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EXHIBIT 10.2
THE SECURITIES PURCHASED PURSUANT TO THE TERMS OF THIS AGREEMENT HAVE NOT BEEN
REGISTERED UNDER EITHER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933
ACT"), OR APPLICABLE STATE SECURITIES LAWS (THE "STATE ACTS"), AND SHALL NOT BE
SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED (WHETHER OR NOT
FOR CONSIDERATION) BY THE HOLDER EXCEPT BY REGISTRATION OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UPON THE ISSUANCE TO THE COMPANY OF A FAVORABLE
OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY TO
THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE 1933 ACT AND
THE STATE ACTS.
STOCK PURCHASE AGREEMENT
North American Technologies Group, Inc., a Delaware corporation (the
"Company"), its Operating Subsidiaries (as defined herein) signatory hereto
(for purposes of SECTION 2 only), NationsBanc Capital Corporation, a Texas
corporation ("NBCC"), and the other parties signatory hereto (the "Initial
Investors") or who may become a signatory hereto after the date hereof pursuant
to SECTION 1.3 (the "Additional Investors"), enter into this Agreement, dated
as of March 31, 1997, relating to the issuance by the Company of certain of its
securities. NBCC, the Initial Investors and the Additional Investors are
hereinafter each individually referred to as an "Investor" and collectively as
the "Investors."
SECTION 1. DESCRIPTION OF TRANSACTIONS.
1.1 DESCRIPTION OF SECURITIES. The Company agrees to issue as
provided herein to the Investors, and the Investors severally but not jointly
agree to purchase from the Company, shares of subseries (each, a "Subseries")
of the Company's authorized but unissued Series G Preferred Stock, $.001 par
value per share (the "Series G Shares," which shall include any Series G Shares
issued as stock dividends and/or payments-in-kind), at the times and from time
to time as provided herein. The Series G Shares will be convertible into
shares of the Company's Common Stock, $.001 par value per share (the "Common
Stock"), as provided in the Master Certificate of Designation with respect to
the Series G Shares in the form of Exhibit 1 attached hereto and a Designation
of Subseries filed with the Secretary of State of Delaware pursuant thereto.
The purchase price per share of each Subseries shall be $100 per share and the
terms of each Subseries shall be identical except that the number of securities
of the Company issued or issuable upon conversion of Series G Shares in each
Subseries and the initial Conversion Price for each Subseries shall be as set
forth in the applicable Designation of Subseries. Any securities of the Company
issued or issuable upon conversion of the Series G Shares (and any Common Stock
issued as stock dividends and/or payments-in-kind on the Series G Shares) are
referred to as "Conversion Shares."
1.2 INITIAL CLOSING; ISSUANCE OF SUBSERIES I SHARES. The initial
closing (the "Initial Closing") of the purchase and sale of Series G Shares,
which shall be designated as Series G
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Preferred Stock, Subseries I (the "Subseries I Shares"), shall take place at
the principal offices of the Company located in Bellaire, Texas, at 1:00 p.m.,
on the date of this Agreement, or such other time and place as agreed to by the
parties (the "Initial Closing Date"). At the Initial Closing, the Company will
deliver the Subseries I Shares being acquired by the Initial Investors upon
payment of the purchase price by the Initial Investors to the Company by either
(a) wire transfer or (b) certified or bank cashier's check. The Company will
not be obligated to issue any Subseries I Shares unless the Initial Investors
purchase all of the Subseries I Shares indicated on Exhibit 2 to be purchased
at the Initial Closing.
1.3 PURCHASE OF ADDITIONAL SUBSERIES BY ADDITIONAL INVESTORS.
Subject to: (i) any preemptive rights and/or rights of first refusal, and (ii)
no Event of Default (as defined in SECTION 4.1(d) of this Agreement) being in
existence, the Company may, at its election, sell and issue additional shares
of Subseries of Series G Shares to Additional Investors (who may also be
Initial Investors and who shall be deemed Additional Investors), at one or more
closings selected by the Company (hereinafter referred to as an "Additional
Closing"), on the following terms and subject to the following conditions:
(a) the Company shall provide to each Additional Investor and the
Initial Investors a written request, substantially in the form of Exhibit 3,
not less than thirty (30) days preceding the date of such Additional Closing,
which shall set forth among other things (i) the time, date and place (each an
"Additional Closing Date" and with the Initial Closing Date, each a "Closing
Date") of such Additional Closing (which shall be the then principal offices
of the Company in the State of Texas, unless the Company and the Additional
Investors purchasing such additional Subseries agree otherwise), (ii) the
designation and number of shares of the Subseries to be purchased by and sold
to such Additional Investor and the aggregate number of shares of the Subseries
to be purchased by and sold to all Additional Investors at such Additional
Closing, and (iii) the proposed initial Conversion Price on which the
conversion privilege of the Subseries shall be based;
(b) unless any such Initial Investor agrees otherwise, such
Initial Investor shall be able to purchase a number of shares of the Subseries
of the Series G Shares to be sold at such Additional Closing at least equal to
the total number of shares of the Subseries of the Series G Shares to be sold
at such Additional Closing multiplied by the proportion that the number of
shares of all Subseries of Series G Shares owned of record by such Initial
Investor bears to the total number of all Subseries of Series G Shares
outstanding immediately prior to the notice delivered pursuant to the terms of
Section 1.3(a) above;
(c) the aggregate purchase price for the Subseries to be purchased
and sold at such Additional Closing shall be not less than $250,000;
(d) no such Additional Closings shall occur after March 31, 1999,
and
(e) At each Additional Closing, the Company will deliver the
certificates for the Subseries of Series G Shares being sold to each Additional
Investor, upon payment of the
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purchase price by the Additional Investors to the Company by either (a) wire
transfer or (b) certified or bank cashier's check. Each Additional Investor
agrees jointly but not severally to pay such purchase price for the Subseries
of Series G Shares to be sold to such Additional Investor at such Additional
Closing. The Company shall not be obligated to issue any shares of such
Subseries of Series G Shares at such Additional Closing unless the Additional
Investors purchase all the shares of such Subseries of Series G Shares
contemplated to be purchased and sold at such Additional Closing. At each
Additional Closing, by its payment of the purchase price for the shares of
Subseries of Series G Shares to be purchased by it, each Additional Investor
severally but not jointly shall be deemed to have made to the Company, as of
the date of the Additional Closing, the representations and warranties with
respect to such Additional Investor as are set forth in SECTION 3 of this
Agreement; and each such Additional Investor who has not previously executed
this Agreement shall execute and deliver a copy of this Agreement.
1.4 CONDITIONS TO CLOSING. The obligation of each Investor to
purchase and pay for the Series G Shares to be purchased by each Investor at
the Initial Closing or any Additional Closing (each, a "Closing") is subject to
the satisfaction at or prior to such Closing of each of the following
conditions:
(a) the Company shall have duly authorized and filed a Master
Certificate of Designation with the Secretary of State of the State of Delaware
substantially in the form attached hereto as Exhibit 1, and a Designation of
Subseries for the Subseries to be issued as provided therein;
each of the Investors not already a party thereto shall have
entered into that certain Stockholders' Agreement, by and between the Company,
Xxx X. Xxxxxxxxxx, Xxxxxx Xxxxxx Xxxxxxx, Xxxxx X. Xxxxxxx and Xxxxxxx X. Xxxx,
and certain other shareholders of the Company who own shares of the Series F
Preferred Shares of the Company (the "Stockholders' Agreement");
(c) Xxxxxxxx Ingersoll Professional Corporation, Philadelphia,
Pennsylvania, counsel for the Company, shall have delivered to each Investor a
legal opinion, dated as of the Closing Date, in form and substance reasonably
satisfactory to the Investors;
(d) at each Closing where NBCC is an Investor, the Company shall
have delivered to NBCC the information required by the Small Business
Administration (the "SBA"), including SBA Forms 480 (Size Status Declaration),
652 (Assurance of Compliance for Nondiscrimination) and 1031 (Portfolio
Financing Report), that is requested by NBCC;
(e) the Company shall have delivered to each Investor the
financial statements referred to in SECTION 2.7 below; and
(f) the Company shall have delivered to each Investor:
(i) the Certificate of Incorporation of the Company and
all amendments thereto, certified by the Xxxxxxxxx xx Xxxxx xx
Xxxxxxxx;
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(xx) (X) copies of the Company's and each Operating
Subsidiary's resolutions of the Board of Directors authorizing and
approving this Agreement and all of the transactions and agreements
contemplated hereby and thereby, (B) the Bylaws of the Company and (C)
the names of the officer or officers of the Company and each Operating
Subsidiary authorized to execute this Agreement and any and all
documents, agreements and instruments contemplated herein, all
certified by the Secretary of the Company to be true, correct,
complete and in full force and effect and unmodified as of such
Closing Date;
(iii) a good standing certificate for the Company and each
Operating Subsidiary from the Secretary of State of the jurisdiction
of organization of each and a certificate from each state where the
Company and each Operating Subsidiary is required (as provided in
SECTION 2.1 hereof) to be qualified as a foreign corporation showing
such qualification, dated as of a date within ten (10) days of such
Closing Date;
(iv) the latest available consolidated budget/operating
forecast of the Company and the Subsidiaries;
(v) a certificate of the President of the Company and of
an authorized executive officer of each Operating Subsidiary, dated as
of such Closing Date, stating that (i) there has been no Event of
Default (as defined in SECTION 4.1(d)), other than any of the same
that has been waived as provided in the first sentence of SECTION 9.1
hereof, and (ii) the representations and warranties set out in this
Agreement are true, complete and accurate as of the date of such
Closing Date, other than any changes thereto reflected in any
Quarterly Report on Form 10-Q or 10-QSB (or other appropriate form
then in use), any Annual Report on Form 10-K or 10-KSB (or other
appropriate form then in use), any amendment thereto, or any other
report or registration statement of the Company filed with the
Securities and Exchange Commission (the "Commission") since the date
of this Agreement, a copy of which was delivered to each Investor
prior to such Investor's agreement to purchase any such Subseries of
Series G Shares; and (y) such other matters as may be set out in such
Certificate, none of which could have a material adverse effect on the
Company and the Operating Subsidiaries, taken as a whole, in the
discretion of the Investors; and
(vi) such other documents, instruments, and certificates
as the Investors may reasonably request.
SECTION 2. REPRESENTATIONS OF THE COMPANY. As part of the basis of this
Agreement, the Company (which such representations of the Company for the
purposes of this SECTION 2 shall be deemed to be both with respect to the
Company itself and with respect to the Company and the Subsidiaries, taken as a
whole) and each Operating Subsidiary signatory hereto, jointly and severally,
represent to the Investors on the date hereof and on each Closing Date that:
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2.1 ORGANIZATION. Each of the Company and EET, Inc., Industrial
Pipe Fittings, Inc., GAIA Technologies, Inc. and Riserclad International, Inc.
(collectively, the "Operating Subsidiaries" and each an "Operating Subsidiary"
and, with the other entities listed in Schedule 2.16 hereto, collectively, the
"Subsidiaries" and each a "Subsidiary") is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization, and except as described in Schedule 2.1, is not required to be
qualified to do business as a foreign corporation in any other jurisdiction
where the failure to so qualify would have a material adverse effect on the
Company and the Operating Subsidiaries. Schedule 2.1 sets forth the
jurisdictions in which the Company and each Operating Subsidiary is qualified.
2.2 CORPORATE POWER. The Company and each Operating Subsidiary
have all required corporate power and authority to own their respective
properties and to carry on their respective businesses as presently conducted
and as proposed to be conducted. The Company and each Operating Subsidiary
have all required corporate power and authority to enter into, deliver and
perform this Agreement and to fully carry out the transactions contemplated by
this Agreement. The copies of the Certificate or Articles, as applicable, of
Incorporation and Bylaws of the Company and each Operating Subsidiary, as
amended to date, which have been furnished to counsel for the Investors, are
true, correct and complete.
2.3 AUTHORIZATION. This Agreement and all documents executed
pursuant to this Agreement are valid and binding obligations of the Company and
the Operating Subsidiaries, as the case may be, enforceable according to their
terms, except as may be limited by (a) applicable bankruptcy, insolvency,
reorganization or other similar laws of general application relating to or
affecting the enforcement of creditor rights, (b) laws and judicial decisions
regarding indemnification for violations of federal securities laws, and (c)
the availability of specific performance or other equitable remedies. The
execution, delivery and performance of this Agreement and the issuance of the
Series G Shares and the Conversion Shares have been duly authorized by all
necessary corporate action of the Company and the Operating Subsidiaries, as
the case may be.
2.4 GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS. Except as
may have been obtained, no approval, consent, exemption, authorization, or
other action by, or notice to, or filing with, any governmental authority or
any other individual, corporation, partnership, trust, incorporated or
unincorporated association, joint venture, joint stock company, government (or
an agency or political subdivision thereof) or other entity of any kind is
necessary or required in connection with the execution, delivery, performance
or enforcement against the Company and the Operating Subsidiaries of this
Agreement, or any other documents executed pursuant to this Agreement, except
for federal and state securities filings.
2.5 CAPITALIZATION. The authorized and issued capital stock of
the Company and each Operating Subsidiary is as set forth in Schedule 2.5. All
of the presently outstanding shares of capital stock of the Company and each
Subsidiary have been validly authorized and issued and are fully paid and
nonassessable. The Series G Shares have been validly authorized and, when
delivered and paid for pursuant to this Agreement, will be validly issued,
fully paid and nonassessable, and free of all encumbrances and restrictions,
except restrictions on transfer imposed by applicable securities laws, the
Certificate of Incorporation, the Stockholders' Agreement and/or this
Agreement. The relative rights, preferences, restrictions and other provisions
relating to the Series G Shares are as set forth in the Master Certificate of
Designation and the Designation of Subseries. The Company has authorized and
reserved for issuance upon conversion of the Series G Shares not less than
6,000,000 shares of its Common Stock, and the Conversion Shares will be, when
and if issued in accordance with the terms of the Master Certificate of
Designation and applicable Designation of Subseries, validly authorized and
issued, fully paid and
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nonassessable, and free of all encumbrances and restrictions, except
restrictions on transfer imposed by applicable securities laws, the Certificate
of Incorporation, the Stockholders' Agreement and/or this Agreement. Except as
provided in Schedule 2.5, neither the Company nor any Subsidiary has issued any
other shares of its capital stock and there are no outstanding subscriptions,
warrants, options, calls, commitments, or other rights to purchase or acquire,
or securities convertible into or exchangeable for, any capital stock of the
Company or any Subsidiary. Except as disclosed on Schedule 2.5 or as
contemplated under this Agreement (and the other agreements executed in
connection herewith), there are no agreements to which the Company or any
Subsidiary is a party or has knowledge regarding the issuance, registration,
voting, transfer of or obligation (contingent or otherwise) of the Company or
any Subsidiary to repurchase or otherwise acquire or retire or redeem any of
its outstanding shares of capital stock.
2.6 PREEMPTIVE RIGHTS. There are no preemptive rights affecting
the issuance or sale of the Company's capital stock, except as described in
SECTION 7 hereof and the Stockholders' Agreement.
2.7 FINANCIAL STATEMENTS. The Financial Statements (as defined
below) have been prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
indicated and with each other, except that the unaudited Financial Statements
do not contain footnotes required by GAAP. The Financial Statements fairly
present the consolidated financial condition and operating results of the
Company as of the dates, and for the periods, indicated therein, subject in the
case of the unaudited Financial Statements to normal year-end and quarter-end
adjustments. Except as set forth in the Financial Statements, neither the
Company nor any Operating Subsidiary has any liabilities, contingent or
otherwise, other than (a) obligations under contracts and commitments incurred
in the ordinary course of business and not required under GAAP to be reflected
in the Financial Statements and which, individually or in the aggregate, are
not material to the financial condition or operating results of the Company or
any Operating Subsidiary or (b) as set forth on Schedule 2.7 hereto or as
otherwise disclosed in this SECTION 2 or any Schedule hereto. Except as
disclosed in the Financial Statements, on Schedule 2.7 hereto and for
inter-company transactions with or between Operating Subsidiaries, neither the
Company nor any Subsidiary has any indebtedness for borrowed money and none of
them is a guarantor or indemnitor of any indebtedness of any other person, firm
or corporation. The Company and the Subsidiaries maintain and will continue to
maintain a standard system of accounting established and administered in
accordance with GAAP. With regard to the Initial Closing, Financial Statements
shall mean the Company's audited financial statements as of December 31, 1996
as filed with the Commission. With regard to any
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Additional Closing, Financial Statements shall mean the Company's most recent
year end audited financial statements, as filed with the Commission prior to
the date of any such Additional Closing, and any quarterly unaudited financial
statements, as filed with the Commission prior to the date of any such
Additional Closing, for all periods subsequent to the date of the most recent
year end audited financial statements.
2.8 ABSENCE OF CERTAIN DEVELOPMENTS. Except as disclosed in
Schedule 2.8 or in the Financial Statements, since the date of the latest
Financial Statements, (a) there has been no material adverse change in the
financial condition of either the Company or any of the Operating Subsidiaries,
(b) neither the Company nor any Operating Subsidiary has incurred any material
liabilities or material contingent liabilities, (c) the Company has not
declared any dividends or purchased any of its capital stock, (d) neither the
Company nor any Operating Subsidiary has entered into any material transactions
outside the ordinary course of business, (e) neither the Company nor any
Operating Subsidiary has waived a valuable right or cancelled any debt or claim
held by the Company or any Operating Subsidiary, (f) neither the Company nor
any Operating Subsidiary has made a loan to any officer, director, employee or
shareholder of the Company, or any agreement or commitment therefor, (g)
neither the Company nor any Operating Subsidiary has had or committed to any
increase, direct or indirect, in the compensation paid or payable to any
officer, director, employee or agent of the Company or any Operating
Subsidiary, except as required by written employment agreements to which the
Company or any Operating Subsidiary is a party (and which such increases are
described in Schedule 2.8), (h) neither the Company nor any Operating
Subsidiary has had any material loss, destruction or damage to any property,
whether or not insured, (i) neither the Company nor any Operating Subsidiary
has had any change in personnel or the terms and conditions of their
employment, (j) neither the Company nor any Operating Subsidiary has had any
acquisition or disposition of any assets (or any contract or arrangement
therefor), or any other transaction otherwise than for fair value in the
ordinary course of business, and (k) neither the Company nor any Operating
Subsidiary has committed itself to any of (a) through (j) above.
2.9 TAX MATTERS. All required tax returns of the Company and
each Subsidiary have been accurately prepared in all material respects and
filed (including applicable extensions), and all taxes and penalties required
to be paid with respect to the periods covered by such returns have been timely
paid. Neither the Company nor any Subsidiary is delinquent in the payment of
any tax, assessment or governmental charge, has had any tax deficiency proposed
or assessed against it that is still outstanding, or has executed any waiver
still in effect of any statute of limitations on the assessment or collection
of any tax. None of the federal or state income tax returns or state franchise
tax returns of either the Company or any Subsidiary has ever been audited by
governmental authorities. There is no pending dispute with any taxing
authority that, if determined adversely to the Company or any Operating
Subsidiary, would result in the assertion by any taxing authority of any
material tax deficiency, and neither the Company nor any Operating Subsidiary
has any knowledge of a proposed liability for any tax to be imposed upon the
Company's or any Subsidiary's properties or assets for which there is not an
adequate reserve reflected in the Financial Statements.
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2.10 TITLE TO ASSETS; CONDITION OF ASSETS. Except as disclosed in
the notes to the latest Financial Statements, if any, and on Schedule 2.10, the
Company and the Operating Subsidiaries have good and indefeasible title to
their respective assets, including, without limitation, those reflected on the
Financial Statements (other than those since disposed of in the ordinary course
of business), free and clear of all security interests, liens, charges and
other encumbrances, except for (a) liens for taxes not yet due and payable or
being contested in good faith in appropriate proceedings, and (b) encumbrances
that are incidental to the conduct of their respective businesses or ownership
of property, not incurred in connection with the borrowing of money or the
obtaining of credit, and which do not in the aggregate materially detract from
the value of the assets affected or materially impair their use by the Company
or such Operating Subsidiary, as the case may be. With respect to the assets
of the Company and each Operating Subsidiary that are leased, the Company or
such Operating Subsidiary, as the case may be, is in compliance with all
material provisions of such leases. The equipment and other tangible assets of
the Company and the Operating Subsidiaries are in good operating condition
(except for reasonable wear and tear), and have been reasonably maintained.
2.11 PROPRIETARY RIGHTS. Except as set forth in Schedule 2.11, the
Company and the Subsidiaries have ownership of all material copyrights,
trademarks, service marks and other proprietary rights used in their respective
businesses (collectively the "Intellectual Property"). Such copyrights,
trademarks, service marks and other proprietary rights are sufficient for its
business as now conducted and as proposed to be conducted without any conflict
with, or infringement of, the rights of others. The present products and
services of the Company and the Operating Subsidiaries do not infringe any
patent, copyright, trademark or other proprietary rights of others, neither the
Company nor any Operating Subsidiary believes the Company or any Operating
Subsidiary is utilizing the inventions of any employee (or person currently
intended to be hired) created prior to his employment with the Company or such
Operating Subsidiary, as the case may be, which the Company or such Operating
Subsidiary, as the case may be, does not have rights to use, and neither the
Company nor any Operating Subsidiary has received any notice from any third
party of any such alleged infringement by the Company or such Operating
Subsidiary. The Company and the Operating Subsidiaries have taken all necessary
steps to establish and preserve their respective ownership, licenses or rights
of use of all material trademarks, service marks, copyrights, trade secrets and
other proprietary rights with respect to their products, services and
technology. Neither the Company nor any Operating Subsidiary is aware of any
infringement by others of its respective Intellectual Property. Except as set
forth on Schedule 2.11, there are no outstanding options, licenses, or
agreements of any kind relating to the Intellectual Property, nor is the
Company or any Operating Subsidiary bound by or a party to any options,
licenses, or agreements of any kind with respect to the patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information
and proprietary rights and processes of any other person or entity. None of
the agreements referred to in Schedule 2.11 gives the other parties thereto any
rights or interests in or to the Intellectual Property of the Company or any
Operating Subsidiary other than to use such Intellectual Property solely in
connection with the internal operations of their business and neither they nor
any other third party have the right to license, sublicense, distribute or
market all or part of the Company's or any Operating Subsidiary's products,
except as described on Schedule 2.11. Neither the execution
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nor delivery of this Agreement, nor the carrying on of the Company's and each
Operating Subsidiary's business by the employees of the Company and each
Operating Subsidiary, nor the conduct of the Company's and each Operating
Subsidiary's business as proposed, will, to the best of the Company's and each
Operating Subsidiary's knowledge, conflict with or result in a material breach
of the terms, conditions, or provisions of, or constitute a material default
under, any contract, covenant or instrument under which any such employee is
now obligated.
2.12 MANUFACTURING AND MARKETING RIGHTS. Except as set forth in
Schedule 2.12, neither the Company nor any Operating Subsidiary has granted
rights to manufacture, produce, assemble, license, market or sell its products
to any other person and is not bound by any agreement that affects the
Company's or any Operating Subsidiary's exclusive right to develop,
manufacture, assemble, distribute, market or sell its products.
2.13 EFFECT OF TRANSACTIONS; COMPLIANCE WITH OBLIGATIONS. The
Company's and each Operating Subsidiary's execution and delivery of this
Agreement, and its performance of the transactions contemplated by this
Agreement, will not violate any judgment, decree or order, or any material
contract or obligation of the Company or any Operating Subsidiary, as the case
may be, or, to such entity's knowledge, any statute, rule or regulation of any
federal, state or local government or agency applicable to the Company or any
Operating Subsidiary, or any material contract to which any employee of the
Company or any Operating Subsidiary is bound. Based upon the representations
of the Investors, the offer and sale of the Series G Shares will be in
compliance with all applicable federal and state securities laws. No consent,
approval or filing with any regulatory agency is required to be taken by the
Company or any Operating Subsidiary in connection with the transactions
contemplated by this Agreement, except those which the Company or any Operating
Subsidiary has obtained or made in a timely manner, and except for any filing
of Form D or any applicable state blue sky filing that may be made by the
Company after the relevant Closing.
2.14 LITIGATION. Except as disclosed in the Company's Commission
Documents (as defined herein) and/or the latest Financial Statements, there is
no litigation, arbitration or governmental proceeding or investigation pending
or, to the knowledge of the Company or any Operating Subsidiary, threatened (a)
against the Company or any Subsidiary, (b) affecting any of the properties or
assets of the Company or any Subsidiary, (c) that questions the validity of
this Agreement, or the right of the Company or any Operating Subsidiary to
enter into this Agreement or to consummate the transactions contemplated
hereby, or (d) against any officer, director, shareholder or employee of the
Company or any Subsidiary in such capacity or relating to his prior employment
relationships. Neither the Company nor any Operating Subsidiary is aware of
any unasserted claim that is likely to result in any litigation, arbitration or
legal or administrative proceeding against it or any other Subsidiary.
2.15 LEGAL COMPLIANCE. The Company and the Operating Subsidiaries
have all material franchises, permits, licenses and other rights and privileges
necessary to permit them to own their respective properties and to conduct
their respective businesses as presently conducted and as proposed to be
conducted. The business and operations of the Company and each
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Operating Subsidiary have been, are being and will be conducted in all material
respects in accordance with all applicable laws, rules and regulations, and
neither the Company nor any Operating Subsidiary is in violation of any
judgment, or to such entity's knowledge, any law or regulation, the violation
of which could reasonably be expected to result in a material adverse effect on
the Company or such Operating Subsidiary.
2.16 SUBSIDIARIES; JOINT VENTURES. Except as described in Schedule
2.16 hereto or in the Commission Documents, the Company does not have any
direct or indirect subsidiaries, nor any interests in partnerships, joint
ventures, limited liability companies, or other business entities. The
Operating Subsidiaries are the only Subsidiaries of the Company which either
individually or in the aggregate, have any material assets, liabilities or
operations and which constitute "significant subsidiaries" as defined in Rule
1-02 of Regulation S-X promulgated under the Securities Act of 1933, as amended
(the "Securities Act"). Each Subsidiary named in Schedule 2.16 hereto is
wholly owned by the Company, except as set forth in Schedule 2.16 hereto, and
the Company has no present intention of (a) disposing of any of the capital
stock of any such Subsidiary presently owned by the Company or (b) allowing any
Subsidiary to sell or otherwise dispose of any material portion of such
Subsidiary's assets, except for normal dispositions in the ordinary course of
business.
2.17 NO DEFAULTS; MATERIAL CONTRACTS. The Company and the
Operating Subsidiaries have in all respects performed all obligations required
to be performed by them and are not in default under any contract, commitment
or instrument, and no event or condition has occurred which, with the giving of
notice or passage of time, or both, would constitute such a default, except
where the failure to perform any such obligation, or except where any such
default, would not reasonably be expected to have a material adverse effect on
the business, assets, results of operations, condition (financial or
otherwise), or prospects of the Company and its Operating Subsidiaries taken as
a whole. Schedule 2.17 contains an accurate list of all agreements, and any
contracts or commitments, oral or written, of the Company and each Operating
Subsidiary, that require the expenditure by the Company or such Operating
Subsidiary of more than $100,000 over the term of such contract or commitment,
or that are not terminable by the Company or such Operating Subsidiary without
penalty prior to the first anniversary of this Agreement. Except as indicated
on Schedule 2.17, (a) neither the Company nor any Operating Subsidiary is under
any material obligation that cannot be performed by it on time and without
substantial or unusual expenditure of money and effort, or (b) any party having
material contracts with the Company or any Operating Subsidiary are, to the
knowledge of such entity, in compliance with such agreements in all material
respects.
2.18 INSURANCE. The Company and the Subsidiaries maintain
insurance coverages which are adequate for the businesses being conducted, and
the properties owned or leased, by the Company and the Subsidiaries. The
Company has provided access to the Investors to correct and complete copies of
all such insurance policies of the Company and the Subsidiaries.
2.19 EMPLOYEE MATTERS; AFFILIATE TRANSACTIONS. Except as disclosed
in Schedule 2.19 or in the Commission Documents or as described in this
Agreement, (a) neither the Company
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nor any Operating Subsidiary has in effect or any obligation to put into effect
any employment agreements, deferred compensation, pension or retirement
agreements or arrangements, bonus, incentive or profit-sharing plans or
arrangements, or labor or collective bargaining agreements, (b) there are no
existing or proposed loans, leases, licenses or other such agreements or
arrangements between the Company or any Operating Subsidiary, on the one hand,
and any officer, director or stockholder of the Company or any Operating
Subsidiary, on the other hand, and (c) neither the Company nor any Operating
Subsidiary (i) is a party to any contract with any labor union or organization
representing any employee, or any other employee representative, or (ii) has
had at any time during the past five years, nor to the knowledge of such entity
is there now threatened, any walkout, strike, picketing, work stoppage or any
other similar occurrence which has had or would have a material adverse effect
on the assets, business, prospects or operations of the Company and the
Operating Subsidiaries. The Company has made available to the Investors a true
and correct summary of the policies, if any, followed by the Company and each
Operating Subsidiary regarding confidentiality of sensitive information and
ownership of patents, know-how and other such matters relating to the business
of the Company and each Operating Subsidiary. Except as disclosed in Schedule
2.19, to the knowledge of the Company and the Operating Subsidiaries, (A) no
officer or other key employee of the Company or any Operating Subsidiary has
any present intention of terminating his employment with the Company or such
Operating Subsidiary, and (B) no key employee is bound by any agreement with
any other employer (past or present) that adversely affects the performance of
his duties as an employee of the Company or any such Operating Subsidiary or
the businesses of the Company or any such Operating Subsidiary.
2.20 BROKERAGE. Except as listed in Schedule 2.20, there are
no claims for brokerage commissions, finder's fees or similar compensation in
connection with the transactions contemplated by this Agreement based on any
arrangement or agreement made by the Company or any Subsidiary, for which any
of the Investors are or could under any circumstance be liable.
2.21 DISCLOSURE. This Agreement, including the exhibits and
schedules hereto, and the other documents and certificates furnished by the
Company and/or any Subsidiary to the Investors or their counsel do not contain
any untrue statement of material fact or, when taken as a whole, omit any
material fact necessary in order to make the statements not misleading. There
is no fact known to the Company or any Operating Subsidiary that has not been
disclosed in the Commission Documents or that the Company and the Operating
Subsidiaries have not disclosed to the Investors prior to the date of this
Agreement or any Additional Closing, as applicable, that materially adversely
affects the business, assets, properties, prospects or condition (financial or
otherwise) of the Company or any Operating Subsidiary or the ability of the
Company or any Operating Subsidiary to perform under this Agreement or to
consummate the transactions contemplated hereby.
2.22 EMPLOYEE BENEFIT PLANS. Except as set forth in Schedule 2.22
hereto, neither the Company nor any Operating Subsidiary maintains, sponsors,
or contributes to any program or arrangement that is an "employee pension
benefit plan," an "employee welfare benefit plan," or a "multiemployer plan,"
as those terms are defined in Sections 3(2), 3(1), and 3(37) of the
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Employee Retirement Security Act of 1974, as amended. Except as listed in
Schedule 2.22, neither the Company nor any Operating Subsidiary has any
incentive or benefit arrangements.
2.23 ENVIRONMENTAL.
(a) Except for items which could not reasonably be expected to
have a material adverse effect on the Company or any Subsidiary, no part of the
Company's or any of its Subsidiaries' assets, including, without limitation,
any real property owned or, to the knowledge of such entity after diligent and
appropriate inquiry by the officers of such entity, leased by any such entity,
is contaminated by any substance or material presently identified to be toxic,
a pollutant, a contaminant or a hazardous substance according to any Applicable
Environmental Law. Neither the Company nor any Subsidiary has caused or
suffered to occur any material discharge, release, spillage, emission,
uncontrolled loss, seepage or filtration of oil or petroleum or chemical
liquids or solids, liquid or gaseous products or hazardous waste or hazardous
substance at, from, upon, and under or within any real property owned or leased
by the Company or any Subsidiary, or any contiguous real property. Neither the
Company nor any Subsidiary has been and none of such entities has committed any
acts or omissions which could reasonably be expected to lead to the imposition
on the Company or any Subsidiary of material liability, or creation of a lien
on the Company's or any Subsidiary's assets, under any Applicable Environmental
Law.
(b) For purposes of this Section, "Applicable Environmental Law"
shall mean any law affecting real or personal property owned, operated or
leased by the Company or any Subsidiary or any other operation of the Company
or any Subsidiary in any way pertaining to health, safety, or the environment,
including, without limitation, (i) the Comprehensive Environmental Response,
Conservation and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986 (as amended from time to time, herein referred
to as "CERCLA"), (ii) the Resource Compensation and Recovery Act of 1976, as
amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal Act of
1980, and the Hazardous and Solid Waste Amendments of 1984 (as amended from
time to time, herein referred to as "RCRA"), (iii) the Safe Drinking Water Act,
as amended from time to time, (iv) the Toxic Substances Control Act, as amended
from time to time, (v) the Clean Air Act, as amended from time to time, (vi)
the Occupational Safety and Health Act, as amended from time to time, and (vii)
any laws which may now or hereafter require removal of asbestos or other
hazardous wastes or impose any liability related to asbestos or other hazardous
wastes. The terms "hazardous substance", "petroleum", "release", and
"threatened release" have the meanings specified in CERCLA, and the terms
"solid waste" and "disposal" (or "disposed") have the meanings specified in
RCRA; provided, however, that in the event either CERCLA or RCRA is amended so
as to broaden the meaning of any term defined thereby, such broader meaning
shall apply subsequent to the effective date of such amendment with respect to
all provisions of this Agreement; and provided further, however, that to the
extent the laws of any nation, province, state or political subdivision thereof
in which any real or personal property owned, operated or leased by the Company
or any Subsidiary is located or in which the Company or any Subsidiary conducts
operations establish a meaning for "hazardous substance", "petroleum",
"release", "solid waste" or "disposal" which
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is broader than that specified in either CERCLA or RCRA such broader meaning
shall apply.
2.24 AFFILIATED TRANSACTIONS. Schedule 2.24 hereto and the
Commission Documents contain a complete listing of all compensation and other
agreements of the Company and each Subsidiary with or for the benefit of any of
their respective affiliates, any shareholder of the Company and the
Subsidiaries, respectively, or any affiliate of any shareholder of the Company
and the Subsidiaries, respectively, other than inter-company transactions with
or between Operating Subsidiaries. Except for the employment contracts listed
on Schedule 2.24 hereto or in the Commission Documents, copies of which have
been provided to the Investors, neither the Company nor any Operating
Subsidiary have, as of the Closing Date, any written employment contracts.
2.25 PRIVATE OFFERING. Neither the Company nor anyone acting on
its behalf has offered or will offer shares of the Company or any part thereof
or any similar securities for issuance or sale to, or solicit any offer to
acquire any of the same from, anyone so as to make the issuance and sale of the
Series G Shares not exempt from the registration requirements of Section 5 of
the Securities Act; provided, however, that with respect to the offer and sale
thereof to the Investors, the Company is relying on the representations,
warranties and agreements of the Investors set forth herein. All shares of
capital stock of the Company have been offered and sold in compliance with all
applicable federal and state securities laws. Assuming that each Investor's
representations and warranties contained in SECTION 3 of this Agreement are
true and correct on each Closing Date on which such Investor purchased any
Series G Shares, the offer, issuance and sale of the Series G Shares are and
will be exempt from the registration and prospectus delivery requirements of
the Securities Act, as then in effect, and have been or will be registered or
qualified (or are or will be exempt from registration and qualification) under
the registration, permit or qualification requirements of all applicable state
securities laws, as then in effect.
2.26 COMMISSION DOCUMENTS. The Company has filed all registration
statements, proxy statements, reports and other documents required to be filed
by it under the Securities Act and the Exchange Act, and all amendments
thereto; and the Company has furnished to the Investors copies of all of such
documents, each as filed with the Commission, other than all exhibits thereto,
since January 1, 1996 (collectively, the "Commission Documents"), and has
furnished access to all other Commission Documents, and all exhibits thereto.
Each Commission Document (as finally amended) was true and accurate in all
material respects and was in material compliance with the requirements of its
respective report form at the time such document was filed.
2.27 HOLDING COMPANY AND INVESTMENT COMPANY STATUS. Neither the
Company nor any Subsidiary is a "holding company," or a "subsidiary company" of
a "holding company," or an "affiliate" of a "holding company," or a "public
utility," within the meaning of the Public Utility Holding Company Act of 1935,
as amended, or a "public utility" within the meaning of the Federal Power Act,
as amended. Neither the Company nor any Subsidiary is an "investment company"
or a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or an "investment adviser" within
the meaning of the Investment Advisers Act of 1940, as amended.
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SECTION 3. REPRESENTATIONS OF THE INVESTORS
As part of the basis of this Agreement, each Investor, severally and
not jointly, hereby represents that on the date hereof and on each Closing
Date:
3.1 AUTHORIZATION. The execution of this Agreement and the
documents executed by the Investor pursuant to this Agreement have been
authorized by all necessary action on the part of the Investor, have been
executed and delivered, and constitute valid, legal, binding and enforceable
agreements of the Investor.
3.2 INVESTMENT PURPOSE. The Investor is acquiring the Series G
Shares for its own account, for investment, and not with a view to any
"distribution" within the meaning of the Securities Act. The Investor has no
present intention to make any transfer of the Series G Shares. No
broker-dealer acted on behalf of the Investor in connection with the offer or
sale of the Series G Shares.
3.3 RESTRICTIONS ON TRANSFERABILITY. The Investor understands
that because the Series G Shares have not been registered under the Securities
Act and applicable state securities laws (based in part on the representations,
warranties and agreements of the Investor contained herein), it cannot dispose
of any of the Series G Shares or the Conversion Shares unless they are
subsequently registered under the Securities Act or exemptions from
registration are available and that the Investor must bear the economic risk of
an investment in such securities as a result thereof. The Investor
acknowledges and understands that, except as provided in SECTION 5 of this
Agreement, it has no registration rights. Although it may be possible in the
future to make limited public sales of the Series G Shares and/or Conversion
Shares without registration under the Securities Act, Rule 144 is not now
available and there is no assurance that it will become available for such
purpose. By reason of these restrictions, the Investor understands that it may
be required to hold the Series G Shares and the Conversion Shares for an
indefinite period of time. The Investor understands that each certificate
representing the Series G Shares and the Conversion Shares will bear
appropriate state "blue sky" legends and a legend substantially to the effect
that:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SECURITIES MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR
SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN
OPINION OF COUNSEL OR OTHER EVIDENCE SATISFACTORY TO THE CORPORATION
THAT REGISTRATION IS NOT REQUIRED UNDER APPLICABLE SECURITIES LAWS.
The Investor also acknowledges that appropriate stop transfer orders will be
noted on the Company's stock records for the securities bearing such legend.
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3.4 STATUS OF INVESTOR. The Investor is knowledgeable and
experienced in making venture capital investments, including investments
similar to those securities to be acquired by it pursuant to this Agreement,
and is able to bear the economic risk of loss of its investment in the Company.
The Investor is an "accredited investor" as that term is defined in Rule 501(a)
of Regulation D under the Securities Act or is a "purchaser," as that term is
defined in Rule 506(b)(2)(ii) of Regulation D of the Securities Act. The
Investor's state of incorporation, organization or residence and principal
place of business, are listed on Exhibit 2, and the Investor has not been
organized for purposes of investing in the Company.
3.5 BROKERAGE. There are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by
the Investor, except as may otherwise be provided in Exhibit 2, all of which
claims shall be paid entirely by such Investor.
3.6 OWN ACCOUNT. The Investor is acting on its own behalf in
connection with the investigation and examination of the Company and its
decision to execute these documents.
3.7 RECEIPT OF INFORMATION. The Investor has received and reviewed
with such investment, legal, financial and other advisors as the Investor has
elected a copy of each of the documents furnished to the Investor pursuant to
SECTION 2.26 hereof. The Investor believes it has received all the information
it considers necessary or appropriate for deciding whether to purchase the
Series G Shares. The Investor further represents that it has had an
opportunity to ask questions and receive answers from the Company and each
Subsidiary regarding the terms and conditions of the offering of the Series G
Shares and the business, properties, prospects, and financial condition of the
Company and each Subsidiary and to obtain additional information (to the extent
the Company or any such Subsidiary possessed such information or could acquire
it without unreasonable effort or expense) necessary to verify the accuracy of
any information furnished to it or to which it had access. The foregoing,
however, does not limit or modify the representations and warranties in SECTION
2 of this Agreement or the right of the Investor to rely thereon.
SECTION 4. COVENANTS OF THE PARTIES.
The Company hereby covenants that, except as provided for below for so
long as (a) the Investors hold at least twenty percent (20%) of all Subseries
of the Series G Shares, with respect to the covenants contained in SECTIONS 4.4
through 4.22, excluding 4.7, and (b) the Investors hold any of the Series G
Shares with respect to the covenants contained in SECTIONS 4.1 through 4.3 and
4.7, unless waived by at least two (2) holders of Series G Shares holding in
the aggregate at least a two-thirds interest in all of the Subseries of the
Series G Shares then outstanding, the Company will comply and will cause its
Subsidiaries to comply with the provisions of this SECTION 4.
4.1 FINANCIAL INFORMATION. The Company will maintain a system of
accounts in accordance with GAAP and procedures, will keep full and complete
financial records and will furnish to the Investors the following reports:
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(a) within fifty-five (55) days after the end of each quarterly
fiscal period in each fiscal year of the Company (other than the last quarterly
fiscal period of each such fiscal year), duplicate copies of,
(i) a consolidated balance sheet of the Company and its
Subsidiaries as at the end of such quarter, and
(ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its
Subsidiaries, for such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable detail,
prepared in accordance with GAAP, applicable to quarterly financial statements
generally, and certified by a senior financial officer of the Company as fairly
presenting, in all material respects, the financial position of the companies
being reported on and their results of operations and cash flows, subject to
changes resulting from year-end adjustments; provided, that delivery within the
time period specified above of copies of the Company's Quarterly Report on Form
l0-Q or 10-QSB (or, if the Company files with the Commission a Form 12b-25 with
respect to a particular 10-Q or 10-QSB in accordance with the Exchange Act, no
later than five (5) days after the filing of such Form) prepared in compliance
with the requirements therefor and filed with the Commission shall be deemed to
satisfy the requirements of this Section;
(b) within one hundred (100) days after the end of each fiscal
year of the Company, duplicate copies of,
(i) a consolidated balance sheet of the Company and its
Subsidiaries, as at the end of such year, and
(ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its
Subsidiaries, for such year,
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail, prepared in accordance with GAAP and
accompanied by an opinion thereon of independent certified public accountants
of recognized national standing, which opinion shall state that such financial
statements present fairly, in all material respects, the financial position of
the companies being reported upon and their results of operations and cash
flows and have been prepared in conformity with GAAP, and the examination of
such accountants in connection with such financial statements has been made in
accordance with generally accepted auditing standards, and that such audit
provides a reasonable basis for such opinion in the circumstances; provided,
that delivery within the time period specified above (or, if the Company files
with the Commission a Form 12b-25 with respect to a particular Form 10-K or
10-KSB in accordance with the Exchange Act, no later than fifteen (15) days
after the filing of such Form) of the
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Company's Annual Report on Form 10-K or 10-KSB for such fiscal year, together
with the Company's annual report to shareholders, if any, prepared pursuant to
Rule 14a-3 under the Exchange Act, prepared in accordance with the requirements
therefor and filed with the Commission, shall be deemed to satisfy the
requirements of this Section;
(c) promptly upon their becoming available, one copy of (i) each
financial statement, report, notice or proxy statement sent by the Company or
any Subsidiary to public securities holders generally, and (ii) each regular or
periodic report, each final registration statement (without exhibits except as
expressly requested by such holder), and each final prospectus and all
amendments thereto filed by the Company or any Subsidiary with the Commission
and of all press releases and other statements made available generally by the
Company or any Subsidiary to the public concerning developments that are
material;
(d) promptly, and in any event within ten (10) days after a
Responsible Officer (as defined below) becomes aware of the existence of any
default in the performance of any covenant, obligation or agreement of the
Company hereunder or pursuant to any other document executed pursuant to the
terms of this Agreement or any material breach of any representation made by
the Company or any Operating Subsidiary hereunder (each an "Event of Default")
or that any person has given any notice or taken any action with respect to a
claimed Event of Default, a written notice specifying the nature and period of
existence thereof and what action the Company is taking or proposes to take
with respect thereto (as used herein, the terms "Responsible Officer" shall
mean any of the following officers of the Company: the Chairman, the President,
the Chief Executive Officer, the Chief Operating Officer, the Chief Financial
Officer, the Treasurer, and Senior or Executive Vice Presidents and the
controller or the chief accounting officer (and any person who performs one of
the same functions under a different title));
(e) promptly, and in any event within thirty (30) days of receipt
thereof, copies of any notice to the Company or any Subsidiary from any
government entity relating to any order, ruling, statute or other law or
regulation that would reasonably be expected to have a material adverse effect
on the business, assets, results of operations, condition (financial or
otherwise), or prospects of the Company and its Subsidiaries considered as a
whole; and
(f) with reasonable promptness, such other data and information
relating to the business, operations, affairs, financial condition, assets or
properties of the Company or any Subsidiary or relating to the ability of the
Company or any Subsidiary to perform its obligations hereunder as from time to
time may be reasonably requested by any Investor.
4.2 ACCESS TO INFORMATION. The Company will permit any Investor
to inspect at the Investor's expense any of the properties or books and records
of the Company and any Subsidiary, to make copies of extracts from such books
and records at the Investor's expense and to discuss the affairs and condition
of the Company and the Subsidiaries with representatives of the Company and
such Subsidiaries, all to such reasonable extent and at such reasonable times
and intervals as such Investor may reasonably request. If any Investor
exercises the right to
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inspection it must, unless otherwise required by law, at the request of the
Company or a Subsidiary, as appropriate, sign an agreement to hold in
confidence any confidential information received as a result of such inspection
under circumstances indicating the confidentiality of such information until
such information has been publicly disclosed or until disclosure is required by
law or by court order.
4.3 USE OF PROCEEDS. The Company shall timely report to the SBA
the use of proceeds from the sale of any Subseries of the Series G Shares on
SBA Form 1031 and will provide NBCC with a copy of such report as soon as
practicable after its filing with the SBA. In addition, the Company shall
promptly provide to NBCC or the SBA, as the case may be, all such information
specified in Section 610 of the SBA regulations. The Company and each
Subsidiary shall provide NBCC (in addition to the rights granted pursuant to
SECTION 4.2 hereof) and/or the SBA, upon written request from NBCC or the SBA,
as the case may be, access to the Company's and each Subsidiary's, as the case
may be, books and records to confirm the use of proceeds reported by the
Company to the SBA on SBA Form 1031. The Company will use the proceeds from the
sale of any Subseries of the Series G Shares for only those purposes specified
in such SBA Form 1031 and, notwithstanding anything else to the contrary
contained herein or therein, the Company shall not use the proceeds from the
sale of the Series G Shares for any restricted or ineligible purpose, as set
forth in Section 720 of the SBA regulations.
4.4 KEY MAN INSURANCE. The Company shall maintain key man term
life insurance in the amount of $2,000,000 on Xxx X. Xxxxxxxxx, $1,000,000 on
Xxxxxxx X. Xxxx, $1,700,000 on Xxx Xxxxx and $500,000 on each of Xxxxxx Xxxxxx
Xxxxxxx and Xxxxxxx Xxxxx during the respective period or periods that each
such person is employed by the Company or any Subsidiary, with the Company as
the sole beneficiary of the proceeds of the policies described herein.
4.5 INTELLECTUAL PROPERTY. From the date hereof, the Company and
each Subsidiary will use all reasonable efforts to keep confidential all
know-how, trade secrets, proprietary rights and other confidential intellectual
property and information which is material to the respective businesses or
prospective businesses of the Company and the Subsidiaries, and to provide the
Company and/or each Subsidiary with sufficient title to, ownership of, or
rights to such intellectual property as is or may become necessary for the
conduct of their respective businesses. From the date hereof, the Company and
each Subsidiary will use its best efforts to enter into such agreements with
its respective employees, consultants, licensees, customers and other third
parties as may be reasonably required to carry out its obligations under this
SECTION 4.5.
4.6 PRESERVATION OF CORPORATE EXISTENCE AND PROPERTY. Except as
otherwise determined by the Board of Directors to be in the best interests of
the Company, the Company and each Subsidiary will preserve, protect, and
maintain, (a) its corporate existence, and (b) all rights, franchises,
accreditation, privileges, and properties the failure of which to preserve,
protect, and maintain would reasonably be expected to have a material adverse
effect on the business, affairs, assets, prospects, operations, or condition,
financial or otherwise, of the Company and its Subsidiaries.
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4.7 SBA REPORTS. Within twenty (20) days after NBCC shall have
made a request therefor, the Company and each Subsidiary will furnish to NBCC
in writing all information reasonably available to the Company and the
Subsidiaries that NBCC shall request with respect to the Company, the
Subsidiaries, or any firm or corporation in which the Company or any Subsidiary
may from time to time have or have had any interest, which is needed in
connection with the preparation of SBA forms or any other report or form that
NBCC may be required to make to any governmental agency or regulatory authority
in connection with its purchase and/or ownership of shares of any Subseries of
Series G Shares or the Conversion Shares.
4.8 LIABILITY INSURANCE. The Company will use its best efforts to
maintain comprehensive liability insurance (including automobile liability
coverage) at regular premium rates with insurer(s) of recognized responsibility
in an amount which is commercially reasonable for the benefit of itself and the
Subsidiaries.
4.9 NO IMPAIRMENT. The Company and the Subsidiaries will observe
and honor in good faith all rights of the Investors, under the terms of this
Agreement or any other documents executed in connection herewith, and will take
no action that would impair or otherwise prejudice such rights.
4.10 BOARD MEETINGS. The Company's Board of Directors shall meet
at least once in every fiscal quarter ending on the last day of March, June,
September and December of each year, beginning with the quarter ending on March
31, 1997. The Chairman of the Board of Directors shall meet with the
representatives of the Investors not on the Board of Directors in a separate
meeting to be held immediately subsequent to each quarterly meeting of the
Board of Directors of the Company.
4.11 BOARD OF DIRECTORS.
(a) The Board of Directors of the Company shall consist of no more
than nine (9) members, composed of:
(i) four (4) members (three (3) members at such time as
at least one-third of the aggregate number of shares of the Company's
Series F Preferred stock $.001 par value per share (the "Series F
Preferred Shares") and all Subseries of the Series G Shares, taken
together as a group, issued at or before the date of such
determination are no longer issued and outstanding) designated by the
holders of a majority of the aggregate number of then outstanding
shares of the Series F Preferred Shares and all Subseries of the
Series G Shares, taken as a group (at least one (1) of which shall be
designated by NBCC so long as NBCC owns at least fifty percent (50%)
of the aggregate number of Series F Preferred Shares and all Subseries
of the Series G Shares, taken together as a group, then outstanding);
and
(ii) four (4) members designated by the holders of Common
Stock (five (5) members at such time as the holders of the Series F
Preferred Shares and all Subseries
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of the Series G Shares are entitled to designate three (3) members
pursuant to the terms of clause (i) above); and
(iii) one (1) member designated jointly by the holders of
the Common Stock and the holders of the Series F Preferred Shares and
all Subseries of the Series G Shares, taken together as a group. The
size and composition of the Board is subject to the right of the
holders of the Series F Preferred Shares and all Subseries of the
Series G Shares to elect a majority of the Board as provided
hereunder.
(b) Except as provided below in SECTION 4.11(d), at any time that
the Company increases the size of its Board of Directors to a number greater
than nine (9), then (i) the holders of a majority of the aggregate number of
then outstanding Series F Preferred Shares and all Subseries of the Series G
Shares, taken together as a group, then issued and outstanding and (ii) the
holders of the Common Stock, shall each designate the same number of additional
new directors to fill any newly created vacancies on the Board of Directors
subsequent to the date of this Agreement.
(c) The Company agrees to propose the designees of the holders of
the Series F Preferred Shares and the Series G Shares (and the designee(s) of
NBCC) as provided above for election to its Board of Directors and to take all
such action to effect such election as are within its power. The rights and
obligations under this SECTION 4.11 shall terminate at such time as at least
two-thirds, of the aggregate number of Series F Preferred Shares and all
Subseries of the Series G Shares, taken together as a group, issued at or
before the time such determination is made are no longer issued and
outstanding; provided, however, that a majority of the aggregate number of
shares of Series F Preferred Shares and all Subseries of the Series G Shares,
taken together as a group, then outstanding shall continue to have the right to
designate one (1) member of the Board of Directors of the Company so long as at
least ten percent (10%) of the aggregate number of Series F Preferred Shares
and all Subseries of the Series G Shares, taken together as a group, issued at
or before the time such determination is made remain outstanding (which shall
be the designee of NBCC in the event NBCC owns any of such remaining ten
percent (10%)).
(d) If the Company shall breach any of the covenants or
obligations set forth in the Master Certificate of Designation or any of its
obligations, covenants and/or agreements contained in (a) SECTIONS 4.1 through
4.14, 4.16, 4.18, 4.19, 4.21, SECTION 5, SECTION 6, SECTION 7, or SECTION 8
herein, and such breach remains uncured or unremedied for a period of ninety
(90) days, (b) SECTION 4.16 herein, and such breach remains uncured or
unremedied for thirty (30) days, (c) SECTION 4.15 herein, and such breach
remains uncured for a period of fifteen (15) days or (d) SECTION 4.22, then in
any such event, the holders of a majority of the aggregate number of then
outstanding shares of all Subseries of the Series G Shares, taken together as a
group, shall be entitled then and thereafter to nominate and elect a majority
of directors to the Company's Board of Directors (at least two (2) of which
shall be designees of NBCC); provided, however, that if there is,
simultaneously with such breach, a breach by the Company of any covenant or
obligation set out in that certain Stock and Warrant Purchase Agreement, dated
as of April 5, 1996, pursuant to which the Company issued and sold Series F
Preferred Shares (as amended on
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or before the date hereof, the "Series F Purchase Agreement"), and as a result
thereof, the provisions of the Series F Purchase Agreement granted to the
holders of the Series F Preferred Shares a similar right to nominate and elect
a majority of directors to the Company's Board of Directors, then the rights
granted in this SECTION 4.11(d) to the holders of a majority of the aggregate
number of then outstanding shares of the Series G Shares to nominate and elect
a majority of directors to the Company's Board of Directors shall instead be a
right granted in favor of the holders of a majority of the aggregate number of
then outstanding shares of the Series F Preferred Shares and the Series G
Shares, taken together as a group. Any vacancy on the Board of Directors
occurring because of the death, resignation or removal of a director elected by
the holders of the Series G Shares (or a majority of the aggregate number of
then outstanding shares of the Series F Preferred Shares and all Subseries of
the Series G Shares, taken as a group), as contemplated by this SECTION 4.11,
shall be filled by the vote or written consent of the holders of a majority of
the aggregate number of then outstanding shares of all Subseries of the Series
G Shares (or a majority of the aggregate number of then outstanding shares of
the Series F Preferred Shares and the Series G Shares, taken together as a
group, as appropriate); provided, however, that any designee of a particular
holder of Series F Preferred Shares or Series G Shares shall be replaced by
such holder. A director may be removed from the Board of Directors with or
without cause by the vote or consent of the holders of the outstanding class
with voting power entitled to elect him or her in accordance with the Delaware
General Corporation Law. Any such additional directors appointed pursuant to
the terms of SECTION 4.11(d) shall resign from the Board of Directors at the
first regularly scheduled annual meeting of the shareholders of the Company
subsequent to the cure or remedy of the breach giving rise to the holders of
the majority of the aggregate number of then outstanding shares of the Series G
Shares (or a majority of the aggregate number of then outstanding shares of the
Series F Preferred Shares and all Subseries of the Series G Shares, taken
together as a group, as appropriate) having the right to nominate and elect a
majority of the directors of the Board of Directors of the Company pursuant to
this Section.
(e) In the event that the holders of Series G Preferred Shares (or
the holders of a majority of the aggregate number of then outstanding shares of
the Series F Preferred Shares and all Subseries of the Series G Shares, taken
together as a group, as appropriate) are entitled to a majority of seats on the
Company's Board of Directors, the Company agrees promptly to take all actions
necessary or appropriate (including, if necessary, amending the Company's
Certificate of Incorporation or Bylaws to increase the number of seats on the
Board of Directors) to nominate to the Company's Board of Directors, such
number of additional nominees designated by such holders as are required to
give such designees of such holders (and/or NBCC, as applicable) a majority of
seats on the Board of Directors.
(f) Any designees of the Investors serving on the Board of
Directors pursuant to this SECTION 4.11 shall have the right to be reimbursed,
upon reasonable notice and documentation of such costs and expenses to the
Company, for his or her reasonable costs of travel and out-of-pocket expenses
incurred in connection with his or her service on the Board of Directors.
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4.12 DIRECTORS AND OFFICERS INSURANCE; INDEMNITY. The Company will
use its best efforts to maintain in full force and effect directors and
officers insurance at regular premium rates with insurers of recognized
responsibility in amounts and on terms comparable to other companies in the
same industry as the Company. The Company shall enter into indemnification
agreements with the designees of the Investors to the Company's Board of
Directors, in form and substance acceptable to such designees, on or prior to
such designees becoming members of the Board of Directors of the Company.
4.13 OPTION POOL. The Company shall not establish a stock grant,
option plan or purchase plan, other employee stock incentive program or
agreement that in the aggregate exceeds five percent (5%) of the fully diluted
Common Stock of the Company (excluding options and warrants in existence on
the Closing Date) on April 5, 1996 (the "Option Pool"). The provisions of this
Section 4.13 shall be in addition to, and not in any manner limit, obligations
pursuant to any option, warrant, employment agreement or other written
obligation, agreement or commitment of the Company or any Operating Subsidiary
as of the date of this Agreement (which such obligations shall be disclosed in
Schedule 2.5).
4.14 REVERSE STOCK SPLIT. Subsequent to April 5, 2001, upon the
request of the holders of a majority of the aggregate number of then
outstanding shares of Series F Preferred Shares and Subseries of Series G
Shares, taken as a group, the Company shall use its best efforts (which shall
include, if required by law, submitting such proposal to the stockholders of
the Company) to implement a reverse stock split which would, if consummated,
create a Common Stock price in excess of $12.00 per share, assuming that the
average of the price earnings ratio for the Company's Common Stock over the
sixty (60) days prior to the consummation of such reverse stock split is
projected to remain unchanged or improve after such reverse stock split.
4.15 RESTRICTED CORPORATE ACTIONS. Neither the Company nor any of
the Subsidiaries will, without the approval of the holders of a majority of the
aggregate number of shares of all Subseries of the Series G Shares then
outstanding, take any of the following actions:
(a) make any loans or advances to any officers, directors or
affiliates of the Company or any Subsidiary, other than travel or miscellaneous
cash advances in the ordinary course of business and as provided for in
existing employment agreements;
(b) incur any obligation, contingent or otherwise, to guarantee
the debt or any other obligations or liabilities of any other person or entity
other than in the normal and ordinary course of business (not including inter-
company transactions with or between Operating Subsidiaries);
(c) mortgage, pledge, hypothecate or otherwise encumber any assets
or properties if, as a result thereof, more than fifty percent (50%) of the
aggregate book value of the assets of the Company or such Subsidiary would be
subject to a mortgage, pledge, hypothecation or other encumbrance;
(d) create any new non-wholly owned subsidiary, or permit any
Subsidiary to issue
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any equity securities to anyone other than the Company or a wholly owned
Subsidiary of the Company;
(e) engage in any line or lines of business activity other than
the businesses in which they are engaged on the Initial Closing Date and lines
of business reasonably related thereto;
(f) directly or indirectly acquire (whether by acquisition of
stock, assets or license rights, or by entering into a joint venture,
development agreement or otherwise) the business or operations of any other
corporation, person, or entity;
(g) repurchase any shares of any employee or stockholder that
would cause the Investors not to qualify their Conversion Shares under Section
1202 of the Internal Revenue Code of 1986, as amended, as qualified small
business stock;
(h) enter into any transaction, including, without limitation, the
purchase, sale, or exchange of property or the rendering of any service, with
any affiliate of the Company or such Subsidiary (not including inter-company
transactions with or between Operating Subsidiaries), except in the ordinary
course of and pursuant to the reasonable requirements of the Company's or such
Subsidiary's business and upon fair and reasonable terms no less favorable to
the Company or such Subsidiary than would be obtained in a comparable
arms-length transaction with a person not an affiliate of the Company or such
Subsidiary;
(i) incur any additional Debt (as defined below) if, immediately
upon the incurrence of such Debt, the ratio of Consolidated Debt (as defined
below) to Consolidated Net Worth (as defined below) would be equal to or
greater than 1.0 to 1.0. As used in this SECTION 4.15(i), the term
"Consolidated Debt" shall mean, as of the date of determination, the total of
all Debt of the Company and its Subsidiaries outstanding on such date, after
eliminating all offsetting debits and credits between the Company and its
Subsidiaries and all other items required to be eliminated in the course of the
preparation of consolidated financial statements of the Company and its
Subsidiaries in accordance with GAAP. Notwithstanding anything contained
herein to the contrary, Consolidated Net Worth shall be deemed to include the
shares outstanding from time to time of the Company's Series E Convertible
Preferred Stock, the Series F Preferred Shares, the Series G Shares and any
series of preferred stock issued subsequent to the date hereof. As used in
this SECTION 4.15(i), the term "Consolidated Net Worth" shall mean, as of the
date of determination, the total assets of the Company and its Subsidiaries
which would be shown as assets on a consolidated balance sheet of the Company
and its Subsidiaries as of such time prepared in accordance with GAAP, after
eliminating all amounts properly attributable to minority interests, if any, in
the stock and surplus of Subsidiaries, minus the total liabilities of the
Company and its Subsidiaries which would be shown on a consolidated balance
sheet of the Company and its Subsidiaries as of such time prepared in
accordance with GAAP. As used in this SECTION 4.15(i), the term "Debt" shall
mean, with respect to a particular person, without duplication, (i) its
liabilities for borrowed money, (ii) its liabilities for the deferred purchase
price of property acquired by such person (including, without limitation, all
liabilities created or arising under any conditional sale or other title
retention agreement with respect to such property), (iii)
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the amount of any obligation under a capital lease which would, under GAAP,
appear as a liability on the balance sheet of such person, (iv) all liabilities
for borrowed money secured by a lien with respect to any property owned by such
a person (whether or not it has assumed or otherwise become liable for such
liabilities), (v) accrued but unpaid interest on any of the liabilities of the
type described in clauses (i) through (iv) above, and (vi) any guaranty of such
person with respect to the liabilities of the type described in clauses (i)
through (v) above;
(j) increase the number of shares under all stock option plans
above 2,500,000 shares of Common Stock (on a fully diluted basis and as
appropriately adjusted for recapitalizations, stock splits and the like),
excluding shares of Common Stock issued or to be issued pursuant to obligations
of the Company under any option, warrant, employment agreement or other written
obligation of the Company or any Subsidiary as of April 5, 1996 (which such
obligations shall be disclosed in Schedule 2.5);
(k) sell, lease, transfer, assign, license or pledge any material
license, intellectual property right, patent or trade secret, except in the
ordinary course of business to end users, manufacturers or distributors of its
products or services and except for security interests granted to lenders for
money borrowed;
(l) repurchase, redeem or retire any shares of capital stock of
the Company other than pursuant to (i) the Stockholders' Agreement, (ii) this
Agreement, (iii) as required by the Series E Convertible Preferred Stock
Certificate of Designation, (iv) as permitted by the Designations pursuant to
which the Series F Preferred Shares were issued or by the Master Certificate of
Designation, (v) any contractual rights to repurchase shares of Common Stock
held by employees, directors or consultants of the Company or the Subsidiaries
upon termination of their employment or services, (vi) the exercise of a
contractual right of first refusal held by the Company existing as of the date
of this Agreement or subsequently issued in connection with the Option Pool,
(vii) any cashless exercise provision of any option, warrant or right to
purchase any securities of the Company outstanding as of the date of this
Agreement or (viii) as contemplated by SECTION 6 hereof; or
(m) consolidate or merge with or into any other business entity or
sell or transfer in a single transaction or a series of related transactions
all or substantially all of the assets of the Company (or stock or assets of
any Subsidiary), or otherwise reorganize the Company (or any Subsidiary),
unless upon consummation of such merger or consolidation, the holders of voting
securities of the Company own directly or indirectly 51% or more of the voting
power to elect directors of the surviving, acquiring or consolidated
corporation, partnership or other entity.
4.16 MINIMUM NET WORTH. The consolidated net worth of the Company,
as shown on the audited financial statements of the Company for the fiscal year
ended December 31, 2000, determined in accordance with GAAP, shall be greater
than or equal to $45,000,000.
4.17 RESERVATION OF SHARES. In the event that, on the date an
Investor exercises its right to receive shares of Common Stock in accordance
with the terms of a Subseries of the
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Series G Shares and, there is not then available a sufficient number of
unreserved shares of Common Stock or shares reserved for issuance in connection
with the Subseries to permit such conversion, then the Company shall, in lieu
thereof, issue as many shares of Common Stock so to be received as are then
available for conversion of the Subseries and immediately pay to such
exercising Investor in cash, an amount equal to the product of: (i) the then
current fair market value of a share of Common Stock less the then existing
conversion price for those shares of the Subseries which could not be
converted, multiplied by (ii) the number of shares of Common Stock that would
otherwise be required to have been delivered by the Company upon such
conversion but are then unavailable.
4.18 AUDITED FINANCIAL STATEMENTS. On or before April 15, 1997,
the Company shall deliver to the Investors its audited financial statements as
at and for the year ended December 31, 1996, which shall not be materially
different from those in Schedule 2.7.
4.19 ADDITIONAL KEY MAN INSURANCE. [Intentionally Omitted]
4.20 OTHER PREFERRED STOCK. [Intentionally Omitted]
4.21 DELISTING. The Company shall use its best efforts not to
allow the shares of Common Stock to be delisted such that they are no longer
listed on any national securities exchange (including among others the NASDAQ
Small-Cap Market).
4.22 CHANGE OF CONTROL. The Company shall not allow one or more
persons acting in concert, together with all affiliates, to acquire in one or
more related transactions, more than fifty percent (50%) of the shares of
capital stock of the Company that are then entitled to vote for the election of
the directors of the Company.
SECTION 5. REGISTRATION RIGHTS
5.1 DEFINITIONS. When used in this Section, unless otherwise
defined herein, the following terms shall have the respective meanings assigned
to them in this Section or in the sections, subsections or other subdivisions
or other documents referred to below:
"Demand Registration" shall have the meaning assigned to it in SECTION
5.2.
"Holder" shall mean any Person that holds Registrable Securities.
"Lockup Period" shall mean the six-month period following the Initial
Closing Date. "Person" shall mean any individual, corporation, partnership,
joint venture, limited partnership, limited liability company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Piggyback Registration" shall have the meaning assigned to it in
SECTION 5.3.
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"Registrable Securities" shall mean (i) the Conversion Shares, and
(ii) any securities issued or issuable with respect to the foregoing shares by
way of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization.
"Registration Expenses" shall mean (i) all expenses incident to the
Company's performance of or compliance with the registration rights granted
hereunder, including (without limitation) all registration and filing fees,
fees and expenses of compliance with securities and blue sky laws, printing and
engraving expenses, messenger, telephone and delivery expenses, and fees and
disbursements of counsel for the Company, all independent certified public
accountants and underwriters (excluding discounts and commissions) and (ii) in
connection with each registration hereunder, the reasonable fees and
disbursements of no more than one counsel chosen by the holders of a majority
of the Registrable Securities included in such registration in an amount not to
exceed $10,000; provided, that, Registration Expenses shall not include any
Selling Expenses.
"Registration Request" shall have the meaning assigned to it in
SECTION 5.2.
"Registration Rights Expiration Point" shall mean April 5, 2004.
"Selling Expenses" shall mean underwriting discounts or commissions
and any selling commissions attributable to sales of Registrable Securities.
5.2 MANDATORY REGISTRATION. If, on or after the Lockup Period but
prior to the Registration Rights Expiration Point, and provided that at least
one year has elapsed since the most recent Registration Request (as defined
below), (a) Holders of at least twenty-five percent (25%) of the Registrable
Securities not theretofore registered pursuant to this SECTION 5, so long as
the aggregate gross proceeds to be received from such proposed offering is
expected to be not less than $500,000, or (b) Holders of at least fifty percent
(50%) of the Registrable Securities not theretofore registered pursuant to this
SECTION 5, so long as the aggregate gross proceeds to be received from such
proposed offering is expected to be not less than $1,000,000, request in
writing that the Company register under the Securities Act at least 25% of the
Registrable Securities not theretofore registered pursuant to this SECTION 5 (a
"Registration Request"), the Company shall promptly give written notice of such
Registration Request to all holders of Registrable Securities and will, as
expeditiously as possible, use its best efforts to effect the registration
under the Securities Act of (i) the Registrable Securities which the Company
has been requested to register for disposition in accordance with the intended
method of disposition described in the Registration Request and (ii) the
Registrable Securities of any Holder that elects to join in the Registration
Request within twenty (20) days after receipt of the above written notice from
the Company. The Company may include in any such registration (x) similar
securities held by other parties with registration rights and (y) similar
securities that the Company desires to register; provided, that, in connection
with an underwritten offering, such additional similar securities shall be
reduced to a number, if any, that in the reasonable opinion of the managing
underwriters of such offering, would not adversely affect the marketability or
offering
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price of the Registrable Securities to be included in such offering.
Notwithstanding anything herein to the contrary, any registration requested
pursuant to this SECTION 5.2 (a "Demand Registration") will not be deemed to
have been effected unless it has become effective and remained effective no
less than one hundred and eighty (180) days; provided, further, that any such
registration which does not become effective after the Company has filed a
registration statement in accordance with the provisions of this SECTION 5.2
solely by reason of the refusal to proceed of the Holder or Holders that have
made or joined in the Registration Request, including failure to comply with
the provisions of this Agreement (other than any refusal to proceed based upon
the advice of counsel to such Holder or Holders that the registration
statement, or the prospectus contained therein, contains an untrue statement of
a material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing, or that such registration statement or such
prospectus, or the distribution contemplated thereby, otherwise violates or
would, if such distribution using such prospectus took place, violate any
applicable state or federal securities law) shall be deemed to have been
effected by the Company at the request of such Holder or Holders. This SECTION
5.2 shall not apply to a request for registration on Form S-3 (or successor
form) which shall be governed by SECTION 5.4. The Holders of Registrable
Securities may make one (1) Demand Registration pursuant to the terms of clause
(a) above and two (2) Demand Registrations pursuant to the terms of clause (b)
above.
5.3 OPTIONAL REGISTRATIONS. If, on or after the Lockup Period but
prior to the Registration Rights Expiration Point, the Company proposes to
register any of its securities under the Securities Act other than (a) under
employee compensation or benefit programs, (b) an exchange offer or an offering
of securities solely to the existing stockholders or employees of the Company,
and (c) any registration conducted solely in connection with a proposed
acquisition by the Company or any of its Subsidiaries, and the registration
form to be used may be used for the registration of Registrable Securities, the
Company will give prompt written notice to all holders of Registrable
Securities of its intention to effect such a registration and will include in
such registration all Registrable Securities with respect to which the Company
has received written requests for inclusion therein within twenty (20) days
after the receipt of the Company's notice (a "Piggyback Registration"). The
Company shall use its best efforts to cause the managing underwriters of a
proposed underwritten offering to permit the Registrable Securities requested
to be included in the registration statement (or registration statements) for
such offering to be included therein on the same terms and conditions as any
similar securities of the Company included therein. Notwithstanding the
foregoing, if the Company gives notice of such a proposed registration, the
total number of Registrable Securities which shall be included in such
registration shall be reduced pro rata to such number, if any, as in the
reasonable opinion of the managing underwriters of such offering would not
adversely affect the marketability or offering price of all of the securities
proposed to be offered by the Company in such offering; provided, however, that
(i) if such Piggyback Registration is incident to a primary registration on
behalf of the Company, and to the extent not prohibited by any registration
rights agreements existing as of the date hereof, the securities to be included
in the registration statement (or registration statements) for any person other
than the Holders or the holders of Series F Preferred Shares and the Company
shall be first reduced prior to any such pro rata reduction, and (ii) if such
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Piggyback Registration is incident to a secondary registration on behalf of
holders of securities of the Company, the securities to be included in the
registration statement (or registration statements) for any person not
exercising "demand" registration rights other than the Holders and the holders
of the Series F Preferred Shares shall, to the extent not prohibited by any
registration rights agreements existing as of the date hereof, be first reduced
prior to any such pro rata reduction.
5.4 FORM S-3. If, on or after the Lockup Period but prior to the
Registration Rights Expiration Point, the Company is eligible to effect a
registration of its securities under Form S-3 (or a successor form), the
Holders will have the right to request and have effected unlimited
registrations of shares of Registrable Securities on Form S-3 as long as the
aggregate proposed offering price is not less than $500,000 for such
registration. Upon written request of a Holder delivered to the Company, the
Company will use all reasonable efforts to cause the registration of all shares
of Registrable Securities on Form S-3 or such successor form to the extent
requested by the Holder. All expenses incurred in connection with such
registration requested pursuant to this SECTION 5.4 shall be borne by the
Holder; provided, however, that if the Company for its own account or any other
holder of shares elects to register its shares as permitted below, the expenses
of such registration shall be borne pro rata by all parties to the registration
based upon the ratio that the number of such shares registered by such entity
bears to the total number of shares to be registered. In connection with any
such registration pursuant to this SECTION 5.4, the Company will in good faith
use its best efforts to keep such expenses to be incurred by the Holders at a
reasonable level (consistent with registrations of a similar nature and form).
Any registration statement filed pursuant to this SECTION 5.4 may include other
securities of the Company, with respect to which "piggy back" registration
rights have been granted, and may include securities of the Company being sold
for the account of the Company; provided, however, that any cutback shall be
dealt with in the same manner as provided in SECTION 5.3.
5.5 PROCEDURE FOR REGISTRATION. In connection with any request
that any Registrable Securities be registered pursuant to this Agreement, the
Company will use its best efforts to effect the registration of the Registrable
Securities in accordance with the intended method of disposition thereof, and
pursuant thereto the Company will use its best efforts to as expeditiously as
possible:
(a) prepare and file with the Commission a registration statement
on the appropriate form with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become effective (provided
that before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company will furnish to the counsel, if any, selected
by the Holders of a majority of the Registrable Securities covered by such
registration statement copies of all such documents proposed to be filed)
(provided, however, that in connection with a Demand Registration, the Company
shall be deemed to have met its obligations under this paragraph (a) so long as
it files a registration statement within six (6) months of a Registration
Request);
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(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for a period of not less than six (6) months or such shorter period
which will terminate when Registrable Securities covered by such registration
statement have been sold (but not before the expiration of the applicable
prospectus delivery period) and comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such registration
statement;
(c) furnish to each seller of Registrable Securities such number
of copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement (including,
without limitation, each preliminary prospectus) and such other documents as
such seller may reasonably request in order to facilitate the disposition of
the Registrable Securities owned by such seller;
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions
within the United States as any seller reasonably requests and do any and all
other acts and things which may be reasonably necessary or advisable to enable
such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller (provided that the Company will not
be required to qualify generally to do business or subject itself to any
general service of process in any jurisdiction where it is otherwise not then
so subject);
(e) notify each seller of such Registrable Securities, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event of which the Company becomes
aware which requires the making of any change in the prospectus included in
such registration statement so that such document will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and,
at the request of any such seller, the Company will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading;
(f) use its best efforts to cause all such Registrable Securities
to be listed on each securities exchange or exchanges, automated quotation
system or over-the-counter market upon which securities of the Company of the
same class are then listed;
(g) enter into such customary agreements (including, without
limitation, underwriting agreements in customary form, substance, and scope)
and take all such other actions as the Holders of a majority of the Registrable
Securities being sold or the underwriters, if any, reasonably request in order
to expedite or facilitate the disposition of such Registrable Securities;
(h) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission and make generally available to its
security holders an earnings statement no
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later than ninety (90) days after the end of the 12-month period beginning with
the first day of the Company's first full calendar quarter after the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(i) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the disqualification
of any common stock included in such registration statement for sale in any
jurisdiction, the Company will use its best efforts promptly to obtain the
withdrawal of such order; and
(j) use its best efforts to cause such Registrable Securities
covered by such registration statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to enable
the sellers thereof to consummate the disposition of such Registrable
Securities.
5.6 REGISTRATION EXPENSES. The Company shall pay all Registration
Expenses in connection with (a) the first three (3) Demand Registrations and
(b) each registration effected pursuant to SECTION 5.3 and, in any event, shall
pay its internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal and accounting duties,
but subject to the last sentence of this SECTION 5.6), the expense of any
annual audit and the fees and expenses incurred in connection with the listing
of the securities to be registered on each securities exchange on which similar
securities issued by the Company are then listed. All Registration Expenses in
connection with a Demand Registration other than the first three (3) Demand
Registrations shall be borne by the seller or sellers of Registrable Securities
pro rata based upon the number of Registrable Securities included in such
registration. All Selling Expenses incurred in connection with a registration
effected pursuant to the terms hereof shall be borne by the seller or sellers
of Registrable Securities pro rata based upon the number of Registrable
Securities included in such registration. Notwithstanding the foregoing,
however, if, in connection with any Demand Registration effected other than the
first three (3) Demand Registrations, the Company in good faith determines it
is necessary to hire or engage additional temporary employees or consultants in
connection with the preparation and consummation of such registration, the
reasonable fees, costs and expenses of such employees or consultants incurred
by the Company shall be borne by the seller or sellers of Registrable
Securities pro rata based upon the number of Registrable Securities included in
such registration.
5.7 INDEMNIFICATION.
(a) The Company shall indemnify and hold harmless, with respect to
any registration statement filed by it, to the full extent permitted by law,
each holder of Registrable Securities covered by such registration statement,
and each other Person, if any, who controls such holder within the meaning of
Section 15 of the Securities Act (collectively, "Holder Indemnified Parties")
against all losses, claims, damages, liabilities and expenses, joint or several
to which any such Holder Indemnified Party may become subject under the
Securities Act, the Exchange Act,
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at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement in which such Registrable Securities were included as
contemplated hereby or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) any untrue statement or alleged untrue statement
of a material fact contained in any preliminary, final or summary prospectus,
together with the documents incorporated by reference therein (as amended or
supplemented if the Company shall have filed with the Commission any amendment
thereof or supplement thereto), or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, or (iii) any violation by the Company of any
federal, state or common law rule or regulation applicable to the Company and
relating to action of or inaction by the Company in connection with any such
registration; and in each such case, the Company shall reimburse each such
Holder Indemnified Party for any reasonable legal or other expenses incurred by
any of them in connection with investigating or defending any such loss, claim,
damage, liability, expense, action or proceeding; provided, however, that the
Company shall not be liable to any such Holder Indemnified Party in any such
case to the extent that any such loss, claim, damage, liability or expense (or
action or proceeding, whether commenced or threatened, in respect thereof)
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in such registration statement or
amendment thereof or supplement thereto or in any such preliminary, final or
summary prospectus in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any such Holder Indemnified Party
for use in the preparation thereof. Such indemnity and reimbursement of
expenses and other obligations shall remain in full force and effect regardless
of any investigation made by or on behalf of the Holder Indemnified Parties and
shall survive the transfer of such securities by such Holder Indemnified
Parties.
(b) Each holder of Registrable Securities participating in any
registration hereunder shall severally (and not jointly or jointly and
severally) indemnify and hold harmless, to the fullest extent permitted by law,
the Company, its directors, officers, employees and agents, and each Person who
controls the Company (within the meaning of Section 15 of the Securities Act)
(collectively, "Company Indemnified Parties") against all losses, claims,
damages, liabilities and expenses to which any Company Indemnified Party may
become subject under the Securities Act, the Exchange Act, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions or proceedings, whether commenced or threatened, in respect thereof)
are caused by (i) any untrue statement or alleged untrue statement of a
material fact contained in any registration statement in which such holder's
Registrable Securities were included or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, (ii) any untrue statement or
alleged untrue statement of a material fact contained in any preliminary, final
or summary prospectus, together with the documents incorporated by reference
therein (as amended or supplemented if the Company shall have filed with the
Commission any amendment thereof or supplement thereto), or the omission or
alleged omission to state therein a material fact required
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to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading to
the extent in the cases described in clauses (i) and (ii), that such untrue
statement or omission was furnished in writing by or on behalf of such holder
for use in the preparation thereof, or (iii) any violation by such holder of
any federal, state or common law rule or regulation applicable to such holder
and relating to action of or inaction by such holder in connection with any
such registration. Such indemnity obligation shall remain in full force and
effect regardless of any investigation made by or on behalf of the Company
Indemnified Parties (except as provided above) and shall survive the transfer
of such securities by such holder.
(c) Promptly after receipt by an indemnified party under SECTION
5.7(a) or SECTION 5.7(b) of written notice of the commencement of any action,
suit, proceeding, investigation or threat thereof made in writing with respect
to which a claim for indemnification may be made pursuant to this SECTION 5,
such indemnified party shall, if a claim in respect thereof is to be made
against an indemnifying party, give written notice to the indemnifying party of
the threat or commencement thereof; provided, however, that the failure to so
notify the indemnifying party shall not relieve it from any liability which it
may have to any indemnified party except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. If any such claim
or action referred to under SECTION 5.7(a) or SECTION 5.7(b) is brought against
any indemnified party and it then notifies the indemnifying party of the threat
or commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any other
indemnifying party similarly notified, to assume the defense thereof with
counsel reasonably satisfactory to such indemnified party. After notice from
the indemnifying party to such indemnified party of its election so to assume
the defense of any such claim or action, the indemnifying party shall not be
liable to such indemnified party under this SECTION 5 for any legal expenses of
counsel or any other expenses subsequently incurred by such indemnified party
in connection with the defense thereof other than reasonable costs of
investigation unless the indemnifying party has failed to assume the defense of
such claim or action or to employ counsel reasonably satisfactory to such
indemnified party. Under no circumstances will the indemnifying party be
obligated to pay the fees and expenses of more than one law firm for all
indemnified parties. The indemnifying party shall not be required to indemnify
the indemnified party with respect to any amounts paid in settlement of any
action, proceeding or investigation entered into without the written consent of
the indemnifying party, which consent shall not be unreasonably withheld. No
indemnifying party shall consent to the entry of any judgment or enter into any
settlement without the consent of the indemnified party unless (i) such
judgment or settlement does not impose any obligation or liability upon the
indemnified party other than the execution, delivery or approval thereof, and
(ii) such judgment or settlement includes as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a full release
and discharge from all liability in respect of such claim for all persons that
may be entitled to or obligated to provide indemnification or contribution
under this SECTION 5.
(d) Indemnification similar to that specified in the preceding
subsections of this SECTION 5 (with appropriate modifications) shall be given
by the Company and each seller of
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Registrable Securities with respect to any required registration or
qualification of securities under any state securities or blue sky laws.
(e) If the indemnification provided for in this SECTION 5 is
unavailable to or insufficient to hold harmless an indemnified party under
SECTION 5.7(a) or SECTION 5.7(b), then each indemnifying party shall contribute
to the amount paid or payable by such indemnified party as a result of the
losses, claims, damages, liabilities or expenses (or actions or proceedings in
respect thereof) referred to in SECTION 5.7(a) or SECTION 5.7(b) in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and the indemnified party on the other in connection with
the statements, omissions, actions or inactions which resulted in such losses,
claims, damages, liabilities or expenses as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or the indemnified party, any action or
inaction by any such party, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement, omission,
action or inaction. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or expenses (or actions or
proceedings in respect thereof) pursuant to this SECTION 5.7(e) shall be deemed
to include, without limitation, any reasonable legal or other expenses incurred
by such indemnified party in connection with investigating or defending any
such action or claim (which shall be limited as provided in SECTION 5.7(c) if
the indemnifying party has assumed the defense of any such action in accordance
with the provisions thereof) which is the subject of this SECTION 5.7(e). No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. Promptly after
receipt by an indemnified party under this SECTION 5.7(e) of written notice of
the commencement of any action, suit, proceeding, investigation or threat
thereof made in writing with respect to which a claim for contribution may be
made against an indemnifying party under this SECTION 5.7(e), such indemnified
party shall, if a claim for contribution in respect thereof is to be made
against an indemnifying party, give written notice to the indemnifying party of
the commencement thereof (if the notice specified in SECTION 5.6(c) has not
been given with respect to such action); provided, however, that the failure to
so notify the indemnifying party shall not relieve it from any obligation to
provide contribution which it may have to any indemnified party under this
SECTION 5 except to the extent that the indemnifying party is actually
prejudiced by the failure to give notice. The parties hereto agree that it
would not be just and equitable if contribution pursuant to this Section were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in this
paragraph. If indemnification is available under this SECTION 5, the
indemnifying parties shall indemnify each indemnified party to the fullest
extent provided in SECTIONS 5.7(a) and 5.7(b), without regard to the relative
fault of said indemnifying party or any other equitable consideration provided
for in this paragraph. The provisions of this paragraph shall be in addition
to any other rights to indemnification or contribution which any indemnified
party may have pursuant to law or contract, shall remain in full force and
effect regardless of any investigation made by or on behalf of any indemnified
party, and shall survive
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the transfer of securities by any such party. In connection with any
underwritten offering contemplated by this Agreement which includes Registrable
Securities, the Company and all sellers of Registrable Securities included in
any registration statement shall agree to customary provisions for
indemnification and contribution (consistent with the other provisions of this
SECTION 5) in respect of losses, claims, damages, liabilities and expenses of
the underwriters of such offering.
5.8 UNDERWRITING. If any registration effected pursuant to
SECTION 5.2 is an underwritten offering, or a best efforts underwritten
offering, the investment banker or investment bankers and manager or managers
that will administer the offering shall be mutually agreed upon by the Company
and the holders of a majority of the Registrable Securities to be included in
such offering. If any Piggyback Registration is an underwritten offering, the
Company shall have the right to select the investment banker or investment
bankers and manager or managers to administer the offering; provided, that such
investment bankers and managers must be reasonably satisfactory to the holders
of a majority of the Registrable Securities to be registered in such Piggyback
Registration, if any Person (other than the Company) has the right, in the case
of an underwritten secondary offering, to select the same.
5.9 RULE 144 REQUIREMENTS. The Company covenants to each Holder
that, to the extent that the Company shall be required to do so under the
Exchange Act, the Company shall (a) timely file the reports required to be
filed by it under the Exchange Act or the Securities Act (including, but not
limited to, the reports under Sections 13 and 15(d) of the Exchange Act
referred to in subparagraph (c)(l) of Rule 144 adopted by the Commission under
the Securities Act) and the rules and regulations adopted by the Commission
thereunder, and (b) take such further action as any Holder may reasonably
request, all to the extent required from time to time to enable such Holder to
sell Registrable Securities without registration under the Securities Act
within the limitations of the exemption provided by Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission. Upon the request of
any Holder, the Company shall deliver to such Holder a written statement as to
whether it has complied with such requirements.
LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after
the date of this Agreement, the Company will not enter into any agreement with
respect to its securities which is inconsistent with or violates the rights
granted to the holders of Registrable Securities in this Agreement.
5.11 OBLIGATIONS OF HOLDERS IN A REGISTRATION. Each Holder agrees
as follows:
(a) If any Registrable Securities are included in a registration
statement, the holder thereof will not (until further notice) effect sales
thereof after receipt of telegraphic or written notice from the Company to
suspend sales to permit the Company to correct or update a registration
statement or prospectus; provided, that the obligations of the Company with
respect to maintaining any registration statement current and effective shall
be extended by a period of days equal to the period said suspension is in
effect.
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(b) If any Registrable Securities are being registered in any
registration pursuant to this Agreement, the holder thereof will comply with
all anti-stabilization, manipulation and similar provisions of Section 10 of
the Exchange Act, as amended, and any rules promulgated thereunder by the
Commission and, at the request of the Company, will execute and deliver to the
Company and to any underwriter participating in such offering, an appropriate
agreement to such effect.
(c) At the end of any period during which the Company is obligated
to keep a registration statement current and effective as described herein, the
holders of Registrable Securities included in the registration statement shall
discontinue sales thereof pursuant to such registration statement.
(d) If any Registrable Securities are included in a registration
statement, the holder thereof will (i) furnish to the Company in writing such
information as is reasonably requested by the Company for use in the
registration statement (or any prospectus included therein), (ii) complete and
execute all customary questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required by an underwriter relating
to the terms of the underwriting agreements and (iii) only sell such
Registrable Securities on the basis provided in any such underwriting
agreements.
5.12 MISCELLANEOUS. In connection with its obligations under this
SECTION 5, the Company shall have no obligation (a) to assist or cooperate in
the offering or disposition of the Registrable Securities or (b) to obtain a
commitment from an underwriter relative to the sale of the Registrable
Securities.
SECTION 6. DEFAULT REMEDIES.
6.1 REMEDIES. At any time after an Event of Default (as defined
in SECTION 4.1(d) other than an Event of Default relating to SECTIONS 4.16 or
4.22), unless waived pursuant to the terms of SECTION 9.1, the Investors shall
have the right to sell ("Remedy") to the Company all or part of the Series G
Shares held by such Investors on the Remedy Date (as defined below) (the
"Remedy Securities") pursuant to the following terms:
(a) In the event Investors wish to exercise their right to sell
the Remedy Securities, the Investors shall notify the Company at least sixty
(60) days prior to the effective Remedy Date of their intention to exercise
their Remedy right, the number of the Remedy Securities, and their intended
Remedy Date, which date shall be no more than one hundred twenty (120) days
from the date of the notice; provided, however, that if a "fair market value"
determination made pursuant to SECTION 6.1(b) below extends beyond the
effective Remedy Date as specified in the notice above, then such effective
Remedy Date shall be ten (10) days after such "fair market value"
determination. For purposes of this SECTION 6, the term "Remedy Date" shall
mean each date on which Investors exercise their right to Remedy pursuant to
this SECTION 6, and Investors shall be deemed to have exercised a Remedy right
only upon the closing of such Remedy right as specified in SECTION 6.1(e)
hereto.
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(b) The purchase price per share (the "Remedy Price") of the
Remedy Securities shall be the greater of (x) the "fair market value" (plus, if
not taken into account by the party or parties determining the fair market
value pursuant to (b)(i), (b)(ii) or (b)(iii) below, (a) any accrued or
declared but unpaid dividends payable on each of the Remedy Securities and (b)
interest, if any) of each of such Remedy Securities or (y) the initial purchase
price per Series G Share hereunder (plus any accrued or declared but unpaid
dividends payable on the Remedy Securities, plus interest, if any). For
purposes of this SECTION 6, the term "fair market value" shall mean the fair
market value of such security on the Remedy Date, determined as follows:
(i) by written agreement of the Company and the Investors
exercising such Remedy right; or
(ii) if the Company and the Investors exercising such
Remedy right fail to reach a written agreement within thirty (30) days
after the notice given by the Investors exercising such Remedy right
pursuant to SECTION 6.1(a) above, the Company and the Investors
exercising such Remedy right shall together appoint an independent
appraiser to determine the "fair market value" of the Remedy
Securities, which shall be binding on the parties; or
(iii) if (x) the Company and the Investors are unable to
agree upon the choice of an independent appraiser under (ii) hereof
within forty (40) days after the notice given by the Investors
pursuant to SECTION 6.1(a) or (y) such appraiser, after being duly
selected, fails to determine the "fair market value" within thirty
(30) days of being selected, then the Company, on the one hand, and
the Investors exercising such Remedy right, on the other hand, shall
each appoint, within ten (10) days following the expiration of the
applicable time period under (x) or (y) above, an independent
appraiser, and the two appraisers together shall determine the "fair
market value." If only one appraiser is appointed during the 10-day
period referred to above, then such appraiser shall alone determine
the "fair market value," which determination shall be binding on the
Company and the Investors exercising such Remedy right. If both
appraisers are appointed within such 10-day period, and within thirty
(30) days after the appointment of the second of the two appraisers,
they cannot agree on the "fair market value" of the Remedy Securities,
then each appraiser shall prepare a separate appraisal report of the
fair market value ("FMV") of the Company and the "fair market value"
of the Remedy Securities within sixty (60) days after the appointment
of the second of the two appraisers, and if the lower of the two FMVs
of the Company is equal to at least 85% of the higher FMV of the
Company, then the "fair market value" of the Remedy Securities shall
be the average of the "fair market value" of the Remedy Securities as
determined by the two appraisers. If only one of the appraisers
submits an appraisal report on or before such 60th day, then the "fair
market value" of the Remedy Securities shall be the "fair market
value" of the Remedy Securities as determined by such report; or
(iv) if neither of the appraisers submits an appraisal
request on or before such 60th day, or if both appraisers submit an
appraisal report but the averaging requirements
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set forth in (iii) above are not met, then the two appraisers shall
promptly appoint a third appraiser who shall determine the "fair
market value" of the Remedy Securities. If the two appraisers fail to
appoint a third appraiser as required hereunder, either party shall
have the right to submit the determination to arbitration under the
rules and procedures of the American Arbitration Association.
(c) The appraisers and arbitrators shall have access to all books
and records of the Company and the Subsidiaries and shall have the right to
examine all of its accounts, books, assets and equipment and do all things
fully and completely to enable them to arrive at the FMV of the Company and the
"fair market value" of the Remedy Securities. The cost of any appraisal
proceedings shall be paid one-half (1/2) by the Company and one-half (1/2) by
the Investors exercising such Remedy Right (pro rata). An appraiser making an
appraisal pursuant to this Agreement shall assume an all cash sale with respect
to the subject Remedy Securities and shall assume that the restrictions on
transfer specified in this Agreement, the Stockholders' Agreement and/or any
applicable federal or state securities law restrictions on transfer are not
applicable to such Remedy Securities. All appraisers appointed shall be
experienced and knowledgeable in the industry or industries in which the
Company does business. The "fair market value" determination pursuant to
SECTION 6.1(b)(iii) or SECTION 6.1(b)(iv) hereof, as the case may be, shall be
binding on the Company and the Investors exercising such Remedy Right.
(d) If the Company is unable to purchase all Remedy Securities
required to be purchased on a Remedy Date due to federal or state law
restrictions or due to any restriction imposed by any listing agreement with
any securities exchange to which the Company is then a party, Remedy Securities
shall be repurchased (on a pro rata basis from the holders of the Remedy
Securities based upon the Common Stock equivalents) from time to time, to the
extent the Company is legally permitted to do so, and the Remedy obligations of
the Company under this SECTION 6 will be a continuing obligation until the
Company's repurchase of all such Remedy Securities.
(e) On each Remedy Date (including any subsequent purchase closing
date if multiple purchases result from the application of SECTION 6.1(d)), the
Remedy closing shall occur at the Company's principal office. At the Remedy
closing, to the extent applicable, the Investors exercising such Remedy Right
shall deliver the Remedy Securities being sold, duly endorsed in blank,
accompanied by such supporting documents as may be necessary to pass to the
Company good title to the Remedy Securities, free and clear of all liens (other
than restrictions under applicable securities laws and/or the Stockholders'
Agreement). In consideration therefor, the Company shall deliver to each of
the Investors exercising such Remedy Right (i) payment, by certified check,
cashier's check or wire transfer, of the aggregate Remedy Price or (ii) at the
option of the Company, a full recourse promissory note or notes evidencing the
aggregate Remedy Price (the "Remedy Notes"). Each Remedy Note shall be secured
by a pledge from the Company of the Remedy Securities for which the Remedy Note
is executed, and the Company hereby agrees to take all actions and execute all
documents (in form reasonably satisfactory to the Investors exercising such
Remedy Right) necessary or appropriate to properly and fully secure each Remedy
Note with the Remedy Securities transferred in exchange therefor. In addition,
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each Remedy Note shall be in form reasonably satisfactory to the Investors
exercising such Remedy Right and shall in any case, unless otherwise agreed to
by the parties, (i) have a term of three (3) years, (ii) provide for repayment
of the aggregate Remedy Price at a rate of no less than one-third per year,
with principal and interest payable in equal semi-annual installments, (iii)
provide that the unpaid balance of the Remedy Note shall accrue simple interest
at the rate of 13.5% per annum from the date of issuance until full payment of
the aggregate Remedy Price is made and (iv) provide that all amounts due under
such Remedy Note may be accelerated and declared immediately payable upon a
default in any payment by the Company under such Remedy Note, which is not
cured within sixty (60) days.
6.2 TRANSFER OF REMEDY RIGHT. The Remedy Right granted hereunder
is not assignable except by an Investor to any party who acquires at least
fifty percent (50%) of the Series G Shares originally issued to such Investor
hereunder (appropriately adjusted for recapitalizations, stock splits and the
like).
SECTION 7. RIGHT OF FIRST REFUSAL ON ISSUANCE OF NEW SECURITIES
7.1 GRANT OF RIGHT. The Company hereby grants to each Investor,
for so long as the Investors hold at least twenty percent (20%) of all
Subseries of the Series G Shares then outstanding, the right of first refusal
to purchase its Pro Rata Share (as defined below) of New Securities (as defined
below) which the Company may, from time to time, propose to sell and issue. A
"Pro Rata Share," for purposes of this right of first refusal, is the ratio
that (a) the sum of the total number of shares of Common Stock which are then
held or obtainable by the Investor (including those which each such Investor
has the right to obtain pursuant to exercise or conversion of any option,
warrant, right or convertible security) bears to (b) the sum of the total
number of shares of Common Stock then outstanding and which are issuable
pursuant to exercise or conversion of any then outstanding options, warrants,
rights or convertible securities.
7.2 NEW SECURITIES. Except as set forth below, "New Securities"
shall mean any shares of capital stock of the Company, including Common Stock
and any series of preferred stock, whether now authorized or not, and rights,
options or warrants to purchase said shares of Common Stock or preferred stock,
and securities of any type whatsoever that are, or may become, convertible into
or exchangeable for said shares of Common Stock or preferred stock.
Notwithstanding the foregoing, the term "New Securities" does not include (a)
the Conversion Shares, (b) securities issued pursuant to the acquisition of
another corporation by the Company by merger, purchase of all or substantially
all of the assets or other reorganization whereby the Company or its
stockholders own more than seventy-five percent (75%) of the voting power of
the surviving or successor corporation, (c) securities issued or sold in
connection with the Option Pool, (d) securities issued pursuant to any rights,
agreements or convertible securities, including, without limitation, options
and warrants, provided that the rights of first refusal established by this
SECTION 7 applied with respect to the initial sale or grant by the Company of
such rights, agreements or convertible securities, (e) securities issued
pursuant to the conversion of shares of the Company's Series E Preferred Stock
or Series F Preferred Stock, (f) securities issued pursuant to any warrant,
option, agreement or convertible security of the Company outstanding as of the
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date of this Agreement (and disclosed in Schedule 2.5), (g) securities exempt
from the registration requirements of the Securities Act as a result of
Regulation S promulgated under the Securities Act, (h) securities issued in
connection with any stock split, stock dividend or recapitalization by the
Company not involving new financing or (i) any additional shares of Subseries
of Series G Shares.
7.3 NOTICE. In the event the Company proposes to undertake an
issuance or sale of New Securities, it shall give the Investors written notice
of its intention, describing the amount and type of New Securities, and the
price and general terms upon which the Company proposes to issue the same.
Each Investor shall have thirty (30) days from the date of receipt of any such
notice to agree to purchase up to its respective Pro Rata Share of such New
Securities for the price and upon the general terms specified in the notice by
giving written notice to the Company and stating therein the quantity of New
Securities to be purchased.
7.4 ELIGIBLE SALES TO THIRD PARTIES. After giving the notice and
opportunity for each Investor to participate as required under SECTION 7.3
above, the Company shall have one hundred and twenty (120) days thereafter to
issue and sell the New Securities not elected nor eligible to be purchased by
the Investors at the price and upon the terms no more favorable to the
purchasers of such securities than specified in the Company's notice under
SECTION 7.3. In the event the Company has not sold such New Securities within
said one hundred and twenty (120) day period, the Company shall not thereafter
issue or sell any New Securities without first offering such securities in the
manner provided above.
7.5 ASSIGNMENT. The right of first refusal hereunder is not
assignable except by any Investor to any party who acquires at least fifty
percent (50%) of the Series G Shares originally issued to such Investor
hereunder and/or Conversion Shares (appropriately adjusted for
recapitalizations, stock splits and the like).
7.6 ACCREDITED INVESTOR. The rights granted to the Investors
pursuant to this SECTION 7 shall only be exercisable by an Investor who
demonstrates, at the time of exercise of such rights, to the reasonable
satisfaction of the Company, that (a) such Investor is an "accredited
investor," as defined in Regulation D promulgated under the Securities Act or
(b) another exemption from the registration requirements of the Securities Act
is available.
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SECTION 8. SPECIAL DEFAULT
8.1 VIOLATION IN USE OF PROCEEDS. Notwithstanding anything herein
to the contrary, any breach by the Company of the reported use of proceeds
pursuant to SECTION 4.3 hereof (without the prior written consent of NBCC)
shall give each Investor the right, in its sole and absolute discretion, to
demand (and receive, upon thirty (30) days' notice of such demand) repayment by
the Company of the amounts paid by such Investor to the Company hereunder (plus
interest thereon at the highest legal rate permitted under applicable law or
SBA regulation). All such amounts due hereunder shall be paid to such Investor
by certified check, cashier's check or wire transfer. In the event an Investor
demands and receives such repayment, the Series G Shares issued to such
Investor pursuant to this Agreement (and the Conversion Shares into which such
Series G Shares may from time to time have been converted or exercised for)
shall be surrendered by such Investor to the Company, duly endorsed in blank,
accompanied by such supporting documents as may be necessary to pass to the
Company good title to such securities, free and clear of all liens (other than
restrictions under applicable securities laws and/or the Stockholders'
Agreement) and, at the option of the Company, canceled by the Company.
Notwithstanding the foregoing, however, to the extent that SBA regulations
permit the Company to cure any default under this SECTION 8.1, the Company may
cure such default prior to the expiration of the 30-day notice period above,
and in such case the rights of the Investors to require the Company to
repurchase any of their Series G Shares and Conversion Shares to the Company
under this SECTION 8.1 shall cease with respect to such default. Any such cure
shall in no way be deemed to limit an Investor's rights under this SECTION 8.1
with respect to any subsequent default. Nothing in this SECTION 8.1 shall be
construed to restrict or otherwise limit an Investor's right to seek all other
remedies available to it as provided hereunder, or at law or in equity,
including the remedy of specific performance. The provisions of this SECTION
8.1 shall expire upon evidence satisfactory to NBCC that the Company has
utilized the proceeds received pursuant to this Agreement in a manner that is
consistent with their use reported to the SBA on SBA Form 1031. The rights of
an Investor pursuant to this SECTION 8 shall not be transferable or assignable
except to an affiliate of such Investor.
SECTION 9. GENERAL.
9.1 AMENDMENTS, WAIVERS AND CONSENTS. Except as otherwise
provided herein, any consents required and any waiver, amendment or other
action of the Investors or holders of the Series G Shares (or Conversion
Shares) may be made by consent(s) in writing signed by at least two (2) holders
of Series G Shares holding in the aggregate at least two-thirds of all
Subseries of the Series G Shares the outstanding (including, for such purposes,
any Conversion Shares into which any of the Series G Shares have been converted
that have not been sold to the public). Any amendment or waiver made according
to this paragraph will 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) and each future holder. Any amendment or
waiver by the Company must be made in writing.
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9.2 SURVIVAL; ASSIGNABILITY OF RIGHTS. All representations of the
parties made in this Agreement and in the certificates, exhibits, schedules or
other written information delivered or furnished by one party to the other in
connection with this Agreement will survive the delivery of the Series G Shares
for a period of three (3) years. Except as otherwise expressly provided for
herein, all covenants and agreements made in this Agreement will survive the
Initial Closing Date, and will bind and inure to the benefit of the parties'
successors and assigns.
9.3 GOVERNING LAW. THIS AGREEMENT IS TO BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING
EFFECT TO THE CHOICE OF LAW PROVISIONS THEREOF.
9.4 COUNTERPARTS. This Agreement may be executed simultaneously
in any number of counterparts, each of which will be taken to be an original,
but such counterparts will together constitute one document.
9.5 NOTICES AND DEMANDS. Any notice or demand which is permitted
or required hereunder will be deemed to have been sufficiently received (except
as otherwise provided herein) (a) upon receipt when personally delivered, (b)
one (1) day after sent by overnight delivery or telecopy providing confirmation
or receipt of delivery, or (c) three (3) days after being sent by certified or
registered mail, postage and charges prepaid, return receipt requested to the
following addresses: if to the Company or an Operating Subsidiary, at the
address as shown on the signature page of this Agreement, or at any other
address designated by such corporation to the Investors in writing; if to an
Investor, at its mailing address as shown on Exhibit 2, or at any other address
designated by the Investors to the Company in writing.
9.6 SEVERABILITY. If any provision of this Agreement is held
invalid under applicable law, such provision will be ineffective to the extent
of such invalidity, and such invalid provision will be modified to the extent
necessary to make it valid and enforceable. Any such invalidity will not
invalidate the remainder of this Agreement.
9.7 EXPENSES; SPECIFIC ENFORCEMENT. The Company will pay (a) all
costs and expenses that it incurs with respect to the negotiation, execution,
delivery and performance of this Agreement, and (b) the reasonable
out-of-pocket expenses of the Investors and the reasonable legal fees and
disbursements incurred by one counsel for the Investors (up to a maximum of
$10,000) with respect to this Agreement and the transactions contemplated
hereby. The Investors, other than Xxxxxx Capital Investors, L.P. and Xxxxxx
Partners, a limited partnership, designate Jenkens & Xxxxxxxxx, a Professional
Corporation, as their counsel for this transaction. The parties agree that the
rights created by this Agreement are unique and that the loss of any such right
is not susceptible to monetary quantification. Consequently, the parties agree
that an action for specific enforcement (including for temporary and/or
permanent injunctive relief) is a proper remedy for the breach of the
provisions of this Agreement, without the necessity of proving actual damages.
If either party is required to take any action to enforce its rights under this
Agreement, the prevailing party shall be entitled to its reasonable expenses,
including attorneys' fees, in connection with any such action.
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9.8 ENTIRE AGREEMENT. This Agreement (including the schedules and
exhibits hereto) and the agreements referenced as exhibits to this Agreement
constitute the entire agreement of the parties, and supersede any prior
agreements.
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The undersigned have executed this Agreement as of the day and year first
written above.
COMPANY:
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
By: /s/ Xxx X. Tarrilion
----------------------------------------
Xxx X. Xxxxxxxxxx, President and
Chief Executive Officer
Address for notices:
0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxx, Xxxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxx X. Xxxxxxxxxx
OPERATING SUBSIDIARIES:
EET, INC..
By: /s/ Xxx X. Tarrilion
-----------------------------------------
Xxx X. Xxxxxxxxxx, Vice President
Address for notices:
0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxx, Xxxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxx X. Xxxxxxxxxx
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INDUSTRIAL PIPE FITTINGS, INC.
By: /s/ Xxx X. Tarrilion
------------------------------------------
Xxx X. Xxxxxxxxxx, Vice President
Address for notices:
0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxx, Xxxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxx X. Xxxxxxxxxx
GAIA TECHNOLOGIES, INC.
By: /s/Xxx X. Tarrilion
------------------------------------------
Xxx X. Xxxxxxxxxx, Vice President
Address for notices:
0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxx, Xxxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxx X. Xxxxxxxxxx
RISERCLAD INTERNATIONAL, INC.
By: /s/ Xxx X. Tarrilion
------------------------------------------
Xxx X. Xxxxxxxxxx, Vice President
Address for notices:
0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxx, Xxxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxx X. Xxxxxxxxxx
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NBCC:
NATIONSBANC CAPITAL CORPORATION
By: /s/ Authorized Officer
------------------------------------------
Address for notices:
000 Xxxx Xxxxxx, 00xx Xxxxx
Xxxxxx, Xxxxx 00000-0000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxxxxx
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INVESTORS:
X. XXXXXX & PARTNERS-1993 L.P.
By: X. XXXXXX & CO., INC.
By: /s/ Xxxxxx X. Xxxxxx
--------------------------------
Xxxxxx X. Xxxxxx,
President & CEO
Address for notices:
909 Fannin, Suite 0000
Xxx Xxxxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000-0000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxx X. Xxxxxx
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THE CCG CHARITABLE REMAINDER
UNITRUST #1
By: CCG VENTURE PARTNERS, LLC
By: /s/ Xxxx X. Xxxxxxx
--------------------------------
Xxxx X. Xxxxxxx, Manager
Address for notices:
14450 X.X. Xxxxxx Xxxx., #000
Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxxx X. Xxxxxxx
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XXXXXXXX INTERESTS, LTD.
By: /s/ Xx Xxxxxx
------------------------------------
Xx Xxxxxx, Attorney-in-Fact
Address for notices:
Xxxxx Xxxxxxxx Xxxx Xxxx., Xxxxx 0000
Xxxxxxx, XX 00000-0000
Telephone: (000) 000-0000
Facsimile:: (000) 000-0000
Attention: Xx Xxxxxx
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XXXXXX X. XXXX
/s/ Xxxxxx X. Xxxx
----------------------------------------
Xxxxxx X. Xxxx
Address for notices:
c/o Zinn Petroleum Co.
0000 Xxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxx X. Xxxx
00
00
XXXXXX XX XXXXXXX X. HELIS,
A LOUISIANA PARTNERSHIP
By: /s/ Xxxxx X. Xxxxxxxx
-------------------------------------
Xxxxx X. Xxxxxxxx, General Agent
Address for notices:
000 Xx. Xxxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx X. Xxxxxxxx
00
00
XXXXXX CAPITAL INVESTORS, L.P.
By: /s/ Xxxxxx Xxxxxx
-------------------------------------
Xxxxxx Xxxxxx, General Partner
Address for notices:
000 0xx Xxxxxx
Xxxxx Xxxx, Xxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxxxx Xxxxx
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PECAUT PARTNERS, A LIMITED PARTNERSHIP
By: /s/ Xxxxxx Xxxxxx
------------------------------------
Xxxxxx Xxxxxx, General Partner
Address for notices:
000 0xx Xxxxxx
Xxxxx Xxxx, Xxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxxxx Xxxxx
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THE XXXXX PARTNERSHIP II, LTD.
By: Xxxxxxxxxxx X. Xxxxx,
member of the General Partner,
Xxxxx Ventures, LLC
/s/ Xxxxxxxxxxx X. Xxxxx
----------------------------------------
Xxxxxxxxxxx X. Xxxxx
Address for notices:
0000 Xxxxxx Xxxxxx
Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
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XXXXXXXXX X. XXXXX
By: /s/ Xxxxxxxxxxx X. Xxxxx
------------------------------------
Xxxxxxxxxxx X. Xxxxx
Attorney-in Fact
Address for notices:
0000 Xxxxxx Xxxxxx
Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
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THE PARADE FUND
By: /s/ X.X. Xxxxxxxx, III
-------------------------------------
Name: X. X. Xxxxxxxx, III
Title: Managing Partner
Address for notices:
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxxx, XX 00000
Telephone:
Telecopy:
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XXXXXX X. XXXXXXXX
By:/s/ Xxxxxx X. Xxxxxxxx
-------------------------------------
Xxxxxx X. Xxxxxxxx
Address for notices:
0000 Xxxxxxxx, Xxxxx 000
Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
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XXXXXXX X. XXXX
/s/ Xxxxxx X. Xxxx
----------------------------------------
Xxxxxx X. Xxxx, Attorney and
Agent-in-Fact for Xxxxxxx X. Xxxx
Address for notices:
c/o Zinn Petroleum Co.
0000 Xxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxx X. Xxxx
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