STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (this "Stockholders Agreement"), dated as of
November 24, 1999, is entered into by and among Silicon Gaming, Inc., a
California corporation (the "COMPANY"), B III Capital Partners, L.P., a Delaware
limited partnership (the "PURCHASER"), the stockholders of the Company as
identified on the signature pages hereto (the "MANAGEMENT STOCKHOLDERS"), and
any other stockholder or optionholder who, from time to time, becomes party to
this Agreement by execution of a Joinder Agreement in substantially the same
form attached hereto as EXHIBIT A (the "OTHER STOCKHOLDERS"). The Management
Stockholders and the Other Stockholders are referred to herein collectively as
the "Stockholders" and individually as a "Stockholder."
This Stockholders Agreement is made pursuant to a certain Restructuring
Agreement, dated as of the date hereof, by and between the Company and the
Purchaser (the "RESTRUCTURING AGREEMENT"). In order to induce the Purchaser to
enter into the Restructuring Agreement and to consummate the terms thereof, the
Company and the Management Stockholders have agreed to provide certain rights
and assume certain obligations as set forth in this Stockholders Agreement. The
execution of this Stockholders Agreement is a condition to the closing of the
transactions contemplated by the Restructuring Agreement.
In consideration of the foregoing and the mutual agreements and covenants
hereinafter set forth, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS.
As used in this Stockholders Agreement, the following terms shall have the
following meanings:
"ACTUAL EFFECTIVE DATE" shall have the meaning set forth in Section 3.1(a).
"AFFILIATE" means, with respect to any specified Person, any other Person
(i) directly or indirectly controlling (including, but not limited to, all
directors and executive officers of such Person), controlled by or under direct
or indirect common control with such specified Person, or (ii) directly or
indirectly owning more than 10% of the voting securities of such Person. A
Person shall be deemed to control a corporation if such Person possesses,
directly or indirectly, the power to direct or cause the direction of the
management and policies of such corporation, whether through the ownership of
voting securities, by contract or otherwise.
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"BUSINESS DAY" means a day that is not a Saturday, Sunday or a day on which
banking institutions in New York City, New York, or Boston, Massachusetts, or at
such place of payment, are not required to be opened.
"CLOSING DATE" means November 24, 1999.
"COMMISSION" means the United States Securities and Exchange Commission.
"COMMON STOCK" means the common stock, par value $.001 per share, of the
Company.
"COMPANY" shall have the meaning set forth in the preamble and shall
include the Company's successors by merger, acquisition, reorganization or
otherwise.
"CONTROLLING PERSONS" shall have the meaning set forth in Section 4.1.
"CONVERSION SHARES" means the shares of Common Stock issuable upon
conversion of the Series D Preferred Stock or the Series E Preferred Stock and
all shares of Common Stock directly or indirectly issued or issuable in respect
of the Series D Preferred Stock or the Series E Preferred Stock including,
without limitation, shares of Common Stock issuable by way of adjustments to the
Conversion Price or the Conversion Ratio (as defined in the Series D Certificate
of Determination and the Series E Certificate of Determination), stock dividend
or stock split or in connection with a combination of shares, recapitalization,
merger, consolidation, or other reorganization. For purposes of this
Stockholders Agreement, all references to holders of Series D Preferred Stock
convertible into a majority or other specified percentage of shares shall be
read as incorporating the assumption that all shares of Series D Preferred Stock
have been exercised or converted into Conversion Shares.
"DAMAGES" shall have the meaning set forth in Section 4.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from
time to time, or any successor statute, and the rules and regulations of the
Commission promulgated thereunder.
"INSPECTORS" shall have the meaning set forth in Section 3.2(m).
"MARKET TRANSACTION" shall have the meaning set forth in Section 2.4.
"NASD" shall have the meaning set forth in Section 3.2(q).
"NASDAQ" shall have the meaning set forth in Section 3.2(o).
"OBJECTION NOTICE" shall have the meaning set forth in Section 3.2(a).
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"OBJECTING PARTY" shall have the meaning set forth in Section 3.2(a).
"PERMITTED TRANSFEREE" shall have the meaning set forth in Section 2.1.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, limited liability company,
unincorporated organization, government or other agency, or any political
subdivision thereof, or any other entity of whatever nature.
"PROSPECTUS" means the prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective Registration
Statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement, and all other amendments and supplements to the
prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such prospectus.
"PURCHASER" or "PURCHASERS" means (i) B III Capital Partners, L.P., a
Delaware limited partnership, and (ii) each Person (other than the Company) to
whom a Purchaser transfers Series D Preferred Stock, Series E Preferred Stock or
Conversion Shares if such Person acquires such Conversion Shares as Registrable
Securities.
"PURCHASER'S COUNSEL" means Xxxxxxx, Procter & Xxxx LLP, special counsel to
the Purchaser, or any successor counsel selected by a Purchaser holding a
majority in interest of the Registrable Securities.
"RECORDS" shall have the meaning set forth in Section 3.2(m).
"REGISTRABLE SECURITIES" means the Conversion Shares; PROVIDED, HOWEVER,
that any Conversion Shares shall cease to be Registrable Securities when (i) a
Registration Statement covering such Registrable Securities has been declared
effective and such Registrable Securities have been disposed of pursuant to such
effective Registration Statement, or (ii) such Registrable Securities are
transferred to any Person other than Permitted Transferees pursuant to Rule
144(k) (or any successor rule or similar provision then in effect, but not Rule
144A) under the Securities Act, including a sale pursuant to the provisions of
Rule 144(k).
"REGISTRATION EXPENSES" shall have the meaning set forth in Section 3.3.
"RESTRUCTURING AGREEMENT" shall have the meaning set forth in the preamble
and pursuant to which the shares of Series D Preferred Stock and the warrants to
purchase Series E Preferred Stock are being issued, as amended, modified or
supplemented from time to time, together with any exhibits, schedules or other
attachments thereto.
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"SECURITIES ACT" means the Securities Act of 1933, as amended from time to
time, or any successor statute, and the rules and regulations of the Commission
promulgated thereunder.
"SERIES D CERTIFICATE OF DETERMINATION" means the Certificate of
Determination for the Series D Preferred Stock of the Company filed with the
Secretary of State of California as of November 24, 1999 and effective as of the
date hereof.
"SERIES E CERTIFICATE OF DETERMINATION" means the Certificate of
Determination for the Series E Preferred Stock of the Company filed with the
Secretary of State of California as of November 24, 1999 and effective as of the
date hereof.
"SERIES D PREFERRED STOCK" means the Series D Convertible Preferred Stock,
par value $0.001 per share, of the Company having those rights and preferences
as set forth in the Series D Certificate of Determination.
"SERIES E PREFERRED STOCK" means the Series E Convertible Preferred Stock,
par value $0.001 per share, of the Company having those rights and preferences
as set forth in the Series E Certificate of Determination.
"SHARES" means the shares of Common Stock of the Company owned or held by
any of the Stockholders or any Permitted Transferee thereof, all shares of
Common Stock then held by the Stockholders and any Permitted Transferees
thereof, and any other equity securities now or hereafter issued by the Company,
together with any options, thereon and any other shares of stock issued or
issuable with respect thereto (whether by way of a stock dividend, stock split
or in exchange for or upon conversion of such shares or otherwise in connection
with a combination of shares, recapitalization, merger, consolidation or other
corporate reorganization).
"SHELF REGISTRATION STATEMENT" means a registration statement of the
Company on the appropriate form for an offering to be made on a continuous basis
pursuant to Rule 415 under the Securities Act that covers any of the Registrable
Securities pursuant to the provisions of this Stockholders Agreement, and all
amendments and supplements to any such registration statement, including
post-effective amendments, in each case including the Prospectus, all exhibits,
and all material incorporated by reference or deemed to be incorporated by
reference in such registration statement.
"SUSPENSION NOTICE" shall have the meaning set forth in Section 3.2.
"SUSPENSION PERIOD" shall have the meaning set forth in Section 3.2.
"TARGET EFFECTIVE DATE" means the date which is 225 days after the date
hereof.
"TARGET EFFECTIVE PERIOD" shall have the meaning set forth in Section 3.1.
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"TARGET FILING DATE" shall mean the date which is 180 days after the date
hereof, or such other date subsequent thereto as the Purchaser shall request.
"TRANSFER" shall mean to sell, pledge, assign, hypothecate, grant a
security interest in or otherwise transfer.
SECTION 1.2 TERMS NOT DEFINED. Capitalized terms used herein but not herein
defined shall have the meanings ascribed to such terms in the Restructuring
Agreement.
ARTICLE II
RESTRICTIONS ON TRANSFER; DRAG-ALONG AND CO-SALE PROVISIONS
SECTION 2.1 RESTRICTIONS ON TRANSFER. So long as Purchaser holds equity
securities representing on a fully-diluted basis (assuming exercise and
conversion of all outstanding shares of Series D Preferred Stock, Series E
Preferred Stock, Series E Warrants and other options, warrants and other
convertible securities) at least 5% of the outstanding Common Stock of the
Company, each Stockholder agrees that it or he will not, without the prior
written consent of the holders of a majority of the then outstanding Series D
Preferred Stock, Transfer all or any portion of the Shares now owned or
hereafter acquired by it or him, except in connection with, and in compliance
with the conditions of, any of the following:
(a) Transfers effected pursuant to Sections 2.2, 2.3 in each case made
in accordance with the procedures set forth therein;
(b) Transfers by any Stockholder to (i) such Stockholder's spouse or
children or to a trust of which such Stockholder is the settlor and a trustee
for the benefit of his spouse or children, PROVIDED that any such trust or
entity does not require or permit distribution of such Shares during the term of
this Stockholders Agreement, and PROVIDED FURTHER that the transferee shall have
entered into a Joinder Agreement in the form attached as EXHIBIT A providing
that all Shares so Transferred shall continue to be subject to all provisions of
this Stockholders Agreement as if such Shares were still held by such
Stockholder; or (ii) to another Stockholder, except that no further Transfer
shall thereafter be permitted hereunder except in compliance with Sections 2.2
and 2.3;
(c) Transfers upon the death of any Stockholder to his heirs,
executors or administrators or to a trust under his will or Transfers between
such Stockholder and his guardian or conservator, PROVIDED that any transferee
shall have entered into a Joinder Agreement in substantially the form attached
as EXHIBIT A hereto, providing that all Shares so Transferred shall continue to
be subject to all provisions of this Stockholders Agreement as if such Shares
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were still held by Stockholder, except that no further Transfer shall thereafter
be permitted hereunder except in compliance with Sections 2.2 and 2.3; and
(d) Transfers to the Company (to the extent permitted under the
restrictive covenants contained in the Restructuring Agreement) pursuant to the
Silicon Gaming, Inc. 1999 Long-Term Compensation Plan.
(e) Transfers pursuant to a Market Transaction. A "MARKET TRANSACTION"
shall mean any Transfer of the securities of the Company in which (i) such
shares are sold on a national securities exchange or over the counter market or
the Nasdaq Bulletin Board at the market price hereon; (ii) such shares are sold
through a "brokers' transaction" or in a transaction directly with a "market
maker," as such terms are defined in Rule 144(f) of the Rules promulgated under
the Securities Act of 1933, as amended; (iii) the Stockholder does not solicit
or arrange for the solicitation of orders to buy the shares in anticipation of
or in connection with such transactions; and (iv) the Stockholder does not make
any payment in connection with the sale of such shares to any person other than
commercially reasonable fees to the broker who executes the order to sell the
shares; PROVIDED, HOWEVER, that Market Transactions shall EXCLUDE transactions
in which one or more Stockholders sell or agree to sell Shares in a facilitated
block sale.
Any permitted transferee described in the preceding clauses (b) or (c)
shall be referred to herein as a "PERMITTED TRANSFEREE." Anything to the
contrary in this Stockholders Agreement notwithstanding, Permitted Transferees
shall take any Shares so Transferred subject to all provisions of this
Stockholders Agreement as if such Shares were still held by the Stockholder,
whether or not they so agree in writing.
SECTION 2.2 DRAG-ALONG.
(a) If after 30 months following the Closing Date holders of a
majority of the then outstanding Series D Preferred Stock, determine to sell or
otherwise dispose of all or substantially all of the assets of the Company or
all or substantially all of the capital stock of the Company owned by the
Purchaser to any Person other than an Affiliate of the Company or of the
Purchaser, or to cause the Company to merge with or into or consolidate with any
Person other than an Affiliate of the Company (in each case, the "BUYER") in a
bona fide negotiated transaction (a "SALE"), the Purchaser, the Management
Stockholders and the Other Stockholders, including any of their respective
Permitted Transferees, shall be obligated to and shall upon the written request
of the Purchaser: (i) sell, Transfer and deliver, or cause to be sold,
Transferred and delivered, to the Buyer, his, her or its Shares (including, for
this purpose, all of such stockholder's Shares that presently or as a result of
any such transaction may be acquired upon the exercise of options following the
payment of the exercise price therefor) on the same terms applicable to the
Purchasers (with appropriate adjustments to reflect the conversion of
convertible securities, the redemption of redeemable securities and the exercise
of exercisable securities as well as the relative preferences and priorities of
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the Series D Preferred Stock, Series E Preferred Stock and New Notes, but with
no control-premium adjustment); and (ii) execute and deliver such instruments of
conveyance and transfer and take such other action, including voting such Shares
in favor of any Sale proposed by the holders of a majority of the then
outstanding Series D Preferred Stock and executing any purchase agreements,
merger agreements, indemnity agreements, escrow agreements or related documents,
as such holders or the Buyer may reasonably require in order to carry out the
terms and provisions of this Section 2.2.
(b) Not less than thirty (30) days prior to the date proposed for the
closing of any Sale in accordance with Section 2.2(a) above, the Purchasers
shall give written notice to all Purchasers and Stockholders, setting forth in
reasonable detail the name or names of the Buyer, the terms and conditions of
the Sale, including the purchase price, and the proposed closing date of such
offer.
SECTION 2.3 CO-SALE OPTION OF PURCHASER. In the event that any Stockholder,
including any of its Permitted Transferees, receives a bona fide offer to
purchase all or any portion of the Shares held by such Stockholder or Permitted
Transferee (the "OFFER") from a person other than an Affiliate or Purchaser (the
"Offeror"), in a transaction other than a Market Transaction, such Stockholder
or its Permitted Transferee (the "TRANSFERRING STOCKHOLDER") may Transfer such
Shares only pursuant to and in accordance with the following provisions of this
Section 2.3:
(a) Such Transferring Stockholder shall cause the Offer and all of the
terms thereof to be reduced to writing and shall promptly notify each Purchaser
of his, her or its wish to accept the Offer and otherwise comply with the
provisions of this Section 2.3 and, if applicable, Section 2.3 (such notice, the
"OFFER NOTICE"). The Offer Notice shall be accompanied by a true copy of the
Offer (which shall identify the Offeror and all relevant information in
connection therewith).
(b) Upon receipt of an Offer Notice, each Purchaser shall have the
right to participate in the Offer with respect to any Conversion Shares by
giving written notice (the "ACCEPTANCE NOTICE") to the Transferring Stockholder
within thirty (30) days after receipt of the Offer Notice (the "CO-SALE
Option"). Each Acceptance Notice shall indicate the maximum number of shares the
Purchaser wishes to sell including the number of shares it would sell if one or
more other Purchasers do not elect to participate in the sale on the terms and
conditions stated in the Offer Notice. Any Purchaser holding Series D Preferred
or Series E Preferred shall be permitted to sell to the relevant Offeror in
connection with any exercise of the Co-Sale Option, at the Purchaser's option,
(i) shares of Common Stock acquired upon conversion of such Series D Preferred
Stock or Series E Preferred Stock; (ii) an option to acquire such Common Stock
when it receives the same upon such conversion at the election of such Purchaser
with the same effect as if Common Stock were being conveyed; or (iii) shares of
Series D Preferred Stock or Series E Preferred Stock.
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(c) Each Purchaser shall have the right to sell a portion of its
shares pursuant to the Offer which is equal to or less than the product obtained
by multiplying (i) the total number of Shares subject to the Offer and available
for sale to the Offeror by (ii) a fraction, the numerator of which is the total
number of shares owned by such Purchaser on the date of the Offer Notice on an
as converted basis (including all shares of Common Stock issuable upon
conversion of the Series D Preferred Stock and Series E Preferred Stock) and the
denominator of which is the total number of shares of Common Stock then held by
all Purchasers and shares then held by the Transferring Stockholder (including
any of his Permitted Transferees) on the date of the Offer Notice, also on an
as-converted basis and including (without duplication) all shares of Common
Stock issuable upon the conversion of the Series D Preferred Stock and Series E
Preferred Stock. Within five (5) days of the expiration of the 30-day period set
forth in (b) above, the Transferring Stockholder shall provide to each Purchaser
a notice setting forth the number of shares each Purchaser elects to sell under
its Co-Sale Option. To the extent one or more Purchasers elect not to sell, or
fail to exercise their rights to sell, the full amount of such shares which they
are entitled to sell pursuant to this Section 2.3, the right of Purchasers who
have elected to sell shares shall be increased proportionately based on their
relative holdings and such other Purchasers shall have an additional five (5)
business days from the date upon which they are notified of such election or
failure to receive the Second Offer Notice in which to increase the number of
shares to be sold by them hereunder by giving notice to such effect to the
Transferring Stockholder as provided herein.
(d) Within twenty (20) days after the date by which the Purchasers
were first required to notify the Transferring Stockholder of their intent to
participate, the Transferring Stockholder shall notify each participating
Purchaser of the number of shares held by such Purchaser that will be included
in the sale and the date on which the Offer will be consummated, which shall be
no later than the later of (i) sixty (60) days after the date by which the
Purchasers were first required to notify the Transferring Stockholder of their
intent to participate and (ii) the satisfaction of any governmental approval or
filing requirements, if any.
(e) A Purchaser may effect its participation in any Offer hereunder by
delivery to the Offeror, or to the Transferring Stockholder for delivery to the
Offeror, of one or more instruments or certificates, properly endorsed for
transfer, representing the shares it elects to sell therein, provided that no
Purchaser shall be required to make any representations or warranties or to
provide any indemnities in connection therewith other than with respect to title
to the stock being conveyed. At the time of consummation of the transaction
contemplated by the Offer, the Offeror shall remit directly to each
participating Purchaser that portion of the sale proceeds to which such
Purchaser is entitled by reason of its participation therein (less any
adjustments due to the conversion of any convertible securities or the exercise
of any exercisable securities). No Shares may be purchased by the Offeror from
the Transferring Stockholder or any of his or her Permitted Transferees unless
the Offeror simultaneously purchases from the participating Purchasers all of
the shares that they have elected to sell pursuant to this Section 2.3.
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(f) Any Shares held by a Transferring Stockholder which are the
subject of the Offer that the Transferring Stockholder desires to sell following
compliance with this Section 2.3 may be sold to the Offeror only during the
period specified in Section 2.3(d) and only on terms no more favorable to the
Transferring Stockholder than those contained in the Offer Notice. Promptly
after such sale, the Transferring Stockholder shall notify the Company, which in
turn shall promptly notify the Purchasers of the consummation thereof and shall
furnish such evidence of the completion and time of completion of such sale and
of the terms thereof as may reasonably be requested by the holders of a majority
interest of the Purchasers. So long as the Offeror is neither a party nor an
Affiliate of or relative of a party, to this Agreement, such Offeror shall take
the Shares so Transferred free and clear of any further restrictions of this
Article II other than as set forth in Section 2.3(g) below. In the event that
the Offer is not consummated within the period required by Section 2.3(d) or the
Offeror fails timely to remit to each participating Purchaser its portion of the
sale proceeds, the Offer shall be deemed to lapse, and any Transfers of Shares
pursuant to such Offer shall be deemed to be in violation of the provisions of
this Agreement unless the Transferring Stockholder once again complies with the
provisions of this Section 2.3 hereof with respect to such Offer.
(g) Anything to the contrary herein notwithstanding, any Shares
acquired by the Offeror pursuant to and in accordance with this Section 2.3
shall be subject to all the provisions of Section 2.2 of this Stockholders
Agreement as if such Shares were still held by the Transferring Stockholder
whether or not they so agree in writing. The Transferring Stockholder shall
cause the Offeror to execute a Joinder Agreement in the form of Exhibit B.
ARTICLE III
REGISTRATION RIGHTS
SECTION 3.1 SHELF REGISTRATION.
(a) FILING; EFFECTIVENESS. Not later than the Target Filing Date, the
Company shall prepare and file with the Commission a Shelf Registration
Statement covering the resale of all of the Registrable Securities. The Company
shall use its best efforts to cause the Shelf Registration Statement to be
declared effective on or before the Target Effective Date and to keep such Shelf
Registration Statement continuously effective for a period (the "TARGET
EFFECTIVE PERIOD") following the date on which such Shelf Registration Statement
is declared effective (the "ACTUAL EFFECTIVE DATE"), which Target Effective
Period shall be equal to, with respect to each Purchaser, the longer of the
period of time between the Actual Effective Date and (i) the date which is 24
months following the Actual Effective Date, or (ii) the date on which all
Registrable Securities held by and issuable to the Purchaser may be sold under
Rule 144(k), provided that the Company first provides such Purchaser with an
opinion of counsel to such effect.
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(b) SUPPLEMENTS; AMENDMENTS. The Company agrees, if necessary, to
supplement or amend the Shelf Registration Statement, as required by the rules,
regulations or instructions applicable to the registration form used by the
Company for such Shelf Registration Statement or by the Securities Act or as
requested (which request shall result in the filing of a supplement or
amendment) by any Purchaser of Registrable Securities to which such Shelf
Registration Statement relates, and the Company agrees to furnish to the
Purchaser, Purchaser's Counsel and any managing underwriter copies of any such
supplement or amendment prior to its being used and/or filed with the
Commission.
(c) LIQUIDATED DAMAGES. If the Shelf Registration Statement is not
filed on or before the Target Filing Date, the Company shall pay liquidated
damages to eac0h Purchaser in an amount equal to $0.25 per 10,000 Conversion
Shares held by such Purchaser per week beginning on the Target Filing Date. If
the Shelf Registration Statement is filed but has not become effective on or
before the Target Effective Date, the Company shall pay liquidated damages to
each Purchaser in an amount equal to $0.25 per 10,000 Conversion Shares held by
such Purchaser per week beginning on the Target Effective Date. The weekly
liquidated damages payable by the Company to each Purchaser as a result of a
late filing or a late declaration of effectiveness shall increase by an amount
equal to $0.25 per 10,000 Conversion Shares 90 days after the Target Filing Date
or the Target Effective Date, as the case may be. If a stop order is imposed or
if for any other reason the effectiveness of the Shelf Registration Statement is
suspended during the Target Effective Period, then the Company shall pay
liquidated damages to each Purchaser in an amount equal to $0.25 per 10,000
Conversion Shares per week beginning on the date of such stop order or other
suspension of effectiveness. The weekly liquidated damages payable by the
Company to each Purchaser as a result of the imposition of a stop order or such
other suspension of the effectiveness of the Shelf Registration Statement during
the Target Effective Period shall increase by an amount equal to $0.25 per
10,000 Conversion Shares 90 days after the stop order was imposed or the
effectiveness of the Shelf Registration Statement was otherwise suspended, and
shall thereafter increase by an amount equal to $0.025 per 10,000 Conversion
Shares at the end of each subsequent 90-day period so long as such stop order or
other suspension of the effectiveness of the Shelf Registration Statement
remains in effect. For purposes of the two preceding sentences, a Purchaser will
not be entitled to receive liquidated damages under this Stockholders Agreement
during a Suspension Period (as hereinafter defined) except to the extent
permitted by Section 3 of this Stockholders Agreement. The Conversion Shares
with respect to which liquidated damages shall accrue and be payable in
accordance with this Section 3.1(c) shall be those Registrable Securities held
by the Purchaser which are included or proposed to be included in the Shelf
Registration Statement.
The liquidated damages payable by the Company to the Purchaser pursuant
to this Section 3.1(c) shall be deemed to commence accruing on the day on which
the event triggering such liquidated damages occurs. Such liquidated damages
shall cease to accrue (i) with respect to the liquidated damages payable as a
result of the Company's failure to file the Shelf Registration Statement on or
prior to the Target Filing Date, on the day after the Shelf Registration
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Statement is filed, (ii) with respect to the liquidated damages payable as a
result of the Company's failure to have the Shelf Registration Statement
declared effective on or prior to the Target Effective Date, on the day after
the Shelf Registration Statement is declared effective, or (iii) with respect to
the liquidated damages payable as a result of the imposition of a stop order or
the suspension for any other reason of the effectiveness of the Shelf
Registration Statement, on the day after the stop order is withdrawn or the
effectiveness of the Shelf Registration Statement is otherwise reinstated.
Notwithstanding the foregoing, if the sole reason why (i) the Company has
not filed the Shelf Registration Statement on or before the Target Filing Date
and/or (ii) the Shelf Registration Statement has not become effective on or
before the Target Effective Date is because a Purchaser did not provide the
Company with information which is required to be disclosed in the Shelf
Registration Statement and which the Company requested such Purchaser to so
provide in writing at least 15 days prior to the Target Filing Date and/or the
Target Effective Date, as the case may be, the Company's obligation to pay
liquidated damages with respect to such late filing or such late declaration of
effectiveness will not begin to accrue until five days after such Purchaser has
provided such information to the Company.
The Company shall pay the liquidated damages due with respect to any
Registrable Securities at the end of each week during which such liquidated
damages accrue. Liquidated damages shall be paid to the Purchaser of Registrable
Securities entitled to receive such liquidated damages by wire transfer in
immediately available funds to the accounts designated by such Purchaser.
The parties hereto agree that the liquidated damages provided for in this
Section 3.1(c) and in Section 3.2 constitute a reasonable estimate as of the
date hereof of the damages that will be suffered by Purchaser of Registrable
Securities by reason of the failure of the Shelf Registration Statement to be
filed, to be declared effective and/or to remain effective, as the case may be,
in accordance with this Stockholders Agreement.
(d) EFFECTIVE REGISTRATION. A registration will not be deemed to have
been effected as a Shelf Registration Statement unless the Shelf Registration
Statement with respect thereto has been declared effective by the Commission and
the Company has complied in all material respects with its obligations under
this Stockholders Agreement with respect thereto; PROVIDED, HOWEVER, that if
after a Shelf Registration Statement has been declared effective, the offering
of Registrable Securities pursuant to such Shelf Registration Statement is
interfered with by any stop order, injunction or other order or requirement of
the Commission or any other governmental agency or court, such Shelf
Registration Statement will be deemed not to have become effective during the
period of such interference (and liquidated damages shall accrue and be payable
under Section 3.1(c)) until the offering of Registrable Securities pursuant to
such Shelf Registration Statement may legally resume. If a registration
requested pursuant to this Article III is deemed not to have been effected, then
the Company shall continue to be obligated to effect a registration pursuant to
this Section 3.
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SECTION 3.2 REGISTRATION PROCEDURES.
In connection with the obligations of the Company to effect or cause the
registration of any Registrable Securities pursuant to the terms and conditions
of this Stockholders Agreement:
(a) The Company shall prepare and file with the Commission a Shelf
Registration Statement on the appropriate form under the Securities Act, which
Shelf Registration Statement shall comply as to form in all material respects
with the requirements of the applicable form and include all financial
statements required by the Commission to be filed therewith, and use its best
efforts to cause such Shelf Registration Statement to become effective and
remain effective in accordance with the provisions of this Stockholders
Agreement; PROVIDED, HOWEVER, that, at least ten Business Days prior to filing a
Shelf Registration Statement or Prospectus or any amendments or supplements
thereto, including documents incorporated by reference after the initial filing
of the Shelf Registration Statement, the Company shall furnish to the Purchaser
of the Registrable Securities covered by such Shelf Registration Statement,
Purchaser's Counsel and the underwriters, if any, draft copies of all such
documents proposed to be filed, which documents will be subject to the review of
Purchaser's Counsel and the underwriters, if any, and the Company will not,
unless required by law or this Stockholders Agreement, file any Shelf
Registration Statement or amendment thereto or any Prospectus or any supplement
thereto to which Purchaser holding a majority in interest of the Registrable
Securities covered by such Shelf Registration Statement or the underwriters with
respect to such Securities, if any, shall object; PROVIDED, HOWEVER, that any
such objection to the filing of any Shelf Registration Statement or amendment
thereto or any Prospectus or supplement thereto shall be made by written notice
(the "OBJECTION NOTICE") delivered to the Company no later than five Business
Days after the party or parties asserting such objection or their counsel (the
"OBJECTING PARTY") receives draft copies of the documents that the Company
proposes to file. The Objection Notice shall set forth the objections and the
specific areas in the draft documents where such objections arise. The Company
shall have five Business Days after receipt of the Objection Notice to correct
such deficiencies to the satisfaction of the Objecting Party, and will notify
each Purchaser of any stop order issued or threatened by the Commission in
connection therewith and shall use its best efforts to prevent the entry of such
stop order or, if entered, to have such stop order withdrawn at the earliest
possible moment. Liquidated damages under Section 3.1(c) shall be tolled and
shall not begin to accrue until the day next following the five Business Day
correction period provided in the immediately preceding sentence.
(b) The Company shall promptly prepare and file with the Commission
such amendments and post-effective amendments to such Shelf Registration
Statement as may be necessary to keep such Shelf Registration Statement
effective for as long as the Company is required to keep such Shelf Registration
12
Statement effective pursuant to the terms hereof; shall cause the Prospectus to
be supplemented by any required Prospectus supplement, and, as so supplemented,
to be filed pursuant to Rule 424 under the Securities Act; and shall comply with
the provisions of the Securities Act applicable to it with respect to the
disposition of all Registrable Securities covered by such Shelf Registration
Statement during the applicable period in accordance with the intended methods
of disposition by the Purchaser set forth in such Shelf Registration Statement
or amendment thereto or such Prospectus or supplement thereto;
(c) The Company shall promptly furnish to any Purchaser of Registrable
Securities included in a Shelf Registration Statement and the underwriters, if
any, without charge, a reasonable quantity of conformed copies of such Shelf
Registration Statement and any post-effective amendment thereto and such
reasonable quantity of copies of the Prospectus (including each preliminary
Prospectus) and any amendments or supplements thereto, any documents
incorporated by reference therein and such other documents as any such Purchaser
or underwriter may request in order to facilitate the public sale or other
disposition of the Registrable Securities being sold by such Purchaser (it being
understood that the Company consents to the use of the Prospectus and any
amendment or supplement thereto by each Purchaser selling Registrable Securities
and each underwriter, if any, in connection with the offering and sale of the
Registrable Securities covered by the Prospectus or any amendment or supplement
thereto).
(d) The Company shall, on or prior to the date on which a Shelf
Registration Statement is declared effective, (i) use its best efforts to
register or qualify the Registrable Securities covered by such Shelf
Registration Statement under the securities or "blue sky" laws of each of the 50
states of the United States or obtain appropriate exemptions therefrom; (ii) do
any and all other acts and things which may be necessary or advisable to enable
the Purchaser of Registrable Securities included in such Shelf Registration
Statement to consummate the disposition of such Registrable Securities in
accordance with their intended method of disposition thereof; (iii) use its best
efforts to keep each such state securities or "blue sky" registration or
qualification (or exemption therefrom) effective during the period in which the
Company is required to keep such Shelf Registration Statement effective; and
(iv) do any and all other acts or things which may be necessary or advisable to
enable the Purchaser of Registrable Securities included in such Shelf
Registration Statement to complete the disposition in such jurisdictions of such
Registrable Securities in accordance with their intended method of disposition
thereof; PROVIDED, HOWEVER, that the Company shall not be required (x) to
qualify to do business in any jurisdiction where it would not otherwise be
required to so qualify but for this Section 3(d) or (y) to file any general
consent to service of process.
(e) The Company shall use its best efforts to cause the Registrable
Securities covered by a Shelf Registration Statement to be registered with or
13
approved by such other governmental agencies or authorities as may be necessary
by virtue of the business and operations of the Company to enable the Purchaser
to consummate the disposition of such Registrable Securities in accordance with
their intended method of disposition thereof.
(f) The Company shall promptly notify each Purchaser of Registrable
Securities included in a Shelf Registration Statement, Purchaser's Counsel and
any underwriter and (if requested by any such Person) confirm such notice in
writing (i) when such Shelf Registration Statement or a Prospectus or any
post-effective amendment or any Prospectus supplement has been filed and, with
respect to such Shelf Registration Statement or any post-effective amendment,
when the same has become effective, (ii) of any request by the Commission or any
state securities authority for amendments and supplements to such Shelf
Registration Statement and Prospectus or for additional information after such
Shelf Registration Statement has become effective, (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of such Shelf
Registration Statement or the initiation or threatening of any proceedings for
that purpose, (iv) of the issuance by any state securities commission or other
regulatory authority of any order suspending the registration or qualification
or exemption from registration or qualification of any of the Registrable
Securities under state securities or "blue sky" laws or the initiation of any
proceedings for that purpose, (v) if, between the effective date of such Shelf
Registration Statement and the closing of any sale of Registrable Securities
covered thereby, the representations and warranties of the Company contained in
any underwriting agreement, securities sales agreement or other similar
agreement, if any, relating to the offering of such Registrable Securities cease
to be true and correct in all material respects, and (vi) of the happening of
any event which makes any statement of a material fact made in such Shelf
Registration Statement or related Prospectus untrue or which requires the making
of any changes in such Shelf Registration Statement or Prospectus so that such
Shelf Registration Statement or Prospectus will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and, as promptly as
practicable thereafter, prepare and file an amendment to such Shelf Registration
Statement with the Commission and furnish to any such Purchaser and any
underwriter a supplement or amendment to such Prospectus so that, as thereafter
deliverable to the Purchaser of such Registrable Securities, such Prospectus
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(g) The Company shall make generally available to the Purchaser of
Registrable Securities included in a Shelf Registration Statement an earnings
statement satisfying the provisions of Section 11(a) of the Securities Act no
later than 45 days after the end of the 12-month period beginning with the first
day of the Company's first fiscal quarter commencing after the effective date of
14
such Shelf Registration Statement, which earnings statement shall cover said
12-month period, and which requirement will be deemed to be satisfied if the
Company timely files complete and accurate information on Forms 10-Q, 10-K and
8-K under the Exchange Act and otherwise complies with Rule 158 under the
Securities Act.
(h) The Company shall use its best efforts to prevent the issuance of
any order suspending the effectiveness of a Shelf Registration Statement, and,
if any such order suspending the effectiveness of a Shelf Registration Statement
is issued, shall promptly use its best efforts to obtain the withdrawal of such
order at the earliest possible moment.
(i) The Company shall, if requested by the managing underwriter or
underwriters, if any, Purchaser's Counsel or any Purchaser of Registrable
Securities included in a Shelf Registration Statement, promptly incorporate in a
Prospectus supplement or post-effective amendment such information as such
managing underwriter or underwriters, Purchaser or Purchaser's Counsel requests
to be included therein, including, without limitation, with respect to the
Registrable Securities being sold by such Purchaser to such underwriter or
underwriters, the purchase price being paid therefor by such underwriter or
underwriters and any other terms of an underwritten offering of the Registrable
Securities to be sold in such offering, and the Company shall promptly make all
required filings of such Prospectus supplement or post-effective amendment.
(j) After the filing with the Commission of any document which is
incorporated by reference into a Shelf Registration Statement (in the form in
which it was incorporated), the Company shall, upon request, promptly deliver a
copy of each such document to each of the Purchaser of Registrable Securities
included in such Shelf Registration Statement so requesting and to Purchaser's
Counsel.
(k) The Company shall cooperate with the Purchaser of Registrable
Securities included in a Shelf Registration Statement and the managing
underwriter or underwriters, if any, to facilitate the timely preparation and
delivery of certificates (which shall not bear any restrictive legends unless
required under applicable law) representing Registrable Securities sold under
such Shelf Registration Statement to the Purchaser thereof, and enable such
Registrable Securities to be in such denominations and registered in such names
as the managing underwriter or underwriters, if any, or such Purchaser may
request and keep available and make available to the Company's transfer agent
prior to the effectiveness of such Shelf Registration Statement a supply of such
certificates.
(l) The Company shall enter into such customary agreements (including,
if applicable, an underwriting agreement in customary form) and take such other
actions as the Purchaser of Registrable Securities included in a Shelf
Registration Statement or the underwriters, if any, may reasonably request in
15
order to expedite or facilitate the disposition of Registrable Securities (any
such Purchaser may, at their option, require that any or all of the
representations, warranties and covenants of the Company to or for the benefit
of any underwriters also be made to and for the benefit of such Purchaser).
(m) The Company shall promptly make available to each Purchaser of
Registrable Securities included in a Shelf Registration Statement, any
underwriter and any attorney, accountant or other agent or representative
retained by any such Purchaser or underwriter (collectively, the "INSPECTORS"),
all financial and other records, pertinent corporate documents and properties of
the Company (collectively, the "RECORDS"), as shall be reasonably necessary to
enable them to exercise their due diligence responsibility, and cause the
Company's officers, directors and employees to supply all Records and other
information requested by any such Inspector in connection with such Shelf
Registration Statement.
(n) The Company shall furnish to each Purchaser of Registrable
Securities included in a Shelf Registration Statement and to any underwriter,
upon request, a signed counterpart, addressed to such Purchaser or underwriter,
of (i) an opinion or opinions of counsel to the Company, and (ii) a comfort
letter or comfort letters from the Company's independent public accountants,
each in customary form and covering matters of the type customarily covered by
opinions or comfort letters, as the case may be.
(o) The Company shall use its best efforts to cause the Registrable
Securities included in a Shelf Registration Statement (if the Company and the
Registrable Securities so qualify) (i) to be listed on each national securities
exchange, if any, on which similar securities issued by the Company are then
listed, or (ii) if similar securities issued by the Company are not then listed,
to be authorized for listing or quotation, as applicable, on the New York Stock
Exchange or The Nasdaq Stock Market, Inc.'s ("Nasdaq") National Market.
(p) The Company shall provide a CUSIP number for all Registrable
Securities covered by a Shelf Registration Statement not later than the
effective date of such Shelf Registration Statement.
(q) The Company shall cooperate with each Purchaser of Registrable
Securities included in a Shelf Registration Statement and each underwriter and
their respective counsel in connection with any filings required to be made with
the National Association of Securities Dealers, Inc. ("NASD").
(r) The Company shall, during the period when the Prospectus is
required to be delivered under the Securities Act, promptly file all documents
required to be filed with the Commission pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act.
16
(s) The Company shall appoint a transfer agent and registrar for all
Registrable Securities covered by a Shelf Registration Statement not later than
the effective date of such Shelf Registration Statement.
(t) In connection with an underwritten offering, the Company shall
participate, to the extent reasonably requested by the managing underwriter for
the offering or the Purchaser of Registrable Securities included in such
offering, in customary efforts to sell the securities being offered, including
without limitation, participating in "road shows."
(u) If the Registrable Securities are of a class of securities that is
listed on a national securities exchange or Nasdaq, the Company will file copies
of any Prospectus with such exchange or Nasdaq, as applicable, in compliance
with Rule 153 under the Securities Act so that the Purchaser shall benefit from
the prospectus delivery procedures described therein.
Each Purchaser of Registrable Securities included in a Shelf Registration
Statement, upon receipt of any notice (a "SUSPENSION NOTICE") from the Company
of the happening of any event of the kind described in Section 3.2(f)(ii)
through (vi), shall forthwith discontinue disposition of the Registrable
Securities pursuant to such Shelf Registration Statement covering such
Registrable Securities until such Purchaser's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3.2(f) or until such
Purchaser is advised in writing (the "ADVICE") by the Company that the use of
the Prospectus may be resumed, and such Purchaser has received copies of any
additional or supplemental filings which are incorporated by reference in the
Prospectus, and, if so directed by the Company, such Purchaser will, or will
request the managing underwriter or underwriters, if any, to, deliver to the
Company (at the Company's expense) all copies, other than permanent file copies
then in such Purchaser's possession, of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice; PROVIDED, HOWEVER,
that the Company shall not give a Suspension Notice until after the Shelf
Registration Statement has been declared effective and shall not give more than
three Suspension Notices during any period of twelve consecutive months and in
no event shall the period from the date on which any such Purchaser receives a
Suspension Notice to the date on which any such Purchaser receives either the
Advice or copies of the supplemented or amended Prospectus contemplated by
Section 3.2(f) (the "SUSPENSION PERIOD") exceed 30 days. In the event that the
Company shall give any Suspension Notice, (i) the Company shall use its best
efforts and take such actions as are reasonably necessary to render the Advice
and end the Suspension Period as promptly as practicable and (ii) the time
periods for which a Shelf Registration Statement is required to be kept
effective pursuant to Section 3.1 hereof shall be extended by the number of days
during the Suspension Period.
If the Suspension Period exceeds 30 days, the Company shall pay liquidated
damages to each Purchaser in the amount of $0.25 per 10,000 Conversion Shares
included in the Shelf Registration Statement for each week during which the
Suspension Period is in effect. The weekly liquidated damages payable by the
17
Company to each Purchaser as a result of the continuance of a Suspension Period
shall increase by an amount equal to $0.25 per 10,000 Conversion Shares 60 days
after receipt of the Suspension Notice. The Company shall pay the liquidated
damages due with respect to any Registrable Securities at the end of each week
during which such damages accrue. Liquidated damages shall be paid to the
Purchaser of Registrable Securities entitled to receive such liquidated damages
by wire transfer in immediately available funds to the accounts designated by
such Purchaser.
If any Shelf Registration Statement refers to any Purchaser by name or
otherwise as the Purchaser of any securities of the Company, then such Purchaser
shall have the right to require (i) the insertion therein of language, in form
and substance reasonably satisfactory to such Purchaser, to the effect that the
holding by such Purchaser of such securities is not to be construed as a
recommendation by such Purchaser of the investment quality of the Company's
securities covered thereby and that such holding does not imply that such
Purchaser will assist in meeting any future financial requirements of the
Company, or (ii) in the event that such reference to such Purchaser by name or
otherwise is not required by the Securities Act or any similar Federal or state
securities or "blue sky" statute and the rules and regulations thereunder then
in force, the deletion of the reference to such Purchaser.
SECTION 3.3 REGISTRATION EXPENSES. Any and all expenses incident to the
Company's performance of or compliance with this Stockholders Agreement,
including without limitation, all Commission and securities exchange, Nasdaq or
NASD registration and filing fees, all fees and expenses incurred in connection
with compliance with state securities or "blue sky" laws (including reasonable
fees and disbursements of one counsel for the Purchaser or underwriters in
connection with "blue sky" qualifications of the Registrable Securities),
printing expenses, messenger and delivery expenses, internal expenses
(including, without limitation, all salaries and expenses of the Company's
officers and employees performing legal or accounting duties), all expenses for
word processing, printing and distributing any Shelf Registration Statement, any
Prospectus, any amendments or supplements thereto, any underwriting agreements,
securities sales agreements and other documents relating to the performance of
and compliance with this Stockholders Agreement, the fees and expenses of the
Company incurred in connection with the listing of the Registrable Securities,
the fees and disbursements of counsel for the Company and of the independent
certified public accountants of the Company (including the expenses of any
comfort letters or costs associated with the delivery by independent certified
public accountants of a comfort letter or comfort letters requested pursuant to
Section 3.2(n)), Securities Act liability insurance (if the Company elects to
obtain such insurance), the reasonable fees and expenses of any special experts
or other Persons retained by the Company in connection with any registration,
and the reasonable fees and disbursements of Purchaser's Counsel incurred in
connection with each registration hereunder (up to a maximum of $10,000) and any
reasonable out-of-pocket expenses of the Purchaser and their agents, including
any reasonable travel costs (but excluding underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or disposition of
Registrable Securities) (all such expenses being herein called "REGISTRATION
EXPENSES"), will be borne by the Company whether or not the Shelf Registration
Statement to which such expenses relate becomes effective.
18
ARTICLE IV
INDEMNIFICATION AND CONTRIBUTION
SECTION 4.1 INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify
and hold harmless, to the full extent permitted by law, each Purchaser, its
partners, members, officers, directors, trustees, stockholders, employees,
agents and investment advisers, and each Person who controls such Purchaser
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, or is under common control with, or is controlled by, such
Purchaser, together with the partners, members, officers, directors, trustees,
stockholders, employees, agents and investment advisors of such controlling
Person (collectively, the "CONTROLLING PERSONS"), from and against all losses,
claims, damages, liabilities and expenses (including, without limitation, any
legal or other fees and expenses incurred by any Purchaser or any such
Controlling Person in connection with defending or investigating any action or
claim in respect thereof) (collectively, the "DAMAGES") to which such Purchaser,
its partners, officers, directors, trustees, stockholders, employees, agents and
investment advisers, and any such Controlling Person, may become subject under
the Securities Act or otherwise, insofar as such Damages (or proceedings in
respect thereof) arise out of or are based upon any untrue or alleged untrue
statement of material fact contained in any Shelf Registration Statement (or any
amendment thereto) pursuant to which Registrable Securities were registered
under the Securities Act, including all documents incorporated therein by
reference, or are caused by any omission or alleged omission to state therein a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in any Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto), or are caused by any
omission or alleged omission to state therein a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; PROVIDED, HOWEVER, that the Company shall not be liable
for Damages to any Purchaser under this Section 4.1 to the extent that any such
Damages (i) arise out of or are based upon any such untrue statement or omission
which is based upon information relating to such Purchaser furnished in writing
to the Company by such Purchaser expressly for use in any such Shelf
Registration Statement (or any amendment thereto) or Prospectus (or amendment or
supplement thereto); or (ii) were caused by the fact that such Purchaser sold
Securities to a Person as to whom it shall be established that there was not
sent or given, or deemed sent or given pursuant to Rule 153 under the Securities
Act, at the time of or prior to the written confirmation of such sale, a copy of
the Prospectus as then amended or supplemented if, and only if, (a) the Company
has previously furnished copies of such amended or supplemented Prospectus to
such Purchaser and (b) such Damages were caused by any untrue statement or
omission or alleged untrue statement or omission contained in the Prospectus so
delivered which was corrected in such amended or supplemented Prospectus. In
connection with an underwritten offering, the Company will indemnify the
underwriters thereof, their officers and directors and each Person who controls
19
such underwriters (within the meaning of either Section 15 of the Securities Act
or Section 20 of the Exchange Act) to the same extent as provided above with
respect to the indemnification of the Purchaser of Registrable Securities except
with respect to information provided by the underwriter specifically for
inclusion therein.
SECTION 4.2 INDEMNIFICATION BY THE PURCHASER. In connection with any Shelf
Registration Statement in which a Purchaser is participating, each such
Purchaser agrees, severally and not jointly, to indemnify and hold harmless the
Company, its directors and officers and each Person, if any, who controls the
Company within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act from and against all Damages to the same extent as the
foregoing indemnity from the Company to such Purchaser, but only to the extent
such Damages arise out of or are based upon any untrue statement of a material
fact contained in any Shelf Registration Statement (or any amendment thereto) or
Prospectus (or any amendment or supplement thereto) or are caused by any
omission to state therein a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, which untrue statement or omission is based upon information
relating to such Purchaser furnished in writing to the Company by such Purchaser
expressly for use in any such Shelf Registration Statement (or any amendment
thereto) or any such Prospectus (or any amendment or supplement thereto);
PROVIDED, HOWEVER, that such Purchaser shall not be obligated to provide such
indemnity to the extent that such Damages result from the failure of the Company
to promptly amend or take action to correct or supplement any such Shelf
Registration Statement or Prospectus on the basis of corrected or supplemental
information furnished in writing to the Company by such Purchaser expressly for
such purpose. In no event shall the liability of any Purchaser of Registrable
Securities hereunder be greater in amount than the dollar amount of the net
proceeds received by such Purchaser upon the sale of the Registrable Securities
giving rise to such indemnification obligation.
SECTION 4.3 INDEMNIFICATION PROCEDURES. In case any proceeding (including
any governmental investigation) shall be instituted involving any Person in
respect of which indemnity may be sought pursuant to either Section 4.1 or 4.2
above, such Person (the "INDEMNIFIED PARTY") shall promptly notify the Person
against whom such indemnity may be sought (the "indemnifying Party") in writing
and the indemnifying party, upon request of the indemnified party, shall retain
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party and any others the indemnifying party may designate in such
proceedings and shall pay the fees and disbursements of such counsel relating to
such proceeding. The failure of an indemnified party to notify the Indemnifying
Party with respect to a particular proceeding shall not relieve the Indemnifying
Party from any obligation or liability (i) which it may have pursuant to this
Stockholders Agreement if the Indemnifying Party is not substantially prejudiced
by such failure to so notify it or (ii) which it may have otherwise than
pursuant to this Stockholders Agreement. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (i) the
Indemnifying Party and the indemnified party shall have mutually agreed to the
20
retention of such counsel, or (ii) the Indemnifying Party fails promptly to
assume the defense of such proceeding or fails to employ counsel reasonably
satisfactory to such indemnified party, or (iii) (A) the named parties to any
such proceeding (including any impleaded parties) include both such indemnified
party or an Affiliate of such indemnified party and any Indemnifying Party or an
Affiliate of such Indemnifying Party, (B) there may be one or more defenses
available to such indemnified party or such Affiliate of such indemnified party
that are different from or additional to those available to any Indemnifying
Party or such Affiliate of any Indemnifying Party and (C) such indemnified party
shall have been advised by such counsel that there may exist a conflict of
interest between or among such indemnified party or such Affiliate of such
indemnified party and any Indemnifying Party or such Affiliate of any
Indemnifying Party, in which case, if such indemnified party notifies the
Indemnifying Party in writing that it elects to employ separate counsel of its
choice at the expense of the Indemnifying Party, the Indemnifying Party shall
not have the right to assume the defense thereof and such counsel shall be at
the expense of the Indemnifying Party, it being understood, however, that unless
there exists a conflict among indemnified parties, the indemnifying parties
shall not, in connection with any one such proceeding or separate but
substantially similar or related proceedings in the same jurisdiction, arising
out of the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (together with appropriate
local counsel) at any time for such indemnified parties. The Indemnifying Party
shall not be liable for any settlement of any proceeding effected without its
written consent (which consent shall not be unreasonably withheld) but, if
settled with such consent or if there be a final judgment for the plaintiff, the
Indemnifying Party agrees to indemnify each indemnified party from and against
any loss or liability by reason of such settlement or judgment. No Indemnifying
Party shall, without the prior written consent of any indemnified party (which
consent shall not be unreasonably withheld), effect any settlement of any
pending or threatened proceeding in respect of which such indemnified party is a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on all claims that are the subject matter of such
proceeding with no payment by such indemnified party of consideration.
SECTION 4.4 CONTRIBUTION. If the indemnification from the Indemnifying
Party provided for in this Article IV is found, pursuant to a final judicial
determination not subject to appeal, to be unavailable to an indemnified party
hereunder in respect of any losses, claims, damages, liabilities, or expenses
referred to therein, then the Indemnifying Party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities, or
expenses in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party and the indemnified parties in connection with the
actions that resulted in such losses, claims, damages, liabilities or expenses,
as well as any other relevant equitable considerations. The relative fault of
such Indemnifying Party and indemnified parties shall be determined by reference
to, among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact, has been made by, or relates to information supplied
21
by, such Indemnifying Party or indemnified parties, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities, and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 4.3, any legal or other
expenses reasonably incurred by such party in connection with any investigation
or proceeding.
The parties hereto agree that it would not be just or equitable if
contribution pursuant to this Section 4.4 were determined by PRO RATA allocation
or by any other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 4.4, no underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission, and no selling Purchaser shall be required
to contribute any amount in excess of the amount by which the total net proceeds
received by such selling Purchaser with respect to Registrable Securities sold
by such selling Purchaser exceeds the amount of any damages which such selling
Purchaser has otherwise been required to pay by reason of such untrue statement
or alleged untrue statement or omission or alleged omission. Each Purchaser's
obligation to contribute pursuant to this Section 4.4 is several and not joint
and shall be determined by reference to the proportion that the net proceeds of
the offering received by such Purchaser bears to the total net proceeds of the
offering received by all the Purchasers. 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. The remedies provided for in this Article IV are
not exclusive and shall not limit any rights or remedies that may otherwise be
available to any indemnified party at law or in equity.
If indemnification is available under this Article IV, the Indemnifying
Party shall indemnify each indemnified party to the full extent provided in
Sections 4.1 or 4.2 without regard to the relative fault of said Indemnifying
Party or indemnified party or any other equitable consideration provided for in
this Section 4.4.
ARTICLE V
COVENANTS
SECTION 5.1 RULE 144. The Company covenants that it will file any reports
required to be filed by it under the Securities Act and the Exchange Act, and
the rules and regulations adopted by the Commission thereunder (or, if the
Company is not required to file such reports, it will, upon the request of any
Purchaser, make publicly available other information so long as necessary to
permit sales of the Registrable Securities pursuant to Rule 144 under the
Securities Act), and it will take such further action as any Purchaser may
reasonably request, all to the extent required from time to time to enable such
Purchaser to sell Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by (a) Rule 144
22
under the Securities Act, as such Rule may be amended from time to time, or (b)
any successor rule or similar provision hereafter adopted by the Commission.
Upon the request of any Purchaser, the Company will deliver to such Purchaser a
written statement as to whether it has complied with such requirements.
SECTION 5.2 RULE 144A. The Company covenants that it will file all
reports required to be filed by it under the Securities Act and the Exchange
Act, and the rules and regulations adopted by the Commission thereunder (or if
the Company is not required to file such reports, it will, upon the request of
any Purchaser, make available other information so long as necessary to permit
sales of the Registrable Securities pursuant to Rule 144A under the Securities
Act), and it will take such further action as any Purchaser may reasonably
request, all to the extent required from time to time to enable such Purchaser
to sell Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by (a) Rule 144A, as such rule
may be amended from time to time, or (b) any successor rule or similar provision
hereafter adopted by the Commission. Upon the request of any Purchaser, the
Company will deliver to such Purchaser a written statement as to whether it has
complied with such requirements.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 NO INCONSISTENT AGREEMENTS. The Company has not entered into
nor will the Company on or after the date of this Stockholders Agreement enter
into any agreement which is inconsistent with the rights granted to the holder
of Registrable Securities in this Stockholders Agreement or otherwise conflicts
with the provisions hereof. The rights granted to the parties hereunder do not
in any way conflict with, and are not inconsistent with, the rights granted to
the holders of the Company's other issued and outstanding securities under any
such agreements. The Company may grant registration rights that would permit any
Person the right to piggy-back or may itself exercise its right to piggy-back,
on any Shelf Registration Statement, PROVIDED that if the managing underwriter
or underwriters, if any, of such offering delivers an opinion to the holder that
the total amount of securities which they and the Purchaser of such new
piggy-back rights intend to include in any Shelf Registration Statement is so
large as to materially and adversely affect the success of such offering
(including the price at which such securities can be sold), then only the
amount, number or kind of securities to be offered for the account of holder of
such new piggy-back rights (other than the Company) will be reduced to the
extent necessary to reduce the total amount of securities to be included in such
Shelf Registration Statement to the amount, number or kind recommended by the
managing underwriter prior to any reduction in the amount of Registrable
Securities to be included; and PROVIDED FURTHER that if such offering is not
underwritten, then such piggy-back rights shall only be exercised with the
consent of the holders of a majority of the Conversion Shares being offered
under such Shelf Registration Statement.
23
SECTION 6.2 AMENDMENTS AND WAIVERS. The provisions of thi0s Stockholders
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Company has obtained the written
consent of Purchasers holding a majority of Conversion Shares which are affected
by such amendment, modification, supplement, waiver or consent.
SECTION 6.3 NOTICES. All notices and other communications provided for or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally or sent by telecopier, registered or certified
mail (return receipt requested), postage prepaid or courier to the parties at
their respective addresses set forth on the signature pages hereof (or at such
other address for any party as shall be specified by like notice, provided that
notices of a change of address shall be effective only upon receipt thereof).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; by confirmed
receipt of transmission, if telecopied; and on the next Business Day, if timely
delivered to a courier guaranteeing overnight delivery.
SECTION 6.4 SUCCESSORS AND ASSIGNS. This Stockholders Agreement shall inure
to the benefit of and be binding upon the successors, assigns and transferees of
each of the parties, including, without limitation and without the need for an
express assignment, subsequent Purchasers. If any transferee of any Purchaser
shall acquire Registrable Securities in any manner, whether by operation of law
or otherwise, such Registrable Securities shall be held subject to all of the
terms of this Stockholders Agreement, and by taking and holding such Registrable
Securities such Person shall be conclusively deemed to have agreed to be bound
by and to perform all of the terms and provisions of this Stockholders Agreement
and such Person shall be entitled to receive the benefits hereof.
SECTION 6.5 COUNTERPARTS. This Stockholders Agreement may be executed in
any number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
SECTION 6.6 HEADINGS. The headings in this Stockholders Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
SECTION 6.7 GOVERNING LAW. This Stockholders Agreement shall be governed by
and construed in accordance with the laws of the State of New York without
regard to principles or rules of conflicts of law.
24
SECTION 6.8 SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any way
impaired thereby, it being intended that all of the rights and privileges of the
Purchaser shall be enforceable to the fullest extent permitted by law.
SECTION 6.9 ENTIRE AGREEMENT. This Stockholders Agreement is intended by
the parties as a final expression of their agreement and is intended to be the
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Stockholders Agreement, the Restructuring Agreement
and the Securities Purchase Agreement supersede all prior agreements and
understandings between the parties with respect to such subject matter.
SECTION 6.10 ATTORNEYS' FEES. In any action or proceeding brought to
enforce any provision of this Stockholders Agreement 0or where any provision
hereof is validly asserted as a defense, the successful party shall, to th0e
extent permitted by applicable law, be entitled to recover reasonable attorneys'
fees in addition to any other available remedy.
SECTION 6.11 FURTHER ASSURANCES. Each party shall cooperate and take such
action as may be reasonably requested by another party in order to carry out the
provisions and purposes of this Stockholders Agreement and the transactions
contemplated hereby.
SECTION 6.12 REMEDIES. In the event of a breach or a threatened breach by
any party to this Stockholders Agreement of its obligations under this
Stockholders Agreement, any party injured or to be injured by such breach will
be entitled to specific performance of its rights under this Stockholders
Agreement or to injunctive relief, in addition to being entitled to all rights
provided in this Stockholders Agreement and granted by law. The parties agree
that the provisions of this Stockholders Agreement shall be specifically
enforceable, it being agreed by the parties that remedies at law for violations
hereof including monetary damages, are inadequate and that the right to object
in any action for specific performance or injunctive relief hereunder on the
basis that a remedy at law would be adequate is waived.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
25
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
SILICON GAMING, INC.
By:
-------------------------------------
Name: Xxxxxx Xxxxxx
Title: President and Chief
Executive Officer
Notice Information:
Xx. Xxxxxx Xxxxxx
Silicon Gaming, Inc.
0000 X. Xxxxxxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
26
PURCHASER
B III CAPITAL PARTNERS, L.P.,
a Delaware limited partnership
By: DDJ CAPITAL III, LLC,
its General Partner
By: DDJ CAPITAL MANAGEMENT, LLC,
its Manager
By:
-------------------------------------
Name:
Title:
Notice Information:
Xx. Xxxx X. Xxxxxxx
DDJ Capital Management, LLC
000 Xxxxxx Xxxxxx, Xxxxx X-0
Xxxxxxxxx, Xxxxxxxxxxxxx 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
27
MANAGEMENT STOCKHOLDERS
-----------------------------------------
Xxxxxx Xxxxxx
Notice Information:
c/o Silicon Gaming, Inc.
0000 X. Xxxxxxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
fax: (000) 000-0000
-----------------------------------------
Xxxxxx Xxxx
Notice Information:
c/o Silicon Gaming, Inc.
0000 X. Xxxxxxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
fax: (000) 000-0000
-----------------------------------------
Xxxx Xxxxxxxx
Notice Information:
c/o Silicon Gaming, Inc.
0000 X. Xxxxxxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
fax: (000) 000-0000
-----------------------------------------
Xxxxxxxx Xxxxxxxx
28
Notice Information:
-----------------------------------------
Xxxx Xxxxxx
Notice Information:
c/o Silicon Gaming, Inc.
0000 X. Xxxxxxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
fax: (000) 000-0000
-----------------------------------------
Xxxx Xxxxxxxxxxxx
Notice Information:
-----------------------------------------
Xxxxx Xxxxxx
Notice Information:
-----------------------------------------
Xxxxxxx Xxxxxx
Notice Information:
-----------------------------------------
Xxxxxxx Xxxx
Notice Information:
29
EXHIBIT A
FORM OF JOINDER AGREEMENT
The undersigned hereby agrees, effective as of [date], to become a party to
that certain Stockholders Agreement (the "Stockholders Agreement") dated as of
November 24, 1999 by and among Silicon Gaming, Inc. (The "Company") and the
parties named therein and for all purposes of the Stockholders Agreement, the
undersigned shall be included within the term "Other Stockholder" (as defined in
the Stockholders Agreement). The address and facsimile number to which notices
may be sent to the undersigned is as follows:
Address:
------------------------------
------------------------------
------------------------------
Facsimile No. ( ) .
-------------------------
----------------------------------------
Name
31
EXHIBIT B
FORM OF LIMITED JOINDER AGREEMENT
The undersigned hereby agrees, effective as of [date], to become a party to
that certain Stockholders Agreement (the "Stockholders Agreement") dated as of
november 24, 1999 by and among Silicon Gaming, Inc. (The "Company") and the
parties named therein with respect to section 2.2 Therein and for the purpose of
section 2.2 Of the Stockholders Agreement, the undersigned shall be included
within the term "other stockholder" (as defined in the stockholders agreement).
The address and facsimile number to which notices may be sent to the undersigned
is as follows:
Address:
------------------------------
------------------------------
------------------------------
Facsimile No. ( ) .
-------------------------
----------------------------------------
Name
