the provisions of
Section 1.2(b), give prompt written notice to Holder of its intention to do so
and of Holder's rights under this Section 1.2, at least 30 days prior to the
anticipated filing date of the Registration Statement relating to such
Registration. Such notice shall offer Holder the opportunity to include in such
Registration Statement such number of Registrable Securities as Holder may
request, subject to the provisions of this Section 1.2. Upon the written request
of Holder made within 20 days after the receipt of the Company's notice (which
request shall specify the number of Registrable Securities intended to be
disposed of by Holder and the intended method of disposition thereof), the
Company will use its reasonable efforts to effect the Registration under the
Securities Act of all Registrable Securities which the Company has been so
requested to register by Holder; provided, that (x) if such Registration
--------
involves an underwritten offering, Holder must sell its Registrable Securities
to the underwriter(s) selected by the Company on the same terms and conditions
as apply to the Company; and (y) if, at any time after giving written notice of
its intention to register any securities pursuant to this Section 1.2(a) and
prior to the Effective Date of the Registration Statement filed in connection
with such Registration, the Company shall determine for any reason not to
register such securities for its own account or the account of others, the
Company shall give written notice to Holder and shall thereupon be relieved of
its obligation to register any Registrable Securities in connection with such
Registration without prejudice, however, to rights of Holder under Section 1.1.
If a Registration pursuant to this Section 1.2(a) involves an underwritten
public offering, Holder may elect, in writing prior to the Effective Date of the
Registration Statement filed in connection with such Registration, not to
register such Registrable Securities in connection with such Registration. No
Registration effected under this Section 1.2 shall relieve the Company of its
obligations to effect Registrations upon request under Section 1.3. The Company
shall pay all Registration Expenses in connection with each Registration of
Registrable Securities requested pursuant to this Section 1.2. However, Holder
shall pay all underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of Holder's Registrable Securities pursuant
to a Registration Statement effected pursuant to this Section 1.2.
3
(b) Priority in Incidental Registrations. If a Registration pursuant
------------------------------------
to this Section 1.2 involves an underwritten offering and the managing
underwriter advises the Company that, in its good faith view, the number of
equity securities (including all Registrable Securities) which the Company,
Holder and any other persons intend to include in such Registration exceeds the
largest number of securities which can be sold without having an adverse effect
on such offering, including the price at which such Registrable Securities can
be sold, the Company will include in such Registration (i) first, securities
-----
that the Company proposes to issue and sell for its own account, (ii) second,
------
Registrable Securities proposed to be registered by Holder, and (iii) third, any
-----
other securities proposed to be registered by other stockholders of the Company.
1.3 Registrations on Form S-3. In addition to the rights provided Holder
-------------------------
in Sections 1.1 and 1.2, if the Registration of Registrable Securities under the
Securities Act can be effected on Form S-3 (or any similar form promulgated by
the Commission), then upon the written request of Holder, the Company will as
expeditiously as possible, use its best efforts to effect qualification and
registration under the Securities Act on Form S-3 of all or such portion of the
Registrable Securities as Holder shall specify; provided, however, the Company
shall not be required to effect a registration pursuant to this Section 1.3
unless the market value of the Registrable Securities to be sold in any such
Registration shall be estimated to be at least $1,000,000 at the time of filing
such Registration Statement; and provided further that the Company shall not be
required to effect more than one Registration during any twelve (12) month
period. The Company shall pay all Registration Expenses in connection with each
Registration of Registrable Securities requested pursuant to this Section 1.3.
However, Holder shall pay all underwriting discounts and commissions and
transfer taxes, if any, relating to the sale or disposition of Holder's
Registrable Securities pursuant to a Registration Statement effected pursuant to
this Section 1.3.
1.4 Transfer of Registration Rights. The rights of Holder contained in
-------------------------------
Section 1 may be transferred to a transferee (other than a competitor of the
Company); provided that (a) such transferee acquires at least fifty percent
(50%) of Holder's Securities; provided, however, if Holder intends to transfer
such rights to a partner or Affiliate, the restrictions regarding the amount of
shares necessary to effectively transfer such rights will not apply; and (b) the
Company is given written notice by such Holder at the time of or within a
reasonable time after said transfer stating the name and address of said
transferee or assignee and identifying the securities with respect to which such
registration rights are being assigned.
1.5 Holdback Agreements.
-------------------
(a) If any Registration of Registrable Securities shall be in
connection with an underwritten public offering, Holder agrees not to effect any
sale or distribution, including any private placement or any sale pursuant to
Rule 144 or any successor provision, under the Securities Act, of any
Registrable Securities, and not to effect any such sale or distribution of any
other equity security of the Company or of any security convertible into or
exchangeable or exercisable for any equity security of the Company (in each
case, other than as part of such underwritten public offering) during the seven
days prior to, and during the 180 day period which begins on the Effective Date
of such Registration Statement (except as part of such Registration) provided
that Holder has received written notice of such Registration at least two
Business Days prior to the anticipated beginning of the seven day period
referred to above. Notwithstanding the foregoing, the holdback period provided
for by this Section 1.5 shall be applicable for no more than 180 days out of any
365 day period.
4
(b) If any Registration of Registrable Securities shall be in
connection with an underwritten public offering, (i) the Company and Holder
agree not to effect any sale or distribution of any equity securities of the
Company or of any security convertible into or exchangeable or exercisable for
any equity security of the Company (other than any such sale or distribution of
such securities by the Company in connection with any merger or consolidation by
the Company or any Affiliate or the acquisition by the Company or an Affiliate
of the Company of the capital stock or substantially all the assets of any other
Person or in connection with an employee stock ownership or other benefit plan)
during the seven days prior to, and during the 180 day period which begins on,
the Effective Date of such Registration Statement (except as part of such
Registration) and (ii) the Company agrees that any agreement entered into after
the date hereof pursuant to which the Company issues or agrees to issue any
privately placed equity securities shall contain a provision under which the
holders of such securities agree not to effect any sale or distribution of any
such securities during the period referred to in the foregoing clause (i),
including any sale pursuant to Rule 144 under the Securities Act (except as part
of such Registration, if permitted).
1.6 Registration Procedures. In connection with any offering of
-----------------------
Registrable Securities registered pursuant to this Section 1, the Company shall:
(a) Prepare and file with the Commission as soon as reasonably
practicable following receipt of a request for Registration, a Registration
Statement on any form for which the Company then qualifies or which counsel for
the Company shall deem appropriate, and which form shall be available for the
sale of the Registrable Securities in accordance with the intended methods of
distribution thereof, and use its best efforts to cause such Registration
Statement to become and remain Effective as provided herein, provided that
--------
before filing with the Commission a Registration Statement or disclosure
document constituting part of a Registration Statement or any amendments or
supplements thereto, the Company will (x) furnish to counsel selected by Holder
copies of all such documents proposed to be filed for said counsel's review and
comment and (y) notify Holder of any stop order issued or threatened by the
Commission and take all reasonable actions required to prevent the entry of such
stop order or to remove it if entered.
(b) Prepare and file with the Commission such amendments and
supplements to such Registration Statement and any disclosure document
constituting part of such Registration Statement used in connection therewith as
may be necessary to keep Effective such Registration Statement for a period of
not less than 180 days or such shorter period which will terminate when all
Registrable Securities covered by such Registration Statement have been sold
(but not before the expiration of the 90 day period, if applicable, referred to
in Section 4(3) of the Securities Act and Rule 174, or any successor thereto, if
applicable), and comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such Registration Statement
during such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such Registration Statement.
(c) Furnish to Holder and each underwriter, if any, of Registrable
Securities covered by such Registration Statement such number of copies of such
Registration Statement, each amendment and supplement thereto (in each case
including all exhibits thereto), and the disclosure document included in such
Registration Statement (including each preliminary disclosure document), in
conformity with the requirements of the Securities Act, and such other documents
as Holder may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by Holder.
5
(d) Use its best efforts to register or qualify such Registrable
Securities under such other state securities or "blue sky" laws of such
jurisdictions as Holder, and each underwriter, if any, of Registrable Securities
covered by such Registration Statement reasonably requests and do any and all
other acts and things which may be reasonably necessary or advisable to enable
Holder and each underwriter, if any, to consummate the disposition in such
jurisdictions of the Registrable Securities owned by Holder; provided that the
--------
Company will not be required to (x) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 1.6(d), (y) subject itself to taxation in any such jurisdiction where it
would not otherwise be subject to but for this Section 1.6(d) or (z) consent to
general service of process in any such jurisdiction.
(e) Use its best efforts to cause the Registrable Securities covered
by such Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company to enable Holder to consummate the
disposition of such Registrable Securities.
(f) Immediately notify Holder, at any time when a disclosure document
relating thereto is required to be delivered under the Securities Act, of the
happening of any event which comes to the Company's attention if as a result of
such event the disclosure document included in such Registration Statement
contains any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and promptly prepare and furnish to Holder a supplement or
amendment to such disclosure document so that, as thereafter delivered to
Holder, such disclosure document will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.
(g) Use its best efforts to cause all such Registrable Securities to
be listed on a national securities exchange (including Nasdaq National Market)
or, if not available, or such other securities exchange on which similar
securities issued by the Company may then be listed, and enter into such
customary agreements including a listing application and indemnification
agreement in customary form, and to provide a transfer agent and registrar for
such Registrable Securities covered by such Registration Statement no later than
the Effective Date of such Registration Statement.
(h) Enter into such customary agreements (including an underwriting
agreement in customary form) and take all such other actions as Holder or the
underwriters retained by Holder, if any, reasonably request in order to expedite
or facilitate the disposition of such Registrable Securities, including
customary representations, warranties, indemnities and agreements.
(i) Make available for inspection by Holder, any underwriter
participating in any disposition pursuant to such Registration Statement, and
any attorney, accountant or other agent retained by Holder or underwriter
(collectively, the "Inspectors"), all financial and other records, pertinent
corporate documents and properties of the Company (collectively, "Records"), if
any, as shall be reasonably necessary to enable them to exercise their due
diligence responsibility, and cause the Company's and its Affiliates' officers,
directors and employees to supply all information and respond to all inquiries
reasonably requested by any such Inspector in connection with such Registration
Statement.
6
(j) Use its best efforts to obtain a "cold comfort" letter from the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by such "cold comfort" letters as Holder
reasonably requests.
(k) Furnish, at the request of Holder, on the date that Registrable
Securities are delivered to the underwriters for sale in connection with a
Registration, if such securities are being sold through underwriters, or on the
Effective Date of the Registration Statement, (i) an opinion, dated such date,
of the counsel representing the Company, in form and substance as is customarily
given to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to Holder, and (ii) to the extent permitted under the
rules of the AICPA, a letter, dated such date, from the independent accountants
of the Company, in form and substance as is customarily given by independent
accountants to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to Holder.
(l) Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to Holder, as soon
as reasonably practicable, an earnings statement covering a period of at least
twelve months, beginning with the first month after the Effective Date of the
Registration Statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder.
It shall be a condition precedent to the obligation of the Company to
take any action with respect to Securities of Holder that Holder shall furnish
to the Company such information regarding the Securities held by Holder and the
intended method of disposition thereof as the Company shall reasonably request
and as shall be required in connection with the action taken by the Company.
Holder agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 1.6(f), Holder will
forthwith discontinue disposition of Registrable Securities until Holder's
receipt of the copies of the supplemented or amended disclosure document
contemplated by Section 1.6(f), and, if so directed by the Company, Holder will
deliver to the Company (at the Company's expense) all copies (including, without
limitation, any and all drafts), other than permanent file copies, then in
Holder's possession, of the disclosure document covering such Registrable
Securities. In the event the Company shall give any such notice, the period
mentioned in Section 1.6(b) shall be extended by the number of days during the
period from and including the date of the giving of such notice pursuant to
Section 1.6(f) to and including the date when Holder shall have received the
copies of the supplemented or amended disclosure document contemplated by
Section 1.6(f).
1.7 Indemnification.
---------------
(a) Indemnification by the Company. In the event of any Registration
of any Securities of the Company under the Securities Act pursuant to this
Agreement, the Company will indemnify and hold harmless, to the full extent
permitted by law, Holder, its respective directors and officers, general
partners, limited partners and managing directors, each other person who
participates as an underwriter in the offering or sale of such Securities and
each other person, if any, who controls, is controlled by or is under common
control with Holder or any such underwriter within the meaning of the Securities
Act (and directors, officers, controlling persons, partners and managing
directors of any of the foregoing), against any and all losses, claims, damages
or liabilities, joint or several, and expenses (including any amounts paid in
any settlement effected with the
7
Company's consent, which consent will not be unreasonably withheld) to which
Holder, any such director or officer or general or limited partner or managing
director or any such underwriter or controlling person may become subject under
the Securities Act, state securities or "blue sky" laws, common law or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) or expenses arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained,
on the Effective Date thereof, in any Registration Statement under which such
Securities were registered under the Securities Act, any preliminary, final or
summary disclosure document contained therein, or any amendment or supplement
thereto, (ii) any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any violation or alleged violation by the Company of any
federal, state or common law rule or regulation applicable to the Company and
relating to any action or inaction by the Company in connection with any such
Registration. The Company shall reimburse Holder and each such director,
officer, general partner, limited partner, managing director or underwriter and
controlling person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending such loss, claim, liability,
action or proceeding. The Company shall not be liable under this Section 1.7 in
any case to the extent that any loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of or is based upon any
untrue statement or alleged untrue statement or omission or alleged omission
made in such Registration Statement or amendment or supplement thereto or in any
such preliminary, final or summary disclosure document in reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by Holder in its capacity as a holder of Registrable
Securities in the Company or any such director, officer, general or limited
partner, managing director or underwriter specifically stating that it is for
use in the preparation thereof; and that the Company shall not be liable to any
person who participates as an underwriter in the offering or sale of Registrable
Securities, if any, or any other person, if any, who controls such underwriter
within the meaning of the Securities Act, pursuant to this Section with respect
to any preliminary disclosure document or the final disclosure document or the
final disclosure document as amended or supplemented as the case may be, to the
extent that any such loss, claim, damage or liability of such underwriter or
controlling person results from the fact that such underwriter sold Registrable
Securities to a person to whom there was not sent or given, at or prior to the
written confirmation of such sale, a copy of the final disclosure document or of
the final disclosure document as then amended or supplemented, whichever is most
recent, if the Company has previously furnished copies thereof to such
underwriter and such final disclosure document, as then amended or supplemented,
had corrected any such misstatement or omission. The indemnity provided for
herein shall remain in full force and effect regardless of any investigation
made by or on behalf of Holder or any such director, officer, general partner,
limited partner, managing director, underwriter or controlling person and shall
survive the transfer of such securities by such holder.
(b) Indemnification by Holder. The Company may require, as a condition to
-------------------------
including any Registrable Securities in any Registration Statement filed in
accordance with the provisions hereof, that the Company shall have received an
undertaking reasonably satisfactory to it from Holder, to indemnify and hold
harmless (in the same manner and to the same extent as set forth in paragraph
(a) above) the Company and its directors, officers, controlling persons and all
other prospective sellers and their respective directors, officers, general and
limited partners, managing directors, and their respective controlling persons
with respect to any untrue statement or alleged untrue statement in or omission
or alleged omission from such Registration Statement, any preliminary, final or
summary disclosure document contained therein, or any amendment or supplement,
if such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company or its
8
representatives through an instrument duly executed by or on behalf of Holder
specifically stating that it is for use in the preparation of such Registration
Statement, preliminary, final or summary disclosure document or amendment or
supplement, or a document incorporated by reference into any of the foregoing.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company or Holder, underwriters or any
of their respective directors, officers, general or limited partners, managing
directors or controlling persons and shall survive the transfer of such
Securities by Holder, provided, however, that Holder shall not be liable in the
-------- -------
aggregate for any amounts exceeding the product derived from multiplying the
sale price per Registrable Security times the number of Registrable Securities
sold pursuant to such Registration Statement or disclosure document by such
holder.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified party
----------------------
hereunder of written notice of the commencement of any action or proceeding with
respect to which a claim for indemnification may be made pursuant to this
Section 1.7, such indemnified party will, if a claim in respect thereof is to be
made against an indemnifying party, promptly give written notice to the
indemnifying party of the commencement of such action, provided that the failure
of any indemnified party to give notice as provided herein shall not relieve the
--------
indemnifying party of its obligations under the preceding subsections of this
Section, except to the extent that the indemnifying party is actually materially
prejudiced by such failure to give notice. In case any such action is brought
against an indemnified party, unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist in respect of such claim, the indemnifying party will be
entitled to participate in and, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, to the extent that it may
wish, 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 the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties arises in respect of such claim after the assumption of the
defense thereof, and the indemnifying party will not be subject to any liability
for any settlement made without its consent (which consent shall not be
unreasonably withheld). No indemnifying party will consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect to such claim or litigation. An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel in any single jurisdiction for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim, in which event the indemnifying party shall be obligated to pay the fees
and expenses of such additional counsel or counsels as may be reasonably
necessary. Notwithstanding anything to the contrary set forth herein, and
without limiting any of the rights set forth above, in any event each party will
have the right to retain, at its own expense, counsel with respect to the
defense of a claim.
(d) Other Indemnification. Indemnification similar to that specified in
---------------------
the preceding subsections of this Section 1.7 (with appropriate modifications)
shall be given by the Company and Holder with respect to any required
Registration or other qualification of securities under any federal or state law
or regulation or governmental authority other than the Securities Act.
9
(e) Contribution. In order to provide for just and equitable contribution
------------
in circumstances in which the indemnity agreement provided for in this Section
is for any reason held to be unenforceable although applicable in accordance
with its terms, the Company, Holder and the underwriters shall contribute to the
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement incurred by the Company, Holder and the
underwriters, in such proportions that the underwriters are responsible for that
portion represented by the percentage that the underwriting discount appearing
in the disclosure document bears to the offering price appearing therein and the
Company and Holder are responsible for the balance; provided, however, that no
-------- -------
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. As between the Company
and Holder, such parties shall contribute to the aggregate losses, liabilities,
claims, damages and expenses of the nature contemplated by such indemnity
agreement in such proportion as shall be appropriate to reflect (x) the relative
benefits received by the Company, on the one hand, and Holder, on the other
hand, from the offering of the Registrable Securities and any other securities
included in such offering, and (y) the relative fault of the Company, on the one
hand, and Holder, on the other hand, with respect to the statements or omissions
which resulted in such loss, liability, claim, damage or expense, or action in
respect thereof, as well as any other relevant equitable considerations. The
relative benefits received by the Company, on the one hand, and Holder, on the
other hand, with respect to such offering shall be deemed to be in the same
proportion as the sum of the total purchase price paid to the Company in respect
of the Registrable Securities plus the total net proceeds received by the
Company from the offering of any securities included in such offering (before
deducting expenses) bears to the amount by which the total net proceeds from the
offering of Registrable Securities (before deducting expenses) received by
Holder with respect to such offering exceeds the purchase price paid by Holder
to the Company in respect of the Registrable Securities, and in each case the
net proceeds received from such offering shall be determined as set forth in the
disclosure document. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates to
information supplied by the Company or Holder, the intent of the parties and
their relative knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The Company and Holder agree that it
would not be just and equitable if contribution pursuant to this Section were to
be determined by pro rata allocation or by any other method of allocation which
does not take into account the equitable considerations referred to herein.
Notwithstanding anything to the contrary contained herein, the Company and
Holder agree that any contribution required to be made by Holder pursuant to
this Section 1.7(e) shall not exceed the net proceeds from the offering of
Registrable Securities (before deducting expenses) received by Holder with
respect to such offering. For purposes of this Section, each Person, if any, who
controls a holder of Registrable Securities or an underwriter within the meaning
of Section 15 of the Securities Act shall have the same rights to contribution
as Holder or underwriter, and each director of the Company, each officer of the
Company who signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act
shall have the same rights to contribution as the Company.
1.8 Rule 144. At all times hereafter, the Company agrees that it will file
--------
in a timely manner all reports required to be filed by it pursuant to the
Exchange Act, and, if at any time the Company is not required to file such
reports, it will make available to the public, to the extent required to permit
the sale of shares by any holder of Registrable Securities pursuant to Rule 144
under the Securities Act, as such Rule may be amended from time to time, current
information about itself and its activities as contemplated by Rule 144.
Notwithstanding the foregoing, the Company
10
may deregister any class of its equity securities under Section 12 of the
Exchange Act or suspend its duty to file reports with respect to any class of
its securities pursuant to Section 15(d) of the Exchange Act if it is then
permitted to do so pursuant to the Exchange Act and the rules and regulations
thereunder.
2. RIGHT OF FIRST REFUSAL
2.1 Right of First Refusal. If at any time the Company or any Subsidiary
----------------------
desires to issue, sell or exchange, agree or obligate itself to issue, sell or
exchange, or reserve or set aside for issuance, sale or exchange, any debt
securities, shares of preferred stock or shares of Common Stock or any Common
Stock Equivalents or capital stock of any Subsidiary in a privately-negotiated
transaction pursuant to a bona fide offer from a third party or through its
agent (the "Proposed Buyer"), the Company shall first submit a written offer
(the "Offer") to sell such securities (the "Offered Securities") to Holder on
terms and conditions, including price, not less favorable to Holder than those
on which the Company proposes to sell such Offered Securities to the Proposed
Buyer. Holder shall have the absolute right to purchase that number of the
Offered Securities (its "Pro Rata Fraction") as shall be equal to the number of
Offered Securities multiplied by a fraction, the numerator of which shall be the
number of shares of Fully Diluted Outstanding Common Stock then owned by Holder
and the denominator of which shall be the aggregate number of shares of Fully
Diluted Outstanding Common Stock.
2.2 The Offer. The Offer shall disclose the identity of the Proposed
---------
Buyer, the number and class of Offered Securities proposed to be sold, the terms
and conditions, including price, of the proposed sale, and any other material
facts relating to the proposed sale. The Offer shall further state that Holder
may acquire, in accordance with the provisions of this Section 2, its Pro Rata
Fraction of the Offered Securities for the price indicated in the Offer and upon
the other terms and conditions, including deferred or installment payment (if
applicable), set forth therein.
2.3 Notice of Acceptance. If Holder desires to purchase its Pro Rata
--------------------
Fraction of the Offered Securities, Holder shall deliver a written notice of its
election to purchase such shares to the Company, which notice shall state the
number of Offered Securities Holder desires to purchase and shall be delivered
in person or mailed to the Company within 30 days of the date of receipt by
Holder of the Offer. Such notice shall, when taken in conjunction with the
Offer, be deemed to constitute a valid, legally binding and enforceable
agreement for the sale to and purchase by Holder of that number of Offered
Securities as determined by its Pro Rata Fraction, on the terms of the Offer.
2.4 Closing. The closing of the sale of Offered Securities to Holder
-------
pursuant to this Section 2 shall be made at the offices of the Company on such
date as may be agreed by Holder and the Company, but no later than the 60th day
following the date the Offer is received by Holder. Such sale shall be effected
by the Company's delivery to Holder of a certificate(s) issued in the name of
Holder evidencing the Offered Securities to be purchased by Holder, duly
endorsed for transfer, against payment to the Company of the purchase price by
Holder. The exercise or nonexercise by Holder of its first refusal rights
pursuant to this Section 2 shall be without prejudice to its first refusal
rights under this Section 2 with respect to any future sale of securities.
2.5 Sales to Proposed Transferee. The Offered Securities not so purchased
----------------------------
may be sold at any time within 120 days after the date the Offer was made. Any
such sale shall be to the Proposed Buyer, at not less than the price and upon
other terms and conditions, if any, not more favorable to the transferee than
those specified in the Offer. Any Offered Securities not sold within
11
the permitted time period shall continue to be subject to the requirements of a
prior Offer pursuant to this Section 2.
2.6 Exception. The first refusal rights of Holder under this Section 2
shall not apply to the issuance of the following securities ("Excluded
Securities"): (a) shares of Common Stock, or options exercisable therefor,
granted to directors, officers or employees of or consultants to the Company or
any Subsidiary pursuant to any qualified or non-qualified stock option plan or
agreement, employee stock ownership plan, stock purchase agreement, stock plan,
stock restriction agreement, or consulting agreement or such other options,
arrangements, agreements or plans approved by the compensation committee of the
Board of Directors of the Company; (b) securities issued solely in consideration
for the acquisition (whether by merger or otherwise) by the Company of all or
substantially all of the capital stock or assets of any other entity; (c) shares
of Common Stock issuable upon the exercise of the warrants or options
outstanding as of the date hereof; (d) shares of Common Stock issuable upon
conversion of shares of preferred stock, convertible debentures, convertible
notes or any other convertible securities issued by the Company ("Convertible
Securities") provided that such Convertible Securities were outstanding as of
the date hereof, or were issued in compliance with the provision of this Section
2; and (e) securities issued in connection with the provision of senior debt or
lease financing to the Company by any bank or other financial institution.
3. AFFIRMATIVE COVENANTS OF THE COMPANY
3.1 Inspection Rights. The Company shall permit during normal business
-----------------
hours, upon reasonable request and reasonable notice, Holder or any employees,
agents or representatives thereof, to examine and make copies of and extracts
from the records and books of account of, and visit and inspect the properties,
assets, operations and business of the Company and any Subsidiary, and to
discuss the affairs, finances and accounts of the Company and any Subsidiary
with any of its officers, consultants, directors, attorneys or independent
accountants.
3.2 Budget Approval. At least 30 days prior to the commencement of each
---------------
fiscal year, the Company shall prepare and submit to, and obtain in respect
thereof the approval of the majority of the members of, the Board of Directors
of the Company (the "Board"), a business plan and monthly operating budget in
detail for each fiscal year, monthly operating expenses and profit and loss
projections and cash flow projections and a capital expenditure budget for the
fiscal year for the Company and its Subsidiaries.
3.3 Financings. The Company shall promptly, fully and in detail, inform
----------
all of the members of the Board of any discussions, offers or contracts
relating to possible financings of any material nature for the Company or any
Subsidiary, whether initiated by the Company, any Subsidiary or any other
Person.
3.4 Meetings of Directors. The Company shall hold meetings of the Board on
---------------------
not less than a quarterly basis.
3.5 Bylaws; Meetings; Insurance and Indemnification.
-----------------------------------------------
(a) The Company shall use its best efforts to at all times cause its
Bylaws to provide that (i) any two directors shall have the right to call a
meeting of the Board and, (ii) any
12
holder or holders of at least 50% of the outstanding shares of Series A
Preferred Stock shall have the right to call a meeting of stockholders.
(b) The Company shall obtain and cause to be maintained in effect,
with financially sound insurers, a policy of directors' and officers' liability
insurance covering all Directors whom are members of the Board (and their
respective successors) in an amount of at least $5,000,000 or such other amount
the Board of Directors shall specify, unless the Board determines that such
coverage is not warranted or is not obtainable at a reasonable cost.
(c) The Company shall cause the Certificate of Incorporation, By-laws
and other organizational documents of the Company and each of its Subsidiaries
at all times, to the fullest extent permitted by law, to provide for
indemnification of, advancement of expenses to, and limitation of the personal
liability of its Board against all losses and damages other than such losses and
damages which arise directly or indirectly out of gross negligence or willful
misconduct, to the fullest extent permitted by law. (d) Each of the directors of
the Company is an intended third party beneficiary of the obligations of the
Company pursuant to this Section 3.5, and the obligations of the Company
pursuant to this Section 3.5 shall be enforceable by the directors.
3.6 Corporate Existence. The Company shall maintain, and cause each of the
-------------------
Subsidiaries to maintain, their respective corporate existence, intellectual
property rights, other rights, licenses, permits, and franchises in full force
and effect to the extent appropriate in accordance with good business practice.
3.7 Properties; Business; Insurance. The Company shall maintain, and cause
-------------------------------
each of the Subsidiaries, to maintain as to their respective properties and
business, with financially sound and reputable insurers, insurance against such
casualties and contingencies and of such types and in such amounts as is
customary for companies of a similar size and financial condition similarly
situated within the same industry.
3.8 Expenses of Directors. The Company shall promptly reimburse in full
---------------------
each director or Representative of the Company (as defined below) who is not an
officer or employee of the Company for all of his or her reasonable out-of-
pocket expenses incurred in attending each meeting of the Board or any committee
thereof.
3.9 Compliance with Laws. The Company shall comply, and cause each
--------------------
Subsidiary to comply, with all applicable laws, rules, regulations and orders,
noncompliance with which could have a material adverse effect on its business,
assets, operations, prospects or condition, financial or otherwise.
3.10 Keeping of Records and Books of Account. The Company shall keep, and
---------------------------------------
cause each Subsidiary to keep, adequate records and books of account, in which
complete entries will be made in accordance with GAAP consistently applied,
reflecting all financial transactions of the Company and each Subsidiary, and in
which, for each fiscal year, all proper reserves for depreciation, depletion,
obsolescence, amortization taxes, bad debts and other purposes in connection
with its business shall be made.
13
3.11 Size of Board; Holders of Series A Preferred Stock Right to Elect
-----------------------------------------------------------------
Directors. The Company shall take all appropriate actions to (i) fix and
---------
maintain the Board at seven (7) persons within its existing range of seven (7)
and thirteen (13) persons; (ii) adopt and approve a Certificate of Designations
of the Series A Convertible Preferred Stock which shall provide that the Series
A Preferred Stock shall be entitled to elect five (5) directors to the Board of
Directors and, so long as shares of Series A Preferred Stock remain outstanding
the holders of the Series A Preferred shall elect a majority of the Company's
Board of Directors voting separately as a single class.
In lieu of selecting any one, or all, of the members of the Board to which
Holder is entitled pursuant to this Section, Holder may appoint a representative
(a "Representative") to attend all meetings of the Board. Holder acknowledges
and agrees that the Company's management will have the right to exclude any such
Representative from all or portions of meetings of the Board, or omit to provide
such Representative with certain information, if the Company's management
believes it is necessary in order to preserve the attorney-client privilege, or
fulfill the Company's obligations with respect to confidential or proprietary
information of third parties, or if such meeting or information involves matters
where a director would customarily not participate in a meeting or be provided
such information. In addition, Holder acknowledges and agrees that any such
Representative will maintain the confidentiality of all information obtained
through such Representative's position, except to the extent that (i) such
information is already in such Representative's possession, (ii) such
information becomes public knowledge other than as a result of such
Representative's actions or inactions, (iii) such Representative rightfully
obtains such information subsequently from a third party, (iv) such
Representative develops such information independently and without use of the
information provided by the Company or (v) such information is approved in
writing for release by the Company.
3.12 Reporting Requirements. The Company shall furnish the following to
----------------------
Holder:
(a) SEC Reports. So long as the Company is subject to the reporting
------------
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), it will furnish to Holder, at the same time the Company files any
document with the Commission, copies of all such documents, including, but not
limited to, its reports on Form 10-K, Form 10-Q, Form 8-K or any successor form
or forms;
(b) Monthly Reports. As soon as available and in any event within
---------------
20 days after the end of each month, consolidated balance sheets of the Company
and the Subsidiaries as of the end of such month and consolidated statements of
income and statements of cash flows and changes in stockholders' equity of the
Company and the Subsidiaries for such month and for the period commencing at the
end of the previous fiscal year and ending with the end of such month, setting
forth in each case in comparative form the corresponding figures for the
corresponding period of the preceding fiscal year, and including comparisons to
the budget or business plan and an analysis of the variances from the budget or
plan, prepared in accordance with GAAP consistently applied (other than notes
and year end adjustments);
(c) Quarterly Reports: As soon as available and in any event within
-----------------
45 days after the end of each calendar quarter, consolidated balance sheets of
the Company and the Subsidiaries as of the end of the period and consolidated
statements of income and statements of cash flows and changes in stockholders'
equity of the Company and the Subsidiaries for such quarterly period and for the
period commencing at the end of the previous fiscal year and ending with the end
of such quarterly period, setting forth in each case in comparative form the
corresponding figures for the
14
corresponding period of the preceding fiscal year, and including comparisons to
the budget or business plan and an analysis of the variances from the budget or
plan, prepared in accordance with GAAP consistently applied;
(d) Annual Reports: As soon as available and in any event within 90
--------------
days after the end of each fiscal year of the Company, a copy of the annual
audit report for such year for the Company and the Subsidiaries, including
therein consolidated balance sheets of the Company and the Subsidiaries as of
the end of such fiscal year and consolidated statements of income and statements
of cash flows and changes in stockholders' equity of the Company and the
Subsidiaries for such fiscal year, setting forth in each case in comparative
form the corresponding figures for the preceding fiscal year, all such
consolidated statements to be duly certified by an officer of the Company and an
independent public accountant of recognized national standing approved by the
Board or a committee of the Board;
(e) Accountant's Letters: Within 10 days after receipt, copies of
--------------------
all accountant's letters, reviews and reports to management; and
(f) Budgets and Operating Plan: As soon as available and in any
--------------------------
event at least 30 days before the beginning of each fiscal year of the Company,
a business plan and monthly operating budgets for the forthcoming fiscal year.
3.13 Termination of Obligations. The Company's obligations under Article
--------------------------
3 shall terminate at such time as the Holder holds less than 50% of the Fully
Diluted Outstanding Common Stock.
4. DEFINITIONS AND ACCOUNTING TERMS
4.1 Certain Defined Terms. As used in this Agreement, the following terms
---------------------
shall have the following meanings:
"Affiliate" shall mean, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries controls or is
controlled by or is under common control with such Person. For the purposes of
this definition, "control," when used with respect to any particular Person,
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing. For purposes of this Agreement, Holder shall not
be deemed an Affiliate of the Company or any Subsidiary.
"Agreement" shall mean this Investor Rights Agreement, including all
amendments, modifications or supplements hereto.
"Business Day" shall mean any day except a Saturday, Sunday or other day on
which commercial banks in the State of California are authorized by law or
executive order to close
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency then administering the Securities Act or Exchange Act.
"Common Stock" shall mean (a) the Company's Common Stock, $.02 par value,
as authorized on the date of this Agreement, (b) any other capital stock of any
class or classes (however designated) of the Company, authorized on or after the
date hereof, the holders of which shall have
15
the right, without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference, and the
holders of which shall ordinarily, in the absence of contingencies or in the
absence of any provision to the contrary in the Articles of Incorporation of the
Company (or amendment thereto), be entitled to vote for the election of a
majority of directors of the Company (even though the right so to vote has been
suspended by the happening of such a contingency or provision), and (c) any
other securities into which or for which any of the securities described in (a)
or (b) may be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
"Common Stock Equivalents" shall mean all rights, options, warrants or
convertible or exchangeable securities entitling the holders thereof to
subscribe for or purchase or otherwise acquire shares of Common Stock,
including, but not limited to, shares of the Series A Preferred Stock.
"Effective" shall mean that all Registration requirements under the
Securities Act with respect to a Registration Statement have been satisfied and
that the Commission has officially approved the public distribution or
circulation of the Registration Statement in connection with a public offering
of Registrable Securities.
"Effective Date" shall mean the date on which a Registration Statement is
declared to be Effective by the Commission.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated pursuant thereto.
"Fully Diluted Outstanding Common Stock" shall mean, at the time of the
determination, the number of issued shares of Common Stock actually outstanding
(excluding any shares of the Company held by the Company as "treasury stock") at
such time together with the number of shares of Common Stock which could be
acquired at such time pursuant to all Common Stock Equivalents as if such Common
Stock Equivalents have been fully exercised or converted and the full amount of
all Common Stock obtained in connection therewith has been obtained.
"Inspectors" shall have the meaning given such term in Section 1.6(i).
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Nasdaq" shall mean the National Association of Securities Dealers
Automated Quotations System.
"Offer" shall have the meaning assigned to such term in Section 2.1.
"Offered Securities" shall have the meaning assigned to that term in
Section 2.1.
"Person" shall mean an individual, corporation, partnership, joint venture,
trust, university, or unincorporated organization, or a government or any agency
or political subdivision thereof.
"Pro Rata Fraction" shall have the meaning assigned to that term in Section
2.1.
"Proposed Buyer" shall have the meaning assigned to that term in Section
2.1.
16
"Records" shall have the meaning assigned to that term in Section 1.6(i).
"Registrable Securities" shall mean (a) shares of Common Stock of the
Company issued or issuable upon conversion of the shares of Series A Preferred
Stock held by Holder as of the date hereof; (b) shares of Common Stock of the
Company issued or issuable upon conversion of the Debentures held by Holder as
of the date hereof; (c) shares of Common Stock of the Company issued or issuable
upon conversion of the Facility Loan held by Holder as of the date hereof; (d)
shares of Common Stock of the Company issued or issuable upon exercise of the
Debenture Warrant held by Holder as of the date hereof; and (e) any other shares
of Common Stock of the Company issued or issuable as (or issuable upon the
conversion or exercise of any warrant, right, or other security that is issued
as) a dividend or other distribution with respect to, or in exchange or in
replacement of, such Registrable Securities; provided, however, that such
-------- -------
securities shall cease to be Registrable Securities if and when (x) a
Registration Statement with respect to the disposition of such securities shall
have become Effective under the Securities Act and such securities shall have
been disposed of pursuant to such Effective Registration Statement, (y) such
securities shall have been otherwise transferred, if new certificates or other
evidences of ownership for such securities not bearing a legend restricting
further transfer and not subject to any stop transfer order or other
restrictions on transfer shall have been delivered by the Company, and
subsequent disposition of such securities shall not require Registration or
qualification of such securities under the Securities Act, or (z) such
securities may be resold by Holder in any three-month period pursuant to Rule
144 under the Securities Act.
"Registration" shall mean the satisfaction by the Company of all applicable
requirements under the Securities Act as evidenced by the official approval of
the Commission in connection with a public offering by the Company of
Registrable Securities.
"Registration Expenses" shall mean all expenses incident to the Company's
performance of or compliance with its obligations under Section 1 of this
Agreement, including, without limitation, all Commission and stock exchange or
NASD registration and filing fees and expenses, fees and expenses of compliance
with applicable state securities or "blue sky" laws (including, without
limitation, reasonable fees and disbursements of counsel for the underwriters in
connection with "blue sky" qualifications of the Registrable Securities),
printing expenses, messenger and delivery expenses, the fees and expenses
incurred in connection with the listing of the securities to be registered in a
public offering on each securities exchange or national market system on which
such securities are to be so listed and, following any such registered offering,
the fees and expenses incurred in connection with the listing of such securities
to be registered on each securities exchange or national market system on which
such securities are listed, fees and disbursements of counsel for the Company
and all independent certified public accountants (including the expenses of any
annual audit and "cold comfort" letters required by or incident to such
performance and compliance), the fees and disbursements of underwriters
customarily paid by issuers or sellers of securities (including the fees and
expenses of any "qualified independent underwriter" required by the NASD), the
reasonable fees of one counsel retained in connection with each such
registration under Section 1 by the holders of a majority of the securities
being registered, the reasonable fees and expenses of any special experts
retained by the Company in connection with such registration, and fees and
expenses of other persons retained by the Company (but not including any
underwriting discounts or commissions or transfer taxes, if any, attributable to
the sale of Registrable Securities by holders of such Registrable Securities).
"Registration Statement" shall mean any disclosure document that the
Company is required to file under the Securities Act in connection with a public
offering of Registrable Securities.
17
"Related Party" shall mean, other than Holder or any of its Affiliates, any
officer, director or beneficial holder of shares of capital stock of the
Company, the Company or any Subsidiary, any spouse, former spouse, child,
Company, Company of a spouse, sibling or grandchild of any such officer,
director or beneficial holder of the Company, the Company or any Subsidiary, and
any Affiliate or Associate of any of the foregoing persons.
"Securities" shall mean collectively the shares of Series A Preferred
Stock, the Debentures, the Facility Loan and the Warrant held by Holder and the
shares of Series A Preferred Stock and Common Stock issuable in respect thereof.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time or any other federal act, rule or regulation requiring Registration
with any federal agency in connection with a public offering of Registrable
Securities.
"Sell" as to any Stock, shall mean to sell, or in any other way directly or
indirectly transfer (including by operation of law, by merger or consolidation,
or sale of securities of a holding company), assign, distribute or otherwise
dispose of, such Stock in a bona fide transaction for value; and the terms
"Sale" and "Sold" shall have meanings correlative to the foregoing.
"Stock" means (i) any shares of Common Stock and (ii) any Common Stock
Equivalents (including, without limitation, the Common Stock issuable upon
conversion, exercise or exchange thereof), in each case, whether owned on the
date hereof or acquired hereafter.
"Stockholder" means Holder.
"Subsidiary" shall mean any corporation or other entity of which at least a
majority of the securities or other ownership interest having ordinary voting
power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other Subsidiaries.
5. MISCELLANEOUS
5.1 No Waiver; Cumulative Remedies. No failure or delay on the part of
------------------------------
any party to this Agreement in exercising any right, power or remedy hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy hereunder. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
5.2 Amendments, Waivers and Consents. Any provision in this Agreement to
--------------------------------
the contrary notwithstanding, and except as hereinafter provided, changes in,
termination or amendments of or additions to this Agreement may be made, and
compliance with any covenant or provision set forth herein may be omitted or
waived, only with the written consent of the Company and Holder. Any waiver or
consent may be given subject to satisfaction of conditions stated therein and
any waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
5.3 Addresses for Notices. Any notice, demand, request, waiver or other
---------------------
communication under this Agreement shall be in writing and shall be deemed to
have been duly given on the date of service if personally served or on the third
day after mailing if mailed to the party to whom notice is
18
to be given, by first class mail, registered, return receipt requested, postage
prepaid and addressed as follows:
To Holder: Xxxx North America Holding, Inc.
000 Xxxx Xxx Xxxxxx, Xxxxx 0000
Xxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxx, President
With a copy to: Xxxxxxxxx Xxxxx Xxxxxxx & Xxxxx
000 Xxxxxxx Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxx Xxxxxxxx, Esq.
To the Company: Anchor Pacific Underwriters, Inc.
0000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxxx, President and Chief Executive
Officer
With a copy to: Sheppard, Mullin, Xxxxxxx & Xxxxxxx
Four Xxxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: A. Xxxx Xxxxxx, Esq.
5.4 Binding Effect; Assignment. This Agreement shall be binding upon and
--------------------------
inure to the benefit of each of the Company and Holder and their respective
successors and assigns, except that the Company shall not have the right to
delegate its obligations hereunder or to assign its rights hereunder or any
interest herein.
5.5 Severability. The provisions of this Agreement are severable and, in
------------
the event that any court of competent jurisdiction shall determine that any one
or more of the provisions or part of a provision contained in this Agreement,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Agreement; but this Agreement
shall be reformed and construed as if such invalid or illegal or unenforceable
provision, or part of a provision, had never been contained herein, and such
provisions or part reformed so that it would be valid, legal and enforceable to
the maximum extent possible.
5.6 Confidentiality. Holder agrees that it will keep confidential and
---------------
will not disclose or divulge any confidential, proprietary or secret information
which Holder may obtain from the Company ("Confidential Information"); provided,
however, that Holder may disclose such Confidential Information (a) on a
confidential basis to its attorneys, accountants, consultants and other
professionals to the extent necessary to obtain their services in connection
with its investment in the Company, (b) to any prospective holder of any
Securities from Holder as long as such prospective holder agrees in writing to
be bound by the provisions of this Section, (c) to any entity controlling,
controlled by or under common control with such Holder so long as such person
agrees in writing to be bound by the provisions of this Section, or (d) as
required by applicable law.
For purposes of this Section, Confidential Information shall not include
(i) information already in Holder's possession, (ii) information which becomes
public knowledge other than as a
19
result of Holder's actions or inactions, (iii) information which is subsequently
rightfully obtained by Holder from a third party, (iv) information Holder
develops independently and without use of the information provided by the
Company or (v) information which is approved in writing for release by the
Company.
5.7 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California as applied to agreements among
California residents, made and to be performed entirely within the State of
California.
5.8 Attorneys' Fees. In the event that any party to this Agreement
---------------
institutes any legal proceeding to enforce any of the provisions of this
Agreement, then the prevailing party in such proceeding shall be entitled to
collect and receive its reasonable attorneys' fees and costs, through and
including all appeals, and the other party shall pay for same.
5.9 Arbitration; Venue and Jurisdiction. The parties hereto agree that
-----------------------------------
any dispute arising out of or relating to this Agreement or the breach,
termination or the validity hereof, shall be settled by binding arbitration in
accordance with the rules of the American Arbitration Association ("AAA") by a
neutral arbitrator who shall be a former superior court or appellate court judge
or justice with experience in resolving business disputes. The arbitration shall
be governed by the California Code of Civil Procedure Section 1280 et seq. and
the parties intend this procedure to be specifically enforceable in accordance
with such provisions. Judgment upon the award rendered by the arbitrator may be
entered by any court having jurisdiction thereof. The parties agree that the
judgment or decision of the arbitrator shall be final and binding. The parties
agree that the venue for the arbitration shall be in the County of San Diego,
California. The arbitrator shall be required to follow the applicable law as set
forth in the governing law section of this Agreement. The arbitrator shall award
reasonable attorneys' fees and costs of arbitration to the prevailing party in
such arbitration. The parties hereto consent to the personal jurisdiction of any
court in the County of San Diego, California for the enforcement of this
agreement to arbitrate and any award granted pursuant to said arbitration or
settlement of any dispute related hereto.
5.10 Headings. Section and subsection headings in this Agreement are
--------
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
5.11 Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
5.12 Further Assurances. From and after the date of this Agreement, upon
------------------
the request of Holder or the Company, each of the Company and Holder shall
execute and deliver such instruments, documents and other writings as may be
reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement.
5.13 Specific Enforcement. The parties hereto acknowledge and agree that
--------------------
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States or any state thereof having jurisdiction, this being
in addition to any other remedy to which they may be entitled at law or equity.
20
5.14 Entire Agreement. This Agreement constitutes the full and complete
----------------
agreement and understanding among the parties hereto regarding the subject
matter hereof, and shall supersede all prior communications, representations,
understandings or agreements, if any, whether oral or written, concerning the
subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
XXXX NORTH AMERICA HOLDING, INC.
By:
----------------------------------------
Xxxxxxx X. Xxxx, President and Chief
Executive Officer
ANCHOR PACIFIC UNDERWRITERS, INC.
By:
---------------------------------------
Xxxxx X. Xxxxxxxx, President and Chief
Executive Officer
21
