-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OWyS0nyw6MPDKp7hql1e8gRn6wYghaIdaC9POrTT0Rinw+7S7XLqZlNeQOW+KEQx AQBTD+ek1E3atE65PeYotQ== 0000950134-98-001283.txt : 19980218 0000950134-98-001283.hdr.sgml : 19980218 ACCESSION NUMBER: 0000950134-98-001283 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980201 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980217 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CROWN GROUP INC /TX/ CENTRAL INDEX KEY: 0000799850 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 630851141 STATE OF INCORPORATION: TX FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-14939 FILM NUMBER: 98541852 BUSINESS ADDRESS: STREET 1: 4040 N. MACARTHUR BLVD. STREET 2: SUITE 100 CITY: IRVING STATE: TX ZIP: 75038 BUSINESS PHONE: 9727173423 MAIL ADDRESS: STREET 1: 4040 N. MACARTHUR BLVD. STREET 2: SUITE 100 CITY: IRVING STATE: TX ZIP: 75038 FORMER COMPANY: FORMER CONFORMED NAME: CROWN CASINO CORP DATE OF NAME CHANGE: 19931104 FORMER COMPANY: FORMER CONFORMED NAME: SKYLINK AMERICA INC DATE OF NAME CHANGE: 19920703 8-K 1 FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 Date of Report (Date of earliest event reported) FEBRUARY 1, 1998 CROWN GROUP, INC. (Exact name of registrant as specified in its charter) TEXAS 0-14939 63-0851141 (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification No.) 4040 NORTH MACARTHUR BOULEVARD, SUITE 100, IRVING, TEXAS 75038 (Address of principal executive offices) Registrant's telephone number, including area code (972) 717-3423 _____________________________________________________________ (Former name or former address, if changed since last report) 2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. PAACO Effective February 1, 1998, pursuant to a definitive stock purchase agreement, Crown Group, Inc. ("Crown") acquired 53% of the common stock of each of Paaco, Inc. and Premium Auto Acceptance Corporation (collectively, "Paaco") for an aggregate purchase price of approximately $9.1 million cash. The purchase price was determined through arms-length negotiations between the parties. Approximately $4.9 million of Paaco common stock was purchased directly from Paaco, and the remaining $4.2 million of Paaco common stock was purchased from Larry Lange, Daniel Chu and Ted Lange (collectively, the "Original Shareholders"), who prior to this transaction were the sole shareholders of Paaco. The purchase price was funded from cash on hand. In connection with the Paaco transaction, Crown and the Original Shareholders entered into a Shareholders' Agreement (the "Paaco Shareholders' Agreement") which provides, among other things, that in the event either Crown or any Original Shareholder desires to sell their interest in Paaco such shareholder must first offer to sell such interest to Paaco and the other shareholders in accordance with the provisions of the Paaco Shareholders' Agreement. The Paaco Shareholders' Agreement also provides that Paaco's Board of Directors will consist of two directors appointed by Crown and two directors appointed by the Original Shareholders. Without the unanimous approval of Paaco's Board of Directors, Paaco can not (i) amend its articles of incorporation or by-laws, (ii) issue its stock, declare dividends, repurchase its stock, merge or liquidate, or (iii) make any material acquisitions or dispositions. Paaco is a vertically integrated used car sales and finance company which operates seven used car dealerships in the Dallas-Ft. Worth area. Paaco sells, underwrites and finances used cars and trucks with a focus on the Hispanic market. For the year ended December 31, 1997 Paaco's revenues were approximately $49 million. PRECISION On February 3, 1998, pursuant to a definitive stock purchase agreement, Crown acquired 80% of the common stock of Precision IBC, Incorporated ("Precision") for a purchase price of approximately $2.4 million cash. The purchase price was determined through arms-length negotiations between the parties. The shares of Precision common stock were purchased directly from Van P. Finger, who prior to this transaction was the sole shareholder of Precision. The purchase price was funded from cash on hand. In connection with this transaction, Crown loaned Precision approximately $3.1 million, the proceeds of which were used to pay off existing bank debt. As part of the Precision transaction, Crown and Mr. Finger entered into a Right of First Refusal and Put Agreement (the "First Refusal and Put Agreement") which provides, among other things, that in the event Mr. Finger desires to sell his interest in Precision, he must first offer to sell such interest to Crown under the terms and conditions provided in the First Refusal and Put Agreement. Pursuant to such agreement Mr. Finger has the right to make an election during the months of June 2000 or June 2001 to cause Crown or Precision to purchase all of his shares of Precision common stock based upon the Fair Market Value of his stock, as such term is defined in the First Refusal and Put Agreement. Precision is in the business of renting and selling intermediate bulk containers to industrial and manufacturing concerns. For the year ended December 31, 1997 Precision's revenues were approximately $3.3 million. 2 3 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) and (b). The financial statements required to be filed with this report are not presently available. Crown will file the required financial statements under cover of Form 8-KA as soon as practicable but not later than 60 days after the due date of the filing of this report. (c) Exhibits. The following exhibits are filed with this report: Exhibit Number Description of Exhibit - -------------- ---------------------- 2.2 Stock Purchase Agreement dated as of February 1, 1998 by and among Paaco, Inc., Premium Auto Acceptance Corporation, Larry Lange, Daniel Chu, Ted Lange and Crown Group, Inc. 2.3 Stock Purchase Agreement dated February 3, 1998 by and among Van P. Finger and Crown Group, Inc. 10.11 Shareholders' Agreement dated as of February 1, 1998 by and among Larry Lange, Daniel Chu, Ted Lange and Crown Group, Inc. 10.12 Right of First Refusal and Put Agreement dated February 3, 1998 by and among Van P. Finger and Crown Group, Inc.
3 4 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized. Crown Group, Inc. By: \s\ Mark D. Slusser ------------------------- Mark D. Slusser Chief Financial Officer Dated: February 13, 1998 4 5 INDEX TO EXHIBITS Exhibit Number Description of Exhibit - -------------- ---------------------- 2.2 Stock Purchase Agreement dated as of February 1, 1998 by and among Paaco, Inc., Premium Auto Acceptance Corporation, Larry Lange, Daniel Chu, Ted Lange and Crown Group, Inc. 2.3 Stock Purchase Agreement dated February 3, 1998 by and among Van P. Finger and Crown Group, Inc. 10.11 Shareholders' Agreement dated as of February 1, 1998 by and among Larry Lange, Daniel Chu, Ted Lange and Crown Group, Inc. 10.12 Right of First Refusal and Put Agreement dated February 3, 1998 by and among Van P. Finger and Crown Group, Inc.
5 EX-2.2 2 STOCK PURCHASE AGREEMENT DATED 2/1/98 1 EXHIBIT 2.2 ================================================================================ STOCK PURCHASE AGREEMENT BY AND AMONG PAACO, INC., PREMIUM AUTO ACCEPTANCE CORPORATION, LARRY LANGE, DANIEL CHU AND TED LANGE AND CROWN GROUP, INC. DATED ON OR AS OF FEBRUARY 1, 1998 ================================================================================ 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I - PURCHASE AND SALE OF SHARES........................................................................... 1 Section 1.1 Sale of the Shareholder Shares......................................................... 1 Section 1.2 Sale of Company Shares................................................................. 1 Section 1.3 Purchase Price......................................................................... 1 Section 1.4 Closing................................................................................ 2 Section 1.5 Delivery by the Shareholders and the Companies......................................... 2 Section 1.6 Delivery by the Buyer.................................................................. 2 ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS AND THE COMPANIES................................. 2 Section 2.1 Ownership of the Shares; Equity Capital Structure...................................... 2 Section 2.2 Organization; Good Standing............................................................ 3 Section 2.3 Authorization.......................................................................... 3 Section 2.4 No Violation........................................................................... 3 Section 2.5 Subsidiaries........................................................................... 4 Section 2.6 Contracts and Other Commitments........................................................ 4 Section 2.7 Permits................................................................................ 4 Section 2.8 Compliance With Other Instruments...................................................... 4 Section 2.9 Litigation............................................................................. 5 Section 2.10 Title to Property and Assets; Leases................................................... 5 Section 2.11 Financial Statements................................................................... 5 Section 2.12 Changes................................................................................ 5 Section 2.13 Employees; Employee Compensation....................................................... 5 Section 2.14 Tax Returns, Payments, and Elections................................................... 6 Section 2.15 Environmental and Safety Laws.......................................................... 6 Section 2.16 No Liabilities Not Shown in Financial Statements....................................... 6 Section 2.17 Loans to Shareholders, Officers or Affiliates.......................................... 6 Section 2.18 Compliance With Laws................................................................... 6 Section 2.19 Insurance Coverage..................................................................... 7 Section 2.20 Employee Relations..................................................................... 7 Section 2.21 Trademarks and Licenses................................................................ 7 Section 2.22 Guarantees............................................................................. 7 Section 2.23 OSHA................................................................................... 7 Section 2.24 Books and Records...................................................................... 8 ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE BUYER......................................................... 8 Section 3.1 Organization; Good Standing............................................................ 8 Section 3.2 Authorization.......................................................................... 8 Section 3.3 Valid and Binding Agreement............................................................ 8 Section 3.4 No Violation........................................................................... 8 Section 3.5 Purchase Entirely for Own Account...................................................... 8 Section 3.6 Independent Investigation.............................................................. 9 Section 3.7 Investment Experience.................................................................. 9 Section 3.8 Accredited Investor; U.S. Person....................................................... 9 Section 3.9 Restricted Securities.................................................................. 9 Section 3.10 Public Sale............................................................................ 9
-i- 3 Section 3.11 Investment Company Act................................................................. 9 ARTICLE IV - ADDITIONAL AGREEMENTS............................................................................... 10 Section 4.1 Access to Information; Confidentiality................................................ 10 Section 4.2 Shareholders' Agreement............................................................... 10 Section 4.3 Employment Agreement.................................................................. 10 Section 4.4 Shareholder Warrants.................................................................. 10 Section 4.5 Conduct of Business................................................................... 10 Section 4.6 Pay-off of Debenture.................................................................. 10 ARTICLE V - CONDITIONS OF THE BUYER'S OBLIGATIONS AT CLOSING..................................................... 11 Section 5.1 Representations and Warranties........................................................ 11 Section 5.2 Performance........................................................................... 11 Section 5.3 Compliance Certificate................................................................ 11 Section 5.4 Shareholders' Agreement............................................................... 11 Section 5.5 Employment Agreement.................................................................. 11 Section 5.6 Finova Credit Facility................................................................ 11 Section 5.7 Opinion of Counsel.................................................................... 11 Section 5.8 Buyer Warrants........................................................................ 12 Section 5.9 Consents Prior to Closing............................................................. 12 Section 5.10 No Material Adverse Changes........................................................... 12 Section 5.11 Absence of Litigation................................................................. 12 ARTICLE VI - CONDITIONS OF THE SHAREHOLDERS' OBLIGATIONS AT CLOSING.............................................. 12 Section 6.1 Representations and Warranties........................................................ 12 Section 6.2 Performance........................................................................... 12 Section 6.3 Compliance Certificate................................................................ 12 Section 6.4 Shareholders' Agreement............................................................... 12 Section 6.5 Employment Agreement.................................................................. 12 Section 6.6 Shareholder Warrants.................................................................. 12 Section 6.7 Opinion of Counsel.................................................................... 12 ARTICLE VII - SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION....................................................... 13 Section 7.1 Survival of Representations........................................................... 13 Section 7.2 Agreement to Indemnify................................................................ 13 Section 7.3 Limitation of Liability............................................................... 13 Section 7.4 Conditions of Indemnification......................................................... 14 Section 7.5 Remedies Cumulative................................................................... 15 ARTICLE VIII - TERMINATION; AMENDMENT AND WAIVER................................................................. 15 Section 8.1 Termination of Agreement.............................................................. 15 Section 8.2 Effect of Termination................................................................. 15 Section 8.3 Amendment, Extension and Waiver....................................................... 15 ARTICLE IX - MISCELLANEOUS....................................................................................... 15 Section 9.1 Entire Agreement...................................................................... 15 Section 9.2 Successors and Assigns................................................................ 15 Section 9.3 Governing Law and Venue............................................................... 16 Section 9.4 Counterparts.......................................................................... 16 Section 9.5 Titles and Subtitles.................................................................. 16
-ii- 4 Section 9.6 Notices............................................................................... 16 Section 9.7 Finder's Fees......................................................................... 16 Section 9.8 Amendments and Waivers................................................................ 16 Section 9.9 Severability.......................................................................... 16 Section 9.10. Future Actions........................................................................ 16 Section 9.11. Public Announcements.................................................................. 17
-iii- 5 STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT (this "Agreement"), dated on or as of the 1st day of February, 1998, by and among Larry Lange, Daniel Chu and Ted Lange (collectively, the "Shareholders"), PAACO, Inc., a Texas corporation ("PAACO"), Premium Auto Acceptance Corporation ("Premium" and, together with PAACO, the "Companies"), and Crown Group, Inc., a Texas corporation (the "Buyer"). WHEREAS, the Shareholders own all of the issued and outstanding shares of common stock, par value $.01 per share, of PAACO ("PAACO Common Stock") and all of the issued and outstanding shares of common stock, no par value, of Premium ("Premium Common Stock" and, together with PAACO Common Stock, the "Common Stock"); and WHEREAS, the Shareholders desire to sell to the Buyer, and the Buyer desires to purchase from the Shareholders, that number of shares of PAACO Common Stock and Premium Common Stock set forth beside each Shareholder's name on Annex A attached hereto (collectively, the "Shareholder Shares"); and WHEREAS, PAACO and Premium desire to issue and sell to the Buyer, and the Buyer desires to purchase from PAACO and Premium, 33,334 shares of PAACO Common Stock and 334 shares of Premium Common Stock, respectively (collectively, the "Company Shares" and, together with the Shareholder Shares, the "Shares"); WHEREAS, the Buyer has warrants (collectively, the "Buyer Warrants") to purchase 8,511 shares of PAACO Common Stock and 85 shares of Premium Common Stock and intends to exercise such warrants in connection with the acquisition of the Shares; NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants, agreements and conditions set forth herein, the parties agree as follows: ARTICLE I PURCHASE AND SALE OF SHARES SECTION 1.1 SALE OF THE SHAREHOLDER SHARES. Subject to the terms and conditions of this Agreement, at the Closing, the Buyer agrees to purchase and each Shareholder, severally and not jointly, agrees to sell to the Buyer the Shareholder Shares at the purchase price set forth below. SECTION 1.2 SALE OF COMPANY SHARES. Subject to the terms and conditions of this Agreement, at the Closing, the Buyer agrees to purchase and each Company agrees to sell to the Buyer the Company Shares at the purchase price set forth below. SECTION 1.3 PURCHASE PRICE. (a) In consideration of the sale of the Shareholder Shares to the Buyer, the Buyer shall pay to the Shareholders at the Closing an aggregate purchase price (the "Shareholder Purchase Price") of $4,166,628.33 in cash. The allocable portion of the Shareholder Purchase Price shall be allocated between the Shareholders as set forth on Annex A. 6 (b) In consideration of the sale of the Company Shares to the Buyer, the Buyer shall pay to the Companies at the Closing an aggregate purchase price (the "Company Purchase Price" and, together with the Shareholder Purchase Price, the "Purchase Price") of $4,166,753.34 in cash. The allocable portion of the Company Purchase Price shall be allocated among the Companies as set forth on Annex A. SECTION 1.4 CLOSING. The purchase and sale of the Shares shall take place at the offices of Thompson & Knight, P.C., 1700 Pacific Avenue, Dallas, Texas, at 10:00 a.m., on February 1, 1998, or at such other time and place as the Shareholders, the Companies and the Buyer shall mutually agree, either orally or in writing (which time and place are designated as the "Closing"). SECTION 1.5 DELIVERY BY THE SHAREHOLDERS AND THE COMPANIES. At the Closing, each Shareholder and Company shall deliver or cause to be delivered to the Buyer: (a) a stock certificate or certificates representing all of the Shares being sold by such Shareholder or Company, accompanied by stock powers duly executed in blank, and otherwise in form acceptable to the Buyer for transfer on the books of the Companies; and (b) all other documents, instruments or writings required to be delivered by such Shareholder or Company at or prior to the Closing pursuant to this Agreement or otherwise required to be delivered by such Shareholder or Company at or prior to the Closing. SECTION 1.6 DELIVERY BY THE BUYER. At the Closing, the Buyer shall deliver or cause to be delivered to each of the Shareholders and Companies: (a) a wire transfer to an account or accounts designated within three days of Closing in an amount equal to the Purchase Price payable to such Shareholder or Company in accordance with Annex A; and (b) all other documents, instruments or writings required to be delivered by the Buyer at or prior to the Closing pursuant to this Agreement or otherwise required to be delivered by the Buyer at or prior to the Closing. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS AND THE COMPANIES The Shareholders and the Companies jointly and severally represent and warrant to, and agree with the Buyer that, except as set forth on the Schedule of Exceptions furnished to the Buyer and attached hereto as Annex B, specifically identifying the relevant subparagraph(s) hereof: SECTION 2.1 OWNERSHIP OF THE SHARES; EQUITY CAPITAL STRUCTURE. (a) Each Shareholder is the record and beneficial owner of, and upon consummation of the transactions contemplated hereby the Buyer will acquire good, valid and marketable title to, the Shares held by each such Shareholder, free and clear of all liens, claims, options, pledges, security interests, charges, encumbrances, agreements and restrictions. (b) The Company Shares to be issued by the Company at the Closing have been duly authorized for such issuance and, when issued and delivered by the Company in accordance with the provisions of this -2- 7 Agreement, will be validly issued, fully paid and nonassessable. The issuance of the Company Shares under this Agreement is not subject to any preemptive or similar rights. (c) The authorized capital stock of PAACO consists solely of 1,000,000 shares of common stock, par value $.01 per share, of which 100,000 shares are issued and outstanding and which are owned beneficially and of record by the Shareholders as set forth on Annex A. The authorized capital stock of Premium consists solely of 100,000 shares of common stock, no par value, of which 1,000 shares are issued and outstanding and which are owned beneficially and of record by the Shareholders as set forth on Annex A. All of the issued and outstanding shares of Common Stock have been duly authorized and are validly issued and outstanding, fully paid and nonassessable and are not subject to and were not issued in violation of any preemptive rights. (d) Except as set forth above or in Section 2.1 of the Schedule of Exceptions, and except for the Buyer Warrants, there are not now, and at the Closing, except for the Shareholder Warrants (as hereinafter defined) to be issued by the Companies at the Closing, there will not be, any shares of capital stock of the Companies issued or outstanding or any subscriptions, options, warrants, calls, rights, convertible securities or other rights or other agreements, arrangements or commitments of any character relating to the issued or unissued capital stock or other securities of the Companies or the voting or transfer of the capital stock of the Companies. SECTION 2.2 ORGANIZATION; GOOD STANDING. Each Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas and has all requisite corporate power and authority to own and operate its properties and assets and to carry on its business as currently conducted, to execute and deliver this Agreement, the Shareholders' Agreement (as defined below) and to carry out the provisions of this Agreement. The Shareholders have delivered to the Buyer complete and correct copies of the Articles of Incorporation (duly certified by the Secretary of State of Texas) and Bylaws (certified by the Secretary of the Companies) as in effect on the date hereof. SECTION 2.3 AUTHORIZATION. (a) Each Company has duly authorized the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. No further corporate action on the part of the Companies is necessary to authorize the execution of this Agreement or to consummate the transactions contemplated hereby. Except as set forth in Section 2.3 of the Schedule of Exceptions, each Shareholder now has and at the Closing will have full right, power and authority to sell and transfer the Shares held by such Shareholder. (b) This Agreement constitutes a valid and binding agreement of the Shareholders and the Companies, enforceable against each such party in accordance with its terms subject to applicable bankruptcy, reorganization, insolvency, moratorium and similar laws affecting creditors' rights generally from time to time in effect and to general principles of equity. SECTION 2.4 NO VIOLATION. Except as set forth in Section 2.4 of the Schedule of Exceptions, neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate or conflict with any provision of the charter or bylaws of either Company, (ii) constitute a violation of or a default or breach (or an event which, with notice or lapse of time, or both, would constitute a default) under, or result in the termination of, accelerate the performance required by or give rise to any right of termination, acceleration, cancellation or amendment under, or result in the creation of any mortgages, pledges, liens, security interests, encumbrances, charges or claims of any kind (whether absolute, accrued, contingent or otherwise) (collectively, "Liens") upon either of the Companies or any of their respective assets -3- 8 or have any other adverse effect under, any term or provision of any contract, commitment, understanding, arrangement, agreement or restriction of any kind or character to which either of the Companies is a party or by which any of them or any of their respective assets or property may be bound, or (iii) cause, or give any person grounds to cause (with or without notice, the passage of time or both), the maturity of any material debt, liability or obligation of either Company to be accelerated or increase any such liability or obligation of either Company except, in the case of (ii) or (iii), where such violations, terminations, conflicts, accelerations, defaults, breaches or grounds and right of termination, cancellation, acceleration and amendment would not have a material adverse effect on either Company taken as a whole or prevent or delay the consummation of the transactions contemplated hereby. Except as set forth in Section 2.4 of the Schedule of Exceptions, no filing with, notification to, and no permit, consent, approval, authorization or action by any federal, state, local, foreign or other governmental agency, instrumentality, commission, authority, board or body (collectively, a "governmental agency") is required in connection with the execution, delivery and performance by the Shareholders or the Companies of this Agreement, or the consummation by the Shareholders or the Companies, as the case may be, of the transactions contemplated hereby, except where the failure to make such filing, give notice or to obtain such permit, consent, approval, authorization or action would not have a material adverse effect on either Company taken as a whole or prevent or delay the consummation of the transactions contemplated hereby. SECTION 2.5 SUBSIDIARIES. Except as set forth in Section 2.5 of the Schedule of Exceptions, neither Company owns or controls, directly or indirectly, any interest in any other corporation, association or other business entity. SECTION 2.6 CONTRACTS AND OTHER COMMITMENTS. Except as set forth in Section 2.6 of the Schedule of Exceptions, neither Company has any contract, agreement, lease, commitment or proposed transaction, written or oral, absolute or contingent, other than (i) contracts that were entered into in the ordinary course of business and (ii) contracts terminable at will by such Company on no more than thirty (30) days' notice without cost or liability to such Company. SECTION 2.7 PERMITS. To the best knowledge of the Shareholders and the Companies, each Company has all franchises, permits and licenses necessary for the conduct of its business as now being conducted by such Company, the lack of which could materially and adversely affect the business, properties, prospects or financial condition of such Company. To the best knowledge of the Shareholders and the Companies, neither Company is in default in any material respect under any of such franchises, permits, licenses or other similar authority. SECTION 2.8 COMPLIANCE WITH OTHER INSTRUMENTS. Neither Company is in violation or default in any material respect of any provision of its charter or bylaws or of any provision of any mortgage, indenture, agreement, instrument or contract to which it is a party or by which it is bound or, to the best knowledge of the Shareholders and the Companies, of any federal or state judgment, order, writ or decree applicable to such Company, the violation of which would materially and adversely affect the business, properties, prospects or financial condition of such Company. The execution, delivery and performance by each Company of this Agreement and the consummation of the transactions contemplated hereby will not result in any such violation or be in material conflict with or constitute, with or without the passage of time or giving of notice, a material default under any such provisions. SECTION 2.9 LITIGATION. There is no action, suit, proceeding or investigation pending or, to the best knowledge of the Shareholders and the Companies, threatened against either Company that questions the validity of this Agreement or the right of either Company to enter into such agreement or to consummate the transactions contemplated hereby, or, except as set forth in Section 2.9 of the Schedule of Exceptions, against -4- 9 either Company that involve any claim not fully covered by insurance or provided for by adequate reserves as set forth in the Financial Statements (as defined below). Neither Company is a party to, or to the best knowledge of the Shareholders and the Companies, named in any order, writ, injunction, judgment or decree of any court, government agency or instrumentality. SECTION 2.10 TITLE TO PROPERTY AND ASSETS; LEASES. Except (i) as reflected in the Financial Statements (as defined in paragraph 2.11), (ii) for liens for current taxes not yet delinquent, (iii) for liens imposed by law and incurred in the ordinary course of business for obligations not past due to carriers, warehousemen, laborers, materialmen and the like, (iv) for liens in respect of pledges or deposits under workers' compensation laws or similar legislation or (v) for defects in title that do not, individually or in the aggregate, materially interfere with the use of such property, each Company owns its property and assets free and clear of all liens, claims and encumbrances. With respect to the property and assets it leases, each Company is in compliance in all material respects with such leases and, to the best knowledge of the Shareholders and the Companies, holds a valid leasehold interest free of any liens, claims or encumbrances, subject to clauses (i)-(v) above. SECTION 2.11 FINANCIAL STATEMENTS. Each Company has delivered to the Buyer (i) its audited financial statements at December 31, 1996 and for the fiscal year then ended and (ii) its unaudited financial statements at October 31, 1997 and for the ten months then ended (collectively, the "Financial Statements"). The Financial Statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods indicated and with each other. To the best knowledge of the Shareholders and the Companies, the Financial Statements fairly and accurately present the financial condition and operating results of the Companies as of the date and for the period indicated therein and all of its respective assets and liabilities. Except to the extent reflected or reserved against in the Financial Statements, and notes thereto, or in the Schedule of Exceptions, the Companies are not obligated for, nor are any of their assets or properties subject to, any liabilities (whether accrued, absolute, contingent or otherwise) or adverse obligations whether or not such liabilities or obligations are normally shown or reflected on a balance sheet, other than liabilities and obligations arising in the ordinary course of business since the date of the Financial Statements, none of which are material and adverse. SECTION 2.12 CHANGES. To the best knowledge of the Shareholders and the Companies, since October 31, 1997, there has not been any event or condition that has materially and adversely affected the financial condition of either Company, nor has either Company suffered any damage, destruction or loss, whether or not covered by insurance, which materially and adversely affects the assets or business of the Companies. SECTION 2.13 EMPLOYEES; EMPLOYEE COMPENSATION. There is no strike, labor dispute or union organization activity pending or, to the best knowledge of the Shareholders and the Companies, threatened between it and its employees and none of such Company's employees belongs to any union or collective bargaining unit. To the best knowledge of the Shareholders and the Companies, each Company has complied in all material respects with all applicable state and federal equal opportunity and other laws related to employment. Except as set forth in Section 2.13 of the Schedule of Exceptions, neither Company is a party to or bound by any currently effective employment contract. -5- 10 SECTION 2.14 TAX RETURNS, PAYMENTS, AND ELECTIONS. Except as set forth in Section 2.14 of the Schedule of Exceptions, each Company has filed all tax returns and reports required by law, and these returns and reports are true and correct in all material respects. The amounts recorded for taxes on the Financial Statements are sufficient for the payment of all due but unpaid federal, state, county, local or other taxes (including any interest or penalties) of the Companies involved, accrued for or applicable to the period ended on the dates thereof and for all years and periods prior thereto. To the best knowledge of the Shareholders and the Companies, each Company has paid all taxes and other assessments due, except those contested by it in good faith, which are set forth in Section 2.14 of the Schedule of Exceptions. Neither Company has had any tax deficiency proposed or assessed against it, nor has either Company executed any waiver of any statute of limitations on the assessment or collection of any tax or governmental charge. No examinations by the Internal Revenue Service of the federal income tax returns of either Company for any taxable year are pending. To the best knowledge of the Shareholders and the Companies, each 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. True and complete copies of the federal income tax returns of the Companies for the years ending December 31, 1995 and 1996 have been delivered to the Buyer. SECTION 2.15 ENVIRONMENTAL AND SAFETY LAWS. Except as set forth in Section 2.15 of the Schedule of Exceptions, to the best knowledge of the Shareholders and the Companies, without any investigation, neither Company is in any material respect in violation of, or subject to any existing, pending or, to the best knowledge of the Shareholders and the Companies, threatened proceeding by any governmental agency or authority relating to, or subject to any remedial obligation under, any applicable statute, law or regulation relating to the environment ("Applicable Environmental Law"), and to the best knowledge of the Shareholders and the Companies, without any investigation, no material expenditures are or will be required in order to comply with any such existing Applicable Environmental Law, other than such violations, proceedings, remedial obligations or expenditures that would not have a material adverse effect on such Company's financial condition. SECTION 2.16 NO LIABILITIES NOT SHOWN IN FINANCIAL STATEMENTS. Except as disclosed in the Financial Statements, herein or as disclosed to the Buyer in writing, neither of the Companies has any material liabilities, absolute or contingent, whether or not asserted, that are not reflected therein. For the purposes hereof, the term "material" shall mean in excess of $10,000. SECTION 2.17 LOANS TO SHAREHOLDERS, OFFICERS OR AFFILIATES. There are no loans or other obligations payable to or by shareholders, officers, directors or employees of the Companies, except obligations incurred or accrued in the ordinary course of business in respect of salaries, wages and reimbursements of expenses, and except as disclosed in the Financial Statements or which shall be paid off or extinguished at the Closing Date. SECTION 2.18. COMPLIANCE WITH LAWS. To the best knowledge of the Shareholders and the Companies, except as set forth in Section 2.18 of the Schedule of Exceptions, the Companies have complied in all material respects with all applicable federal, state, municipal and other political subdivision or governmental agency statutes, ordinances and regulations in every applicable jurisdiction, in respect of the ownership of their properties and the conduct of their business, including any labor, minimum wage or employment regulations. -6- 11 SECTION 2.19. INSURANCE COVERAGE. Set forth in Section 2.19 of the Schedule of Exceptions is a list of the policies of casualty, liability, use and occupancy, and workers' compensation and other forms of insurance of each Company that are now duly in force. SECTION 2.20. EMPLOYEE RELATIONS. Section 2.20 of the Schedule of Exceptions sets forth a list of all bonus, incentive, compensation, disability pension, profit sharing, retirement, deferred compensation, group insurance or employee welfare plans of any nature whatsoever (collectively, the "Plans"). (a) The Companies do not have in effect any pension, profit sharing or other retirement plan, whether or not qualified. The Companies do not contribute, or have any obligation to make any payments or contributions, to a multi-employer plan, as that term is defined in Section 3(37) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the Companies do not have any actual or potential liability under Section 4201 of ERISA for any complete or partial withdrawal from a multi-employer plan. (b) The Plans comply in all material respects with the requirements of all applicable laws. There are no actions, suits, claims or investigations pending or, to the best knowledge of the Shareholders or the Companies, threatened with respect to any Plan. There is no liability required to be accrued under the Plans except to the extent reflected in the Financial Statements. The Companies have made or set aside funds to make full payment of all amounts which the Companies are required to pay prior to the date hereof under the terms of each Plan, or under any governmental rule or regulation relating to employment matters. The present value of the vested accrued benefits, if any, under each Plan does not exceed the current value of the assets of each Plan. No termination of any Plan by the Companies at or prior to the Closing Date has resulted or will result in the imposition of any liabilities on the Companies. (c) Each "Group Health Plan" (within the meaning of Section 162(i)(3) of the Internal Revenue Code of 1986) maintained by the Companies has been administered in good faith compliance with the reasonable interpretation of the continuation coverage requirements contained in Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). SECTION 2.21. TRADEMARKS AND LICENSES. Section 2.21 of the Schedule of Exceptions sets forth a complete and accurate list of all licenses, trademark applications, trade names, trade name applications, copyrights and copyright applications owned by or licensed to the Companies or in which the Companies have any right or interest. To the best knowledge of the Shareholders and the Companies, the conduct of the business of the Companies does not conflict with or infringe upon any trademark, trade name, trade secret or copyright of others. The Companies have received no notice of any claim of infringement or other complaint that its operations conflict with or infringe upon the trade names, trademarks, trade secrets or copyrights of others. SECTION 2.22. GUARANTEES. Except for guarantees of obligations of the other Company, neither Company has given any guarantee, indemnity, warranty or bond, or incurred any other similar obligation or created any security for or in respect of, liabilities, actual or contingent, of any other person or entity. SECTION 2.23. OSHA. The Companies have not received notice of any violation by the Companies, and to the best knowledge of the Shareholders and the Companies, the Companies are not in violation of and have not been in violation of the Occupational Safety and Health Act of 1970, including the rules and regulations thereunder, or any other federal, state or local laws, including rules and regulations thereunder, regulating or otherwise affecting employee health and safety. -7- 12 SECTION 2.24. BOOKS AND RECORDS. The books and records of the Companies are in all material respects complete and correct. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BUYER The Buyer hereby represents and warrants to, and agrees with the Shareholders and the Companies that: SECTION 3.1 ORGANIZATION; GOOD STANDING. The Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas and has all requisite corporate power and authority to own and operate its properties and assets and to carry on its business as currently conducted, to execute and deliver this Agreement, the Shareholder's Agreement and to carry out the provisions of this Agreement. SECTION 3.2 AUTHORIZATION. Buyer has duly authorized the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. No further corporate actions on the part of the Buyer are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. SECTION 3.3 VALID AND BINDING AGREEMENT. This Agreement constitutes a valid and binding agreement of the Buyer, enforceable against the Buyer in accordance with its terms subject to applicable bankruptcy, reorganization, insolvency, moratorium and similar laws affecting creditors' rights generally from time to time in effect and the general principles of equity. SECTION 3.4 NO VIOLATION. Neither the execution and delivery of this Agreement nor the consummation by the Buyer of the transactions contemplated hereby will (i) violate or conflict with any statute, law, ordinance, rule, regulation, order, writ, injunction, judgment or decree applicable to the Buyer or by which any of its properties may be bound or affected, (ii) violate or conflict with any provisions of the Certificate of Incorporation or Bylaws of the Buyer, (iii) constitute a violation of or default or breach (or an event which, with notice or lapse of time, or both, would constitute a default) under, or result in the termination of, accelerate the performance required by, give rise to any right of termination, cancellation, acceleration or amendment under, or result in the creation of any Lien upon the Buyer or any of its assets or have any other adverse affect under, any term or provision of any contract, commitment, understanding, arrangement, agreement or restriction of any kind or character to which the Buyer is a party or by which any of its assets or properties may be bound, subject or affected, or (iv) cause, or give any person grounds to cause (with or without notice, the passage of time or both), the maturity of any material debt, liability or obligation of the Buyer to be accelerated or increase any such liability or obligation of Buyer in any material respect, except, in the case of (i), (iii) and (iv), where such violations, terminations, conflicts, accelerations, defaults, breaches or grounds and rights of termination, cancellation, acceleration and amendment would not have a material adverse effect on either of the Companies taken as a whole or prevent or delay the consummation of the transactions contemplated hereby. SECTION 3.5 PURCHASE ENTIRELY FOR OWN ACCOUNT. Subject to Section 9.2 hereof, the Buyer is purchasing the Shares for investment for such Buyer's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof. The Buyer has no present intention of selling, granting any participation in or otherwise distributing the same. The Buyer further represents that it does not have any -8- 13 contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Shares. SECTION 3.6 INDEPENDENT INVESTIGATION. The Buyer acknowledges and affirms to the Shareholders that in making the decision to enter into this Agreement and to consummate the transactions contemplated hereby, the Buyer, except for the express representations, warranties and covenants made in Article II hereof (all of which shall be binding regardless of any investigation made by the Buyer), has relied solely on the basis of its own independent investigation, analysis and evaluation of the Companies and each of the Companies' properties, assets, business, financial condition, operations and prospects. SECTION 3.7 INVESTMENT EXPERIENCE. The Buyer represents that it is experienced in evaluating and investing in securities of companies and acknowledges that it can bear the economic risk of its investment and has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the investment in the Shares. The Buyer also represents it has not been organized for the purpose of acquiring the Shares. SECTION 3.8 ACCREDITED INVESTOR; U.S. PERSON. (a) The Buyer is an "Accredited Investor" as such term is defined in Regulation D of the Securities Act of 1933, as amended. (b) The Buyer is a citizen or resident of the United States or Canada, or any state, territory or possession thereof (a "U.S. Person"). SECTION 3.9 RESTRICTED SECURITIES. The Buyer understands that the Shares may not be sold, transferred or otherwise disposed of without complying with the provisions of Article III of the Shareholders' Agreement, including registration under the Securities Act or a written opinion of counsel or "no-action" letter from the Securities and Exchange Commission relating to an exemption therefrom, and that in the absence of an effective registration statement covering the Shares or an available exemption from registration under the Securities Act, the Shares must be held indefinitely. In particular, the Buyer is aware that the Shares may not be sold pursuant to Rule 144 promulgated under the Securities Act unless all of the conditions of that Rule are met. Among the conditions for use of Rule 144 may be the availability of current information to the public about either Company. Such information is not now available and neither Company has any present plans to make such information available. SECTION 3.10 PUBLIC SALE. The Buyer agrees not to make, without complying with the provisions of Article III of the Shareholders' Agreement and the prior written consent of each Company, any public offering or sale of the Shares, although permitted to do so pursuant to Rule 144(k) promulgated under the Securities Act, until the earlier of (i) the date on which the Companies effect their initial registered public offering pursuant to the Securities Act or (ii) the date on which they become a registered company pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended. SECTION 3.11 INVESTMENT COMPANY ACT. To the best knowledge of the Buyer, the Buyer is not and, after giving effect to the purchase of the Shares, will not be an "investment company" as defined in the Investment Company Act of 1940. -9- 14 ARTICLE IV ADDITIONAL AGREEMENTS SECTION 4.1 ACCESS TO INFORMATION; CONFIDENTIALITY. Between the date hereof and the Closing, the Shareholders and the Companies (i) shall give the Buyer and its authorized representatives reasonable access to all employees, offices and other facilities, and all books and records, including work papers and other materials prepared by the Companies' independent public accountants, of the Companies, (ii) shall permit the Buyer and its authorized representatives to make such inspections as they may reasonably require, and (iii) shall cause the Companies' officers to furnish the Buyer and its authorized representatives with such financial and operating data and other information with respect to the Companies as the Buyer may from time to time reasonably request; provided, however, that the Shareholders and the Companies shall have the right to have a representative present at all times. SECTION 4.2 SHAREHOLDERS' AGREEMENT. The Shareholders, the Companies and the Buyer shall enter into a Shareholders' Agreement (the "Shareholders' Agreement") at (and subject to the occurrence of) the Closing pursuant to which the parties thereto shall agree to certain restrictions upon the sale and transfer of shares of PAACO Common Stock and Premium Common Stock on the terms set forth therein. The Shareholders' Agreement shall be in substantially the form set forth as Annex D. SECTION 4.3 EMPLOYMENT AGREEMENT. Each of the Shareholders and the Companies shall enter into an Employment Agreement (the "Employment Agreement") at (and subject to the occurrence of) the Closing pursuant to which the Companies shall agree to employ each Shareholder for the period and on the terms set forth therein and in which each Shareholder shall covenant not to compete against the Companies on the terms set forth therein. The Employment Agreement shall be in substantially the form set forth as Annex E. SECTION 4.4 SHAREHOLDER WARRANTS. At, and subject to the occurrence of, the Closing, the Companies shall issue to the Shareholders warrants (collectively, the "Shareholder Warrants") to purchase up to an aggregate of 8,511 shares of PAACO Common Stock and 85 shares of Premium Common Stock, subject to the terms and provisions of such Shareholder Warrants. The Shareholder Warrants shall be in substantially the form set forth as Annex F. SECTION 4.5 CONDUCT OF BUSINESS. Except as otherwise contemplated by this Agreement, from the date hereof until the Closing, the business of the Companies will be conducted diligently and only in the ordinary course. For purposes of this Section 4.5, the phrase "ordinary course" shall mean the conduct of the business of the Companies in the manner which the Companies conducted their business in the last fiscal year ended prior to the execution of this Agreement, following their usual accounting practices, making ordinary accruals, incurring ordinary liabilities or expenditures and making ordinary contracts and commitments. SECTION 4.6 PAY-OFF OF DEBENTURE. At, and subject to the occurrence of the Closing, the 18% Debenture Due January 13, 2000 in the principal amount of $3,000,000 from the Companies to the Buyer, dated January 13, 1998 (the "Debenture"), shall be paid in full. -10- 15 ARTICLE V CONDITIONS OF THE BUYER'S OBLIGATIONS AT CLOSING The obligations of the Buyer under this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions, the waiver of which shall not be effective against the Buyer unless it consents in writing thereto: SECTION 5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Shareholders and the Companies contained in Article II shall be true in all material respects on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing. SECTION 5.2 PERFORMANCE. Each Company and each Shareholder shall have performed and complied in all material respects with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it or him on or before the Closing. SECTION 5.3 COMPLIANCE CERTIFICATE. The President of each Company and each Shareholder shall deliver to the Buyer at the Closing a certificate certifying that the conditions specified in Sections 5.1 and 5.2 have been fulfilled. SECTION 5.4 SHAREHOLDERS' AGREEMENT. The Shareholders shall have entered into the Shareholders' Agreement. SECTION 5.5 EMPLOYMENT AGREEMENT. Each of the Shareholders shall have entered into the Employment Agreement. SECTION 5.6 FINOVA CREDIT FACILITY. The Companies' senior lender ("Finova") will have consented to the transactions contemplated herein. SECTION 5.7 OPINION OF COUNSEL. The Buyer shall have received the opinion, subject to customary assumptions, of Thompson & Knight, P.C., counsel for the Shareholders and the Companies, dated the Closing Date, to the effect that: (a) each of the Companies is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas and has the corporate power to carry on its business as it is now being conducted; (b) this Agreement has been duly authorized, executed and delivered by the Companies, and (assuming valid execution and delivery by the other parties hereto) is, or will be upon such execution, the legal, valid and binding obligation of each of the Companies, enforceable in accordance with its terms (except as otherwise limited by bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights, and except that such counsel need not express an opinion as to whether any covenant contained herein is specifically enforceable); (c) this Agreement has been duly executed and delivered by the Shareholders, and (assuming legal competency of the Shareholders and delivery by the other parties hereto) is, or will be upon such execution, the valid and binding obligation of each of the Shareholders, enforceable in accordance with its terms (except as otherwise limited by bankruptcy, insolvency, reorganization, moratorium and similar laws affecting -11- 16 creditor's rights, and except that such counsel need not express an opinion as to whether any covenant contained herein is specifically enforceable). SECTION 5.8 BUYER WARRANTS. The Buyer shall have exercised the Buyer Warrants. SECTION 5.9 CONSENTS PRIOR TO CLOSING. The Shareholders and the Companies shall have obtained all material approvals and consents which must be obtained in order to effectuate the transactions contemplated hereby and to satisfy the terms and provisions hereof. SECTION 5.10 NO MATERIAL ADVERSE CHANGES. The Shareholders and the Companies shall have delivered to the Buyer their certificate stating that there has been no material adverse change in the business, operations, financial condition or properties of the Companies since the date hereof. SECTION 5.11 ABSENCE OF LITIGATION. No litigation, governmental action, insolvency, receivership or other proceeding shall have been threatened, asserted or commenced with respect to the transactions contemplated herein. ARTICLE VI CONDITIONS OF THE SHAREHOLDERS' OBLIGATIONS AT CLOSING The obligations of the Shareholders to the Buyer under this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions by the Buyer: SECTION 6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Buyer contained in Article III shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing. SECTION 6.2 PERFORMANCE. The Buyer shall have performed and complied in all material respects with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. SECTION 6.3 COMPLIANCE CERTIFICATE. The Buyer shall deliver to the Shareholders at the Closing a certificate certifying that the conditions specified in Section 6.1 have been fulfilled. SECTION 6.4 SHAREHOLDERS' AGREEMENT. The Buyer shall have entered into the Shareholders' Agreement. SECTION 6.5 EMPLOYMENT AGREEMENT. The Companies shall have entered into the Employment Agreements. SECTION 6.6 SHAREHOLDER WARRANTS. The Companies shall have issued the Shareholder Warrants. SECTION 6.7 OPINION OF COUNSEL. The Shareholders and the Companies shall have received the opinion, subject to customary assumptions, of T.J. Falgout, III, executive vice president and general counsel for the Buyer, dated the Closing Date, to the effect that: -12- 17 (a) the Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas and has the corporate power to carry on its business as it is now being conducted; (b) this Agreement has been duly authorized, executed and delivered by Crown, and (assuming valid execution and delivery by the other parties hereto) is, or will be upon such execution, the legal, valid and binding obligation of the Buyer, enforceable in accordance with its terms (except as otherwise limited by bankruptcy, insolvency, reorganization, moratorium and similar laws effecting creditor's rights, and except that such counsel need not express an opinion as to whether any covenant contained herein is specifically enforceable). ARTICLE VII SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION SECTION 7.1 SURVIVAL OF REPRESENTATIONS. Subject to Section 7.3 hereof, the representations and warranties made by the Shareholders and each Company contained in Article II of this Agreement and the representations and warranties made by the Buyer contained in Article III of this Agreement shall survive the Closing for a period of one year, except for representations made in Section 2.14, which representations shall survive the Closing until a date which is six (6) months after the applicable statute of limitations has expired. SECTION 7.2 AGREEMENT TO INDEMNIFY. (a) Subject to the terms and conditions of this Article VII, each of the Shareholders and the Companies hereby agrees jointly and severally to indemnify, defend and hold harmless the Buyer and its successors and assigns (collectively, the "Buyer Group") from and against all claims, actions or causes of action, assessments, demands, losses, damages, judgments, settlements, liabilities, costs and expenses, including, without limitation, interest, penalties and reasonable attorneys' and accounting fees and expenses of any nature whatsoever, whether actual or consequential (collectively, "Damages"), asserted against, imposed upon or incurred directly by any member of the Buyer Group by reason of or resulting from a breach of any representation or warranty, covenant, agreement or undertaking by the Shareholders or the Companies contained herein. (b) Subject to the terms and conditions of this Article VII, the Buyer hereby agrees to indemnify, defend and hold harmless each Shareholder and the Companies and their respective subsidiaries, and each officer and director of the Companies or of any of their respective subsidiaries and each affiliate thereof (collectively, the "Seller Group"), and their successors and assigns, from and against all Damages, asserted against, resulting to, imposed upon or incurred by any member of the Seller Group, directly or indirectly, by reason of or resulting from a breach of any representation, warranty, covenant, agreement or undertaking of the Buyer contained herein. SECTION 7.3 LIMITATION OF LIABILITY. The obligations and liabilities of each Shareholder with respect to Buyer Claims under Section 7.2 hereof to the Buyer Group and the Buyer with respect to Seller Claims under Section 7.2 hereof to the Seller Group shall be subject to the following limitations: (a) No indemnification shall be required to be made by any Shareholder under this Article VII with respect to any Buyer Claims which results from the breach of any representation, except to the extent that the aggregate amount of Damages with respect to all of such claims incurred by the Buyer Group exceeds $25,000, in which case, the Shareholders shall be liable only for Damages in excess of such amount. -13- 18 (b) The amount of Damages any party is required to pay to indemnify any other party pursuant to Section 7.2 as a result of any Buyer Claim or Seller Claim shall be reduced to the extent of any amounts actually received by the party seeking indemnification after the Closing Date pursuant to the terms of insurance policies (if any) covering such claim. (c) The amount of Damages payable by a Shareholder pursuant to Section 7.2 as a result of any Buyer Claim (i) shall be reduced by the amount of any tax benefit actually realized by any member of the Buyer Group as a result of such Buyer Claim, and (ii) such reduced amount shall be increased by the amount of any taxes actually payable by any member of the Buyer Group as a result of such Shareholder's payment of Damages for such Buyer Claim. (d) No indemnification shall be required to be made by any Shareholder under this Article VII to the extent the aggregate amount of Damages incurred by the Buyer Group and paid by such Shareholder exceeds the cash Purchase Price received by such Shareholder pursuant to this Agreement. SECTION 7.4 CONDITIONS OF INDEMNIFICATION. The obligations and liabilities of the Shareholders and the Companies to indemnify the Buyer Group and the Buyer to indemnify the Seller Group under Section 7.2 hereof with respect to Buyer Claims and Seller Claims, respectively, resulting from the assertion of liability by third parties shall be subject to the following terms and conditions: (a) The indemnified party will give the indemnifying party prompt notice of any such claim, and the indemnifying party will undertake the defense thereof by representatives of its own choosing reasonably satisfactory to the indemnified party, provided that failure to provide such notice will not relieve the indemnifying party of its obligations hereunder unless it is actually prejudiced by such failure to receive such notice. If the indemnifying party, within ten (10) days after notice of any such claim, fails to defend such claim, the indemnified party will (upon further notice to the indemnifying party) have the right to undertake the defense, compromise or settlement of such claim on behalf of and for the account and risk of indemnifying party. (b) Anything in this Section 7.4 to the contrary notwithstanding, (i) an indemnified party shall have the right, at its own cost and expense, to defend, compromise or settle or participate in the defense, compromise or settlement of such claim, (ii) the indemnifying party shall not, without the written consent of the indemnified party, settle or compromise any claim or consent to the entry of any judgment (x) which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the indemnified party a release from all liability in respect of such claim or (y) as a result of which injunctive or other equitable relief would be imposed against the indemnified party, and (iii) the indemnified party shall have the right to control the defense or settlement of that portion of any claim which seeks an order, injunction or other equitable relief against the indemnified party which, if successful, could materially interfere with the business, operations, assets, financial condition or prospects of the indemnified party; provided, however, that in connection with the defense or settlement of the portion of such claim which seeks equitable relief, the indemnified party shall cooperate with the indemnifying party and use its reasonable best efforts to limit the liability of the indemnifying party for the damages portion of such claim. SECTION 7.5 REMEDIES CUMULATIVE. Except as otherwise provided herein, the remedies provided herein shall be cumulative and shall not preclude the assertion by either party hereto of any other rights or the seeking of any other remedies against the other party hereto. -14- 19 ARTICLE VIII TERMINATION; AMENDMENT AND WAIVER SECTION 8.1 TERMINATION OF AGREEMENT. This Agreement may be terminated at any time prior to the Closing: (a) By mutual written agreement of the Buyer, each of the Shareholders and the Companies; (b) By either the Buyer or each of the Shareholders if the Closing shall not have occurred on or before February 28, 1998, unless such failure to close shall be due to a breach of this Agreement by the party seeking to terminate the Agreement pursuant to this Section; or (c) If a United States court of competent jurisdiction shall permanently enjoin the consummation of the transactions contemplated hereby and such injunction shall be final and nonappealable. SECTION 8.2 EFFECT OF TERMINATION. In the event of termination of this Agreement as provided above, this Agreement shall forthwith become void and there shall be no liability on the part of any party hereto (or any of their respective officers or directors). Nothing contained in this Section 8.2 shall relieve any party from liability for any breach of this Agreement. SECTION 8.3 AMENDMENT, EXTENSION AND WAIVER. The Buyer, the Companies and the Shareholders may amend this Agreement at any time by an instrument in writing signed on behalf of each of the parties hereto. Any agreement on the part of a party hereto to any waiver of compliance with any of the agreements or conditions contained herein shall be valid only if set forth in an instrument in writing signed on behalf of such party. ARTICLE IX MISCELLANEOUS SECTION 9.1 ENTIRE AGREEMENT. This Agreement and the documents referred to herein constitute the entire agreement among the parties and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein. SECTION 9.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including permitted transferees of any shares of Common Stock sold hereunder). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. SECTION 9.3 GOVERNING LAW AND VENUE. This Agreement shall be governed by and construed under the laws of the State of Texas and venue for any dispute arising hereunder shall be in Dallas County, Texas, and the parties hereto irrevocably submit to the jurisdiction of the federal and state courts located in Dallas County, Texas. -15- 20 SECTION 9.4 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. SECTION 9.5 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. SECTION 9.6 NOTICES. Unless otherwise provided, all notices and other communications required or permitted under this Agreement shall be in writing and shall be mailed by United States first-class mail, postage prepaid, sent by facsimile or delivered personally by hand or by a nationally recognized courier addressed to the party to be notified at the address or facsimile number indicated for such person on the signature page hereof, or at such other address or facsimile number as such party may designate by ten (10) days' advance written notice to the other parties hereto. All such notices and other written communications shall be effective on the date of mailing, facsimile transfer or delivery. SECTION 9.7 FINDER'S FEES. The Buyer agrees to indemnify and to hold harmless each of the Shareholders and each Company from any liability for any commission or compensation in the nature of a finder's fee (and the cost and expenses of defending against such liability or asserted liability) for which the Buyer or any of its officers, partners, employees, agents or representatives is responsible. Each of the Shareholders and each Company agrees to indemnify and hold harmless the Buyer from any liability for any commission or compensation in the nature of a finder's fee (and the costs and expenses of defending against such liability or asserted liability) for which any of the Shareholders or either of the Companies or any of either's officers, employees, agents or representatives is responsible. The Shareholders and the Companies hereby acknowledge that the Buyer has paid to John A. Drossos and JAD Capital, Inc. a finder's fee in the aggregate amount of $200,000, and the Companies hereby agree to reimburse the Buyer for such fee at the Closing. SECTION 9.8 AMENDMENTS AND WAIVERS. 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 and either retroactively or prospectively), only with the unanimous written consent of the parties hereto. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any securities purchased under this Agreement at the time outstanding (including securities into which such securities have been converted), each future holder of all such securities, and each Company. SECTION 9.9 SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision or provisions shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms; provided, however, that if any such provision or provisions may be made enforceable by limitation thereof, then such provision shall be deemed to be so limited and shall be enforceable to the maximum extent permitted by law. SECTION 9.10. FUTURE ACTIONS. The Companies, the Shareholders and the Buyer shall execute and deliver all such future instruments and take such other and further action as may be reasonably necessary or appropriate to carry out the provisions of this Agreement and the intention of the parties as expressed herein. SECTION 9.11. PUBLIC ANNOUNCEMENTS. No publication and/or press release of any nature shall be issued pertaining to this Agreement or the transaction contemplated hereby without the prior written approval of the Buyer and the Shareholders, except as may be required by law. -16- 21 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. SPOUSES: SHAREHOLDERS: ADDRESSES: - ------------------- ----------------------- Larry Lange PAACO, Inc. 605 S. Loop 12 Irving, Texas 75060 - ------------------- ----------------------- Daniel Chu PAACO, Inc. 605 S. Loop 12 Irving, Texas 75060 ----------------------- Ted Lange PAACO, Inc. 605 S. Loop 12 Irving, Texas 75060 PAACO, INC. By: -------------------- Daniel Chu PAACO, Inc. President 605 S. Loop 12 Irving, Texas 75060 PREMIUM AUTO ACCEPTANCE CORPORATION By: -------------------- Daniel Chu PAACO, Inc. President 605 S. Loop 12 Irving, Texas 75060 BUYER: CROWN GROUP, INC. By: -------------------- Edward R. McMurphy Crown Group, Inc. President 4040 N. MacArthur Blvd. Suite 100 Irving, Texas 75038 -17- EX-2.3 3 STOCK PURCHASE AGREEMENT DATED 2/3/98 1 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT dated on February 3, 1998, by and among CROWN GROUP, INC., a Texas corporation (the "Purchaser"), PRECISION IBC, INCORPORATED, an Alabama corporation (the "Company"), and VAN P. FINGER, a resident of Baldwin County, Alabama, being the sole shareholder (the "Shareholder"), of the Company. W I T N E S S E T H: WHEREAS, the Shareholder is the owner of one hundred (100%) percent of the issued and outstanding shares of capital stock of the Company, such shares being of the class and par value hereinafter set forth, and the Shareholder desires to sell eighty (80%) percent of such shares to the Purchaser (all of such shares of capital stock to be sold hereunder herein collectively referred to as the "Shares"), and the Purchaser desires to purchase the Shares, all upon the terms and conditions set forth herein; and WHEREAS, this Agreement sets forth the terms and conditions to which the parties have agreed and further contemplates the execution and delivery of certain collateral agreements and the consummation of certain related transactions hereinafter described; NOW, THEREFORE, in consideration of the mutual promises and covenants of the parties, and subject to the terms and conditions set forth herein, the parties agree as follows: 1. Sale and Purchase of the Shares. The Shareholder agrees, subject to the conditions to the Shareholder's obligations herein set forth, to sell, assign and convey to the Purchaser on the Closing Date (as hereinafter defined), free and clear of all security interests, pledges, liens, charges and encumbrances, the Shares, and to transfer and deliver to the Purchaser the certificates evidencing such Shares, duly endorsed in blank or accompanied by stock powers duly executed in blank. The 2 Purchaser agrees, subject to the conditions to its obligations herein set forth, to purchase and accept the Shares for the consideration set forth in Section 2(a) hereof. 2. Purchase and Payment; Payment of Shareholder Loans. (a) Purchase Price. The total purchase price (the "Purchase Price") for the Shares shall be TWO MILLION THREE HUNDRED EIGHTY-TWO THOUSAND THREE HUNDRED EIGHTY-NINE ($2,382,389) DOLLARS, payable at Closing (as hereinafter defined) by certified or cashier's checks or wire transfer funds. (b) Shareholder Loans. The loans from the Shareholder to the Company in the aggregate principal amount of $292,894.31 shall be paid in full by the Company at Closing. (c) Further Assurances. The Shareholder hereby agrees to execute and deliver from time to time at the request of the Purchaser and without further consideration, such additional instruments of conveyance and transfer and to take such other action as the Purchaser may reasonably require more effectively to convey, assign, transfer and deliver the Shares to the Purchaser. 3. Representations and Warranties of the Shareholder and the Company. The Shareholder and the Company represent and warrant to and agree with the Purchaser that: (a) Organization and Standing of the Company. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Alabama. The Company has full corporate power and authority to conduct its business as it is now being conducted and is not qualified to do business as a foreign corporation in any other jurisdiction. The Shareholder has delivered to the Purchaser complete and correct copies of the Articles of Incorporation (duly 2 3 certified by the Secretary of State of the State of Alabama) and By-Laws (certified by the Secretary of the Company) of the Company as in effect on the date hereof. (b) Subsidiaries. The Company has no subsidiaries. Further, the Company does not (i) own, directly or indirectly, any of the outstanding capital stock or securities convertible into capital stock of any other corporation, or (ii) own, directly or indirectly, any participating interest in any partnership, joint venture or other business enterprise. (c) Capital Stock. The authorized capital stock of the Company consists of 2,000 shares of common stock, $1.00 par value, of which, on the date hereof, 1,000 shares are validly issued and outstanding, fully paid and nonassessable and one hundred (100%) percent of which are owned by the Shareholder. The Company does not have any treasury shares, outstanding subscriptions, options or other agreements or commitments obligating it to issue shares of capital stock. Between the date hereof and the Closing Date, the Shareholder will not, and will not permit the Company to issue or enter into any subscriptions, options, agreements or other commitments in respect of the issuance, transfer, sale, repurchase or encumbrance of any shares of capital stock. (d) Financial Statements. The Shareholder has delivered to the Purchaser (i) the compiled balance sheet of the Company at its December 31, 1995 and its December 31, 1996 fiscal year ends and the related compiled statement of earnings for the Company, as certified by the President of the Company; and (ii) the compiled balance sheet of the Company at December 31, 1997 and the related compiled statement of earnings of the Company for the twelve month period then ended, as 3 4 certified by the President of the Company (hereinafter referred to as the "Company's Financial Statements"). All of the Company's Financial Statements (x) are in accordance with the books of account and records of the Company and fairly present the financial position and results of operations of the Company as of the date and for the periods indicated, (y) contain and reflect adequate reserves for all known material liabilities and (z) were prepared in accordance with generally accepted accounting principles applied on a basis consistent with prior accounting periods ("GAAP"). Except to the extent reflected or reserved against in the Company's Financial Statements, or any Schedule provided for in this Section 3, the Company is not obligated for, nor are any of its assets or properties subject to, any liabilities (whether accrued, absolute, contingent or otherwise) or adverse obligations, whether or not such liabilities or obligations are normally shown or reflected on a balance sheet, other than liabilities and obligations arising in the ordinary course of business since the date of the Company's Financial Statements, none of which are material and adverse. The Company's Financial Statements correctly reflect the liabilities of the Company at December 31, 1997. (e) Absence of Certain Changes or Events. Except as set forth in any Schedule delivered to the Purchaser pursuant to this Section 3 or except as contemplated by this Agreement, since December 31, 1997, the Company has not: 4 5 (i) issued, delivered or agreed to issue or deliver any stock, bonds or other corporate securities (whether authorized and unissued or held in the treasury) or granted or agreed to grant any options, warrants or other rights calling for the issuance thereof; (ii) borrowed or agreed to borrow any funds or incurred, or become subject to, any obligation or liability (absolute or contingent) except in the ordinary course of business in customary amounts; (iii) paid any obligation or liability (absolute or contingent) except in the ordinary course of business in customary amounts; (iv) paid any obligation or liability (absolute or contingent) other than current liabilities reflected in or shown on the Company's Financial Statements (or the notes thereto) and obligations or liabilities incurred since the date thereof and permitted to be so incurred by the foregoing clause (ii) of this Section (e); (v) except as otherwise permitted herein, declared or made, or agreed to declare or make, any payment of dividends or distribution of any assets of any kind whatsoever to the Shareholder, or purchased or redeemed any shares of its capital stock; (vi) except as otherwise permitted herein, sold or transferred, or agreed to sell or transfer, any of its assets, properties or rights (except sales in the ordinary course of business) or cancelled or agreed to cancel, any debts or claims; 5 6 (vii) entered or agreed to enter into any agreement or arrangement granting any preferential rights to purchase substantially all of the assets, properties or rights of the Company (including management and control thereof), or requiring the consent of any party to the transfer and assignment of such assets, properties or rights (or changes in management or control thereof), or providing for the merger or consolidation of the Company with or into another corporation; (viii) to the best of the Shareholder's knowledge, suffered any material losses or waived any rights of material value; (ix) to the best of the Shareholder's knowledge, except in the ordinary course of business, made or permitted any amendment or termination of any contract, agreement or license to which it is a party; (x) made any accrual or arrangement for the payment of bonuses or special compensation of any kind or any severance or termination pay to any present or former officer or employee; (xi) increased the rate of compensation payable or to become payable by it to any of its officers or key employees compensated at a rate in excess of $20,000 per annum; or made any increase in any profit sharing, bonus, incentive, deferred compensation, insurance, pension, retirement or other employee benefit plan, payment or arrangement made to, for or with any such officers or key employees; 6 7 (xii) committed to purchase inventories, parts, supplies or other items in excess of its normal, ordinary and usual requirements or at excessive prices, all computed based on historical practices of the Company; (xiii) experienced any significant labor trouble; or (xiv) to the best of the Shareholder's knowledge, suffered any damage, destruction or loss, whether or not covered by insurance, which materially and adversely affects its assets or business, or had any material adverse change in the business, operations, financial condition or prospects of the Company. Between the date hereof and the Closing Date, the Company shall not do any of the things listed in Clauses (i) through (xii) of this Section (e) without the prior written consent of the Purchaser, except as otherwise permitted by this Agreement. (f) Tax Matters. (i) Except as provided in Section 3(f)(ii) hereof, (A) all United States, state, county and local and other taxes, including without limitation, income taxes, payroll taxes, corporate franchise taxes, sales, excise and use taxes and ad valorem taxes, due and payable by the Company for the periods ended prior to the date hereof, have been paid or accrued and there is no further liability (whether or not disclosed on its returns) for any taxes relating to such periods, and no interest or penalties have accrued or are accruing with respect thereto; (B) the Company has timely filed in correct form all tax returns and 7 8 reports required to be filed by it on or before the date of this Agreement with all such taxing authorities; and (C) the liability for Federal, state and local taxes reflected on the Company's Financial Statements, if any, represents at the date thereof, reasonable and adequate provision for the payment of all accrued and unpaid Federal, state and local taxes of the Company. No assessments of deficiencies have been made against the Company, and no extensions of time are in effect for the filing of any returns or the assessment of deficiencies. No examinations by the Internal Revenue Service of the Federal income tax returns of the Company for any taxable year are presently pending. The Shareholder has delivered to the Purchaser true and complete copies of all of the Company's Federal and state Income Tax Returns and payroll tax returns of the Company for each of its fiscal years from 1993 through 1996. The Company is, and has been since its incorporation, on "S" corporation for Federal income tax purposes. (ii) The Company has not (A) qualified to do business (B) filed tax returns of any kind or (C) paid any state taxes in any state other than Alabama and, therefore, the Shareholder and the Company make no representation or warranty that the Company (D) has filed all required tax returns in any state except Alabama or (E) paid all state taxes payable by the Company with respect to the conduct of its operations in any state other than Alabama. Notwithstanding the foregoing, if any such taxes are assessed to the Company after the 8 9 Closing Date, which taxes relate to periods prior to the Closing Date, the Shareholder shall reimburse the Company for all such taxes (and any interest and penalties due thereon) up to the maximum amount of $50,000 in the aggregate, promptly upon receipt of written notice that the Company has paid any such taxes, interest and penalties. The Shareholder shall have the right to contest in good faith the assessment of such taxes so long as the contest thereof does not materially adversely affect the Company's ability to do business in the jurisdiction in which the taxes are being contested. (g) Contracts and Container Leases. (i) Schedule 3(g)(i) hereto is a complete and accurate listing of all mortgages, liens, licenses, leases, sales representation agreements, purchase orders (with unexpired terms of more than thirty (30) days) and all other executory contracts, undertakings, commitments and agreements of the Company, except Container Leases (as hereinafter defined), to which or by which it is bound, whether written or oral, (x) entered into in the ordinary course of business involving the payment by or to the Company of more than $50,000 in the aggregate with respect to any such contract, undertaking, commitment or agreement, (y) entered into other than in the ordinary course of business, or (z) with any of Shareholders' Affiliates (the "Contracts"). For the purposes of this Agreement, the term "Shareholders" Affiliates" shall include all "affiliates" of the Shareholders as such terms are defined in the rules and regulations promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended. (ii) Schedule 3(g)(ii) lists (A) all of the Company's bulk containers and related parts and 9 10 accessories (collectively, the "Containers") which are leased to third parties and (B) the respective names of such lessees (collectively, the "Container Leases"). The total number of Containers subject to Container Leases is, and will be at Closing, not less than 2,800. Except as set forth on Schedule 3(g)(i), each and all of the Contracts have been duly executed by, or assigned to, the Company, are currently in effect, are valid and binding upon the parties thereto and are enforceable in all material respects in accordance with their terms. Neither the Company nor the Shareholder is aware of any facts that would prevent the performance of any of the Contracts or the Container Leases. Neither the Company nor to the best of the Shareholder's knowledge, any other party is in default under any one or more of the Contracts or the Container Leases, nor has any claim of default been asserted by the Company or any such other party. The Company has committed no act and, to the best of the Shareholder's knowledge, there has been no omission which will result in the breach by it of any Container Lease. (h) Title to Properties and Related Matters. Schedule 3(h) hereto is a complete list of all personal property (including all Containers and major items of furnishings and equipment) owned by the Company. The assets reflected in Schedule 3(h) and in the Company's Financial Statements, were at the date thereof, and, except for assets consumed or disposed of in the ordinary course of business since the date thereof (or distributed to the Shareholder as permitted hereunder), are now owned by the Company by good title, free and clear from all security interests, mortgages, liens, claims, defects and encumbrances except liens, charges or encumbrances discussed or referred to in the Company's Financial Statements, the related notes or schedules 10 11 thereto or in Schedule 3(h) delivered to the Purchaser pursuant to this Section 3. Except as disclosed in Schedule 3(h), to the best of the Shareholder's knowledge, without any independent investigation, all such assets are in good operating condition and repair, subject to ordinary wear and tear. All of such assets have been properly maintained, with no extraordinary maintenance planned or anticipated, and are adequate and sufficient for the operation of the Company's business as historically operated by the Company. There are no material capital expenditures currently contemplated or necessary to maintain the current operation of the Company's business. (i) Consents and Approvals. Except as set forth in Schedule 3(i) hereof, no notification, authorization, permit, consent or approval of, or notice to, or filing with, any governmental or regulatory authority or other third party is required to be obtained, given or made, or waiting period required to expire as a condition to the lawful execution and delivery of this Agreement, the consummation by the Shareholder and the Company of the transaction contemplated herein, or the fulfillment of the terms and compliance with the provisions hereof. (j) Receivables. All notes receivable, contracts receivable and accounts receivable are properly reflected on the Company's books and records, are valid, have arisen in the ordinary course of business, and, less the bad debt reserve contained in the most recent Financial Statements (December 31, 1997), are collectible and will be collected in accordance with their terms at their recorded amounts. None of such receivables have been the subject of any factoring by the Company. Schedule 3(j) sets 11 12 forth a complete and accurate list of all notes and accounts receivable as of December 31, 1997, which list includes the aging of such notes and accounts receivable. (k) Litigation and Proceedings. Except as described in Schedule 3(k), to the best of the Shareholder's knowledge, there are no actions, suits or proceedings pending or, threatened against or affecting the Company or the Shareholder, at law or in equity, or before or by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or before any arbitrator of any kind, which involve the possibility of any judgment or liability not fully covered by casualty or liability insurance; and the Company is not in default with respect to any judgment, order, writ, injunction, decree, award, or, to the best of the Shareholder's knowledge and belief, in default with respect to any rule or regulation of an court, arbitrator or governmental department, commission, board, bureau, agency or instrumentality. (l) Insurance Coverage. The Company maintains policies of casualty, liability, use and occupancy, and workmen's compensation and other forms of insurance, covering its properties and assets in amounts and against such losses and risks as are generally maintained for comparable businesses and properties, and valid policies for such insurance are now duly in force. There have been no claims made on any of the Company's currently existing or previously effective policies of insurance. (m) Employee Relations. Except as set forth in Schedule 3(m), and except for the Company's "Group Health Plan" (within the meaning of Section 162(i)(3) of the Internal Revenue Code of 1986, as amended), the Company has no bonus, 12 13 incentive, compensation, disability pension, profit sharing, group insurance or employee welfare plans of any nature whatsoever. (i) To the best of the Shareholder's knowledge, the Company is in compliance with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours of employees, and there is no labor strike, dispute, slowdown or representation campaign or work-stoppage pending or threatened with respect to employees of the Company. (ii) There is not, pending or threatened, any unfair labor practice complaint against the Company pending before any relevant authority or union representation petition respecting the employees of the Company. (iii) To the best of the Shareholder's knowledge, the "Group Health Plan" maintained by the Company has been administered in good faith compliance with the reasonable interpretation of the continuation coverage requirements contained in Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), if applicable. (n) Patents, Trademarks and Licenses. The Company has no patents or patent applications pending. To the best of the Shareholder's knowledge, the Company owns or has all rights necessary to use all trademarks, trade names and copyrights necessary for the conduct of its business as currently conducted, and to the best of the Shareholder's knowledge and belief, the conduct of such business does not 13 14 conflict with or infringe upon any trademark, trade name, trade secret or copyright of others. The Company has received no notice of any claim of infringement or other complaint that its operations conflict with or infringe upon the patents, trade names, trademarks, trade secrets or copyrights of others. (o) Approvals, Authorizations and Regulations. Except for the failure of the Company to qualify to do business in jurisdictions other than the State of Alabama, to the best of the Shareholder's knowledge and belief, the Company's business is being conducted in compliance with all applicable laws, ordinances, rules and regulations of all governmental authorities, and neither the Company nor any officer, director, stockholder, agent or employee has violated, in any material respect, any law, ordinance, rule or regulation in connection with the Company's business. Further, the Company has not received any notice (written or otherwise) from any governmental authority asserting or investigating any alleged failure to comply with any applicable law, ordinance or regulation. (p) Inventory. None of the inventories of the Company are obsolete, defective or otherwise not saleable or usable in the ordinary course of business. The levels of inventories currently on hand are not in excess of or less than that necessary for the operation of the Company's business in the ordinary course of business consistent with past practices of the Company. (q) Guarantees, Etc. The Company has not given any guarantee, indemnity, warranty or bond, or incurred any other similar obligation or created any security for or in respect of, liabilities, actual or contingent, of any other person. 14 15 (r) OSHA. The Company has not received actual notice of any violation by the Company, and to the best of the Shareholder's knowledge and belief, the Company is not in violation of and has not been in violation of, the Occupational Safety and Health Act of 1970, including rules and regulations thereunder, or any other federal, state, local or foreign laws, including rules and regulations thereunder, regulating or otherwise affecting employee health and safety. (s) Customers. The Shareholder does not have any knowledge or information or reason to believe that any of the Company's customers has ceased, or intends to cease, to acquire products or services from the Company or has reduced, or intends to materially reduce, the use of the products or services sold or leased by the Company (except for cessations or reductions in the ordinary course of business) for any reason or as a result of the transaction contemplated by this Agreement. (t) Officers, Directors and Employees. Attached hereto as Schedule 3(t) is a list of all officers, directors and employees of the Company. There are no amounts owed to any officer, director or employee of the Company other than as reflected in the Company's Financial Statements. Except as set forth on Schedule 3(t), no officer, director or employee of the Company, or any affiliate of the Company, owns, directly or indirectly, beneficially or otherwise, any material interest in, or is an employee, officer or director of, or a consultant, agent for or representative of, any customer, competitor or supplier of the Company. (u) Absence of Adverse Agreements. The Company is not a party to any instrument or agreement or subject to any charter or other corporate restriction or any judgment, order, writ, injunction, decree, award, rule or regulation which materially 15 16 and adversely affects the business, properties, assets or condition, financial or otherwise, of the Company. (v) No Defaults. To the best of the Shareholder's knowledge, the Company is not in default under, nor has any event occurred which with notice or lapse of time or both, could result in a waiver (except caused by the statute of limitations) of any material right or default under, any outstanding indenture, mortgage, lease, contract or agreement to which the Company is a party or by which the Company or its assets may be bound, or under any provision of the Company's Articles of Incorporation or By-Laws (or comparable instruments). All liabilities of the Company are, and will be on the Closing Date, current and not in default. (w) Banks, Signatories. Schedule 3(w) is a list setting forth the name of each bank, savings and loan or other financial institution in which the Company has any account or safe deposit box, the style and number of each such account or safe deposit box and the names of all persons authorized to draw thereon or to have access thereto. (x) No Conflicts. The execution and performance of this Agreement and the transactions contemplated hereby will not violate any provision of or result in a breach of or constitute a default under the Articles of Incorporation or By-Laws of the Company, or under any order, writ, injunction or decree of any court, governmental agency or arbitration tribunal, or under any contract, agreement or instrument to which the Company is a party or by which its properties may be bound, or, to the best of the Shareholder's knowledge and belief, under any law, statute or regulation. 16 17 (y) Books and Records. The books and records of the Company are in all material respects complete and correct and to the best of the Shareholder's knowledge and belief, have been maintained in accordance with good business practice and reflect a true record of all meetings or proceedings of the Board of Directors and Shareholders of the Company. (z) Brokers. Neither the Company nor the Shareholder is a party to or in any way obligated under a contract or other agreement, and there are no outstanding claims against any of them, for the payment of any broker's or finder's fees in connection with the origin, negotiation, execution or performance of this Agreement. (aa) Environment and Health. (i) To the best of the Shareholder's knowledge, without any independent investigation, the third party contractors retained by the Company currently handle, use, store, treat, ship and dispose of all hazardous and toxic substances, petroleum products and waste, in compliance with all applicable environmental, health or safety statutes, ordinances, orders, rules, regulations and requirements. (ii) No employee of the Company has submitted a claim to the Company or any third party alleging that such employee suffers from injury or illness resulting from exposure to toxic substances, hazardous substances or manufacturing processes used in connection with the Company's business or present at the place of business of the Company. 17 18 (bb) Permits, Licenses, Etc. Except for any Material Permits (as hereinafter defined) which the Company would be required to obtain in order to do business in states other than Alabama, the Company has all Permits that are required in order to carry on the Company's business as presently conducted, the absence of which would have a material adverse effect on the Company (the "Material Permits"), and is not in material default of any thereof. All Material Permits are in full force and effect, and, to the best knowledge of the Shareholder, no suspension, cancellation or non-renewal of any Material Permit is threatened, nor, to the best of the Shareholder's knowledge, does there exist any basis for such suspension, cancellation or non-renewal. (cc) Title to Shares and Authority. The Shareholder now has and on the Closing Date will have valid title to the Shares and on the Closing Date will have full right, power and authority and due authorization to sell and transfer the Shares hereunder, and upon the delivery of and payment for the Shares the Shareholder will transfer to the Purchaser valid title thereto, free and clear of any security interests, pledges, liens or similar encumbrances. This Agreement constitutes the valid and legally binding obligation of the Shareholder, enforceable in accordance with its terms. The Shares are the sole and separate property of the Shareholder, and his spouse has no interest, community or otherwise, in and to the Shares. (dd) Disclosure. To the best of the Shareholder's knowledge, neither this Agreement, the Schedules attached hereto, nor any other document furnished by the Company or the Shareholder to Purchaser, taken as a whole, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained herein and therein not misleading, and except as disclosed herein 18 19 or therein, there is no fact (other than matters of a general economic or a political nature which do not effect the business of the Company uniquely) known to the Shareholder which materially adversely effects or in the future can be reasonably expected to materially adversely effect the properties, business, operations or financial condition or prospects of the Company. 4. Representations and Warranties of the Purchaser. The Purchaser represents and warrants to the Shareholder that: (a) Organization, Standing and Authority of the Purchaser. The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas, and has full corporate power and authority to conduct its business as it is now being conducted, to enter into and carry out the provisions of this Agreement. (b) No Violation. Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any provision of the Articles of Incorporation or By- Laws of the Purchaser, (ii) violate any provision of any agreement or other obligation to which the Purchaser is a party or by which the Purchaser is bound or to which its assets are subject, or (iii) violate or result in a breach of, constitute a default under, any judgment, order, decree, rule or regulation of any court or governmental agency to which the Purchaser is subject. (c) Corporate Proceedings of the Purchaser. The execution, delivery and performance of this Agreement has been authorized by the Board of Directors of the Purchaser, and this Agreement constitutes the valid and legally binding obligation of the Purchaser, enforceable in accordance with its terms. 19 20 (d) Brokers. The Purchaser is not a party to or in any way obligated under a contract or other agreement, and there are no outstanding claims against it, for the payment of any broker's or finder's fees in connection with the origin, negotiation, execution or performance of this Agreement. (e) Investment. The Shares will be acquired for investment and not with a view to distribution thereof, nor with any intention of distributing or selling or otherwise disposing of the Shares. 5. Additional Covenants and Agreements. (a) Access to Records. At all reasonable times prior to Closing, the Company shall give to the Purchaser, its counsel, accountants, and other representatives, full and free access to all the properties, books, contracts, commitments and records of the Company so that the Purchaser may have full opportunity to make such investigation as it shall desire to make of the business and affairs of the Company, provided that such investigation shall not unreasonably interfere with the operations of the Company. If this Agreement is terminated, the Purchaser, its officers, directors, employees, agents and authorized representatives shall keep confidential and shall not use in any manner any information or documents obtained from the Company, unless such information is readily ascertainable from public or published information, or trade sources, or already known or subsequently developed by the Purchaser independently of any investigation of the Company, or received from a third party not under an obligation to the Company to keep such information confidential. Further, if this Agreement is terminated, the Purchaser shall immediately return to the Company any documents obtained from the Company 20 21 together with all copies thereof then in the Purchaser's possession or under the Purchaser's control, and shall agree thereafter to keep the contents thereof strictly confidential. (b) Conduct of Business. Except as otherwise contemplated by this Agreement, from the date hereof until the Closing Date, the business of the Company will be conducted diligently and only in the ordinary course. For purposes of this Paragraph 5(b), the phrase "ordinary course" shall mean the conduct of the business of the Company in the manner which the Company conducted its business in the last twelve (12) months prior to the execution of this Agreement, following its usual accounting practices, making ordinary accruals, incurring ordinary liabilities or expenditures and making ordinary contracts and commitments. (c) Preservation of Goodwill. From the date hereof until the Closing Date, subject to prudent business judgment, the Shareholder will use his best efforts to preserve the business organization of the Company, to keep available to the Company the services of the officers and employees and to preserve for the Purchaser and the Company the goodwill of all suppliers, customers and others having business relations with them. (d) Resignations. The Shareholder agrees to deliver to the Purchaser at Closing (effective on the Closing Date) the resignations of those officers and directors of the Company as may be requested by the Purchaser. (e) Delivery of Materials. At the Closing, the Shareholder shall deliver to the Purchaser the minute books, stock certificate books, corporate seals and other corporate books, records, data and papers of the Company. 21 22 (f) Tax Periods Ending on or before the Closing Date. The Company shall prepare or cause to be prepared and file or cause to be filed all tax returns for the Company for all periods ending on or prior to the Closing Date which are filed after the Closing Date, including, without limitation, a federal income tax return for the period ending on the date immediately preceding the Closing Date. The Purchaser and the Shareholder shall review and have the right to approve of each such tax return described in the preceding sentence prior to filing. To the extent permitted or required by applicable law, the Shareholder shall include any income, gain, loss, deduction or other tax items for such periods on his Tax Returns in a manner consistent with the all periods prior to the Closing Date. 6. Conditions to Obligations of the Purchaser. The obligation of the Purchaser to consummate the transaction contemplated hereby shall be subject to the satisfaction, on or before the Closing Date, of all of the following conditions unless expressly waived in writing by the Purchaser: (a) Representations and Covenants. All representations and warranties of the Shareholder and the Company contained in this Agreement shall be true in all material respects on and as of the Closing Date as if such representations and warranties were made on and as of such date (except to the extent any such representation or warranty is made as of a specified date), and the Shareholder and the Company shall have performed all agreements and covenants to be performed by the Shareholder and the Company on or prior to the Closing Date, and the Purchaser shall have received a certificate dated the Closing Date, signed by the Shareholder and the Company, to the effect that such is the case. 22 23 (b) Opinion of Counsel. The Purchaser shall have received the opinion of Irby & Heard, P.C., counsel for the Shareholder and the Company, dated the Closing Date, substantially in the form of Exhibit "A" attached hereto. (c) No Damage or Destruction. Prior to the Closing Date, there shall not have occurred any casualty to any facility, property, equipment or inventory owned or used by the Company as a result of which either the monetary amount of damage or destruction aggregates five (5%) percent or more of the aggregate book value shown on the books of account of the entire facilities, properties, equipment and inventory of the Company, or is more than $50,000, and such loss shall not be substantially covered by valid, existing insurance underwritten by responsible insurers. (d) No Material Adverse Changes. The Shareholder shall have delivered to the Purchaser his certificate stating that there has been no material adverse change in the business, operations, financial condition or properties of the Company since the date of the most recent Company's Financial Statements (December 31, 1997). (e) Absence of Litigation. No litigation, governmental action, insolvency, receivership or other proceeding shall have been threatened, asserted or commenced with respect to the transaction contemplated herein. (f) Employment Agreement. The Shareholder shall have entered into an Employment Agreement with the Company in substantially the form of Exhibit "B" hereto. (g) Right of First Refusal and Put Agreement. The Purchaser and the Shareholder shall have entered into a Right of First Refusal and Put Agreement substantially in the form of Exhibit "C" hereto (the "Put Agreement"). 23 24 (h) Consents. The Shareholder and the Company shall have obtained all approvals and consents which must be obtained in order to effectuate the transaction contemplated hereby and to satisfy the terms and conditions of this Agreement. (i) Southtrust Bank, N.A. Consent or Payoff. (A) Southtrust Bank, N.A. ("Southtrust") shall have consented to the transaction contemplated hereby on such terms as are satisfactory to the Purchaser, and shall have released the Shareholder as a personal guarantor of the Company's obligations to Southtrust, or (B) the Company's indebtedness to Southtrust shall have been paid in full, and the Shareholder's personal guarantee thereof shall have been released. (j) Due Diligence. The Purchaser's due diligence investigation of the Company as contemplated pursuant to Section 5(a) hereof shall have been completed to the satisfaction of the Purchaser. (k) Certified Resolutions. The Purchaser shall have received resolutions of the Board of Directors of the Company, certified by the Secretary or an Assistant Secretary of the Company, authorizing the execution, delivery and performance of this Agreement. 7. Conditions to Obligations of the Shareholder. The obligation of the Shareholder to consummate the transaction contemplated hereby shall be subject to the satisfaction, on or before the Closing Date, of all of the following conditions, unless expressly waived in writing by the Shareholder: (a) Representations and Covenants. All representations and warranties of the Purchaser contained in this Agreement shall be true in all material respects on and as of the Closing Date as if such representations and warranties were made on 24 25 and as of such date and the Purchaser shall have performed all agreements and covenants to be performed by it on or prior to the Closing Date, and the Shareholder shall have received a certificate dated the Closing Date, signed by the President or a Vice President of the Purchaser, to the effect that such is the case. (b) Opinion of Counsel. The Shareholder shall have received the opinion of T. J. Falgout, III, General Counsel for the Purchaser, dated the Closing Date, to the effect that: (i) the Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas and has corporate power to carry on its business as it is now being conducted; (ii) each of this Agreement and the Put Agreement has been duly authorized, executed and delivered by the Purchaser, and (assuming valid execution and delivery by the other parties hereto or thereto) is, or will be upon such execution, the valid and binding obligation of the Purchaser in accordance with its terms (except as otherwise limited by bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights, and except that such counsel need not express an opinion as to whether any covenant contained herein or therein is specifically enforceable); and (iii) to such counsel's knowledge, the consummation of the transactions contemplated by this Agreement and the Put Agreement will not result in the breach of or constitute a default under the 25 26 Articles of Incorporation or By-Laws of the Purchaser, or any loan, credit or similar agreement or any court decree to which the Purchaser is a party or by which the Purchaser or its properties may be bound. (c) Southtrust Bank, N.A. Consent or Payoff. (A) Southtrust shall have consented to the transaction contemplated hereby on such terms as are satisfactory to the Shareholder, and shall have released the Shareholder as a personal guarantor of the Company's obligations to Southtrust, or (B) the Company's indebtedness to Southtrust shall have been paid in full, and the Shareholder's personal guarantee thereof shall have been released. (d) Employment Agreement. The Shareholder shall have entered into an Employment Agreement with the Company in substantially the form of Exhibit "B" hereto. (e) Right of First Refusal and Put Agreement. The Purchaser and the Shareholder shall have entered into the Put Agreement. (f) Certified Resolutions. The Shareholder shall have received resolutions of the Board of Directors of the Purchaser, certified by the Secretary or an Assistant Secretary of the Purchaser, authorizing the execution, delivery and performance of this Agreement. 8. The Closing. The execution and delivery of this Agreement and the instruments, certificates and other documents required hereunder (the "Closing") shall take place at the offices of Irby & Heard, 317 Magnolia Avenue, Fairhope, Alabama 36533, at 10:00 a.m. local time on February 3, 1998, or at such other time and day or other location as may be mutually agreed by the Purchaser and the Shareholder. The date and time of such execution and delivery is herein called the "Closing 26 27 Date". On the Closing Date, certificates representing the Shares shall be delivered by the Shareholder against delivery of the Purchase Price pursuant to Section 2 hereof, and Closing shall be deemed to have occurred when such deliveries have been made by the Purchaser and the Shareholder in accordance with the terms hereof. 9. Nature and Survival of Representations and Warranties. (a) Nature of Statements. All statements contained in any schedule or any certificate or other instrument delivered by or on behalf of the Shareholder or the Purchaser pursuant to this Agreement or in connection with the transactions contemplated hereby shall be deemed representations and warranties made by the Shareholder or the Purchaser, as the case may be. (b) Survival of Representations and Warranties. All representations, warranties, covenants, agreements and undertakings contained herein or in any Schedule, certificate or other document shall remain operative and in full force and effect, and shall survive the Closing Date and the delivery of all consideration and documents pursuant to this Agreement, and shall continue in effect for a period of two (2) years after the Closing Date and, as to representations made by the Shareholder concerning or affecting any tax liability of the Company, until a date which is six (6) months after the statute of limitations has run against the Federal, state and local government; provided, however, that any such representation, warranty, covenant, agreement or undertaking as to which a bona fide claim shall have been asserted during such survival period shall continue in effect until such time as such claim shall have been resolved in accordance with the terms of this Agreement. 10. Indemnification by Shareholder and Related Matters. 27 28 (a) Indemnification by Shareholder. Subject to Section 10(c) hereof, the Shareholder agrees to defend, indemnify and hold harmless the Purchaser and the Company, and their respective successors and assigns, from, against and in respect of any and all loss or damage resulting from: (i) the breach by the Shareholder of any of the warranties, representations, covenants, agreements or undertakings contained herein; (ii) any liability arising out of any and all actions, suits, proceedings, claims, demands, judgments, costs and expenses (including reasonable legal and accounting fees) incident to any of the foregoing (collectively, the "Losses"). (b) Procedure for Making Claims. If and whenever the Purchaser desires to claim indemnification by the Shareholder pursuant to the provisions of this Section 10, the Purchaser shall promptly deliver to the Shareholder a certificate signed by the Chairman of the Board, President or Vice President of the Purchaser (the "Notice of Claim") (i) stating that the Purchaser or the Company, their successors and assigns, has paid or properly accrued losses, damages or expenses in an aggregate stated amount to which the Purchaser is entitled to indemnification pursuant to this Section 10, provided, however, such notice shall be given prior to the payment of an indemnity item if reasonable in light of the circumstances causing, or threatening to cause, a loss, and (ii) specifying the individual items of loss, damage or expense included in the amount so stated, the date each such item was paid or properly accrued and the nature of the misrepresentation, breach of warranty or claim to which 28 29 such item is related, provided, however, failure to notify the Shareholder shall relieve the Shareholder from liability only if he is prejudiced thereby. The Shareholder shall have the right to defend any claim by a third party at the expense of the Shareholder. The Purchaser and the Company, as the case may be, shall provide to the Shareholder prompt and complete disclosure of all pertinent information in the possession of or available to the Purchaser or the Company and shall extend full and timely assistance in the cooperation in the investigation of the defense of the claim, suit or action, with respect to which such indemnification is claimed. The Shareholder, in the defense of any such suit, action or proceeding, shall not consent to the entry of any judgment or decree except with the written consent of the Purchaser and the Company, nor enter into any settlement (except the written consent of the Purchaser and the Company) which does not include as an unconditional term thereof the giving by the claimant or plaintiff to the Purchaser and the Company of a release from every liability in respect of such claim, suit, action or proceeding. In any defense of any claim by a third party, the Purchaser and the Company shall have the right (but shall not be obligated) to participate in such defense through counsel of its own selection and at its own expense. (c) Limitation on Indemnification. The Shareholder shall not be required to indemnify the Purchaser or the Company against the matters referred to in Section 10(a) hereof (except for the obligation of the Shareholder to pay any tax liability pursuant to Section 4(f)(ii) hereof) until the Losses incurred by the Company or the Purchaser with respect to such matters exceed $20,000 in the aggregate, whereupon 29 30 the Shareholder shall be required to indemnify the Purchaser and the Company with respect to all such further matters in excess of such $20,000 minimum. 11. Indemnification by the Purchaser and Related Matters. (a) Indemnification by the Purchaser. The Purchaser agrees to defend, indemnify and hold harmless the Shareholder, his respective successors, assigns and personal representatives, from, against and in respect of any and all loss or damage resulting from: (i) the breach by the Purchaser of any of its warranties, representations, covenants, agreements or undertakings contained herein; and (ii) any liability arising out of any and all actions, suits, proceedings, claims, demands, judgments, costs and expenses (including reasonable legal and accounting fees) incident to any of the foregoing (collectively, the "Losses"). (b) Procedure for Making Claims. If and whenever the Shareholder desires to claim indemnification by the Purchaser pursuant to the provisions of this Section 11, the Shareholder shall promptly deliver to the Purchaser a certificate signed by the Shareholder (the "Notice of Claim") (i) stating that the Shareholder, his heirs, personal representatives, successors or assigns, have paid or properly accrued losses, damages or expenses in an aggregate stated amount to which the Shareholder is entitled to indemnification pursuant to this Section 11, and (ii) specifying the individual items of loss, damage or expense included in the amount so stated, the date each such item was paid or properly accrued and the nature of the misrepresentation, 30 31 breach of warranty or claim to which such item is related, provided, however, failure to notify the Purchaser shall relieve the Purchaser from liability only if it is prejudiced thereby. The Purchaser shall have the right to defend any claim by a third party at the expense of the Purchaser. The Shareholder shall provide to the Purchaser prompt and complete disclosure of all pertinent information in the possession of or available to the Shareholder and shall extend full and timely assistance in the cooperation in the investigation of the defense of the claim, suit or action, with respect to which such indemnification is claimed. The Purchaser, in the defense of any such suit, action or proceeding, shall not consent to the entry of any judgment or decree except with the written consent of the Shareholder nor enter into any settlement (except the written consent of the Shareholder) which does not include as an unconditional term thereof the giving by the claimant or plaintiff to the Shareholder of a release from every liability in respect of such claim, suit, action or proceeding. In any defense of any claim by a third party, the Shareholder shall have the right (but shall not be obligated) to participate in such defense through counsel of his own selection and at his own expense. 12. Expenses. The Shareholder and the Purchaser shall pay his or its own expenses (including without limitation counsel and accounting fees and expenses) incident to the preparation and carrying out of this Agreement and the consummation of the transactions contemplated hereby. 13. Notices. All notices, demands and requests which may be given or which are required to be given by either party to the other, and any exercise of a right of termination provided by this Agreement, shall be in writing and shall be deemed effective when either: (1) personally delivered to the intended recipient; (2) sent by certified or registered mail, return receipt requested, addressed to 31 32 the intended recipient at the address specified below; (3) delivered in person to the address set forth below for the party to which the notice was given; (4) deposited into the custody of a nationally recognized overnight delivery service such as Federal Express Corporation, Emery or Purolator, addressed to such party at the address specified below; or (5) sent by facsimile, telegram or telex, provided that receipt for such facsimile, telegram or telex is verified by the sender and followed by a notice sent in accordance with one of the other provisions set forth above. Notices shall be effective on the date of delivery or receipt, of, if delivery is not accepted, on the earlier of the date that delivery is refused or three (3) days after the date the notice is mailed. For purposes of this Paragraph, the addresses of the parties for all notices are as follows (unless changes by similar notice in writing are given by the particular person whose address is to be changed): (a) if to the Shareholder, to Van P. Finger, C/O Precision IBC, Incorporated, PO Box 1171, Fairhope, Alabama 36533-1171; Fax 334-990- 6787; With a copy to Sam W. Irby, Irby & Heard, P.C., 317 Magnolia Avenue, PO Box 1031, Fairhope, Alabama 36533; Fax (334) 928-7993; (b) if to the Company, to Precision IBC, Incorporated, PO Box 1171, Fairhope, Alabama 36533-1171; Fax 334-990-6787; (c) or if to the Purchaser, to Crown Croup, Inc., 4040 North MacArthur Boulevard, Suite 100, Irving, Texas 75038; Attention: Edward R. McMurphy, President; Fax (972) 719-4466; With a copy to T. J. Falgout, III, Executive Vice President and General Counsel, Crown Croup, Inc., 4040 North MacArthur Boulevard, Suite 100, Irving, Texas 75038; Fax (972) 719-4466. Any party hereto may designate a different address by written notice given to the other parties. 32 33 14. Satisfaction of Conditions; Termination. (a) Best Efforts to Satisfy Conditions. The Shareholder and the Company agree to use their best efforts to bring about the satisfaction of the conditions specified in Section 6 hereof, and the Purchaser agrees to use its best efforts to bring about the satisfaction of the conditions specified in Section 7 hereof. (b) Termination. This Agreement may be terminated, without liability on the part of any party hereto to any other party hereto, by: (i) the Purchaser, if a material default shall be made by the Shareholder or the Company in the observance or in the due and timely performance by the Shareholder or the Company of any of the covenants of the Shareholder or the Company herein contained, or if there shall have been a material breach by the Shareholder or the Company of any of the warranties and representations of the Shareholder or the Company herein contained, or if the conditions of this Agreement to be complied with or performed at or before the Closing shall not have been complied with or performed at the time required for such compliance or performance and such non-compliance or non- performance shall not have been waived by the Purchaser, or if the Closing shall not have occurred on or before February 28, 1998; or (ii) the Shareholder, if a material default shall be made by the Purchaser in the observance or in the due and timely performance by the Purchaser of any of the covenants of the Purchaser herein 33 34 contained, or if there shall have been a material breach by the Purchaser of any of its warranties and representations herein contained, or if the conditions of this Agreement to be complied with or performed by the Purchaser at or before the Closing shall not have been complied with or performed at the time required for such compliance or performance and such non-compliance or non- performance shall not have been waived by the Shareholder, or if the Closing shall not have occurred on or before February 28, 1998. In the event of termination by the Purchaser or the Shareholder as provided above, written notice shall forthwith be given to the other parties. 15. Miscellaneous. (a) Assignment. This Agreement may not be assigned by any party hereto without the prior written consent of the other parties, provided, however, the Purchaser shall have the right at any time prior to Closing to assign this Agreement to a corporation wholly owned by the Purchaser, so long as the Purchaser, by written agreement acceptable to the Shareholder, agrees to guarantee the performance by such assignee of the terms and provisions hereof. Subject to the foregoing, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns and the heirs, executors, administrators and personal representatives of the Shareholder. (b) Section and Paragraph Headings. The Section and Paragraph headings of this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 34 35 (c) Amendment. This Agreement may be amended only by an instrument in writing executed by the parties hereto. (d) Entire Agreement. This Agreement and the exhibits, Schedules, certificates and documents referred to herein constitute the entire agreement of the parties, and supersede all understandings with respect to the subject matter hereof. (e) Knowledge. "Best knowledge" of a natural person means actual knowledge of such natural person, and "best knowledge" of a corporate person means actual knowledge of the directors, officers and employees of such corporate person, in each case (unless otherwise specifically set forth to the contrary) after reasonable inquiry and investigation. (f) Public Announcements. No publication and/or press release of any nature shall be issued pertaining to this Agreement or the transaction contemplated hereby without the prior written approval of the Purchaser and the Shareholder, except as may be required by law. (g) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. (h) Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS, AND VENUE FOR ANY DISPUTE ARISING HEREUNDER SHALL BE IN DALLAS COUNTY, TEXAS, AND THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF TEXAS. 35 36 IN WITNESS WHEREOF, this Agreement has been duly executed by the parties as of the date and year first above written. PURCHASER: CROWN GROUP, INC. By: --------------------------- Edward R. McMurphy, President COMPANY: PRECISION IBC, INCORPORATED By: --------------------------- Van P. Finger, President SHAREHOLDER: ------------------------------- VAN P. FINGER 36 EX-10.11 4 SHAREHOLDERS' AGREEMENT 1 ================================================================================ PAACO, INC. PREMIUM AUTO ACCEPTANCE CORPORATION SHAREHOLDERS' AGREEMENT AMONG LARRY LANGE, DANIEL CHU, TED LANGE AND CROWN GROUP, INC. DATED ON OR AS OF FEBRUARY 1, 1998 ================================================================================ 2 SHAREHOLDERS' AGREEMENT THIS SHAREHOLDERS' AGREEMENT (the "Agreement") is made and entered into on or as of this 1st day of February, 1998, among PAACO, Inc., a Texas corporation ("PAACO"), Premium Auto Acceptance Corporation, a Texas corporation ("Premium" and together with PAACO, the "Companies"), Larry Lange, Daniel Chu and Ted Lange and their respective spouses (collectively, the "Original Shareholders"), and Crown Group, Inc., a Texas corporation ("Crown" and, together with the Original Shareholders, the "Shareholders"). WHEREAS, PAACO is incorporated under the laws of the State of Texas with an authorized capitalization of 1,000,000 shares of common stock, $0.01 par value per share ("PAACO Common Stock"), of which 141,845 shares are issued and outstanding; WHEREAS, Premium is incorporated under the laws of the State of Texas with an authorized capitalization of 100,000 shares of common stock, no par value ("Premium Common Stock" and, together with PAACO Common Stock, the "Common Stock"), of which 1,419 shares are issued and outstanding; WHEREAS, each Shareholder is the owner of the number of shares of such issued and outstanding stock of each Company set forth opposite his or its name on Exhibit A; WHEREAS, Crown has purchased its shares of Common Stock pursuant to that certain Stock Purchase Agreement of even date herewith (the "Stock Purchase Agreement") and the Buyer's Warrants (as defined in the Stock Purchase Agreement); WHEREAS, the Original Shareholders have agreed to purchase warrants (collectively, the "Warrants") to purchase shares of Common Stock pursuant to that certain Stock Purchase Warrant of even date herewith; WHEREAS, the parties hereto deem it in their best interests and in the best interests of the Companies to set forth their respective rights and obligations in connection with their investment in the Companies; WHEREAS, the parties hereto also desire to restrict the sale, assignment, transfer, encumbrance or other disposition of the shares of the Common Stock, including issued and outstanding shares of the Common Stock as well as shares of the Common Stock that may be issued hereafter, and to provide for certain rights and obligations in respect thereto as hereinafter provided. NOW, THEREFORE, for and in consideration of the mutual agreements and understandings set forth herein, the parties hereby agree as follows: ARTICLE I DEFINITIONS AND RELATED MATTERS SECTION 1.1 DEFINITIONS. When used in this Agreement, the following terms shall have the respective meanings set forth below: "AFFILIATE" shall mean, when used with respect to a specified person, any person which (a) directly or indirectly controls, is controlled by or is under common control with such specified person, (b) owns or controls 10% or more of the outstanding voting interests of such person, (c) is an officer, director, general partner, trustee, manager, administrator, representative or agent of such person, or (d) is an officer, director, trustee, manager, administrator, representative or agent, or owns or controls 10% or more of the outstanding 3 voting interests, of a person described in clause (a), (b) or (c) of this sentence. As used in this definition, the term "control" means possession, directly or indirectly (through one or more intermediaries), of the power to direct or cause the direction of management and policies of a person through an ownership of voting securities (or other ownership interests), contract, voting trust or otherwise. "COMMON STOCK" shall mean PAACO Common Stock and Premium Common Stock. "DISABILITY" shall mean the total and permanent disability (whether physical or mental) of any Original Shareholder. "DISPOSITION" shall mean any sale, assignment, hypothecation, gift, inter vivos transfer, pledge, mortgage or other encumbrance, or any other disposition of Common Stock whatsoever, whether voluntary or involuntary. "FAIR MARKET VALUE" with respect to shares of Common Stock of either Company shall mean the value of such Common Stock as determined by an appraiser knowledgeable in such matters by reason of education or experience mutually selected by such Company and the Shareholder or the executor of the deceased Shareholder's estate, as the case may be. If the Company and such Shareholder or executor, as the case may be, cannot agree on an appraiser, each of the Company and such Shareholder or executor, as the case may be, shall select one appraiser and the appraisers so selected shall select a third appraiser to determine the fair market value of the Common Stock so offered. "INITIAL PUBLIC OFFERING" shall mean the first public offering of equity securities of either Company effected by such Company or one or more Shareholders pursuant to a registration statement that has been declared effective under the Securities Act. "PAACO BYLAWS" shall mean PAACO's bylaws, certified by the secretary of PAACO, a copy of which is attached hereto as Exhibit B. "PAACO'S ARTICLES OF INCORPORATION" shall mean PAACO's Articles of Incorporation, as amended, a copy of which is attached hereto as Exhibit C. "PAACO COMMON STOCK" shall mean all issued and outstanding shares of PAACO Common Stock, together with all shares of capital stock of PAACO of any class which may hereafter be issued. Moreover, all references herein to PAACO Common Stock owned by a Shareholder includes the community interest, if any, of the spouse of such Shareholder in such PAACO Common Stock. If any New Securities are issued in accordance with Section 2.2, PAACO Common Stock shall be deemed to include such New Securities. "PERSON" shall mean an individual, partnership, limited partnership, limited liability company, foreign limited liability company, trust, estate, corporation, custodian, trustee, executor, administrator, nominee or entity in a representative capacity. "PERSONAL REPRESENTATIVE" shall mean the executor, administrator, guardian, or other personal representative of any natural person who has become deceased or subject to Disability, or any successor or assignee thereof whether by operation of law or otherwise. "PREMIUM BYLAWS" shall mean Premium's Bylaws, certified by the secretary of Premium, a copy of which is attached hereto as Exhibit D. 2 4 "PREMIUM ARTICLES OF INCORPORATION" shall mean Premium's Articles of Incorporation, a copy of which is attached hereto as Exhibit E. "PREMIUM COMMON STOCK" shall mean all issued and outstanding shares of Premium Common Stock together with all shares of capital stock of Premium of any class which may hereafter be issued. Moreover all references herein to Premium Common Stock owned by a Shareholder includes the community interest, if any, of the spouse of such Shareholder in such Premium Common Stock. If any New Securities are issued in accordance with Section 2.2, Premium Common Stock shall be deemed to include such new securities. "PRO RATA SHARE" shall mean, as applied herein to the proportion of shares of Common Stock which a Shareholder shall have the right to purchase or sell at any particular time under this Agreement, that proportion of the shares of Common Stock subject to purchase or sale at such time which the shares of Common Stock owned by the particular Shareholder bears to the shares of Common Stock owned by all of the Shareholders having the same right to purchase or sell at such time under this Agreement. In addition, if any shares of Common Stock subject to purchase or sale at such time under this Agreement are not purchased or sold by any other Shareholder entitled to purchase or sell the same, the term "Pro Rata Share" shall also include that proportion of the shares of Common Stock not purchased or sold by any Shareholder entitled to purchase or sell the same hereunder which the shares of Common Stock owned by the particular Shareholder bears to the shares of Common Stock owned by all of the Shareholders having the right to purchase or sell hereunder other than the Shareholder or Shareholders not purchasing or selling all of the shares of Common Stock he or they are entitled to purchase or sell under the first sentence of this definition. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended from time to time and any successor statute thereto. SECTION 1.2 RELATED DEFINITIONAL MATTERS. As used in this Agreement, pronouns in masculine, feminine and neuter genders shall be construed to include any other gender, and words in the singular form shall be construed to include the plural and vice versa, unless the context clearly otherwise requires. As used in this Agreement, the term "including" shall be construed to be expansive rather than limiting in nature and to mean "including, without limitation," except where the context clearly otherwise requires. SECTION 1.3 COMMON STOCK SUBJECT TO AGREEMENT. This Agreement shall extend and apply to all shares of Common Stock now owned by each of the Shareholders and to all shares of Common Stock as may hereafter be acquired by any of the Shareholders, whether such shares constitute the separate property or community property of any of the individual Shareholders, and regardless of the capacity in which title to such shares is held or taken. This Agreement shall also apply to all shares of Common Stock to which the spouse of any Shareholder is entitled by virtue of any community property or any other laws. ARTICLE II SHAREHOLDERS, CAPITAL STRUCTURE, OTHER SHAREHOLDER MATTERS SECTION 2.1 SHAREHOLDERS. The Shareholders of the Companies and the number of shares of Common Stock held by each are set forth in Exhibit A. 3 5 SECTION 2.2 PREEMPTIVE RIGHTS. (a) If either Company issues additional shares of capital stock (including Common Stock) or any rights, options or warrants to purchase capital stock or any securities of any type whatsoever convertible into capital stock (collectively, "New Securities"), each Shareholder shall have the preemptive right to acquire such number of New Securities that will entitle such Shareholder to maintain his or its Pro Rata Share of the outstanding capital stock of such Company (including Common Stock and any such New Securities). If any Original Shareholder does not purchase any or all of his Pro Rata Share of such New Securities, the remaining Original Shareholders originally offered New Securities shall have the right to purchase such unpurchased New Securities on a Pro Rata Basis until all of the New Securities are purchased or until no other Original Shareholder desires to purchase any more New Securities. In the event of an Initial Public Offering, each Shareholder shall, at a meeting convened for the purpose of amending the Articles of Incorporation of such Company, vote to remove from such Articles of Incorporation requirements, if any such requirements are at such time imposed thereby, granting preemptive rights with respect to the Common Stock of such Company. (b) If and when either Company intends to issue New Securities, such Company shall give each Shareholder written notice ("Preemption Notice") of its intention, describing the type of New Securities, the price and the terms upon which such Company proposes to issue the same. Each Shareholder shall have 30 days from the date he or it receives the Preemption Notice to agree to purchase all or any portion of such New Securities as he or it is entitled pursuant to Section 2.2(a) for the price and upon the terms specified in the Preemption Notice by giving written notice to such Company and stating therein the quantity of New Securities to be purchased. A further Preemption Notice shall be given to the appropriate Shareholders pursuant to Section 2.2(a) if any of the New Securities are not purchased as set forth therein. SECTION 2.3 NON-LIABILITY OF SHAREHOLDERS. No Shareholder shall be liable for the debts, liabilities, contracts or other obligations of either Company except to the extent of any unpaid capital contributions such Shareholder has agreed to make to such Company. SECTION 2.4 LIMITATIONS ON SHAREHOLDERS. Other than as specifically provided for in either Company's Articles of Incorporation, Bylaws, this Agreement and applicable law, no Shareholder shall, solely as a result of its status as such: (a) be permitted to take part in the business or control of the business or affairs of either Company; (b) have any voice in the management or operation of any property owned by either Company; or (c) have the authority or power to act as agent for or on behalf of such Company or any other Shareholder, to do any act which would be binding on either Company or any other Shareholder, or to incur any expenditures for or on behalf of either Company. Inasmuch as the Board of Directors of each Company has been vested, pursuant to this Section 2.4 and the Bylaws of each Company, with exclusive power to manage and direct the business and affairs of each Company, the Shareholders shall not be permitted, pursuant to this Article II or otherwise, to take any action in the place or stead of the Board of Directors or any action that circumscribe, limit or otherwise adversely affects the power and authority of such Board of Directors, except as otherwise specifically required by applicable law or as permitted by this Agreement. ARTICLE III RESTRICTIONS ON DISPOSITIONS OF COMMON STOCK SECTION 3.1 RESTRICTIONS ON DISPOSITIONS. (a) No Shareholder, any spouse of any Shareholder, any Personal Representative of any Shareholder, or any legal representative, agent or assignee of any Shareholder or any spouse of any Shareholder, as the case may be, shall make any Disposition of any shares of Common Stock, or any right or 4 6 interest therein, except as provided in this Article III. The parties agree that the restrictions contained in this Agreement are fair and reasonable and in the best interests of each Company and the Shareholders. (b) Anything in this Agreement to the contrary notwithstanding, no Disposition of Common Stock otherwise permitted or required by this Agreement shall be made unless such Disposition is in compliance with federal and state securities laws, including without limitation the Securities Act and the rules and regulations thereunder. In connection with any Disposition or proposed Disposition of Common Stock, if requested by the applicable Company before such Disposition, the holder of such Common Stock proposing to effect such Disposition shall provide to such Company either (i) a written opinion of legal counsel who shall be reasonably satisfactory to such Company, addressed to such Company and reasonably satisfactory in form and substance to such Company, to the effect that the proposed Disposition of Common Stock may be effected without registration under the Securities Act and applicable state securities laws, or (ii) a "no-action" letter from the staff of the Securities and Exchange Commission (the "SEC") to the effect that the disposition of such securities without registration under the Securities Act will not result in a recommendation by the staff of the SEC that action be taken in respect thereof; provided, however, that no such opinion shall be required in connection with a transfer to a Permitted Transferee. (c) Anything in this Agreement to the contrary notwithstanding, unless otherwise agreed to in writing by the applicable Company and each of the Shareholders, no Disposition of Common Stock otherwise permitted or required by this Agreement shall be effective unless and until the transferee (and such transferee's spouse, if applicable) shall execute and deliver to such Company an Addendum Agreement in the form attached hereto as Exhibit F in which such transferee (and such transferee's spouse, if applicable) agrees to be bound by this Agreement and to observe and comply with this Agreement and with all obligations and restrictions imposed on Shareholders hereby; each person to whom a Disposition of Common Stock is permitted by this Agreement who receives a Disposition of Common Stock during the period when this Agreement is in effect, and who agrees in writing to be bound by the provisions hereof, shall thereafter become a "Shareholder" for all purposes of this Agreement. (d) Dispositions of Common Stock may only be made in strict compliance with all applicable terms of this Agreement, and any purported Disposition of Common Stock that does not so comply with all applicable provisions of this Agreement shall be null and void and of no force or effect, and neither Company shall recognize or be bound by any such purported Disposition and shall not effect any such purported Disposition on the stock transfer books of such Company. (e) The restrictions on Dispositions of Common Stock contained in this Section 3.1 with respect to each Company shall terminate and be of no further force or effect immediately after the closing of each Company's Initial Public Offering; provided, however, that any such termination shall not terminate or otherwise affect the requirements set forth in Section 3.1(b), which requirements shall continue in full force and effect until the termination of this Agreement. (f) Notwithstanding anything to the contrary contained herein, except as otherwise permitted or required by Sections 3.10 through 3.13, Larry Lange shall have no right to sell any shares of Common Stock during the Employment Term (as defined in that certain Employment Agreement of even date herewith between PAACO and Larry Lange) without unanimous Board approval. SECTION 3.2 PERMISSIBLE TRANSFERS. (a) Subject to the provisions of Section 3.1, a Shareholder or his Personal Representative may at any time or times transfer any or all of his shares of Common Stock to any person who is a Permissible Transferee with 5 7 respect to the transferor Shareholder. As used herein, the term "Permissible Transferee" with respect to a transferor Shareholder means (i) the spouse of the transferor Shareholder, (ii) a trust, the sole beneficiary of which is a spouse of the transferor Shareholder, (iii) solely with respect to an Original Shareholder, any other Original Shareholder, or (iv) the partners or stockholders of a Shareholder that is a partnership or corporation; provided, however, that such transfer does not conflict with or constitute a violation of state or federal securities laws. (b) If any Shareholder seeks to transfer shares of Common Stock to a Permissible Transferee pursuant to this Section 3.2, the shares of Common Stock which the transferor Shareholder desires to transfer to the Permissible Transferee in accordance with the terms hereof shall not be transferred on the books of the applicable Company nor shall any such transfer be effective unless and until such Company consents to such transfer, which consent shall not be unreasonably withheld, and such Permissible Transferee has agreed to become a party to this Agreement by executing an Addendum Agreement. (c) A transfer or disposition of any kind or character otherwise prohibited by this Agreement may be permitted if approved by a two-thirds vote of the Board of Directors of the Company and by a vote of eighty percent (80%) in interest of the Shareholders who are parties to this Agreement. Notwithstanding anything to the contrary contained in this Section 3.2(c), a transfer or disposition otherwise permitted under Sections 3.3 through 3.8 hereof shall not be prohibited by this Section 3.2. Any transferees pursuant to such a permitted transfer or disposition must execute an Addendum Agreement. SECTION 3.3 NOTICE OF RIGHT OF FIRST REFUSAL. In the event that a Shareholder receives a bona fide offer (a "Third Party Offer") for the purchase of all or a part of his or its Common Stock (or any rights or interests therein) that such Shareholder desires to accept, such Shareholder (the "Offeror Shareholder") agrees to give written notice of such Third Party Offer (the "Notice of Right of First Refusal") to the Secretary of the subject Company and to the other Shareholders (the "Other Shareholders"). The notice must set forth the name of the proposed transferee (the "Third Party"), the number of shares to be transferred (the "Offered Stock"), the price per share (the "Offer Price"), all details of the payment terms and all other terms and conditions of the proposed transfer. A Third Party Offer may not contain provisions related to any property other than the Common Stock of the Offeror Shareholder, and the Offer Price shall be expressed only in terms of cash or credit terms contained in the proposed transfer. The Offeror Shareholder shall deliver such Notice of Right of First Refusal to the parties noted above immediately upon receiving such Third Party Offer, but in any event not less than seventy (70) days prior to the date of the proposed transfer. The last date that the Notice of Right of First Refusal is received by the Other Shareholders shall constitute the "First Refusal Notice Date." The subject Company shall be obligated to promptly determine the First Refusal Notice Date following its receipt of a Notice of Right of First Refusal, and such date shall be promptly communicated in writing by such Company to all Shareholders within five (5) days of the determination of such date. For purposes of this Section 3.3, a "Third Party Offer" to purchase part or all of a Shareholder's Common Stock shall mean a written offer to purchase such Common Stock from a person or entity unrelated to that Shareholder. Without limitation of the generality of the foregoing, a Third Party Offer does not include an offer where the Shareholder receiving such offer has an option or obligation to reacquire all or part of the Common Stock covered by such offer. SECTION 3.4 PRIMARY RIGHT OF FIRST REFUSAL BY CORPORATION. The subject Company shall have the sole and exclusive option to acquire all or any portion of the Offered Stock in accordance with the provisions of the Notice of Right of First Refusal for a period of twenty (20) days from the First Refusal Notice Date. Such Company may exercise such option by giving written notice of exercise to the Offeror Shareholder and to all Other Shareholders prior to the termination of its exclusive option period. Such notice of exercise shall refer to the Notice of Right of First Refusal and shall set forth the number of shares of Common Stock to be acquired by such Company. 6 8 SECTION 3.5 SECONDARY RIGHT OF FIRST REFUSAL BY ORIGINAL SHAREHOLDERS. In the event the Company elects to purchase less than all of the Offered Stock and if the Offeror Shareholder is an Original Shareholder, each of the other Original Shareholders (the "Other Original Shareholders") shall have the exclusive option from the twenty-first day to the fortieth day following the First Refusal Notice Date to acquire his Pro Rata Share of the Offered Stock not purchased by the subject Company. The Other Original Shareholders may exercise such option by giving written notice of exercise to the Offeror Shareholder and to all the Other Shareholders prior to the termination of their exclusive option period. Such notice of exercise shall refer to the Notice of Right of First Refusal and shall set forth the number of shares of Common Stock to be acquired by such Other Original Shareholder. SECTION 3.6 SECONDARY RIGHT OF FIRST REFUSAL BY OTHER SHAREHOLDER(S). In the event the Offeror Shareholder is not an Original Shareholder or in the event some or all of the Other Original Shareholders do not elect to acquire their Pro Rata Share of the Offered Stock not purchased by the subject Company, the Other Shareholders shall have the exclusive option from the twenty-first day to the sixtieth day, if the Offeror Shareholder is an Original Shareholder, following the First Refusal Notice Date to acquire the Offered Stock not purchased by the subject Company in accordance with the procedure described in this Section. The Other Shareholders may, by agreement, allocate among themselves the right to acquire such part of the Offered Stock that will not be acquired by the subject Company or the Other Original Shareholders, if appropriate. In the absence of such an agreement between the Other Shareholders, each Other Shareholder will be entitled to give written notice to the Offeror Shareholder, to the subject Company and to the Other Shareholders, within forty (40) days from the First Refusal Notice Date, of such Shareholder's election to acquire all or any part of his Pro Rata Share of the Offered Stock that is not being acquired by the subject Company or the Other Original Shareholders, as appropriate. If the subject Company and Other Shareholders have not given written notice of election to acquire all of the Offered Stock within forty (40) days of the First Refusal Notice Date if the Offeror Shareholder is not an Original Shareholder, or within sixty (60) days, if the Offeror Shareholder is an Original Shareholder, then between the forty-first and fiftieth day, or the sixty-first and seventieth day, as the case may be, following the First Refusal Notice Date the subject Company or any of the Other Shareholders may give written notice to the Offeror Shareholder, to the subject Company and to the Other Shareholders of an election to purchase any or all of the Offered Stock that the subject Company or the Other Shareholders have not previously agreed to purchase. Such additional shares of Common Stock shall be allocated on a first-to-give-notice basis determined as of the date written notice is received by the subject Company. SECTION 3.7 PURCHASE PRICE. The total purchase price (the "Purchase Price") for all the Common Stock to be purchased pursuant to Section 3.3 will be the total purchase price for the proposed transfer, and upon the same terms and conditions, as set forth in the Third Party Offer. SECTION 3.8 COMPLIANCE REQUIRED. Any Disposition described in this Article III of a Shareholder's Common Stock without complying with the giving of a Notice of Right of First Refusal and the Right of First Refusal provisions of this Article III shall be void, and the subject Company shall issue a Notice of Right of First Refusal upon discovery of such transfer, a copy of which shall be sent to the person or entity making such transfer, his or its transferee, the subject Company and all Shareholders. The duty of the subject Company to see to the issuance of such Notice of Right of First Refusal shall not be considered to be elective, but shall be mandatory. Upon the giving of the Notice of Right of First Refusal, the time periods for the exercise of the options specified in Sections 3.4, 3.5 and 3.6 shall commence running. If a Notice of Right of First Refusal had already been given to the subject Company, but the subject Company is required to issue a new Notice of Right of First Refusal under this Section, the prior Notice of Right of First Refusal shall have 7 9 no effect and the time periods under the Notice of Right of First Refusal issued by the subject Company shall apply. SECTION 3.9 CERTAIN RIGHTS OF INCLUSION. (a) No Shareholder shall, individually or collectively, in any transaction, sell or otherwise dispose of shares of Common Stock held by such Shareholder to a third party unless the terms and conditions of the Third Party Offer include an offer, at the same price and on the same terms as the offer to the selling Shareholders, to each of the other Shareholders (the "Offerees"), to include at the option of each Offeree, in the sale or other disposition to the Third Party, a number of shares of Common Stock owned by each Offeree determined in accordance with this Section 3.9. (b) The Shareholder or Shareholders that receives the Third Party Offer (the "Selling Shareholder") shall cause the Third Party Offer to be reduced in writing (which writing shall include an offer to purchase or otherwise acquire shares of the Common Stock from the Offerees as required by this Section 3.9) and shall send written notice of the Third Party Offer together with a copy of the Third Party Offer (the "Inclusion Notice") to each of the Offerees in the manner specified in Section 6.1 hereof. At any time within twenty (20) calendar days after delivery of the Inclusion Notice, an Offeree may accept the offer included in the Inclusion Notice by furnishing written notice of such acceptance to the Selling Shareholder. (c) Each Offeree shall have the right (an "Inclusion Right") to sell pursuant to the Third Party Offer a number of such Offeree's shares of Common Stock equal to the product of (x) the number of shares of Common Stock held by such Offeree and (y) a fraction, the numerator of which is the total number of shares of Common Stock covered by the Third Party Offer and the denominator of which is the total number of shares of Common Stock then outstanding. SECTION 3.10 DEATH OF A SHAREHOLDER. The death of a Shareholder shall constitute a Third Party Offer hereunder at Fair Market Value for such deceased Shareholder's stock (including the interest, if any, in such stock held by such Shareholder's spouse) and the provisions of Sections 3.3 through 3.6 shall apply to such Third Party Offer. SECTION 3.11 TERMINATION OF MARITAL RELATIONSHIP. If the marital relationship of a Shareholder is terminated by divorce and such Shareholder does not succeed to his or her spouse's community interest in the Common Stock, such Shareholder shall have the option to purchase all of his or her spouse's interest in the Common Stock, and his or her spouse shall be obligated to sell such Common Stock. The price per share at which such Common Stock shall be purchased shall be an amount equal to the net book value of one (1) share of such Common Stock as determined under generally accepted accounting principles as of the most recent fiscal year end. Such option must be exercised within ninety (90) days after such divorce. Should such Shareholder fail to exercise such option within such 90-day period, such spouse's community interest in the stock shall be offered to the Other Shareholders, and the provisions of Sections 3.3 through 3.6 shall apply with the exception that the price per share at which the Common Stock shall be purchased shall be the net book value per share of Common Stock as determined under generally accepted accounting principles as of the most recent fiscal year end. SECTION 3.12 TERMINATION OF ORIGINAL SHAREHOLDER'S EMPLOYMENT. (a) If any Original Shareholder's employment with either Company is terminated for Cause (as defined in the Employment Agreement of even date herewith by and between each Original Shareholder and PAACO (collectively, the "Employment Agreements")) or if such Original Shareholder resigns or otherwise voluntarily terminates his employment with PAACO, each Company shall have the right but not the obligation to purchase all of such Original Shareholder's shares of Common Stock. The price per share at which such Common Stock shall be 8 10 purchased shall be an amount equal to 80% of the Fair Market Value of one (1) share of such Common Stock. The Original Shareholder whose employment is terminated shall not be entitled to vote (if on the Board of Directors of either Company) with respect to exercising such option. (b) If any Original Shareholder's employment with PAACO is terminated without Cause, such Original Shareholder shall have the right but not the obligation to request the Companies to purchase all of such Original Shareholder's shares of Common Stock. The price per share at which such Common Stock shall be purchased shall be an amount equal to 120% of the Fair Market Value of one (1) share of such Common Stock. SECTION 3.13 BANKRUPTCY OF SHAREHOLDER. In the event a Shareholder (i) files a voluntary petition in bankruptcy, (ii) makes an assignment for the benefit of creditors, or (iii) is adjudicated bankrupt or insolvent, the other Shareholders shall have the right, but not the obligation, to purchase all of such Shareholder's shares of Common Stock at the price per share equal to the Fair Market Value of one (1) share of Common Stock. SECTION 3.14 DISPOSITIONS PURSUANT TO SECTIONS 3.10, 3.11, 3.12 AND 3.13. Prior to or upon any Disposition of Common Stock (as provided for in Sections 3.10, 3.11, 3.12 and 3.13), the Shareholder who owns such Common Stock, or his Personal Representative (or the Companies, in the event of a Disposition pursuant to Section 3.12(a)), shall send written notice thereof, within 10 days of the determination of Fair Market Value, by certified or registered mail, return receipt requested, disclosing in full to each Company and the other Shareholders the nature and details of such Disposition. Unless specifically provided for otherwise herein, in the event of such Disposition, such Shareholder's shares of Common Stock shall be sold in accordance with the provisions of Sections 3.3 through 3.6 (with the purchase price being payable in cash), and the last date such notice is received by the Other Shareholders shall constitute the "First Refusal Notice Date." SECTION 3.15 TRANSFERS IN CONNECTION WITH ESTATE PLANNING. The Original Shareholders shall be entitled to transfer any shares of Common Stock they own to any trust, estate or other estate planning entity created by such Original Shareholder in connection with estate planning, and, subject to Section 3.10 hereof, the ownership of such shares upon the death of such Original Shareholder shall be transferred in accordance with the terms of the instrument creating such trust, estate or other estate planning entity. Upon such a transfer, such entity shall be deemed to be a "Shareholder" for all purposes and shall be entitled to all rights, and shall have all obligations, of a Shareholder under this Agreement. If requested by the other Shareholders, such entity shall become a party to this Agreement by execution of an Addendum Agreement. SECTION 3.16 ENDORSEMENT OF STOCK CERTIFICATES. (a) Conformed copies of this Agreement shall be filed with the Secretary of each Company and kept with the records of each Company at its principal office. An officer of each Company shall endorse each certificate representing the shares of Common Stock of such Company heretofore or hereafter issued by such Company to the Shareholders by causing to be placed on the face thereof the following: TRANSFER IS SUBJECT TO RESTRICTIVE STOCK LEGEND ON BACK and by causing to be placed on the back thereof the following legend: 9 11 THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF A SHAREHOLDERS' AGREEMENT DATED ON OR AS OF FEBRUARY 1, 1998, BY AND AMONG THE COMPANY AND CERTAIN OTHER PERSONS, WHICH AGREEMENT CONTAINS, AMONG OTHER PROVISIONS, RESTRICTIONS ON THE TRANSFER, SALE, OR OTHER DISPOSITION OF THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE. A COPY OF SUCH SHAREHOLDERS' AGREEMENT HAS BEEN FILED, AND IS AVAILABLE FOR REVIEW BY THE RECORD HOLDER OF THIS CERTIFICATE, AT THE PRINCIPAL OFFICE OF THE COMPANY. (b) In addition to the legend required under Section 3.16(a), each Shareholder agrees that, if legal counsel to either Company deems appropriate, each certificate representing shares of Common Stock also shall bear a legend in substantially the following form: THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, TRANSFERRED, OR OTHERWISE DISPOSED OF UNTIL THE HOLDER HEREOF PROVIDES EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY (WHICH, IN THE DISCRETION OF THE COMPANY, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY) THAT SUCH OFFER, SALE, PLEDGE, TRANSFER, OR OTHER DISPOSITION WILL NOT VIOLATE APPLICABLE FEDERAL OR STATE SECURITIES LAWS. SECTION 3.17 SPECIFIC PERFORMANCE. Each of the parties to this Agreement acknowledges that it shall be impossible to measure in money the damage to the Companies or the Shareholder(s), if any of them or any transferee or any legal representative of any party hereto fails to comply with any of the restrictions or obligations imposed by this Article III, that every such restriction and obligation is material, and that in the event of any such failure, the Companies or the Shareholder(s) shall not have an adequate remedy at law or in damages. Therefore, each party hereto consents to the issuance of an injunction or the enforcement of other equitable remedies against him at the suit of an aggrieved party without the posting of any bond or other security, to compel specific performance of all of the terms of this Article III and to prevent any disposition of shares of Common Stock in contravention of any terms of this Article III, and waives any defenses thereto, including, without limitation, the defenses of: (i) failure of consideration; (ii) breach of any other provision of this Agreement; and (iii) availability of relief in damages. ARTICLE IV SPECIAL MANAGEMENT/GOVERNANCE PROVISIONS SECTION 4.1 ARTICLES OF INCORPORATION; NO CONFLICT WITH AGREEMENT. Attached hereto as Exhibits B and C and D and E are copies of the Articles of Incorporation and Bylaws, respectively, of each Company which are in effect as of the date hereof. Each Shareholder shall vote his shares of Common Stock, and shall take all the actions necessary, to ensure that the Articles of Incorporation and Bylaws of each Company do not, from time to time, conflict with the provisions of this Agreement. 10 12 SECTION 4.2 CERTAIN PROHIBITIONS. (a) Any future sales of shares or issuance of capital stock (or warrants, options or rights to acquire shares of capital stock or securities convertible into or exchangeable for capital stock) of each Company must be made at a price equal to or greater than the price per share (as adjusted from time to time to reflect any stock splits, stock dividends or similar events) paid by Crown for the shares of Common Stock it has acquired on the date hereof unless otherwise agreed by the parties hereto. (b) Any redemptions or offers for Common Stock (made pursuant to a right of first refusal) must be made available to all Shareholders on a pro rata basis and at the same consideration per share. (c) Any issuances of capital stock of either Company senior to such Company's Common Stock (including rights to acquire such capital stock of such Company), or any changes to the rights of such Common Stock, must be unanimously approved by the Shareholders. SECTION 4.3 BOARD OF DIRECTORS. (a) From and after the date hereof, the Shareholders and their assigns shall vote their shares of Common Stock, at any regular or special meeting of shareholders called for the purpose of filling positions on the Board of Directors of the Company, or in any written consent executed in lieu of such meeting of shareholders and shall take all the actions necessary, to ensure the election to the Board of Directors of the Company of four individuals: (i) two of which shall be designated by the Original Shareholders (the "Management Nominees") and (ii) two of which shall be designated by Crown (the "Crown Nominees"). (b) From and after the date hereof, each Company shall maintain an Executive Committee of the Board of Directors comprised of the two Management Nominees and one of the Crown Nominees. SECTION 4.4 REMOVAL. (a) If a director designated and elected pursuant to Section 4.3, (i) has been designated by Crown pursuant to Section 4.3 and, during such director's term as director, Crown requests that such director be removed (with or without Cause) by written notice to the Original Shareholders or (ii) has been designated by the Original Shareholders pursuant to Section 4.3 and, during such director's term as director, holders of a majority of the Common Stock held by the Original Shareholders request that such director be removed (with or without Cause) by written notice to Crown, then such director may be removed, with or without Cause, upon the affirmative vote of holders of a majority of the outstanding shares of Common Stock, and each Shareholder hereby agrees to vote all shares of Common Stock owned or held of record to effect such removal or consent in writing to effect such removal upon such request. (b) No director shall be removed without Cause except as provided in Section 4.4(a) hereof and any director shall be removed for Cause if the holders of a majority of the outstanding shares of Common Stock consent in writing to such removal. For the purposes of this Section 4.4(b), "Cause" shall mean a commission by a director of a felony which in the opinion of a majority of such Company's Board of Directors is injurious to the business reputation of the Company or any subsidiary thereof or the wilful commission by a director of a dishonest act effecting such Company or any subsidiary thereof. Each Original Shareholder that is a member of the Board of Directors agrees to resign as a member of the Board of Directors upon the termination of his employment with PAACO for Cause as defined in the Employment Agreement dated of even date herewith between such Original Shareholder and PAACO. 11 13 SECTION 4.5 VACANCIES. In the event that a vacancy is created on the Board of Directors at any time by the death, disability, retirement, resignation or removal (with or without Cause) of a director, each Shareholder will cause the directors designated by it to vote for the individual designated to fill such vacancy by whichever of the Shareholders designated (pursuant to Section 4.3 hereof) the director whose death, disability, retirement, resignation or removal (with or without Cause) resulted in such vacancy on the Board (in the manner set forth in Section 4.3); provided, however, that such other individual so designated may not previously have been a director of the Company who is removed for Cause from the Board of Directors. SECTION 4.6 COVENANT TO VOTE. Each Shareholder hereby agrees to take all actions necessary to call, or cause each Company and the appropriate officers and directors of each Company to call, a special or annual meeting of the shareholders of such Company and to vote all shares of the Common Stock owned or held of record by such Shareholder at any such annual or special meeting in favor of, or take all actions by written consent in lieu of any such meeting necessary to cause, the election as members of the Board of Directors of those individuals so designated in accordance with, and otherwise to effect the intent of Article IV. In addition, each Shareholder agrees to vote the shares of Common Stock owned by such Shareholder upon any other matter arising under this Agreement submitted to a vote of the Shareholders in a manner that will implement the terms of this Agreement. SECTION 4.7 DESIGNATION OF PROXY. In order to effectuate the provisions of this Article IV and in addition to and not in lieu of Sections 4.3 through 4.5 hereof, each of the Original Shareholders hereby grants to Larry Lange a proxy to vote at any meeting of Shareholders or take any action by written consent in lieu of such meeting with respect to, all of the shares of Common Stock owned or held of record by such Original Shareholders solely for (i) the election of directors designated in accordance with Section 4.3 hereof, and (ii) the election of a director to fill any vacancy on the Board of Directors in accordance with Section 4.5 hereof. SECTION 4.8 FINANCIAL REPORTS. (a) Within 20 days after the end of each fiscal month, each Company shall furnish to each Shareholder a balance sheet as of the end of such month and an income statement and statement of cash flows for such month prepared in accordance with generally accepted accounting principles, consistently applied. (b) Within 90 days after the end of each fiscal year, each Company shall furnish to each Shareholder an audited balance sheet as of the end of such fiscal year and an income statement and statement of cash flows for such fiscal year prepared in accordance with generally accepted accounting principles, consistently applied. (c) Notwithstanding anything to the contrary contained herein, the obligations of each Company to furnish financial information pursuant to this Section 4.8 shall cease with respect to such Company upon the consummation of an Initial Public Offering by such Company. ARTICLE V RESTRICTIONS ON CERTAIN TRANSACTIONS SECTION 5.1 EXECUTIVE COMMITTEE. Neither Company shall, without the unanimous approval of its Executive Committee: (a) make any capital expenditure, commitment, contract or undertaking that is in excess of $120,000; 12 14 (b) enter into any transaction with any Shareholder, officer or director, or any relative or Affiliate of any shareholder, officer or director or become a guarantor, surety or indemnitor of any indebtedness, undertaking or obligation of any such person or any entity controlled by any such person; (c) extend loans or other credit not in the ordinary course of business in excess of $25,000. (d) (i) pledge or otherwise encumber shares of capital stock of such Company or any subsidiary outside the ordinary course of business; or (ii) mortgage or pledge any of its assets, tangible or intangible, or create or suffer to exist any lien thereupon other than in the ordinary course of business; (e) enter into, adopt or amend or terminate any bonus, profit sharing, compensation, severance or termination agreement or plan for the benefit or welfare of any Original Shareholder or any stock option, stock appreciation right, restricted stock, performance unit, stock equivalent, stock purchase, pension, retirement, deferred compensation, or other employee benefit trust, plan, fund or other arrangement for the benefit or welfare of any director, officer or employee; (f) acquire, sell, lease, transfer or otherwise dispose of, directly or indirectly, any assets other than inventory with a purchase price in excess of $50,000, individually, or $250,000, in the aggregate, other than in the ordinary course of business; (g) make and adopt an annual budget of each of the Companies; or (h) authorize or propose, or agree in writing or otherwise to take, any of the actions described in this Section 5.1. SECTION 5.2 BOARD OF DIRECTORS. Neither Company shall, without the unanimous approval of its Board of Directors: (a) amend any provision of its or its subsidiaries' Articles of Incorporation or Bylaws; (b) (i) split, combine, or reclassify any shares of its capital stock; (ii) declare, set aside, or pay any dividend or other distribution (whether in cash, stock, or property or any combination thereof) in respect of its capital stock; (iii) repurchase, redeem or otherwise acquire any of its securities or any securities of any subsidiary; (iv) adopt a plan of complete or partial liquidation or resolutions providing for or authorizing a liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of such Company or any subsidiary (including any spin-off or spin-out of a subsidiary of such Company); or (v) issue any New Securities; (c) change the appointment of independent auditors selected to audit such Company's financial statements, provided, however, that the Board of Directors of each Company agree to appoint Coopers & Lybrand, LLP, if requested by Crown; (d) acquire or dispose of (by merger, consolidation, or acquisition of stock or assets or otherwise) any corporation, partnership, or other business organization or division thereof; or (e) engage in any business or businesses the nature of which differs in any material respect from any business currently conducted by such Company or any subsidiary thereof. 13 15 ARTICLE VI MISCELLANEOUS SECTION 6.1 MANNER OF GIVING NOTICE. All notices required to be given hereunder shall be in writing and shall be deemed to be duly given if personally delivered, telecopied and confirmed, or mailed by certified mail, return receipt requested, or overnight delivery service with proof of receipt maintained, at the following address (or any other address that any such party may designate by written notice to the other parties): PAACO, Inc. 605 S. Loop 12 Irving, Texas 75060 Premium Auto Acceptance Corporation 605 S. Loop 12 Irving, Texas 75060 If to any Shareholder, at his address as set forth on Exhibit A of this Agreement. Any such notice shall, if delivered personally, be deemed received upon delivery; shall, if delivered by telecopy, be deemed received when confirmed; and shall, if delivered by mail, be deemed received upon the earlier of actual receipt thereof or five business days after the date of deposit in the United States mail. SECTION 6.2 WARRANTS. In the event the Original Shareholders exercise the Warrants to purchase shares of Common Stock, the Original Shareholders agree that the shares purchased upon exercise of the Warrants will be bound by and subject to the provisions of this Agreement. SECTION 6.3 WAIVER OF NOTICE. Whenever any notice is required to be given to any Shareholder or director of the Company under the provisions of this Agreement, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Attendance of a director at a meeting of the Board of Directors shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. SECTION 6.4 COUNTERPART SIGNATURES. This Agreement may be executed in any number of counterparts, all of which together shall constitute a single instrument. It shall not be necessary that any counterpart be signed by each of the Shareholders so long as each counterpart shall be signed by one or more of the Shareholders and so long as the other Shareholder shall sign at least one counterpart which shall be delivered to the Company. SECTION 6.5 SEVERABILITY. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the term of this Agreement, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of each such illegal, invalid or unenforceable provision, there shall be added automatically as a part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. 14 16 SECTION 6.6 JOINDER OF SPOUSES. The spouses of all married Shareholders have joined in the execution of this Agreement in order to evidence their agreement and consent to be bound by the terms and conditions hereof as to their interest, whether as community property or otherwise, if any, in the shares of Common Stock owned by their respective spouses. SECTION 6.7 ENTIRE AGREEMENT; AMENDMENTS. (a) This Agreement supersedes all prior agreements among the parties with respect to the subject matter hereof. This instrument and the Stock Purchase Agreement among the Companies, the Original Shareholders and Crown of even date herewith contain the entire agreement among the parties with respect to such subject matter and may not be amended, supplemented, or discharged, and no provision hereof or thereof may be modified or waived, except by an instrument in writing signed by the Company and all persons then a party to this Agreement as shareholders of the Companies. (b) No waiver of any provision hereof by any party shall be deemed a waiver by any other party nor shall any such waiver by any party be deemed a continuing waiver of any matter by such party. (c) No amendment, modification, supplement, discharge or waiver hereof or hereunder shall require the consent of any person not a party to this Agreement. SECTION 6.8 GOVERNING LAW AND VENUE. This Agreement shall be governed and construed in accordance with the laws of the State of Texas, without regard to the conflicts of law principles of such state and the exclusive venue for any dispute arising hereunder shall be the federal or state courts located in Dallas County, Texas. SECTION 6.9 BINDING EFFECT. This Agreement shall be binding upon and shall inure to the benefit of the Companies and each Shareholder and his respective heirs, permitted successors, permitted assigns, permitted distributees and legal representatives, and by their signatures hereto, the Companies and each Shareholder intends to and does hereby become bound. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person other than the parties hereto and their respective permitted successors and assigns any legal or equitable right, remedy or claim under, in or in respect of this Agreement or any provision herein contained. SECTION 6.10 FUTURE ACTIONS. The Companies and the Shareholders shall execute and deliver all such future instruments and take such other and further action as may be reasonably necessary or appropriate to carry out the provisions of this Agreement and the intention of the parties as expressed herein, including if necessary any action required to authorize and direct the officers and directors of the Companies to amend the Company's Articles of Incorporation so that this Agreement is enforceable under the laws of the State of Texas. SECTION 6.11 HEADINGS; EXHIBITS. All article and section headings herein are for convenience of reference only and are not part of this Agreement, and no construction or inference shall be derived therefrom. The Exhibits attached hereto and referred to herein are a part of this Agreement as if fully set forth herein. All references to Sections and Exhibits shall be deemed references to such parts of this Agreement, unless the context shall otherwise require. SECTION 6.12 TERMINATION OF THIS AGREEMENT. Except as provided herein, this Agreement shall immediately and automatically terminate, without any further action by any party, upon any of the following: (i) the unanimous written consent to the termination hereof of all persons then a party to this Agreement as 15 17 Shareholders, (ii) the dissolution, bankruptcy, receivership or insolvency of either of the Companies, as to such Company, or (iii) with respect to a Company, if such Company completes an Initial Public Offering. 16 18 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the day, month and year first above written. PAACO: PAACO, INC. By: ------------------------------------------ Daniel Chu President PREMIUM: PREMIUM AUTO ACCEPTANCE CORPORATION By: ------------------------------------------ Daniel Chu President SHAREHOLDERS: SPOUSE: ------------------------------------------ - --------------------------------- ------------------------------------------ Larry Lange - --------------------------------- Daniel Chu - --------------------------------- Ted Lange CROWN GROUP, INC. By: ------------------------------ Edward R. McMurphy President 17 19 EXHIBIT A LIST OF SHAREHOLDERS AND SHARE OWNERSHIP
Shares of PAACO Shares of Premium Percentage of Shareholder (Name and Address) Common Stock Owned Common Stock Owned Total Shares Outstanding - ------------------------------ ------------------ ------------------ ------------------------ Larry Lange 35,333.51 353.51 24.91% c/o PAACO, Inc. 605 S. Loop 12 Irving, Texas 75060 Daniel Chu 16,666.75 166.75 11.75% c/o PAACO, Inc. 605 S. Loop 12 Irving, Texas 75060 Ted Lange 14,666.74 146.74 10.34% c/o PAACO, Inc. 605 S. Loop 12 Irving, Texas 75060 Crown Group, Inc. 75,178 752 53.00% 4040 N. MacArthur Blvd. ------- ----- ------- Suite 100 141,845 1,419 100.00% Irving, Texas 75038 ======= ===== =======
A-1 EX-10.12 5 RIGHT OF REFUSAL 1 EXHIBIT 10.12 RIGHT OF FIRST REFUSAL AND PUT AGREEMENT THIS RIGHT OF FIRST REFUSAL AND PUT AGREEMENT (the "Agreement"), made on February 3, 1998, between CROWN GROUP, INC., a Texas corporation ("Crown"), and VAN P. FINGER (the "Shareholder"), an individual residing in Baldwin County, Alabama; W I T N E S S E T H: WHEREAS, the Shareholder is the owner of twenty (20%) percent of the issued and outstanding shares of Common Stock, $1.00 par value per share, (the "Stock") of PRECISION IBC, INCORPORATED, an Alabama corporation (the "Company"); and WHEREAS, Crown and the Shareholder desire to promote their mutual interest and interest of the Company by imposing certain rights, restrictions and obligations on themselves and the shares of Stock owned by the Shareholder; NOW, THEREFORE, in consideration of the promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is hereby agreed as follows: 1. Definitions. The term "Stock" shall mean all shares of Common Stock, $1.00 par value per share, of the Company, together with all shares of capital stock of the Company of any class which may hereafter be issued. Moreover, all references herein to Stock owned by the Shareholder include the community interest, if any, of the spouse of the Shareholder in such Stock. 2. Right of Refusal. If the Shareholder desires to sell any or all of his Stock and has received a bona fide offer for same, he shall first give Crown written notice of the terms of such offer. The purchase price for the Stock subject to such offer shall be expressed only in terms of cash and 2 credit terms. For a period of thirty (30) days after receipt of said notice, Crown shall have an option to purchase such Stock on the same terms and conditions as set out in such written notice. 3. Non-Exercise. If, at the end of the option period, the Shareholder has not received notice of an election by Crown to buy the Stock offered by him, he may, within a period of thirty (30) days after the end of said option period, sell such Stock to the buyer named in the Shareholder's notice at the same price and upon the same terms set out in such written notice, but if such Stock is not sold by the end of such period, the Stock shall again be subject to the terms and provisions of this Agreement. 4. Gift or Pledge; Estate Planning. The Shareholder shall not make a gift or pledge of his Stock without first making arrangements satisfactory to Crown that the provisions hereof shall continue to apply to such Stock. With the written consent of Crown, which consent will not be unreasonably withheld, the Shareholder shall be entitled to transfer his shares of Stock to any trust, estate or other estate planning entity created by the Shareholder in connection with estate planning and the ownership of such shares upon the death of the Shareholder shall be transferred in accordance with the instrument creating such trust, estate or other estate planning entity. Upon such transfer, such entity shall be deemed a "Shareholder" for all purposes hereunder and shall be entitled to all rights, and shall have all obligations of the Shareholder under this Agreement. Such entity shall become a party to this Agreement by execution of an agreement reasonably satisfactory to the legal representative of such entity and Crown. 5. Put Rights. (a) Shareholder Put Right. Commencing June 1, 2000 through June 30, 2000, and June 1, 2001 through June 30, 2001 (the "Put Exercise Periods"), the Shareholder shall have the right to require Crown or the Company to purchase all (but 2 3 not less than all) of the Stock held by the Shareholder (the "Put Right") at a price equal to the fair market value of such Stock, as determined in accordance with subparagraph (c) below (the "Fair Market Value"). (b) Exercise of Put Right. In order to exercise the rights granted to him pursuant to this Paragraph 5, the Shareholder shall deliver to Crown and the Company a written notice (the "Put Notice") during either of the respective Put Exercise Periods, stating that he elects to require Crown or the Company to purchase all of the Stock owned by the Shareholder (the "Repurchased Securities"). (c) Determination of Fair Market Value. The Fair Market Value of the Repurchased Securities shall be the lesser of the EBITDA Value (as hereinafter defined) or the Appraised Value (as hereinafter defined). (i) The "EBITDA Value" shall mean the value of the Repurchased Securities, determined by (A) multiplying by five (5) the Company's earnings before interest, income taxes, depreciation and amortization, plus or minus any extraordinary charges or credits ("EBITDA") for the fiscal year ended April 30, 2000 with respect to the year 2000 Put Exercise Period, and for the fiscal year ended April 30, 2001 for the year 2001 Put Exercise Period, (B) subtracting from the product thereof all Company Indebtedness (as hereinafter defined), and (C) multiplying the remainder by a fraction, the numerator of which is the number of shares of Stock owned by the Shareholder, and the denominator of which is the total number of shares of Stock issued 3 4 and outstanding. Expressed as an equation, the EBITDA Value is to be determined as follows: EBITDA Value = A/B [(5 x C) - D] Where: A = Shares of Stock owned by Shareholder B = Total shares of Stock outstanding C = EBITDA D = Company Indebtedness The determination of the EBITDA Value shall be made in accordance with generally accepted accounting principles consistently applied ("GAAP"), and the resolution of all questions with respect to accounting procedures or valuation in connection therewith, shall be made by the independent public accountants employed by the Company and the determination of such independent public accountants shall be conclusive and binding hereunder upon all parties concerned. The determination of the EBITDA Value shall be made within sixty (60) days of the date of the Put Notice. The term "Company Indebtedness" shall mean the principal amount and all interest accrued through the applicable fiscal year end owed by the Company to all lenders, exclusive of trade debt in the ordinary course of business. In determining the EBITDA Value, there shall be excluded from the Company's expenses management fees or other fees charged by Crown to the Company, but there shall be included all payments by the Company to Crown to reimburse Crown for costs actually incurred by, or properly chargeable to, the Company. (ii) The "Appraised Value" shall mean the value of the Repurchased Securities, determined as follows: (1) Within ten (10) days after delivery of the Put Right Notice, the Shareholder and Crown shall each engage an independent appraiser (an "Initial Appraiser") for the purpose of determining the 4 5 Appraised Value of the Repurchased Securities (which determination shall be made within thirty [30] days after the selection of the Initial Appraisers). Upon the determination by each Initial Appraiser of the Appraised Value of the Repurchased Securities, such Initial Appraiser shall prepare and deliver to Crown, the Company and the Shareholder and the other Initial Appraiser a written report (an "Initial Appraisal Report") stating its determination of the Appraised Value of the Repurchased Securities and setting forth in reasonable detail the method by which the same was determined. (2) After delivery of an Initial Appraisal Report by each Initial Appraiser, the Initial Appraisers shall attempt in good faith to agree upon a determination of the Appraised Value of the Repurchased Securities. If the independent appraisers agree upon a determination of the Appraised Value of the Repurchased Securities within ten (10) days after delivery of an Initial Appraisal Report by both Initial Appraisers, such determination shall be final, conclusive and binding on the parties. (3) If the Initial Appraisers do not agree upon a determination of the Appraised Value of the Repurchased Shares within the aforesaid period, the Initial Appraisers shall promptly select a third independent appraiser (the "Final Appraiser") to determine the Appraised Value of the Repurchased Securities. Upon the determination of the Appraised Value of the Repurchased Securities 5 6 by the Final Appraiser (which determination shall be made within thirty [30] days after the election of the Final Appraiser), the Final Appraiser shall prepare and deliver to Crown, the Company, the Shareholder and the Initial Appraisers, a written report (the "Final Appraisal Report") stating its determination of the Appraised Value of the Repurchased Securities and setting forth in reasonable detail the method by which the same was determined. Upon delivery of the Final Appraisal Report, the Appraised Value of the Repurchased Securities for purposes of this Paragraph 5 shall be conclusively deemed to be the average of (i) the Appraised Value of the Repurchased Securities stated in the Final Appraisal Report and (ii) the Appraised Value of the Repurchased Securities stated in the Initial Appraisal Report closest in amount to the Appraised Value stated in the Final Appraisal Report. (4) In determining the Appraised Value, there shall be no discount applied to the Shareholder's Stock based upon the minority status of such shares of Stock or the lack of marketability with respect to such shares. (5) The fees and expenses of the Initial Appraisers and the Final Appraiser shall be borne equally by the Shareholder and Crown. (6) Crown and the Shareholder shall cause the Company to cooperate in good faith with any appraisal procedure undertaken pursuant to this Paragraph 5, such cooperation to include, without 6 7 limitation, providing the independent appraisers with such reasonable information as may be requested by such Initial Appraisers and, if applicable, the Final Appraiser. (d) Put Right Closing. The closing of the sale and purchase of the Repurchased Securities pursuant to this Paragraph 5 shall take place on the tenth (10th) business day after the later of the determination of the EBITDA Value as provided for in subparagraph 5(c)(i) hereof and the determination of the Appraised Value as provided in subparagraph 5(c)(ii) above, at the principal office of the Company or at such other location as may be mutually agreed upon by the Shareholder and Crown. At such closing, the Shareholder shall deliver the certificates or other instruments evidencing the Repurchased Shares to Crown or the Company, duly endorsed in blank or accompanied by stock powers duly executed in blank or otherwise in a form acceptable for transfer on the books of the Company. Upon receipt of such certificates or other instruments, Crown or the Company shall pay to the Shareholder the Fair Market Value of the Repurchased Shares in immediately available funds. Following payment of the Fair Market Value of the Repurchased Securities as set forth in this subparagraph 5(d), all right, title and interest in and to the Repurchased Securities shall pass to Crown or the Company, as the case may be. (e) Non-Assignability and Termination of Put Right. The Shareholder's Put Right is not assignable by the Shareholder, and the Put Right shall terminate if it is not exercised during either of the two Put Exercise Periods. Further, the Put Right shall terminate upon the completion of an Initial Public Offering (as hereinafter defined) by the Company. The term "Initial Public Offering" shall mean the first 7 8 public offering of equity securities of the Company effected by the Company pursuant to a registration statement that has been declared effective under the Securities Act of 1933, as amended (the "Act") from time to time and any successor statute thereto. (f) Additional Put Rights. In addition to the Shareholder's Put Right set forth in subparagraph 5(a) hereof, the Shareholder shall have Put Rights in the event that (i) the Shareholder's employment with the Company is terminated without cause pursuant to Paragraph 11 of the Employment Agreement dated of even date herewith between the Company and the Shareholder, or (ii) the Company files a registration statement under the Act for an Initial Public Offering. The Put Exercise Period in the event of the termination of employment of the Shareholder as set forth above shall commence on the effective date of termination of employment and expire thirty (30) days thereafter and, in the event of the filing of a registration statement for an Initial Public Offering, the Put Exercise Period shall commence on the date of filing of such registration statement and terminate on the date of closing of the Initial Public Offering. The EBITDA Value shall be determined for the twelve (12) month period ending immediately prior to the first day of the month in which the Shareholder gives a Put Exercise Notice pursuant to this subparagraph. Further, in the event the Shareholder exercises his Put Right based upon the filing of a registration statement for an Initial Public Offering, the Fair Market Value shall be the EBITDA Value. If the Shareholder does not give a Put Exercise Notice with respect to an Initial Public Offering within the applicable Put Exercise Period (as set forth above), the Shareholder's Put Right with respect thereto shall terminate as set forth in 8 9 subparagraph 5(e) above. The closing of a Put Right exercised pursuant to this subparagraph shall take place in accordance with subparagraph 5(d) hereof. 6. Notices. All notices, demands and requests which may be given or which are required to be given by either party to the other, and any exercise of a right of termination provided by this Agreement, shall be in writing and shall be deemed effective when either: (1) personally delivered to the intended recipient; (2) sent by certified or registered mail, return receipt requested, addressed to the intended recipient at the address specified below; (3) delivered in person to the address set forth below for the party to which the notice was given; (4) deposited into the custody of a nationally recognized overnight delivery service such as Federal Express Corporation, Emery or Purolator, addressed to such party at the address specified below; or (5) sent by facsimile, telegram or telex, provided that receipt for such facsimile, telegram or telex is verified by the sender and followed by a notice sent in accordance with one of the other provisions set forth above. Notices shall be effective on the date of delivery or receipt or, if delivery is not accepted, on the earlier of the date that delivery is refused or three (3) days after the date the notice is mailed. For purposes of this Paragraph, the addresses of the parties for all notices are as follows (unless changes by similar notice in writing are given by the particular person whose address is to be changed): (a) if to the Shareholder, to Van P. Finger, C/O Precision IBC, Incorporated, PO Box 1171, Fairhope, Alabama 36533-1171; Fax 334-990-6787; With a copy to Sam W. Irby, Irby & Heard, P.C., 317 Magnolia Avenue, PO Box 1031, Fairhope, Alabama 36533; Fax (334) 928-7993; (b) or if to Crown, to Crown Croup, Inc., 4040 North MacArthur Boulevard, Suite 100, Irving, Texas 75038; Attention: Edward R. McMurphy, President; Fax (972) 719-4466; 9 10 With a copy to T. J. Falgout, III, Executive Vice President and General Counsel, Crown Croup, Inc., 4040 North MacArthur Boulevard, Suite 100, Irving, Texas 75038; Fax (972) 719-4466. Either party hereto may designate a different address by written notice given to the other parties. 7. Endorsement of Stock Certificates. All certificates of Stock of the Company now owned or that may hereafter be acquired by the Shareholder shall be endorsed on the back thereof as follows: "The shares of capital stock of the within named Company represented by this Certificate are subject to the restrictions and purchase options and obligations contained in that certain Right of First Refusal and Put Agreement between the owner of this Certificate and Crown Group, Inc., and the Company will furnish the record holder of a Certificate without charge, upon written request to the Company at its principal place of business or registered office, a copy of such Agreement." Such certificate shall be endorsed on the front thereof as follows: "See restrictions on transfer on reverse side hereof." 8. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF ALABAMA. 9. Benefit. Subject to the restrictions on assignment set forth in Paragraph 5(e) hereof, this Agreement shall be binding upon, and inure to the benefit of, Crown and the Shareholder and their respective heirs, executors, administrators, successors and assigns. 10. Amendment. This Agreement may be amended from time to time by an instrument in writing signed by the parties to this Agreement at the time of such amendment, such instrument being designated on its face as an "Amendment" to this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on or as of the date and year first above written. 10 11 CROWN: CROWN GROUP, INC. By: --------------------------------------- Edward R. McMurphy, President SHAREHOLDER: -------------------------------------------- VAN P. FINGER 11 -----END PRIVACY-ENHANCED MESSAGE-----