EXHIBIT 1
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AMENDED AND RESTATED
SERIES A PREFERRED STOCK
PURCHASE AGREEMENT
By and Among
ENCORE MEDICAL CORPORATION
and the
PURCHASERS NAMED ON ANNEX I HERETO
As of May 3, 2001
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TABLE OF ANNEXES AND EXHIBITS
Annex
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I Investors, Series A Preferred Stock and Purchase Price
Exhibits
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A Certificate of Designation
B Form of Investors' Rights Agreement
C Form of Lock-Up Agreement
D Opinion of Counsel to the Company
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AMENDED AND RESTATED SERIES A PREFERRED
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STOCK PURCHASE AGREEMENT
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AMENDED AND RESTATED SERIES A PREFERRED STOCK PURCHASE AGREEMENT,
originally dated as of April 20, 2001, as amended and restated as of May 3, 2001
(the "Agreement"), is by and among Encore Medical Corporation, a Delaware
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corporation (the "Company"), and the purchasers named on Annex I hereto. The
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parties agree as follows:
ARTICLE I
DEFINITIONS
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1.1 Definitions. Accounting terms used in this Agreement and not otherwise
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defined herein shall have the meanings provided by GAAP. Certain capitalized
terms are used in this Agreement as specifically defined in this Section 1.1 as
follows:
"Affiliate" means any Person directly or indirectly controlling, controlled
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by or under direct or indirect common control with the Company (or other
specified Person) and shall include (a) any Person who is an officer, director
or beneficial holder of at least 10% of the outstanding capital stock of the
Company (or other specified Person), (b) any Person of which the Company (or
other specified Person) or any officer or director of the Company (or other
specified Person) shall, directly or indirectly, either beneficially own at
least 10% of the outstanding equity securities or constitute at least a 10%
participant, and (c) in the case of a specified Person who is an individual,
Members of the Immediate Family of such Person; provided, however, that the
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Investors shall not be Affiliates of the Company for purposes of this Agreement.
"Agreement" is defined in the Preamble.
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"Balance Sheet Date" is defined in Section 3.6.
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"By-laws" means all written rules, regulations, procedures and by-laws and
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all other similar documents, relating to the management, governance or internal
regulation of a Person other than an individual, each as from time to time
amended or modified.
"Certificate of Designation" is defined in Section 2.1.
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"Charter" means the articles or certificate of incorporation, statute,
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constitution, joint venture or partnership agreement or articles or other
charter of any Person other than an individual, each as from time to time
amended or modified.
"Closing" is defined in Section 2.3.
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"Closing Date" is defined in Section 2.3.
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"Code" means the federal Internal Revenue Code of 1986 or any successor
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statute, and the rules and regulations thereunder, as from time to time amended
and in effect.
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"Commission" means the Securities and Exchange Commission or any other
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federal agency at the time administering the Securities Act, the Exchange Act or
both.
"Common Stock" means the common stock, $0.001 par value, of the Company.
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"Company" is defined in the Preamble.
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"Contractual Obligation" means, with respect to any Person, any contracts,
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agreements, deeds, mortgages, leases, licenses, other instruments, commitments,
undertakings, arrangements or understandings, written or oral, or other
documents, including any document or instrument evidencing indebtedness, to
which any such Person is a party or otherwise subject to or bound by or to which
any asset of any such Person is subject.
"Employee Benefit Plan" means each and all "employee benefit plans" as
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defined in section 3(3) of ERISA, maintained or contributed to by the Company,
any of its Affiliates or any of their respective predecessors, or in which the
Company, any of its Affiliates or any of their respective predecessors
participates or participated and which provides benefits to employees of the
Company or their spouses or covered dependents or with respect to which the
Company has or may have a material liability, including, (i) any such plans that
are "employee welfare plans" as defined in section 3(1) of ERISA and (ii) any
such plans that are "employee pension benefit plans" as defined in section 3(2)
of ERISA.
"ERISA" means the Employee Retirement Income Security Act of 1974 or any
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successor statute and the rules and regulations thereunder, and in the case of
any referenced section of any such statute, rule or regulation, any successor
section thereof, collectively and as from time to time amended and in effect.
"ERISA Group", with respect to any entity, means any Person which is a
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member of the same "controlled group" or under "common control", within the
meaning of section 414(b) or (c) of the Code or section 4001(b)(1) of ERISA,
with such entity.
"Exchange Act" means the Securities Exchange Act of 1934, or any successor
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federal statute, and the rules and regulations of the Commission thereunder, all
as from time to time amended and in effect.
"Financial Statements" is defined in Section 3.6.
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"GAAP" means United States generally accepted accounting principles, as in
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effect from time to time, consistently applied.
"Investor Securities" is defined in Section 2.1.
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"Investors" means the holders of Investor Securities immediately following
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the the Closing, the original holders of which are listed on Annex I hereto.
"Investors' Rights Agreement" is defined in Section 2.4(d)(i).
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"Legal Requirement" means any federal, state, local or foreign law,
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statute, standard, ordinance, code, order, rule, regulation, resolution,
promulgation or any final order, judgment or
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decree of any court, arbitrator, tribunal or governmental authority, or any
license, franchise, permit or similar right granted under any of the foregoing.
"Lock-up Agreements" is defined in Section 2.4(d)(iii).
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"Material Adverse Effect" means a material adverse effect upon the
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business, assets, financial condition, income or prospects of the Company.
"Members of the Immediate Family," as applied to any individual, means each
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parent, spouse, child, brother, sister or the spouse of a child, brother or
sister of the individual, and each trust created for the benefit of one or more
of such persons and each custodian of a property of one or more such persons.
"Pension Plan" means each pension plan (as defined in section 3(2) of
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ERISA) established or maintained, or to which contributions are or were made by
the Company or any of its Subsidiaries or former Subsidiaries, or any Person
which is a member of the same ERISA Group with any of the foregoing.
"Person" means an individual, partnership, corporation, company,
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association, trust, joint venture, unincorporated organization and any
governmental department or agency or political subdivision.
"Proxy Statement" is defined in Section 5.1(b).
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"Related Agreements" means the Investors' Rights Agreement and the Lock-up
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Agreements.
"Securities Act" means the Securities Act of 1933, as amended, or any
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successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be from time to time amended and in effect.
"Series A Preferred Stock" means the Series A Preferred Stock, par value
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$0.001 per share, of the Company.
"Subsidiary" means any Person of which the Company now or hereafter shall
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at the time (a) own directly or indirectly through a Subsidiary at least 50% of
the outstanding capital stock (or other shares of beneficial interest) entitled
to vote generally or (b) constitute a general partner.
"Welfare Plan" means each welfare plan (as defined in section 3(l) of
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ERISA) established or maintained, or to which any contributions are or were
made, by the Company or any of its Subsidiaries or any Person which is a member
of the same ERISA Group with any of the foregoing.
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ARTICLE II
SALE AND PURCHASE OF SECURITIES
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2.1 Investor Securities. The Series A Preferred Stock being purchased by
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the Investors hereunder, together with any securities issued with respect
thereto, upon exercise, conversion or transfer thereof or in exchange therefor,
including the Common Stock issuable upon conversion of the Series A Preferred
Stock, are collectively referred to as "Investor Securities"; provided, however,
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that once any such securities have been sold in a public offering registered
under the Securities Act or sold pursuant to Rule 144 under the Securities Act
they shall cease to be Investor Securities for all purposes of this Agreement.
The powers, preferences and rights of the Series A Preferred Stock are set forth
in the Company's Certificate of Designation, Preferences and Limitations,
attached hereto as Exhibit A (the "Certificate of Designation").
2.2 Agreement to Sell and Purchase. Subject to the terms and conditions
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hereof and in reliance on the Investors' representations, warranties and
agreements contained or referred to herein, the Company agrees to issue and sell
to the Investors and, subject to the terms and conditions hereof and in reliance
on the representations, warranties and agreements of the Company contained or
referred to herein, the Investors severally agree to purchase at the Closing,
the number of shares of Series A Preferred Stock specified in Annex I for each
Investor at the purchase price of $102.00 per share, payable by wire transfer or
certified check.
2.3 Closing. The closing of the purchase and sale of the Series A
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Preferred Stock (the "Closing") shall take place in New York, New York at the
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offices of Reboul, MacMurray, Xxxxxx, Xxxxxxx & Kristol, on a date no later than
one week after the Company's 2001 annual stockholders meeting (the "Closing
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Date") or at such other place and time as the Company and the Investors may
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otherwise agree. At the Closing, the Company will deliver to the Investors
certificates evidencing the number of shares of Series A Preferred Stock set
forth on Annex I, to be purchased at the Closing against payment of the purchase
price as set forth on Annex I.
2.4 Conditions to Closing for the Investors. The Investors' several
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obligations to purchase the Series A Preferred Stock pursuant to this Agreement
on the Closing Date are subject to the satisfaction, on or prior to the Closing
Date, of the following conditions:
(a) Representations and Warranties Correct. The representations and
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warranties made by the Company herein shall have been true and correct in all
material respects when made and shall be true and correct on and as of the
Closing Date with the same force and effect as though made on and as of the
Closing Date, except for representations and warranties that are made as of a
specific date which shall only be required to be true and correct as of such
date.
(b) Performance. All covenants, agreements and conditions contained
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in this Agreement to be performed or complied with by the Company on or prior to
the Closing shall have been performed or complied with in all material respects
and the Company shall not be in default in the performance of or compliance with
any provisions of this Agreement.
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(c) Compliance Certificates. The Company shall have delivered to the
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Investors a certificate of the chief executive officer or chief financial
officer of the Company, dated the date of the Closing, certifying to the matters
stated in Sections 2.4(a) and (b).
(d) Related Agreements. The Company and the other parties thereto
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shall have duly authorized, executed and delivered to the Investors the
following agreements :
(i) Investors' Rights Agreement, in the form of Exhibit B,
among the Company and the Investors (as from time to time in effect, the
"Investors' Rights Agreement").
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(ii) The Lock-up Agreements, in the form of Exhibit C, among
the Company, the Investors and the directors and executive officers of the
Company, in their individual capacity (as from time to time in effect, the
"Lock-up Agreements").
(e) Secretary's Certificate. The Company shall have delivered to the
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Investors copies of each of the following:
(i) the Charter of the Company as of the Closing (which shall
include the Certificate of Designation), certified by the Secretary of State of
Delaware as of a date not more than five (5) days prior to the Closing;
(ii) the By-laws of the Company; and
(iii) resolutions of the Board of Directors of the Company, the
form and substance of which are reasonably satisfactory to each of the
Investors, authorizing the execution, delivery and performance of this Agreement
and the Related Agreements to which the Company is a party, and the transactions
contemplated hereby and thereby, including the terms and filing of the
Certificate of Designation and the issuance and sale of the Series A Preferred
Stock.
(f) Legal Opinion. On the Closing Date, the Investors shall have
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received from Xxxxxxx Xxxxxx L.L.P., counsel to the Company, their opinion
substantially in the form of Exhibit D.
(g) Key Executive Insurance. The Company will have in full force and
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effect as the owner thereof on the Closing date key executive life insurance
policies with a financially sound and reputable insurer in the amount of
$3,000,000 covering the life of Xxxxxxx X. Xxxxxxxx, the proceeds of which shall
be payable to the Company. Such policies shall not be cancelable without at
least thirty (30) days' written notice from the insurer to the Investors.
(h) Key Employment Agreements. The Company will have in full force
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and effect on the Closing Date employment agreements with the following
individuals Xxxxxxx X. Xxxxxxxx, Xxxxx X. Xxxxx, Xxxx Xxxxxx, August Xxxxx and
Xxxxx X. Xxxxxxxxx, each on terms and conditions reasonably acceptable to the
Investors, and all preexisting employment agreements with such persons shall be
of no further force and effect.
(i) Severance Agreements. All severance agreements between the
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Company and its employees shall have been terminated, except for the agreement
between the Company and Xxxxx Xxxxxx, which shall remain in effect.
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(j) Election of Directors. As of the Closing, the Board of Directors
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of the Company shall consist of ten (10) directors, including two persons
selected by the Investors (who shall initially be Xxxxx X. Xxxxxx and Xxxxxx
Xxxxxx), and one of the persons selected by the Investors shall have been
appointed to the Compensation Committee of the Board of Directors.
(k) Nasdaq Listing. As of the Closing, the shares of Common Stock
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into which the Series A Preferred Stock to be issued on the Closing Date are
convertible shall have been listed on the Nasdaq National Market, subject only
to official notice of issuance.
(l) Stockholder Approval. As of the Closing, the stockholders of the
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Company shall have approved the issuance and sale of the Series A Preferred
Stock pursuant to this Agreement at the Annual Meeting in accordance with the
rules of the Nasdaq National Market.
(m) Credit Agreement Amendment. The Company's credit agreement with
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Xxxxx Fargo Bank Texas, N.A. (the "Bank") shall have been amended in a manner
satisfactory to Xxxxx Partners III, L.P. relating to the Bank's acquisition
approval rights.
(n) Consents. All consents and approvals to the transactions
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contemplated by this Agreement required to be obtained by the Company from any
third party shall have been obtained by the Company.
(o) Legality. All authorizations, approvals or permits of any
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governmental authority or regulatory body that are required in connection with
the lawful issuance and sale of the Investor Securities pursuant to this
Agreement shall have been duly obtained and shall be in full force and effect.
(p) General. All instruments and legal and corporate proceedings in
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connection with the transactions contemplated by this Agreement shall be
reasonably satisfactory in form and substance to the Investors, and the
Investors shall have received copies of all documents, including records of
corporate proceedings and officers' certificates, which they may have reasonably
requested in connection therewith.
2.5 Conditions to Closing for the Company. The Company's obligation to
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issue and sell the Series A Preferred Stock pursuant to this Agreement on the
Closing Date is subject to the satisfaction, on or prior to the Closing Date, of
the following conditions:
(a) Representations and Warranties Correct. The representations and
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warranties made by the Investors herein shall have been true and correct in all
respects when made and shall be true and correct on and as of the Closing Date
with the same force and effect as though made on and as of the Closing Date.
(b) Legality. All authorizations, approvals or permits of any
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governmental authority or regulatory body that are required in connection with
the lawful issuance and sale of the Investor Securities pursuant to this
Agreement shall have been duly obtained and shall be in full force and effect.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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The Company hereby represents and warrants to each of the Investors as follows:
3.1 Organization. The Company is a duly organized and validly existing
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corporation in good standing under the laws of Delaware. The Company is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which it does business, except where the failure to be so
qualified would not have a Material Adverse Effect.
3.2 Corporate Power. The Company has all necessary corporate power and
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authority to enter into and perform this Agreement and the Related Agreements to
which it is a party, to issue and sell the Investor Securities hereunder, to own
all the properties owned by it and to carry on the businesses now conducted or
presently proposed to be conducted by it. The Company has taken all corporate
action necessary to authorize this Agreement, the Related Agreements to which it
is a party and the issuance of the Investor Securities to be issued and sold
hereunder.
3.3 Subsidiaries. Except as listed in Schedule 3.3, the Company has no
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Subsidiaries. Each of the Subsidiaries is a duly organized and validly existing
corporation under the laws of its jurisdiction of organization, which
jurisdiction is listed in Schedule 3.3. Each Subsidiary has all necessary
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corporate power and authority to own all the properties owned by it and to carry
on the businesses now conducted or presently proposed to be conducted by it.
Each Subsidiary is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction in which it does business, except where
the failure to be so qualified would not have a Material Adverse Effect. The
Company owns all of the issued and outstanding capital stock of each of its
Subsidiaries and there are no outstanding preemptive, conversion or other
rights, options, warrants or agreements granted or issued by or binding upon any
Subsidiary for the purchase or acquisition of any shares of its capital stock.
3.4 Capitalization. The authorized capital stock of the Company
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immediately prior to the Closing is set forth in Schedule 3.4. Schedule 3.4
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contains a true and correct list of all outstanding capital stock, warrants and
options as of the date hereof, including the owner thereof, and, with respect to
the warrants and options, the exercise price and the dates of issuance and
termination. All of the outstanding shares of capital stock of the Company,
including the Series A Preferred Stock to be issued pursuant to this Agreement,
will be, upon consummation of the transactions contemplated by this Agreement,
validly issued, fully paid, nonassessable and subject to no lien or restriction
on transfer, except restrictions on transfer imposed by the Related Agreements
and applicable securities laws or as otherwise set forth in Schedule 3.4. The
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shares of Common Stock issuable upon conversion of the Series A Preferred Stock
have been duly and validly reserved and, upon issuance in accordance with the
conversion provisions of the Series A Preferred Stock will be validly issued,
fully paid, nonassessable and subject to no lien or restriction on transfer,
except restrictions on transfer imposed by the Related Agreements and applicable
securities laws or as otherwise set forth in Schedule 3.4. All of the
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outstanding shares of capital stock and warrants have been offered and sold in
compliance with applicable federal and state securities laws. Other than as set
forth in Schedule 3.4, the Company has no outstanding (i) rights (either
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preemptive or otherwise) or options to subscribe for or purchase, or any
warrants or other agreements providing for or requiring the issuance of, any
capital stock or
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any securities convertible into or exchangeable for its capital stock, (ii)
obligation to repurchase or otherwise acquire or retire any of its capital
stock, any securities convertible into or exchangeable for its capital stock or
any rights, options or warrants with respect thereto, (iii) rights that require
it to register the offering of any of its securities under the Securities Act or
(iv) any restrictions on voting any of its securities.
3.5 Authorization. All shareholder approval and corporate action on the
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part of the Company necessary for the due authorization, execution and delivery
of this Agreement, the Certificate of Designation and the Related Agreements to
which the Company is a party and the consummation of the transactions
contemplated herein and therein, and for the due authorization and issuance of
(i) the shares of Series A Preferred Stock, and (ii) the Common Stock issuable
upon conversion of the Series A Preferred Stock has been or will be taken prior
to the Closing Date. This Agreement and the Related Agreements to which the
Company is a party are legal, valid and binding agreements of the Company,
enforceable in accordance with their terms. The execution, delivery and
performance by the Company of this Agreement and the Related Agreements to which
the Company is a party and the issuance and sale of the Investor Securities will
not result in any violation of or be in conflict with, or result in a breach of
or constitute a default under, any term or provision of any Legal Requirement to
which the Company or any of its Subsidiaries is subject, or the Company's or any
Subsidiary's Charter or By-Laws, or any Contractual Obligation to which the
Company or any of its Subsidiaries is a party or by which it is bound.
3.6 Financial Statements. The Investors have been furnished with complete
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and correct copies of the following financial statements of the Company (the
"Financial Statements"): (a) the audited consolidated balance sheet of the
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Company as of December 31, 1999 and the respective related consolidated
statements of income, retained earnings and cash flows for the twelve-month
period then ended, (b) the audited consolidated balance sheet of the Company as
of December 31, 2000 together with the related consolidated statements of
operations, retained earnings and cash flows for the twelve-month period then
ended, and (c) the unaudited consolidated balance sheet of the Company as of
February 23, 2001 (the "Balance Sheet Date") together with the related
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consolidated statements of operations, cash flows and stockholders' equity for
the two-month period then ended. The Financial Statements have been prepared in
accordance with GAAP consistently applied and fairly and accurately present the
financial condition of the Company and its Subsidiaries at the date thereof and
the results of its operations for the period covered thereby. All the books,
records and accounts of the Company and its Subsidiaries are in all material
respects accurate and complete, are in all material respects in accordance with
good business practice and all laws, regulations and rules applicable to the
Company and its Subsidiaries and the conduct of their business and accurately
present and reflect in all material respects all of the transactions described
therein.
3.7 Outstanding Debt: Absence of Liabilities. Neither the Company nor any
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of its Subsidiaries (i) has any outstanding indebtedness for borrowed money
except as reflected in the Financial Statements or Schedule 3.7 and (ii) except
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as reflected, is a guarantor or otherwise contingently liable on such
indebtedness of any other Person. Except as set forth in Schedule 3.7, neither
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the Company nor any of its Subsidiaries has any material liabilities or
obligations, contingent or otherwise, which are not reflected or provided for in
the Financial Statements.
3.8 Changes in Condition. Since the Balance Sheet Date, there have
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occurred no event or events that, individually or in the aggregate, have caused
or will cause a Material
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Adverse Effect. Except as set forth in Schedule 3.8, neither the Company nor any
of its Subsidiaries has (a) declared any dividend or other distribution on any
shares of its capital stock, (b) made any payment (other than compensation to
its directors, officers and employees at rates in effect prior to the Balance
Sheet Date or for bonuses accrued in accordance with normal practice prior to
the Balance Sheet Date) to any of its Affiliates, (c) increased the
compensation, including bonuses, payable or to be payable to any of its
directors, officers, employees or Affiliates, by more than 10%, or (d) entered
into any Contractual Obligation, or entered into or performed any other
transaction, not in the ordinary and usual course of business and consistent
with past practice, other than as specifically contemplated by this Agreement.
3.9 Contractual Obligations. Schedule 3.9 contains, together with a
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reference to the paragraph pursuant to which each item is being disclosed, a
correct and complete list of all Contractual Obligations of a material nature of
the Company and its Subsidiaries of the types described below:
(a) All collective bargaining agreements, all employment, bonus or
consulting agreements, all pension, profit sharing, deferred compensation, stock
option, stock purchase, retirement, welfare or incentive plans or agreements,
and all plans, agreements or practices that constitute "fringe benefits" to any
of the employees of the Company or its Subsidiaries.
(b) All Contractual Obligations under which the Company or any
Subsidiary is restricted from carrying on any business, venture or other
activities anywhere in the world.
(c) All Contractual Obligations to sell or lease (as lessor) any of
the properties or assets of the Company or any Subsidiary, except in the
ordinary course of business, or to purchase or lease (as lessee) any real
property.
(d) All Contractual Obligations pursuant to which the Company or any
Subsidiary guarantees any liability of any Person, or pursuant to which any
Person guarantees any liability of the Company or any Subsidiary.
(e) All Contractual Obligations pursuant to which the Company or any
Subsidiary provides goods or services involving payments to the Company or any
Subsidiary of more than $100,000 annually, which Contractual Obligation is not
terminable by the Company or any Subsidiary without penalty upon notice of
thirty (30) days or less.
(f) All Contractual Obligations with any Affiliate of the Company or
any Subsidiary (other than the Related Agreements).
(g) All Contractual Obligations providing for the disposition of the
business, assets or shares of the Company or any Subsidiary or the merger or
consolidation or sale or purchase of all or substantially all of the assets or
business of any Person, and any letters of intent relating to the foregoing.
(h) All Contractual Obligations of the Company or any Subsidiary
relating to the borrowing of money or to the mortgaging or pledging of, or
otherwise placing a lien on, any asset of the Company or any Subsidiary (except
liens imposed by operation of law in favor of landlords, suppliers, mechanics or
others who provide services to the Company or any Subsidiary).
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All of the Contractual Obligations of the Company and its Subsidiaries are
enforceable against the Company and its Subsidiaries, as the case may be, and,
to the Company's knowledge, the other parties thereto in accordance with their
terms, except for Contractual Obligations the failure of which to be so
enforceable does not and will not result in a Material Adverse Effect. Neither
the Company nor any of its Subsidiaries is in default under nor, to the
Company's knowledge, are there any liabilities arising from any breach or
default by any Person prior to the date of this Agreement of, any provision of
any such Contractual Obligation. Upon request by counsel for the Investors, the
Company will, prior to each Closing, furnish to counsel for the Investors true
and correct copies of all Contractual Obligations listed in Schedule 3.9.
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3.10 Insurance. The Company has insurance policies in full force and
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effect, written by reputable insurers licensed to write insurance in the states
in which the Company and its Subsidiaries conduct business, which insurance
contracts provide for coverages which are usual and customary in its business as
to amount and scope. Schedule 3.10 contains a correct and complete list and
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description of all insurance policies owned by the Company or any of its
Subsidiaries, correct and complete copies of which have previously been made
available to the Investors. Neither the Company nor any of its Subsidiaries is
in default under any of its insurance policies, nor has the Company or any of
its Subsidiaries received any notice of cancellation or intent to cancel or
increase premiums with respect to present insurance policies. Schedule 3.10 also
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contains a list of all pending claims with any insurance company and any
instances of a denial of coverage of the Company or any of its Subsidiaries by
any insurance company.
3.11 Transactions with Affiliates. Other than as set forth in Schedule
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3.11, no Affiliate of the Company or any Subsidiary is a customer or supplier
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of, or is party to any Contractual Obligation with, the Company or any
Subsidiary.
3.12 Conformity With Legal Requirements. The operations of the Company and
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its Subsidiaries as now conducted are not in violation of, nor is the Company or
any Subsidiary in default under, any Legal Requirements presently in effect or
the Company's or any Subsidiary's Charter or By-Laws, except for such violations
and defaults as do not and will not, in the aggregate, have a Material Adverse
Effect. The Company and its Subsidiaries have all franchises, licenses, permits
or other authority presently necessary for the conduct of their businesses as
now conducted.
3.13 Benefit Plans. Schedule 3.13 sets forth a complete list of all
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Employee Benefit Plans and all Welfare Plans applicable to the employees of the
Company and its Subsidiaries. Each Employee Benefit Plan and Welfare Plan has
been administered in substantial compliance with its terms and all applicable
laws, including the Code and ERISA. Except as set forth in Schedule 3.13,
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neither Company nor any Subsidiary has any obligation under any Welfare Plan to
provide for the continuation of benefits (other than disability payments and
medical benefits incurred for illness arising in the course of employment) for
more than one year after retirement or other termination of employment. No
"reportable events" within the meaning of section 4043 of ERISA have occurred
with respect to any Employee Benefit Plan. No Pension Plan is a "multiemployer
plan" as defined in ERISA. The present value of benefits liabilities as
described in Title IV of ERISA of Employee Benefit Plans does not exceed the
current value of such Employee Benefit Plans assets allocable to such benefits
liabilities by more than $100,000.
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3.14 Employees. None of the employees of the Company or any Subsidiary is
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presently represented by a labor union, and no petition has been filed or
proceedings instituted by any employee or group of employees with any labor
relations board seeking recognition of a bargaining representative. Except as
set forth in Schedule 3.14, no controversies or disputes are pending between the
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Company or any Subsidiary and any of its employees, except for such
controversies and disputes as do not and will not, in the aggregate, have a
Material Adverse Effect. To the Company's knowledge, no employee of the Company
or any Subsidiary is in violation of any term of any Contractual Obligation with
a former employer relating to the right of any such employee to be employed by
the Company or such Subsidiary because of the nature of the Company's or such
Subsidiary's business or the use of any trade secrets or proprietary
information. Except as set forth in Schedule 3.14, each employee of the Company
-------------
and its Subsidiaries is an "employee at will" and may be terminated by the
Company or such Subsidiary without payment of any amounts other than accrued
wages.
3.15 Taxes. The Company and each of its Subsidiaries has filed all
-----
federal, state and local tax and information returns which are required to be
filed by it and such returns are true and correct in all material respects. The
Company and each of its Subsidiaries have paid all taxes, interest and
penalties, if any, reflected in such tax returns or otherwise due and payable by
it. The Company has no knowledge of any material additional assessments or any
basis therefor. The charges, accruals and reserves on the balance sheet of the
Company as of the Balance Sheet Date in respect of taxes or other governmental
charges are adequate in amount for the payment of all liabilities for such taxes
or other governmental charges. The Company and its Subsidiaries have withheld or
collected from each payment made to its employees the amount of all taxes
required to be withheld or collected therefrom and has paid over such amounts to
the appropriate taxing authorities. Any deficiencies proposed as a result of any
governmental audits of such tax returns have been paid or settled or are being
contested in good faith, and there are no present disputes as to taxes payable
by the Company or any of its Subsidiaries.
3.16 Litigation. No litigation or proceeding before, or investigation by,
----------
any foreign, federal, state or municipal board or other governmental or
administrative agency or any arbitrator is pending or, to the Company's
knowledge, threatened (nor to the Company's knowledge, does any basis exist
therefor) against the Company or any of its Subsidiaries or, to the Company's
knowledge, any officer of the Company or any Subsidiary, which individually or
in the aggregate could result in any material liability or which may otherwise
result in a Material Adverse Effect, or which seeks rescission of, seeks to
enjoin the consummation of, or which questions the validity of, this Agreement
or any other Related Agreement or any of the transactions contemplated hereby or
thereby.
3.17 Patents and Trademarks. The Company owns or has sufficient rights to
----------------------
use all patents, patent applications, trademarks, service marks, copyrights,
trade secrets and other proprietary information necessary for its business as
now conducted or proposed to be conducted by it. A complete list of all of the
Company's patents, patent applications, trademarks, and registered copyrights is
included in Schedule 3.17. To the Company's knowledge without any independent
-------------
investigation for the purpose hereof, the conduct of the business of the Company
and its Subsidiaries does not conflict with or infringe upon the patents,
trademarks, copyrights or other intellectual property rights of any other
Person. The Company is not aware that any of its patents, trademarks,
copyrights or other intellectual property rights are not valid and enforceable.
-11-
3.18 Consents. No consent, approval, qualification, order or
--------
authorization of, or filing with any governmental authority is required in
connection with the Company's valid execution, delivery or performance of the
Related Agreements to which it is a party, or the offer, issue or sale of the
Investor Securities by the Company, the conversion of the Series A Preferred
Stock, or the issuance of Common Stock upon conversion of the Series A Preferred
Stock, or the consummation of any other transaction pursuant to this Agreement
on the part of the Company, except the filing of the Certificate of Designation
and filings under applicable federal securities or blue sky laws.
3.19 Filings, Broker's Fees. The Company is not obligated to pay any
----------------------
broker's fee, finder's fee, investment banker's fee or other similar transaction
fee in connection with the transactions contemplated hereby.
3.20 Minute Books. The minute books of the Company, which shall have been
------------
provided to counsel for the Investors prior to the Closing if requested, contain
a complete record of actions taken at all meetings of directors and stockholders
since April 19, 1995 and reflect all such actions accurately in all material
respects.
3.21 Real Property Holding Corporation. The Company is not a "United
---------------------------------
States real property holding corporation" as defined in section 897(c)(2) of the
Code and Treasury Regulation section 1.897-2(b).
3.22 Disclosure. The Company's Annual Report on Form 10-K for the year
----------
ended December 31, 2000 does not contain any untrue statement of a material
fact, nor omits to state any material fact necessary in order to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading. Neither this Agreement, nor any agreement,
certificate, statement or document furnished in writing by or on behalf of the
Company to the Investors in connection herewith or therewith contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading. The Company has
furnished the Investors with an accurate and complete copy of its Annual Report
on Form 10-K for the 2000 fiscal year and all other reports or documents
required to be filed by the Company pursuant to the Exchange Act and the rules
and regulations of the Commission thereunder, since the filing of the most
recent annual report to stockholders. The Company has made all filings with the
Commission that it has been legally required to make.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
-----------------------------------------------
4.1 Representations and Warranties of the Investors. Each of the
-----------------------------------------------
Investors severally represents and warrants to the Company that:
(a) He or it has full power and authority to enter into this
Agreement and the Related Agreements, and that this Agreement and the Related
Agreements, when executed and delivered, will constitute the valid and binding
legal obligation of such Investor.
-12-
(b) He or it is an "accredited investor" for purposes of Regulation D
under the Securities Act and that he or it has sufficient knowledge and
experience in evaluating and investing in companies similar to the Company in
terms of the Company's stage of development so as to be able to evaluate the
risks and merits of his or its investment in the Company and is able financially
to bear the risks thereof. If such Investor is other than an individual, then
such Investor represents that it was not organized for the purpose of acquiring
the Series A Preferred Stock or, if such Investor was formed for the purpose of
acquiring the Series A Preferred Stock, then all of its members are "accredited
investors" for purposes of Regulation D under the Securities Act.
(c) He or it is acquiring the Investor Securities at the applicable
closing, subject to the terms hereof and related contemporaneous agreements, for
investment for his or its own account and not with a view to, or for resale in
connection with, any distribution thereof, and that such Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same; provided, however, that the disposition of the Investors' property
-------- -------
shall at all times remain in the Investors' control. By executing this
Agreement, each Investor further represents and warrants that such Investor does
not have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third person,
with respect to any of the Investor Securities.
(d) He or it has had an opportunity to discuss the terms and
conditions of the offering of the Series A Preferred Stock and the Company,
business, management and financial affairs with the Company's management and has
received (or had made available to it) any financial and business documents
requested by him or it.
(e) He or it understands that the shares of Series A Preferred Stock
to be purchased hereunder have not been registered under the Securities Act and
must be held indefinitely unless a subsequent disposition thereof is registered
under the Securities Act or is exempt from such registration.
(f) He or it has no contract, arrangement or understanding with any
broker, finder or similar agent with respect to the transactions contemplated by
this Agreement.
4.2 Legend. Each certificate representing shares of Investor Securities
------
shall bear a legend in substantially the following form:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or under the securities
laws of any state, and may not be sold, or otherwise transferred, in
the absence of such registration or unless the Corporation has been
furnished with an opinion of counsel satisfactory to the Corporation
that such registration is not required."
-13-
ARTICLE V
COVENANTS OF THE COMPANY AND THE INVESTORS
------------------------------------------
5.1 Annual Stockholder Meeting.
--------------------------
(a) As soon as practicable, the Company shall take all action
necessary in accordance with the Delaware general corporation law and its
Charter and By-laws to call, give notice of and convene a meeting of the
Company's stockholders to consider and vote upon the approval of the
transactions contemplated by this Agreement as required by the rules of the
Nasdaq National Market and for such other purposes as may be necessary or
desirable.
(b) The Company shall, as promptly as practicable, prepare and file
with the Commission a proxy statement (the "Proxy Statement") with respect to
the approval of the transactions contemplated by this Agreement. The Company
shall use its best efforts to cause the Proxy Statement to be mailed to the
stockholders of the Company at the earliest practicable date and shall use its
best efforts to hold the Annual Meeting as soon as practicable after the date
hereof.
5.2 Expenses. The Company will bear its own expenses and legal fees
--------
incurred on its behalf with respect to this Agreement and the Related
Agreements, and the Company hereby agrees to pay the reasonable fees, expenses
and disbursements of the Investors, including those of Reboul, MacMurray,
Xxxxxx, Xxxxxxx & Kristol, counsel for the Xxxxx parties, and Xxxxxx Xxxxxx &
Xxxxxxx, counsel for Ivy Orthopedic Partners LLC (up to a maximum of $6,000),
with respect to services rendered in connection with the transactions
contemplated by this Agreement, up to an aggregate maximum of $250,000.
5.3 Use of Proceeds. Without the consent of Investors holding greater
---------------
than fifty percent (50%) of the voting power of all of the Investor Securities,
the Company will not use the proceeds from the sale of the Series A Preferred
Stock hereunder for any purpose other than (i) acquisitions in related or
contiguous business segments, (ii) working capital and general corporate
purposes related to acquisitions in related or contiguous business segments and
(iii) payment of all reasonable fees and expenses incurred by the Company and
the Investors in connection with the transactions contemplated by this
Agreement.
5.4 Further Assurances. Subject to the terms and conditions of this
------------------
Agreement, each of the parties hereto agrees to use all reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement,
including, without limitation, using all reasonable efforts to obtain all
necessary waivers, consents and approvals and to effect all necessary
registrations and filings.
-14-
ARTICLE VI
MISCELLANEOUS
-------------
6.1 Indemnification.
---------------
(a) All representations, warranties, covenants or agreements made
herein or in any Related Agreement or in any closing certificate or other
certificate or written report delivered to the Investors pursuant to an express
requirement hereof shall be deemed to have been material and relied on by the
Investors, notwithstanding any investigation made by the Investors or on the
Investors' behalf, and shall survive the execution and delivery to the Investors
hereof and of the Investor Securities. All representations, warranties,
covenants or agreements made herein or in any Related Agreement or in any
closing certificate or other certificate or written report delivered to the
Company pursuant to an express requirement hereof shall be deemed to have been
material and relied on by the Company, notwithstanding any investigation made by
the Company or on the Company's behalf, and shall survive the execution and
delivery to the Company hereof.
(b) The Company shall indemnify and hold any Investors harmless from
and against any and all actions, causes of action, suits, litigation, losses,
liabilities, damages and expenses (including, but not limited to, reasonable
legal fees and court costs), whether or not resulting from judgments or
arbitration awards, that shall be suffered or incurred by any Investor, as the
case may be, resulting from or arising out of any breach of any of the
representations, warranties, covenants or agreements of the Company made in this
Agreement or in any Related Agreement to which the Company is a party or in any
schedule, certificate, exhibit or other instrument furnished or to be furnished
by the Company hereunder or thereunder.
(c) The Investors shall severally indemnify and hold the Company
harmless from and against any and all actions, causes of action, suits,
litigation, losses, liabilities, damages and expenses (including, but not
limited to, reasonable legal fees and court costs), whether or not resulting
from judgments or arbitration awards, that shall be suffered or incurred by the
Company, resulting from or arising out of any breach of any of the
representations, warranties, covenants or agreements of the Investors made in
this Agreement or in any Related Agreement or in any schedule, certificate,
exhibit or other instrument furnished or to be furnished by the Investors
hereunder or thereunder.
(d) The indemnified party will notify the indemnifying party in
writing within ten days after the receipt by any indemnified party of any notice
of legal process of any suit brought against or claim made against such
indemnified party as to any matters covered by this Section 6.1. The
indemnifying party shall be entitled to participate at its own expense in the
defense of any claim, action, suit or proceeding covered by this Section 6.1,
or, if it so elects, to assume at its expense by counsel satisfactory to the
indemnified parties the defense of any such claim, action, suit or proceeding,
and if the indemnifying party elects to assume such defense, the indemnified
party shall be entitled to participate in the defense of any such claim, action,
suit or proceeding at its expense.
6.2 Survival. The obligations of the Company to the Investors, and the
--------
Investors to the Company, as the case may be, under this Agreement shall survive
the redemption, repurchase or transfer of any or all of the Investor Securities.
-15-
6.3 Termination. This Agreement may be terminated, whether before or after
-----------
approval by the stockholders of the Company:
(a) by mutual action of the board of directors of the Company and the
Investors; or
(b) by either the Company or the Investors, if (i) the conditions to
its obligations under Sections 2.4 and 2.5, as applicable, shall not have been
complied with or performed in any material respect and such noncompliance or
nonperformance shall not have been cured or eliminated (or by its nature cannot
be cured or eliminated) by the other party on or before July 31, 2001 or such
later date as agreed to by the Company and Xxxxx Partners III, or (ii) the
Closing shall not have occurred prior to the close of business on July 31, 2001
or such later date as agreed to by the Company and Xxxxx Partners III; unless in
the case of either (i) or (ii), such event has been caused by the breach of this
Agreement by the party seeking such termination.
6.4 Notices. Any notice or other communication in connection with this
-------
Agreement or the Investor Securities shall be deemed to be delivered if in
writing addressed as provided below and if either (a) actually delivered at said
address, (b) in the case of a letter, seven business days shall have elapsed
after the same shall have been deposited in the United States mails, postage
prepaid and registered or certified, return receipt requested or (c) transmitted
to any address outside of the United States, by telecopy and confirmed by
overnight or two-day courier:
If to the Company, to it at 0000 Xxxxxx Xxxx., Xxxxxx, XX 00000, attention:
Xxxxx Xxxxxxxxx, telecopy: (000) 000-0000, telephone: (000) 000-0000, with a
copy to Xxxxxxx Xxxxxx L.L.P., 000 Xxxxxxxx Xxxxxx, Xxxxx 0000, Xxxxxx, XX
00000-0000, attention: Xxxxxxxx X. Xxxx, Esq., telecopy (000) 000-0000,
telephone (000) 000-0000 or at such other address as the Company shall have
specified by notice to the Investors.
If to the Investors, to the Investors' respective addresses set forth on
Annex I, or at such other address as the Investors shall have specified by
notice to the Company, with a copy to Reboul, MacMurray, Xxxxxx, Xxxxxxx &
Kristol, 00 Xxxxxxxxxxx Xxxxx, Xxx Xxxx, XX 00000, attention: Xxxxxxx X. Xxxxx,
Esq., telecopy: (000) 000-0000, telephone: (000) 000-0000 and Xxxxxx Xxxxxx &
Xxxxxxx, 00 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, attention: Xxxxx Xxxxxxx,
Esq., telecopy (000) 000-0000, telephone (000) 000-0000.
If to any other holder of record of any Investor Security, to it at its
address set forth in the stock register of the Company.
6.5 Press Releases. The Company and all of the Investors shall agree on a
--------------
form of press release related to this Agreement following the Closing Date and
the Company may thereafter issue such press release from time to time without
consulting the Investors named in such press release (if any); provided that the
--------
Company shall not issue such press release in the event that (i) any material
modifications are made to the form of press release or (ii) the information
provided regarding any Investor is modified in any manner.
6.6 Amendments and Waivers. Any term of this Agreement may be amended and
----------------------
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively) only with
the written consent of (i) the
-16-
Company and (ii) the Investors or, following the Closing, those Investors
holding at the relevant time greater than fifty percent (50%) of the voting
power of all Investor Securities. Any amendment or waiver effected in accordance
with this Section 6.6 shall be binding upon each holder of any Investor
Securities and the Company and each of its Subsidiaries.
6.7 Binding Effect; Assignment. This Agreement shall be binding upon and
--------------------------
inure to the benefit of the personal representatives, successors and assigns of
the respective parties hereto. The Company shall not have the right to assign
its rights or obligations hereunder or any interest herein without obtaining the
prior written consent of the Investors or, following the Closing, the Investors
holding at the relevant time the greater of fifty percent (50%) of the voting
power of all Investor Securities. The Investors may assign or transfer their
rights under this Agreement to the extent permitted herein and by the other
agreements between the respective parties and the Company. Whether or not any
express assignment has been made in this Agreement, provisions of this Agreement
that are for the Investors' benefit as the holder of any Investor Securities are
also for the benefit of, and enforceable by, all subsequent holders of Investor
Securities.
6.8 General. The invalidity or unenforceability of any term or provision
-------
hereof shall not affect the validity or enforceability of any other term or
provision hereof. The headings in this Agreement are for convenience of
reference only and shall not alter or otherwise affect the meaning hereof. This
Agreement, the Related Agreements and the other items referred to herein or
therein constitute the entire understanding of the parties hereto with respect
to the subject matter hereof and thereof and supersede all present and prior
agreements, whether written or oral. This Agreement is intended to take effect
as a sealed instrument and may be executed in any number of counterparts which
together shall constitute one instrument and shall be governed by and construed
in accordance with the laws (other than the conflict of laws rules) of the State
of Delaware, and shall bind and inure to the benefit of the parties hereto and
their respective successors and assigns.
6.9 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
[Signature pages follow]
-17-
The undersigned have executed this Agreement as of the date first above written.
ENCORE MEDICAL CORPORATION
By: /s/ Xxxxxxx X. Xxxxxxxx
-------------------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: Chairman of the Board,
Chief Executive Officer
and President
XXXXX PARTNERS III, L.P.
By: Claudius, L.L.C., its General Partner
By: /s/ Xxxxx X. Xxxxxx
-------------------------------------
Name: Xxxxx X. Xxxxxx
Title: Managing Member
XXXXX PARTNERS INTERNATIONAL III, L.P.
By: Claudius, L.L.C., its General Partner
By: /s/ Xxxxx X. Xxxxxx
-------------------------------------
Name: Xxxxx X. Xxxxxx
Title: Managing Member
XXXXX EMPLOYEE FUND III, L.P.
By: Wesson Enterprises, Inc., its General
Partner
By: /s/ Xxxxx X. Xxxxxx
-------------------------------------
Name: Xxxxx X. Xxxxxx
Title: President
IVY ORTHOPEDIC PARTNERS, LLC
By: /s/ Xxxxxxx X. Xxxxxx, Xx.
-------------------------------------
Name: Xxxxxxx X. Xxxxxx, Xx.
Title: Manager
-18-
/s/ Xxxxxxx X. Xxxxxxxx
-------------------------------------
XXXXXXX X. XXXXXXXX
/s/ Xxxxx Xxxxxx
-------------------------------------
XXXXX XXXXXX
/s/ Xxxxxx Xxxxxx
-------------------------------------
XXXXXX XXXXXX
KANTER FAMILY FOUNDATION
By: /s/ Xxxx Xxxxxx
---------------------------------
Xxxx Xxxxxx, President
CHICAGO INVESTMENTS, INC.
By: /s/ Xxxxx Xxxxxxxxxxxx
---------------------------------
Xxxxx Xxxxxxxxxxxx, President
/s/ Xxxxxxx Xxxxxx
-------------------------------------
XXXXXXX XXXXXX
NORTHLEA PARTNERS, LTD.
By: /s/ Xxxx Xxxxxx
---------------------------------
Xxxx Xxxxxx, General Partner
/s/ Xxxx Xxxxxxx
-------------------------------------
XXXX XXXXXXX
/s/ Xxxxx Xxxxxxx
-------------------------------------
XXXXX XXXXXXX
-19-
ANNEX I TO SERIES A PREFERRED STOCK
PURCHASE AGREEMENT
Investors
---------
Name and Address Shares Purchase Price
------------------------------------------- ---------- ----------------
Xxxxx Partners III, L.P. 105,201 $10,730,492
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Xxxxx Partners International III, L.P. 9,522 $ 971,294
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Xxxxx Employees Fund III, L.P. 435 $ 44,314
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Ivy Orthopedic Partners, LLC 9,804 $ 1,000,000
Four Xxxxxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxx Xxxxxx 00000
Xxxxxxx X. Xxxxxxxx 1,961 $ 200,000
0000 Xxxxxxxx Xx. Xxxx
Xxxxxxxx, XX 00000
Xxxxxxx Xxxxxx 200 $ 20,400
00000 Xxxxxxxxx Xx. Xx.
Xxxxxxxx, XX 00000
Kanter Family Foundation 1,000 $ 102,000
0000 Xxxxxx Xxxxxxxx Xxxxx
Xxxxx 0000
Xxxxxx, XX 00000
Chicago Investments, Inc. 1,500 $ 153,000
C/o Xxxxx Xxxxx Enterprises, Inc.
N. 0000 Xxxxxxxxxx Xxxx
Xxxxxxxxx, XX 00000
Northlea Partners, Ltd. 980 $ 100,000
0000 XX 00xx
Xxxx Xxxxx, XX 00000
Xxxxxx Xxxxxx 500 $ 51,000
00 Xxxxx Xxxxxx #0000
Xxxxxxx, Xxxxx 00000
Xxxxx Xxxxxx 500 $ 51,000
0000 Xxxxxxxx Xxx Xxxxx
Xx. Xxxxxxxxxx, XX 00000
Xxxx and Xxxxx Xxxxxxx 750 $ 76,500
0 Xxxxx Xxxx #0000
Xxxxxxx Xxxxx, XX 00000
Total 132,353 $13,500,000
-20-
EXHIBIT A
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND LIMITATIONS
OF
SERIES A PREFERRED STOCK
OF
ENCORE MEDICAL CORPORATION
Pursuant to the provisions of Section 151 of the General Corporation Law of
the State of Delaware and Article Fourth A. of its Certificate of Incorporation,
Encore Medical Corporation, a corporation organized and existing under the laws
of the State of Delaware (the "Corporation"),
-----------
DOES HEREBY CERTIFY that pursuant to the authority conferred upon the Board
of Directors of the Corporation by the Corporation's Certificate of
Incorporation, and pursuant to the General Corporation Law of the State of
Delaware, the following resolution, establishing and designating a series of
shares of Preferred Stock and fixing and determining the designations,
preferences and rights, and the qualifications, limitations or restrictions
thereof, was duly adopted by the Board of Directors and by all other necessary
action on the part of the Corporation on April __, 2001:
RESOLVED, that pursuant to the authority provided in the Corporation's
Certificate of Incorporation and expressly granted to and vested in the Board,
the Board hereby creates out of the Preferred Stock, par value $0.001 per share,
of the Corporation, a Series A Preferred Stock (the "Series A Preferred Stock"),
------------------------
and hereby fixes the designation and the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof, to the extent not otherwise
provided in the Corporation's Certificate of Incorporation of the shares of such
series as follows:
A. Number of Shares. The maximum number of authorized shares of Series A
----------------
Preferred Stock shall be one hundred thirty-five thousand (135,000), unless and
until such number is changed in accordance with applicable law and this
resolution (the "Designating Resolution").
----------------------
B. Waivers Permitted. Notwithstanding anything to the contrary herein,
-----------------
any right, condition, requirement, or covenant contained in this Designating
Resolution may be waived in writing by the holders of at least 51% of the Series
A Preferred Stock then outstanding.
C. Preferences and Rights of Series A Preferred Stock.
--------------------------------------------------
1. Dividends.
---------
(a) The holders of Series A Preferred Stock shall be entitled to receive
dividends at the rate of eight percent (8%) per share per annum payable semi-
annually, when, if and as declared by the Board of Directors ("Board") out of
-----
any assets legally available therefor. The right to such dividends on the Series
A Preferred Stock shall not be cumulative, and no right shall accrue to holders
of Series A Preferred Stock by reason
1
of the fact that dividends on such shares are not declared or paid in any prior
year. No dividend shall be declared and paid on the Common Stock (herein so
called) of the Corporation unless a dividend is also concurrently being declared
and paid on the Series A Preferred Stock and no dividend shall be paid on the
Common Stock at a rate greater than the rate at which dividends are paid on the
Series A Preferred Stock (based on the number of shares of Common Stock into
which the Series A Preferred Stock is convertible on the date the dividend is
declared).
2. Liquidation Preference.
----------------------
(a) Preference. If there is any liquidation, dissolution or winding up of
----------
the Corporation, either voluntary or involuntary, the holders of Series A
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets of the Corporation to the holders of Common
Stock, an amount equal to at least $102.00 per outstanding share of Series A
Preferred Stock, plus an amount equal to an eight percent (8%) annual compounded
return on $102.00 per outstanding share of Series A Preferred Stock from the
date of the initial purchase of such share less any dividends previously paid on
such share (subject to adjustment under Section C.3.(e)); provided, however,
-------- -------
that the holders of the Series A Preferred Stock shall not be entitled to any
such preferential amounts if, in connection with any such liquidation,
dissolution or winding up of the Corporation, the holders of the Series A
Preferred Stock receive an amount equal to at least $306.00 per outstanding
share of Series A Preferred Stock (subject to adjustment under Section C.3.(e)).
If, upon the occurrence of any such event, the assets and funds thus distributed
among the holders of the Series A Preferred Stock are insufficient to permit the
payment to such holders of the full aforesaid preferential amounts, then the
entire assets and funds of the Corporation legally available for distribution
shall be distributed ratably among the holders of Series A Preferred Stock in
proportion to the preferential amount that each such holder is otherwise
entitled to receive.
(b) Remaining Assets. If there are any assets remaining after the payment
----------------
or distribution (or the setting aside for payment or distribution) to the
holders of the Series A Preferred Stock of their full preferential amounts
described in Section C.2(a) above or if no such preferential amounts are owed by
the Corporation, then all such remaining assets shall be distributed first as
may be required with respect to other series of Preferred Stock that may from
time to time come into existence, and then to the holders of the Common Stock
and the Series A Preferred Stock in proportion to the shares of Common Stock
then held by them and the shares of Common Stock which they then have the right
to acquire upon conversion of the shares of Series A Preferred Stock.
(c) Deemed Liquidation Events.
-------------------------
(i) Any consolidation or merger of the Corporation with or into any
other corporation or corporations, or a sale, transfer, lease, conveyance or
disposition of all or substantially all of the assets of the Corporation to a
single person or a group of affiliated persons shall be deemed to be a
liquidation, dissolution or winding up of the Corporation within the meaning of
this Section C.2, unless the stockholders of the Corporation immediately before
such transaction own, directly or indirectly, immediately
2
after the consummation of such transaction, at least 50% of the voting power of
the surviving or purchasing entity (on an as-converted basis).
(ii) If any of such events described in Section C.2(c)(i) occurs and
the consideration received by the Corporation is other than cash, its value will
be deemed its fair market value as determined in good faith by the Board.
3. Conversion and Anti-Dilution Provisions.
---------------------------------------
(a) Right to Convert. Each share of Series A Preferred Stock shall be
----------------
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, into such number of fully paid and non-assessable shares
of Common Stock as is determined by dividing $102.00 (the "Initial Price") by
-------------
the Conversion Price (as defined below) at the time in effect for such share
(the "Conversion Rate"). The conversion price per share shall be $102.00 divided
by 100, as adjusted pursuant to Section C.3(d) and C.3(e) (the "Conversion
----------
Price"). If at any time less than twenty-five percent (25%) of the authorized
-----
Series A Preferred Stock remains outstanding, the Corporation shall have the
right to convert the remaining outstanding shares of Series A Preferred Stock
into Common Stock at the Conversion Rate at the time in effect for each such
share of Series A Preferred Stock.
(b) Automatic Conversion. Each share of Series A Preferred Stock shall
--------------------
automatically be converted into shares of Common Stock at the Conversion Rate at
the time in effect for such Series A Preferred Stock if, after May 2, 2002, the
Corporation's average closing share price for Common Stock as reported on NASDAQ
for at least twenty (20) consecutive trading days exceeds three (3) times the
Conversion Price.
(c) Mechanics of Conversion. Before any shares of Series A Preferred Stock
-----------------------
shall be converted pursuant to Section C.3(a) or C.3(b) into shares of Common
Stock, the holder thereof shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or of any transfer
agent for the Series A Preferred Stock, and (i) if being converted at the
election of the holder pursuant to Section C.3(a), such holder must give written
notice by mail, postage prepaid, to the Corporation at its principal corporate
office, of the election to convert the same and shall state therein the name or
names in which the certificate or certificates for shares of Common Stock are to
be issued, or (ii) if being converted at the election of the Corporation
pursuant to Section C.3(a) or automatically pursuant to Section C.3(b), the
Corporation must give written notice by mail, postage prepaid, to the holder at
the last known address as reflected on the Corporation's records of such
conversion and requesting the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. The Corporation shall,
as soon as practicable thereafter, issue and deliver to such holder of Series A
Preferred Stock, or to the nominee or nominees of such holder if so directed, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. Such conversion shall be deemed to
have been made immediately before the close of business on the date of such
surrender of the shares of Series A Preferred Stock to be converted, and the
person or persons entitled to receive the shares
3
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such shares of Common Stock as of such date.
(d) Adjustments to Series A Preferred Stock Conversion Price for Certain
--------------------------------------------------------------------
Diluting Issues.
---------------
(i) Special Definitions. The following terms shall have the following
meanings:
(1) "Options" shall mean rights, options, or warrants to
-------
subscribe for, purchase or otherwise acquire Common Stock, Series A Preferred
Stock, or Convertible Securities.
(2) "Original Issue Date" shall mean the date on which a share
-------------------
of Series A Preferred Stock was first issued.
(3) "Convertible Securities" shall mean any evidences of
----------------------
indebtedness, shares (other than Common Stock and Series A Preferred Stock) or
other securities convertible into or exchangeable for Common Stock.
(4) "Additional Shares of Common Stock" shall mean all shares of
---------------------------------
Common Stock issued (or, pursuant to Section C.3(d)(iii), deemed to be issued)
by the Corporation after the Original Issue Date, other than shares of Common
Stock issued or issuable:
(A) upon conversion of shares of Series A Preferred Stock;
(B) to officers, directors or employees of, or consultants
or sales agents to, the Corporation directly or pursuant to stock option or
restricted stock purchase plans or agreements either in place as of the Original
Issue Date or as approved by the Board;
(C) as a dividend or distribution on Series A Preferred
Stock;
(D) upon exercise or conversion of outstanding options or
warrants, respectively; or
(E) for which adjustment of the Conversion Price is made
pursuant to Section C.3(e); or
(F) in connection with lease lines, bank or other
commercial financings, or other similar transactions that are approved by the
Board; or
(G) in connection with the offering of shares of Common
Stock or Convertible Securities resulting in aggregate gross proceeds to the
Corporation of less than Two Million Dollars ($2,000,000).
4
(ii) No Adjustment of Conversion Price. Any provision herein to the
contrary notwithstanding, no adjustment in the Conversion Price shall be made in
respect of the issuance of Additional Shares of Common Stock unless the
consideration per share (determined pursuant to Section C.3(d)(v)) for an
Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the Conversion Price in effect on the date of, and
immediately prior to, such issue.
(iii) Deemed Issue of Additional Shares of Common Stock. In the event
the Corporation at any time or from time to time after the Original Issue Date
shall issue any Options or Convertible Securities or shall fix a record date for
the determination of holders of any class of securities then entitled to receive
any such Options or Convertible Securities, then the maximum number of shares
(as set forth in the instrument relating thereto without regard to any
provisions contained therein designed to protect against dilution) of Common
Stock issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options for Convertible Securities or for Series A Preferred
Stock, the conversion or exchange of such Convertible Securities or Series A
Preferred Stock, shall be deemed to be Additional Shares of Common Stock issued
as of the time of such issue or, in case such a record date shall have been
fixed, as of the close of business on such record date, provided that in any
such case in which Additional Shares of Common Stock are deemed to be issued:
(1) no further adjustments in the Conversion Price shall be
made upon the subsequent issue of such Convertible Securities, or Series A
Preferred Stock or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities or Series A Preferred
Stock;
(2) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase or decrease in
the consideration payable to the Corporation, increase or decrease in the number
of shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price computed upon the original issue thereof (or upon
the occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities (provided, however, that no such adjustment of the
Conversion Price shall affect Common Stock previously issued upon conversion of
the Series A Preferred Stock);
(3) upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall not have
been exercised, the Conversion Price computed upon the original issue thereof
(or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration, be recomputed
as if:
(A) in the case of Convertible Securities or Options for
Common Stock the only Additional Shares of Common Stock issued were the shares
of Common Stock, if any, actually issued upon the exercise of such Options or
the
5
conversion or exchange of such Convertible Securities and the consideration
received therefor was the consideration actually received by the Corporation for
the issue of all such Options, whether or not exercised, plus the consideration
actually received by the Corporation upon such exercise, or for the issue of all
such Convertible Securities which were actually converted or exchanged, plus the
additional consideration, if any, actually received by the Corporation upon such
conversion or exchange, and
(B) in the case of Options for Convertible Securities or
Series A Preferred Stock only the Convertible Securities or Series A Preferred
Stock, if any, actually issued upon the exercise thereof were issued at the time
of issue of such Options, and the consideration received by the Corporation for
the Additional Shares of Common Stock deemed to have been then issued was the
consideration actually received by the Corporation for the issue of all such
Options, whether or not exercised, plus the consideration deemed to have been
received by the Corporation (determined pursuant to Section C.3(d)) upon the
issue of the Convertible Securities or Series A Preferred Stock with respect to
which such Options were actually exercised;
(4) no readjustment pursuant to clause (2) or (3) above shall
have the effect of increasing the Conversion Price to an amount which exceeds
the lesser of (a) the Conversion Price on the original adjustment date, or (b)
the Conversion Price that would have resulted from any issuance of Additional
Shares of Common Stock between the original adjustment date and such
readjustment date;
(5) in the case of any Options which expire by their terms not
more than thirty (30) days after the date of issue thereof, no adjustment of the
Conversion Price shall be made until the expiration or exercise of all such
Options, whereupon such adjustment shall be made in the same manner provided in
clause (3) above.
(iv) Adjustment of Conversion Price Upon Issuance of Additional Shares
of Common Stock. In the event the Corporation, at any time after the Original
Issue Date shall issue Additional Shares of Common Stock (including Additional
Shares of Common Stock deemed to be issued pursuant to Section C.3(d)(iii))
without consideration or for a consideration per share less than the Conversion
Price in effect on the date of and immediately prior to such issue, then and in
such event, the Conversion Price shall be reduced, concurrently with such issue,
(1) if such issuance occurs prior to the first anniversary of
the Original Issue Date, to a price equal to the price per share of such issue,
or
(2) if such issuance occurs on or after the first anniversary of
the Original Issue Date, to a price (calculated to the nearest cent), determined
by multiplying such Conversion Price by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
issue plus the number of shares of Common Stock which the aggregate
consideration received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Conversion Price in
effect immediately prior to such issuance, and the denominator of which shall be
the number of shares of Common Stock outstanding
6
immediately prior to such issue plus the number of such Additional Shares of
Common Stock so issued. For the purpose of the above calculation, the number of
shares of Common Stock outstanding immediately prior to such issue shall be
calculated on a fully diluted basis, as if all shares of Series A Preferred
Stock and all Convertible Securities had been fully converted into shares of
Common Stock immediately prior to such issuance and any outstanding warrants,
options or other rights for the purchase of shares of stock or convertible
securities had been fully executed immediately prior to such issuance (and the
resulting securities fully converted into shares of Common Stock, if so
convertible) as of such date.
(v) Determination of Consideration. For purposes of this Section
C.3(d), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property. Such consideration shall:
(A) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the Corporation excluding amounts paid or
payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other than cash, be
computed at the fair value thereof at the time of such issue, as determined in
good faith by the Board; and
(C) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board.
(2) Options and Convertible Securities. The consideration per
share received by the Corporation for Additional Shares of Common Stock deemed
to have been issued pursuant to Section C.3(d)(iii), relating to Options and
Convertible Securities shall be determined by dividing:
(A) the total amount, if any, received or receivable by the
Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein designed to protect against dilution) payable to the
Corporation upon the exercise of such Options or the conversion or exchange of
such Convertible Securities, or in the case of Options for Convertible
Securities or Series A Preferred Stock, the exercise of such Options for
Convertible Securities or Series A Preferred Stock and the conversion or
exchange of such Convertible Securities or Series A Preferred Stock by
(B) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any provision
contained
7
therein designed to protect against the dilution) issuable upon the exercise of
such Options or conversion or exchange of such Convertible Securities.
(e) Adjustments to Conversion Price for Stock Dividends and for
-----------------------------------------------------------
Combinations or Subdivisions of Common Stock. If the Corporation at any time or
--------------------------------------------
from time to time after the initial issuance date shall declare or pay, without
consideration, any dividend on the Common Stock payable in Common Stock or in
any right to acquire Common Stock for no consideration, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by stock split, reclassification or otherwise than by
payment of a dividend in Common Stock or in any right to acquire Common Stock),
or in the event the outstanding shares of Common Stock shall be combined or
consolidated, by reclassification or otherwise, into a lesser number of shares
of Common Stock, then the Conversion Price in effect immediately before such
event shall, concurrently with the effectiveness of such event, be
proportionately decreased or increased, as appropriate. If the Corporation shall
declare or pay, without consideration, any dividend on the Common Stock payable
in any right to acquire Common Stock for no consideration, then the Corporation
shall be deemed to have made a dividend payable in Common Stock in an amount of
shares equal to the maximum number of shares issuable upon exercise of such
rights to acquire Common Stock.
(f) Adjustments for Reclassification and Reorganization. If the Common
---------------------------------------------------
Stock issuable upon conversion of the Series A Preferred Stock shall be changed
into the same or a different number of shares of any other class or classes of
stock, whether by capital reorganization, reclassification or otherwise (other
than a subdivision or combination of shares provided for in Section C.3(e) or a
merger or other reorganization that is considered a deemed liquidation event
under Section C.2(c)), the Conversion Price then in effect shall, concurrently
with the effectiveness of such reorganization or reclassification, be
proportionately adjusted so that the Series A Preferred Stock shall be
convertible into, in lieu of the number of shares of Common Stock which the
holders would otherwise have been entitled to receive, a number of shares of
such other class or classes of stock equivalent to the number of shares of
Common Stock that would have been subject to receipt by the holders upon
conversion of the Series A Preferred Stock immediately before that change.
(g) No Fractional Shares and Certificates as to Adjustments. No fractional
-------------------------------------------------------
shares shall be issued upon conversion of the Series A Preferred Stock, and the
number of shares of Common Stock to be issued shall be rounded to the nearest
whole share. The number of shares of Common Stock issuable upon such conversion
shall be determined on the basis of the total number of shares of Series A
Preferred Stock at the time being converted into Common Stock and the number of
shares of Common Stock issuable upon such aggregate conversion.
(h) Reservation of Stock Issuable On Conversion. The Corporation shall at
-------------------------------------------
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
shares of the Series A Preferred Stock, such number of its shares of Common
Stock as shall from time to time
8
be sufficient to effect the conversion of all outstanding shares of the Series A
Preferred Stock. If at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series A Preferred Stock, in addition to such other
remedies as shall be available to the holder of such Series A Preferred Stock,
the Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes,
including, without limitation, engaging in its best efforts to obtain
stockholder approval of any necessary amendment to the Articles of Incorporation
of the Corporation.
4. Voting Rights.
-------------
(a) In General. Except as otherwise provided for the election of directors
----------
(which shall be governed by Section C.4.(b)), the holder of each share of Series
A Preferred Stock shall have the right to one vote for each share of Common
Stock into which such Series A Preferred Stock could then be converted (with any
fractional share determined on an aggregate conversion basis being rounded to
the nearest whole share), and with respect to such vote, such holder shall have
full voting rights and powers equal to the voting rights and powers of the
holders of Common Stock, and shall be entitled to notice of any stockholders'
meeting in accordance with the Bylaws of the Corporation, and shall be entitled
to vote, together with holders of Common Stock, with respect to any question
upon which holders of Common Stock have the right to vote. The Series A
Preferred Stock shall not be entitled to vote as a class on any matter except as
provided herein or as may be required by law.
(b) Board of Directors.
------------------
(i) For so long as at least twenty-five percent (25%) of the
authorized Series A Preferred Stock is outstanding, the holders of Series A
Preferred Stock, voting together as a class, shall be entitled, at each meeting
or pursuant to each consent of the Corporation's stockholders for the election
of directors,
(1) if the Board consists of ten (10) or fewer members, to
elect two (2) members of the Board; or
(2) if the Board consists of more than ten (10) members, to
elect at least twenty percent (20%) of the number of members of the Board.
(ii) Any director elected pursuant to this Section C.4(b) shall hold
office until (x) one (1) year from the date of such election, (y) until his
successor is duly elected and qualified, or (z) until his earlier death,
resignation or removal.
(iii) In the case of any vacancy in the office of a director occurring
among the directors elected by the holders of the Series A Preferred Stock
pursuant to Section C.4(b) hereof, the remaining director or directors so
elected by the holders of the Series A Preferred Stock may, by affirmative vote
of a majority thereof (or the remaining director so elected if there is but one,
or if there is no such director remaining, by the affirmative vote of the
holders of a majority of the outstanding shares of Series A
9
Preferred Stock) elect a successor or successors to hold the office for the
unexpired term of the director or directors whose place or places shall be
vacant. Any director who shall have been elected by the holders of the Series A
Preferred Stock or any director so elected as provided in the preceding sentence
hereof, may be removed during the aforesaid term of office, whether with or
without cause, only by the affirmative vote of the holders of a majority of the
Series A Preferred Stock.
(c) Special Voting Rights. The Corporation shall not, without the vote or
---------------------
written consent of the holders of at least fifty-one percent (51%) of the then
outstanding shares of the Series A Preferred Stock, voting together as a single
class:
(i) amend its Certificate of Incorporation or Bylaws if such
amendment would result in any change to the rights, preferences or privileges of
the Series A Preferred Stock;
(ii) increase the number of authorized shares of Series Preferred
Stock;
(iii) create any new class or series, or reclassify any existing
class or series, having a preference over, or on a parity with, the Series A
Preferred Stock with respect to voting rights or representation, dividends,
redemptions, or upon liquidation;
(iv) redeem or repurchase shares of the Common Stock other than
shares repurchased from employees or officers pursuant to stock option or
restricted stock purchase plans or agreements either in place as of the Original
Issue Date or as approved by the Board;
(v) effect any merger, consolidation or other business combination,
or acquisition of stock or assets of a business, prior to the second anniversary
of the Original Issue Date, provided, however, the provisions of this Section
-------- -------
C.4(c)(v) shall not apply and the holders of the Series A Preferred Stock shall
not be entitled to vote as a separate class with respect to any such transaction
if (x) such transaction does not involve funded debt financing that would cause
the Corporation's total funded indebtedness after the transaction to exceed
three and one-half (3.5) times the Corporation's EBITDA (as defined below)
computed on a pro forma basis, for the most recent trailing twelve (12) month
period ending on the last day of the month immediately preceding the proposed
closing of such transaction, or (y) such transaction shows that, based upon
financial projections prepared by management, that the Company's earnings per
share will be higher by the end of the second year following such transaction
than the Company's earnings per share would otherwise have been if such
transaction had not been effected; or
(vi) effect (x) any sale or other conveyance of all or substantially
all of the assets of the Corporation, or (y) any merger, consolidation or other
business combination unless the stockholders of the Corporation immediately
before such transaction own, directly or indirectly, immediately after the
consummation of such transaction, at least 50% of the voting power of the
surviving or purchasing entity (on an as-converted basis), provided, however,
-------- -------
the provisions of this Section C.4(c)(vi) shall not
10
apply and the holders of the Series A Preferred Stock shall not be entitled to
vote as a separate class with respect to any such transaction if the holders of
the Series A Preferred Stock will receive an amount equal to at least $306.00
per outstanding share of Series A Preferred Stock (subject to adjustment under
Section C.3(e)) in connection with such transaction; or
(vii) incur any funded indebtedness if as a result of such
transaction, the total indebtedness of the Corporation after the transaction
exceeds three and one-half (3.5) times the Corporation's EBITDA, computed on a
pro forma basis, for the most recent trailing twelve (12) month period ending on
the last day of the month immediately preceding the proposed closing of such
transaction.
For purposes of this Section C.4(c), "EBITDA" shall be defined as net
------
profit before taxes plus interest expense (net of capitalized interest expense),
depreciation expense and amortization expense, ignoring the effects of all
extraordinary gains or losses, all determined in accordance with generally
accepted accounting principles.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed this ___ day of April, 2001.
ENCORE MEDICAL CORPORATION
By: ______________________________
Name: ______________________________
Its: ______________________________
11
EXHIBIT B
ENCORE MEDICAL CORPORATION
INVESTORS' RIGHTS AGREEMENT
This Investors' Rights Agreement (this "Agreement") is made and entered
into as of the ___ day of June, 2001 by and among Encore Medical Corporation, a
Delaware corporation (the "Company"), and the persons identified on Exhibit A
attached hereto (the "Investors").
RECITALS
WHEREAS, the Investors are parties to the Series A Preferred Stock Purchase
Agreement dated as of May 3, 2001 between the Company and the Investors (the
"Series A Agreement"), and certain of the Company's and the Investors'
obligations under the Series A Agreement are conditioned upon the execution and
delivery by the Investors and the Company of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; REGISTRATION RIGHTS.
1.1 Certain Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below:
(a) "Affiliate" shall have the same meaning given to such term in the
Series A Agreement.
(b) "Closing" shall mean the date of the initial sale of shares of the
Company's Series A Preferred Stock.
(c) "Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
(d) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
(e) "Holder" shall mean any Investor who holds Registrable Securities
and any holder of Registrable Securities to whom the registration rights
conferred by this Agreement have been transferred in compliance with Section 1.2
and Section 1.12 hereof.
(f) "Initiating Holders" shall mean any Holder or Holders who in the
aggregate hold more than fifty percent (50%) of the outstanding Registrable
Securities.
(g) "Investors" shall mean persons who purchased Shares pursuant to the
Series A Agreement.
(h) "Material Adverse Effect" shall mean a material adverse effect upon
the business, assets, financial condition, income or prospects of the Company.
(i) "Other Stockholders" shall mean persons other than Holders who, by
virtue of agreements with the Company, are entitled to include their securities
in certain registrations hereunder.
(j) "Registrable Securities" shall mean (i) shares of Common Stock
issued or issuable pursuant to the conversion of the Shares, and (ii) any Common
Stock issued as a dividend or other distribution with respect to or in exchange
for or in replacement of the shares referenced in clause (i) above, provided,
however, that Registrable Securities shall not include any shares of Common
Stock which have previously been registered or which have been sold to the
public either pursuant to a registration statement or Rule 144, or which have
been sold in a private transaction in which the transferor's rights under this
Agreement are not assigned.
(k) The terms "register," "registered" and "registration" shall refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
(l) "Registration Expenses" shall mean all expenses incurred in
effecting any registration pursuant to this Agreement, including, without
limitation, all registration, qualification, and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, blue sky fees
and expenses, and expenses of any regular or special audits incident to or
required by any such registration, but shall not include Selling Expenses, fees
and disbursements of counsel for the Holders and the compensation of regular
employees of the Company, which shall be paid in any event by the Company.
(m) "Restricted Securities" shall mean any Registrable Securities
required to bear the legend set forth in Section 1.2(b) hereof.
(n) "Rule 144" shall mean Rule 144 as promulgated by the Commission
under the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
(o) "Rule 145" shall mean Rule 145 as promulgated by the Commission
under the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
(p) "Securities Act" shall mean the Securities Act of 1933, as amended,
or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
2
(q) "Selling Expense" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the sale of Registrable
Securities and fees and disbursements of counsel for any Holder (other than the
fees and disbursements of counsel included in Registration Expenses).
(r) "Shares" shall mean the Company's Series A Preferred Stock par value
$.001 per share.
1.2 Restrictions on Transfer.
(a) Each Holder agrees not to make any disposition of all or any portion
of the Registrable Securities unless and until the transferee has agreed in
writing for the benefit of the Company to be bound by this Section 1.2, provided
and to the extent such Section is then applicable, and:
(i) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
(ii) (A) Such Holder shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and
(B) if reasonably requested by the Company, such Holder shall have
furnished the Company with an opinion of counsel, reasonably satisfactory
to the Company, that such disposition will not require registration of such
shares under the Securities Act. It is agreed that the Company will not
require opinions of counsel for transactions made pursuant to Rule 144
except in unusual circumstances.
Notwithstanding the provisions of paragraphs (i) and (ii) above, no such
registration statement or opinion of counsel shall be necessary for a transfer
by a Holder which is (A) a partnership to its partners or retired partners in
accordance with partnership interests, (B) a corporation to its shareholders in
accordance with their interest in the corporation, (C) a limited liability
company to its members or former members in accordance with their interest in
the limited liability company, or (D) to the Holder's family member or trust for
the benefit of an individual Holder or for the benefit of a Holder's family
member, provided the transferee will be subject to the terms of this Section 1.2
to the same extent as if such transferee were an original Holder hereunder.
(b) Each certificate representing Registrable Securities shall (unless
otherwise permitted by the provisions of this Agreement) be stamped or otherwise
imprinted with a legend substantially similar to the following (in addition to
any legend required under applicable state securities laws):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT Of 1933, AS AMENDED, AND MAY NOT BE SOLD OR
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND
3
UNTIL REGISTERED UNDER SUCH ACT OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL OR OTHER EVIDENCE, SATISFACTORY TO THE COMPANY AND
ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
(c) The Company shall be obligated to reissue promptly unlegended
certificates at the request of any Holder thereof if the Holder shall have
obtained an opinion of counsel at such Holder's expense (which counsel may be
counsel to the Company) reasonably acceptable to the Company to the effect that
the securities proposed to be disposed of may lawfully be so disposed of without
registration, qualification or legend.
(d) Any legend endorsed on an instrument pursuant to applicable state
securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an order of the
appropriate blue sky authority authorizing such removal.
1.3 Requested Registration.
(a) Request for Registration. If the Company shall receive from
Initiating Holders at any time or times not earlier than April 30, 2002, a
written request that the Company effect any registration with respect to all or
a part of the Registrable Securities, the Company will:
(i) promptly, and in any event no later than ten (10) days of
the receipt of such written request; give written notice of the proposed
registration to all other Holders; and
(ii) as soon as practicable, use its best efforts to effect such
registration (including, without limitation, filing post-effective
amendments, appropriate qualifications under applicable blue sky or other
state securities laws, and appropriate compliance with the Securities Act)
to permit or facilitate the sale and distribution of all or such portion of
such Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any Holder or Holders
joining in such request as are specified in a written request received by
the Company within twenty (20) days after such written notice from the
Company is mailed or delivered.
The Company shall not be obligated to effect, or to take any action to
effect, any such registration pursuant to this Section 1.3:
(A) In any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting
such registration, qualification, or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be
required by the Securities Act;
(B) After the Company has initiated two (2) such registrations
pursuant to this Section 1.3(a) (counting for these purposes only
registrations which have been declared or ordered effective and pursuant to
which securities have been sold and registrations which have been withdrawn
by the Holders as to which the
4
Holders have not elected to bear the Registration Expenses pursuant to
Section 1.5 hereof and would, absent such election, have been required to
bear such expenses);
(C) During the period starting with the date sixty (60) days
prior to the Company's good faith estimate of the date of filing of, and
ending on a date one hundred eighty (180) days after the effective date of,
a Company-initiated registration; provided that the Company is actively
employing in good faith all reasonable efforts to cause such registration
statement to become effective; or
(D) If the Initiating Holders propose to dispose of shares of
Registrable Securities which may be immediately registered on Form S-3
pursuant to a request made under Section 1.6 hereof.
(b) Subject to the foregoing clauses (A) through (D), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable, and in any event no later than forty-
five (45) days, after receipt of the request or requests of the Initiating
Holders; provided, however, that if (i) in the good faith judgment of the Board
of Directors of the Company, such registration would be seriously detrimental to
the Company and the Board of Directors of the Company concludes, as a result,
that it is essential to defer the filing of such registration statement at such
time, and (ii) the Company shall furnish to the Initiating Holders a certificate
signed by the Chief Executive Officer of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company for such registration statement to be filed in the
near future and that it is, therefore, essential to defer the filing of such
registration statement, then the Company shall have the right to defer such
filing (except as provided in clause (C) above) for a period of not more than
one hundred thirty-five (135) days after receipt of the request of the
Initiating Holders, and, provided further, that the Company shall not defer its
obligation in this manner more than once in any twelve-month period.
The registration statement filed pursuant to the request of the
Initiating Holders may, subject to the provisions of Sections 1.3(d) and 1.14
hereof, include other securities of the Company, with respect to which
registration rights have been granted, and may include securities of the Company
being sold for the account of the Company.
(c) Participation. A Holder may elect to include in any registration and
underwriting, if applicable, all or a part of the Registrable Securities he
holds.
(d) Procedures. If (i) the Company shall request inclusion in any
registration pursuant to this Section 1.3 of securities being sold for its own
account, or if other persons shall request inclusion in any registration
pursuant to this Section 1.3 and (ii) the Initiating Holders request that
pursuant to this Section 1.3, Registrable Securities be registered pursuant to
an underwriting, the Initiating Holders shall, on behalf of all Holders, offer
to include such securities in the underwriting and may condition such offer on
their acceptance of the further applicable provisions of this Article 1
(including Section 1.13). The Company shall (together with all Holders and other
persons proposing to distribute their securities through such underwriting)
5
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters selected for such underwriting by a majority
in interest of the Initiating Holders, which underwriters are reasonably
acceptable to the Company. Notwithstanding any other provision of this Section
1.3, if the representative of the underwriters advises the Initiating Holders in
writing that marketing factors require a limitation on the number of shares to
be underwritten, then the number of such shares to be included in the
underwritten public offering shall be reduced, and shares shall be excluded from
such underwritten public offering in a number deemed necessary by such
underwriters, first by excluding shares held by the Company, directors,
officers, employees and founders of the Company, and then, to the extent
necessary, by excluding Registrable Securities in accordance with the allocation
provisions contained in Section 1.13.
(e) If a person who has requested inclusion in such registration as
provided above does not agree to the terms of any such underwriting, such person
shall be excluded therefrom by written notice from the Company, the underwriter
or the Initiating Holders. Any Registrable Securities or other securities so
excluded or withdrawn from such underwriting shall also be withdrawn from such
registration. If shares are so withdrawn from the registration and if the number
of shares to be included in such registration was previously reduced as a result
of marketing factors pursuant to this Section 1.3(d), then the Company shall
offer to all Holders who have retained rights to include securities in the
registration the right to include additional securities in the registration in
an aggregate amount equal to the number of shares so withdrawn, with such shares
to be allocated among such Holders requesting additional inclusion in accordance
with Section 1.13.
1.4 Company Registration.
(a) If the Company shall determine to register any of its securities
either for its own account or the account of a security holder or holders
exercising their respective demand registration rights (other than pursuant to
Section 1.3 or 1.6 hereof), other than a registration relating solely to
employee benefit plans on Form X-0, Xxxx X-0 or any successor Forms or a
registration relating to a corporate reorganization or other transaction on Form
S-4 or any successor to Form S-4, or a registration on any registration form
that does not permit secondary sales, the Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) use its best efforts to include in such registration (and
any related qualification under blue sky laws or other compliance), except
as set forth in Section 1.4(b) below, and in any underwriting involved
therewith, all the Registrable Securities specified in a written request or
requests, made by any Holder and received by the Company within ten (10)
days after the written notice from the Company described in clause (i)
above is mailed or delivered by the Company. Such written request may
specify all or a part of a Holder's Registrable Securities.
(b) Underwriting. If the registration of which the Company gives notice
is for a registered public offering involving an underwriting, the Company shall
so advise the Holders as
6
a part of the written notice given pursuant to Section 1.4(a)(i). In such event,
the right of any Holder to registration pursuant to this Section 1.4 shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Company and the other holders
of securities of the Company with registration rights to participate therein
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by the Company.
Notwithstanding any other provision of this Section 1.4, if the
representative of the underwriters advises the Company in writing that marketing
factors require a limitation on the number of shares to be underwritten, the
representative may (subject to the limitations set forth below) exclude all
Registrable Securities from, or limit the number of Registrable Securities to be
included in, the registration and underwriting. The Company shall so advise all
holders of securities requesting registration, and the number of shares of
securities that are entitled to be included in the registration and underwriting
shall be allocated first to the Company for securities being sold for its own
account and thereafter as set forth in Section 1.13.
If any person does not agree to the terms of any such underwriting, he
shall be excluded therefrom by written notice from the Company or the
underwriter. Any Registrable Securities or other securities so excluded from
such underwriting shall be withdrawn from such registration. If shares are so
withdrawn from the registration and if the number of shares of Registrable
Securities to be included in such registration was previously reduced as a
result of marketing factors, the Company shall then offer to all persons who
have retained the right to include securities in the registration the right to
include additional securities in the registration in an aggregate amount equal
to the number of shares so withdrawn, with such shares to be allocated among the
persons requesting additional inclusion in accordance with Section 1.13 hereof.
1.5 Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Sections 1.3, 1.4 and 1.6 hereof and reasonable fees of one counsel for the
selling stockholders in the case of registrations pursuant to Section 1.3 and
1.6 shall be borne by the Company; provided, however, that if the Holders bear
the Registration Expenses for any registration proceeding begun pursuant to
Section 1.3 and subsequently withdrawn by the Holders registering shares
therein, such registration proceeding shall not be counted as a requested
registration pursuant to Section 1.3 hereof. Furthermore, in the event that a
withdrawal by the Holders is based upon material adverse information relating to
the Company that is different from the information known or available (upon
request from the Company or otherwise) to the Holders requesting registration at
the time of their request for registration under Section 1.3, such registration
shall not be treated as a counted registration for purposes of Section 1.3
hereof, even though the Holders do not bear the Registration Expenses for such
registration. All Selling Expenses relating to securities so registered shall be
borne by the holders of such securities pro rata on the basis of the number of
shares of securities so registered on their behalf, as shall any other expenses
in connection with the registration required to be borne by the Holders of such
securities.
7
1.6 Registration on Form S-3.
(a) If the Company qualifies for the use of Form S-3, in addition to the
rights contained in the foregoing provisions of this Article 1, the Holders of
Registrable Securities shall have the right to request registrations on Form S-3
(such requests shall be in writing and shall state the number of shares of
Registrable Securities to be disposed of and the intended methods of disposition
of such shares by such Holder or Holders), provided, however, that any such
request must be made by Holders who in the aggregate hold more than ten percent
(10%) of the outstanding Registrable Securities, provided, further, that the
Company shall not be obligated to effect any such registration (i) if the
Holders, together with the holders of any other securities of the Company
entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) on Form S-3 at an aggregate price
to the public of less than $1,000,000, (ii) in the circumstances described in
clauses (A) and (C) of Section 1.3(a), (iii) if the Company shall furnish the
certification described in Section 1.3(b) (but subject to the limitations set
forth therein) or (iv) if, in a given twelve month period, the Company has
effected one such registration in such period.
(b) If a request complying with the requirements of Section 1.6(a)
hereof is delivered to the Company, the provisions of Sections 1.3(a)(i) and
(ii) and Section 1.3(b) hereof shall apply to such registration. If the
registration is for an underwritten offering, the rights of any Holder to
registration pursuant to this Section 1.6 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless mutually agreed by a majority
in interest of the Initiating Holders and such Holder with respect to such
participation and inclusion) to the extent provided herein and the provisions of
Section 1.3(d) hereof shall apply to such registration. A Holder may elect to
include in such underwriting all or a part of the Registrable Securities he
holds.
1.7 Registration Procedures. In the case of each registration effected
by the Company pursuant to Section 1, the Company will keep each Holder advised
in writing as to the initiation of each registration and as to the completion
thereof. At its expense, the Company will use its best efforts to:
(a) Keep such registration effective for a period of one hundred twenty
(120) days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs; provided, however, that (i) such 120-day period shall be extended for a
period of time equal to the period the Holder refrains from selling any
securities included in such registration at the request of an underwriter of
Common Stock (or other securities) of the Company; and (ii) in the case of any
registration of Registrable Securities on Form S-3 which are intended to be
offered on a continuous or delayed basis, such 120-day period shall be extended,
if necessary, to keep the registration statement effective until all such
Registrable Securities are sold, however in no event longer than one year from
the effective date of the registration statement and provided that Rule 145, or
any successor rule under the Securities Act, permits an offering on a continuous
or delayed basis, and provided further that applicable rules under the
Securities Act governing the obligation to file a post-effective amendment
permit, in lieu of filing a post-effective amendment, that (I) includes any
prospectus required by Section 10(a)(3) of the Securities Act, or (II) reflects
facts or events representing a material or fundamental change in the information
set forth in the registration statement, the incorporation by reference of
information required to be included in (I) and (II) above to be
8
contained in periodic reports filed pursuant to Section 13 or 15(d) of the
Exchange Act in the registration statement;
(b) Prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement;
(c) Furnish such number of prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus, as a Holder
from time to time may reasonably request;
(d) Notify each seller of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes 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 or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading or
incomplete in the light of the circumstances then existing;
(e) Cause all such Registrable Securities registered pursuant hereunder
to be listed on each securities exchange on which similar securities issued by
the Company are then listed;
(f) Use its best efforts to register and qualify the securities covered
by such registration statement under such other securities or Blue Sky laws of
such jurisdictions as shall be reasonably requested by the Holders, provided
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions;
(g) Use its best efforts to furnish, at the request of any underwriter
on the date that such Registrable Securities are delivered to the underwriters
for sale in connection with a registration pursuant to this Section 1, (i) an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the underwriters,
and (ii) a letter dated such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters;
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant to such registration statement and a CUSIP number
for all such Registrable Securities, in each case not later than the effective
date of such registration; and
9
(i) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 1.3 hereof, the Company will
enter into an underwriting agreement in form reasonably necessary to effect the
offer and sale of Common Stock, provided such underwriting agreement contains
reasonable and customary provisions.
1.8 Indemnification.
(a) The Company will indemnify each Holder, each of its officers,
directors and partners, legal counsel, and accountants and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
with respect to which registration, qualification, or compliance has been
effected pursuant to this Article 1, and each underwriter, if any, and each
person who controls within the meaning of Section 15 of the Securities Act any
underwriter, against all expenses, claims, losses, damages, and liabilities (or
actions, proceedings, or settlements in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular, or other document (including any
related registration statement, notification, or the like) incident to any such
registration, qualification, or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any rule or regulation thereunder applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification, or compliance, and will
reimburse each such Holder, each of its officers, directors, partners, legal
counsel, and accountants and each person controlling such Holder, each such
underwriter, and each person who controls any such underwriter, for any legal
and any other expenses reasonably incurred in connection with investigating and
defending or settling any such claim, loss, damage, liability, or action,
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability, or expense rises out of or is based on
any untrue statement or omission based upon written information furnished to the
Company by such Holder or underwriter and stated to be specifically for use
therein. It is agreed that the indemnity agreement contained in this Section
1.8(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability, or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld).
(b) Each Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such registration, qualification, or
compliance is being effected, indemnify the Company, each of its directors,
officers, partners, legal counsel, and accountants and each underwriter, if any,
of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of
Section 15 of the Securities Act, each other such Holder and Other Stockholder,
and each of their officers, directors, and partners, and each person controlling
such Holder or Other Stockholder, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular, or other
document, 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, and will reimburse the Company and such Holders, other Stockholders,
directors, officers, partners, legal counsel, and accountants, persons,
10
underwriters, or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability, or action, in each case to the extent, but only to the
extent, that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement, prospectus, offering
circular, or other document in reliance upon and in conformity with written
information furnished to the Company by such Holder (with respect to such
Holder) and stated to be specifically for use therein provided, however, that
the obligations of such Holder hereunder shall not apply to amounts paid in
settlement of any such claims, losses, damages, or liabilities (or actions in
respect thereof) if such settlement is effected without the consent of such
Holder (which consent shall not be unreasonably withheld); and provided that in
no event shall any indemnity under this Section 1.8 exceed the gross proceeds
from the offering received by such Holder.
(c) Each party entitled to indemnification under this Section 1.8 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
be unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 1.8, to the extent such
failure is not prejudicial. Notwithstanding the foregoing, any Indemnified Party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the Indemnified Party unless (i) the Indemnified
Party shall have been advised by counsel that representation of the Indemnified
Party by counsel provided by the Indemnifying Party would be inappropriate due
to actual or potential conflicting interests between the Indemnifying Party and
the Indemnified Party, including situations in which there are one or more legal
defenses available to the Indemnified Party that are different from or
additional to those available to the Indemnifying Party, (ii) the Indemnifying
Party shall have authorized in writing the employment of counsel for the
Indemnified Party at the expense of the Indemnifying Party, or (iii) the
Indemnifying Party shall have failed to assume the defense or retain counsel
reasonably satisfactory to the Indemnified Party. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an Indemnifying
Party may reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 1.8 is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the Indemnifying Party, in lieu of indemnifying such
11
Indemnified Party hereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party on the one hand and of the Indemnified Party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of 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 to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission. In no event shall any contribution by a Holder under this
Section 1.8(d) exceed the net proceeds from the offering received by such
Holder.
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in any underwriting agreement entered
into in connection with the underwritten public offering of Registrable
Securities are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.
(f) This Section 1.8 shall survive the completion of any offering of
Registrable Securities in a registration statement under this Section 1, and
otherwise.
1.9 Information by Holder. Each Holder of Registrable Securities shall
furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification, or compliance referred to in this Section 1.
1.10 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission that may permit the sale of the
Restricted Securities to the public without registration, the Company agrees to
use its best efforts to:
(a) Make and keep public information regarding the Company available as
those terms are understood and defined in Rule 144 under the Securities Act, at
all times from and after the date hereof;
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) So long as a Holder owns any Restricted Securities, furnish to the
Holder forthwith upon written request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144, and of the
Securities Act and the Exchange Act, a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents so filed
as a Holder may reasonably request in availing itself of any rule or regulation
of the Commission allowing a Holder to sell any such securities without
registration.
1.11 Transfer or Assignment of Registration Rights. The rights to cause
the Company to register securities granted to a Holder by the Company under this
Article 1 may be transferred or
12
assigned by a Holder only to its partners and Affiliates, provided that the
Company is given written notice at the time of or within a reasonable time after
said transfer or assignment, stating the name and address of the transferee or
assignee and identifying the securities with respect to which such registration
rights are being transferred or assigned, and, provided further, that the
transferee or assignee of such rights assumes in writing the obligations of such
Holder under this Section 1.
1.12 "Market Stand-Off" Agreement. If requested by an underwriter of
Common Stock (or other securities) of the Company, a Holder shall not sell or
otherwise transfer or dispose of any Common Stock (or other securities) of the
Company held by such Holder (other than those included in the registration)
during the one hundred eighty (180) day period following the effective date of a
registration statement of the Company filed under the Securities Act; provided,
however, that this Section 1.12 shall not apply unless all officers and
directors of the Company and other Investors holding five percent (5%) of the
Shares enter into similar agreements.
The obligations described in this Section 1.12 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a transaction on Form S-4 or similar forms that may be
promulgated in the future. The Company may impose stop-transfer instructions
with respect to the shares of Common Stock (or other securities) subject to the
foregoing restriction until the end of such one hundred eighty (180) day period.
1.13 Allocation of Registration Opportunities. In any circumstance in
which all of the Registrable Securities and other shares of Common Stock of the
Company (including shares of Common Stock issued or issuable upon conversion of
shares of any currently unissued series of Preferred Stock of the Company) with
registration rights (the "Other Shares") requested to be included in a
registration on behalf of the Holders or other selling stockholders cannot be so
included as a result of limitations of the aggregate number of shares of
Registrable Securities and Other Shares that may be so included, the number of
shares of Registrable Securities and Other Shares that may be so included shall
be allocated among the Holders and other selling stockholders requesting
inclusion of shares pro rata on the basis of the number of shares of Registrable
Securities and Other Shares that would be held by such Holders and other selling
stockholders, assuming conversion; provided, however, that such allocation shall
not operate to reduce the aggregate number of Registrable Securities and Other
Shares to be included in such registration, if any Holder or other selling
stockholder does not request inclusion of the maximum number of shares of
Registrable Securities and Other Shares allocated to him pursuant to the above-
described procedure, in which case the remaining portion of his allocation shall
be reallocated among those requesting Holders and other selling stockholders
whose allocations did not satisfy their requests pro rata on the basis of the
number of shares of Registrable Securities and Other Shares which would be held
by such Holders and other selling stockholders, assuming conversion, and this
procedure shall be repeated until all of the shares of Registrable Securities
and Other Shares which may be included in the registration on behalf of the
Holders and other selling stockholders have been so allocated. The Company shall
not limit the number of Registrable Securities to be included in a registration
pursuant to this Agreement in order to include shares held by stockholders with
no registration rights or to include shares of stock issued to employees,
officers, directors, or consultants pursuant to the Company's stock option or
13
similar compensation plan, or in the case of registrations under Sections 1.3 or
1.6 hereof, in order to include in such registration securities registered for
the Company's own account.
1.14 Delay of Registration. No Holder shall have any right to take any
action to restrain, enjoin, or otherwise delay any registration as the result of
any controversy that might arise with respect to the interpretation or
implementation of this Article 1.
1.15 Termination of Registration Rights.
(a) Except as set forth in subparagraph (b) below, the right of any
Holder to request registration or inclusion in any registration pursuant to
Section 1.3, 1.4 or 1.6 shall terminate if all shares of Registrable Securities
held or entitled to be held upon conversion by such Holder may immediately be
sold under Rule 144 during any 90-day period.
(b) The provisions of subparagraph (a) above shall not apply to any
Holder who owns more than one percent (1%) of the Company's outstanding stock
until such time as such Holder owns less than one percent (1%) of the
outstanding stock of the Company.
2. COVENANTS OF THE COMPANY.
The Company hereby covenants and agrees, so long as any Holder owns any
Registrable Share, as follows:
2.1 Basic Financial Information. The Company will furnish the following
reports to each Holder who, together with its Affiliates, owns at least twenty
percent (20%) of the Shares issued pursuant to the Series A Agreement (each a
"Significant Holder"):
(a) As soon as practicable, and in any event, within ninety (90) days
after the end of each fiscal year of the Company, a consolidated balance sheet
of the Company and its subsidiaries, if any, as at the end of such fiscal year,
and consolidated statements of income and cash flows of the Company and its
subsidiaries, if any, for such year, prepared in accordance with generally
accepted accounting principles consistently applied and certified by independent
public accountants of recognized national standing selected by the Company.
(b) As soon as practicable, and in any event, within forty-five (45)
days after the end of the first, second, and third quarterly accounting periods
in each fiscal year of the Company, a consolidated balance sheet of the Company
and its subsidiaries, if any, as of the end of each such period, and
consolidated statements of income and cash flows of the Company and its
subsidiaries, if any, for such period and for the current fiscal year to date,
prepared in accordance with generally accepted accounting principles
consistently applied and setting forth in comparative form the figures for the
corresponding periods of the previous fiscal year, subject to changes resulting
from normal year-end audit adjustments, except that such financial statements
need not contain the notes required by generally accepted accounting principles.
14
2.2 Additional Information and Rights.
(a) The Company will deliver the reports and information described below
in this Section 2.2 to each Significant Holder:
(i) As soon as practical after the end of each month and in any
event within thirty (30) days thereafter, a consolidated balance sheet of
the Company and its subsidiaries, if any, as at the end of such month and
consolidated statements of income and cash flows of the Company and its
subsidiaries, for each month and for the current fiscal year of the Company
to date, all subject to normal year-end audit adjustments, prepared in
accordance with generally accepted accounting principles consistently
applied, together with a comparison of such statements to the corresponding
periods of the prior fiscal year, subject to changes resulting from normal
year-end audit adjustments, except that such financial statements need not
contain the notes required by generally accepted accounting principles.
(ii) Annually (and in any event no later than ten (10) days
after adoption by the Board of Directors of the Company) the budget of the
Company, in the form approved by its Board of Directors, which operating
plan shall include at least a projection of income and a projected cash
flow statement for each fiscal quarter in such fiscal year, a projected
balance sheet as of the end of each fiscal quarter in such fiscal year and
proposed management incentives for the fiscal year (the "Budget").
(iii) With reasonable promptness, all press releases issued by
the Company or any subsidiary, any filings made with the Commission by the
Company or any subsidiary, and such other data and information as from time to
time may be reasonably requested by any Holder or such other data as the Company
may from time to time furnish to any of the holders of its securities.
(b) The provisions of Section 2.1 and this Section 2.2 shall not be in
limitation of any rights which any Holder or Significant Holder may have with
respect to the books and records of the Company and its subsidiaries, or to
inspect their properties or discuss their affairs, finances and accounts, under
the laws of the jurisdictions in which they are incorporated.
(c) Anything in Article 2 to the contrary notwithstanding, no Holder by
reason of this Agreement shall have access to any trade secrets or classified
information of the Company. Each Holder hereby agrees to hold in confidence and
trust and not to misuse or disclose any confidential information provided
pursuant to this Section 2.2. The Company shall not be required to comply with
this Section 2.2 in respect of any Holder whom the Company reasonably determines
to be, directly or indirectly, a competitor or an officer, employee, director or
greater than two percent (2%) stockholder of a competitor.
(d) In lieu of the financial information required pursuant to Section
2.1, copies of the Company's annual reports on Form 10-K and its quarterly
reports on Form 1O-Q, respectively, may be provided to the Significant Holders.
15
2.3 Right of First Refusal. The Company hereby grants to each Holder who
owns any Shares or any shares of Common Stock issued upon conversion of the
Shares the right of first refusal to purchase a pro rata share of New Securities
(as defined in this Section 2.3) which the Company may, from time to time,
propose to sell and issue. An Investor's pro rata share, for purposes of this
right of first refusal, is the ratio of the number of Shares purchased by such
Investor pursuant to the Series A Agreement, to the total number of Shares
issued pursuant to the Series A Agreement. Each Investor shall have a right of
over-allotment such that if any Investor fails to exercise its right hereunder
to purchase its pro rata share of New Securities, the other Investors may
purchase the non-purchasing Investor's portion on a pro rata basis within ten
(10) days from the date such non-purchasing Investor fails to exercise its right
hereunder to purchase its pro rata share of New Securities. This right of first
refusal shall be subject to the following provisions:
(a) "New Securities" shall mean any capital stock (including Common
Stock and/or Preferred Stock) of the Company whether now authorized or not, and
rights, options or warrants to purchase such capital stock, and securities of
any type whatsoever that are, or may become, convertible into capital stock;
provided, that, the term "New Securities" does not include (i) securities
purchased under the Series A Agreement; (ii) securities issued upon conversion
of the Shares; (iii) securities issued pursuant to the acquisition of another
business entity or business segment of any such entity by the Company by merger,
purchase of substantially all the assets or other reorganization whereby the
Company will own more than fifty percent (50%) of the voting power of such
business entity or business segment of any such entity; (iv) any borrowings,
direct or indirect, from financial institutions or other persons by the Company,
whether or not presently authorized, including any type of loan or payment
evidenced by any type of debt instrument; (v) securities issued to employees,
consultants, officers, directors or agents of the Company pursuant to any stock
option, stock purchase or stock bonus plan, agreement or arrangement approved by
the Board of Directors at any time; (vi) securities issued to vendors or
customers or to other persons in similar commercial situations with the Company
if such issuance is approved by the Board of Directors; (vii) securities issued
in connection with obtaining lease financing, whether issued to a lessor,
guarantor or other person; (viii) securities issued in a public offering
pursuant to a registration under the Securities Act; (ix) securities issued in
connection with any stock split, stock dividend or recapitalization of the
Company; (x) securities issued in connection with corporate partnering
transactions on terms approved by the Board of Directors; and (xi) any right,
option or warrant to acquire any security convertible into the securities
excluded from the definition of New Securities pursuant to subsections (i)
through (x) above.
(b) In the event the Company proposes to undertake an issuance of New
Securities, it shall give each Holder written notice of its intention,
describing the type of New Securities, and their price and the general terms
upon which the Company proposes to issue the same. Each Holder shall have twenty
(20) days after any such notice is mailed or delivered to agree to purchase such
Holder's pro rata share of such New Securities for the price and upon the terms
specified in the notice by giving written notice to the Company and stating
therein the quantity of New Securities to be purchased.
(c) In the event the Holders fail to exercise fully the right of first
refusal within such 20-day period and after the expiration of the 10-day period
for the exercise of the over-allotment
16
provisions of this Section 2.3, the Company shall have ninety (90) days
thereafter to sell or enter into an agreement (pursuant to which the sale of New
Securities covered thereby shall be closed, if at all, within ninety (90) days
from the date of said agreement) to sell the New Securities respecting which the
Holders' right of first refusal option set forth in this Section 2.3 was not
exercised, at a price and upon terms no more favorable to the purchasers thereof
than specified in the Company's notice to Holders pursuant to Section 2.3(b). In
the event the Company has not sold within such ninety (90) day period or sold
and issued New Securities in accordance with the foregoing within 90 days from
the date of such agreement, the Company shall not thereafter issue or sell any
New Securities, without first again offering such securities to the Holders in
the manner provided in Section 2.3(b) above.
(d) The right of first refusal granted under this Agreement shall expire
on May 2, 2002.
(e) The right of first refusal set forth in this Section 2.3 may not
be assigned or transferred, except that (i) such right is assignable by each
Holder to any Affiliate of such Holder, and (ii) such right is assignable
between and among any of the Holders.
2.4 Board of Directors. For so long as at least twenty-five percent
(25%) of the authorized Shares are outstanding, the Company's Board of Directors
shall maintain a Compensation Committee to be comprised of at least a majority
of outside directors, including one (1) member to be appointed by the holders of
a majority of the Shares.
2.5 Form S-3 Eligibility. The Company shall use its best efforts to
maintain its qualification for registration on Form S-3 or any comparable or
successor form or forms.
2.6 Key Executive Insurance. For a period of at least three (3) years
from the date of the Closing, the Company shall maintain key executive life
insurance policies with a financially sound and reputable insurer in the amount
of $3,000,000 covering the life of Xxxxxxx X. Xxxxxxxx, the proceeds of which
shall be payable to the Company. Such policies shall not be cancelable without
at least 30 days' written notice from the insurer to the Holders.
2.7 Employee Non-Competition, Confidentiality, Non-Solicitation and
Invention Agreements. For so long as at least twenty-five percent (25%) of the
authorized Shares are outstanding, the Company shall include non-competition,
confidentiality, non-solicitation and invention provisions reasonably acceptable
to the Holders in the employment agreement for each current and future officer
or key employee of the Company or any of its subsidiaries.
3. MISCELLANEOUS.
3.1 Governing Law. This Agreement shall be governed in all respects by
the laws of the State of Delaware, without regard to its conflicts of laws
principles.
3.2 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
17
3.3 Entire Agreement; Amendment; Waiver. This Agreement (including the
Exhibits hereto) constitutes the full and entire understanding and agreement
between the parties with regard to the subjects hereof. Neither this Agreement
nor any term hereof may be amended, waived, discharged or terminated, except by
a written instrument signed by the Company and the Initiating Holders and any
such amendment, waiver, discharge or termination shall be binding on all the
Holders.
3.4 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by United States
first-class mail, postage prepaid, sent by facsimile or delivered personally by
hand or nationally recognized courier addressed (a) if to a Holder, as indicated
on the list of Holders attached hereto as Exhibit A, or at such other address or
facsimile number as such holder or permitted assignee shall have furnished to
the Company in writing, or (b) if to the Company, at such address or facsimile
number as the Company shall have furnished to each Holder in writing. All such
notices and other written communications shall be effective on the date of
mailing, confirmed facsimile transfer or delivery.
3.5 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any Holder, upon any breach or default of the
Company under this Agreement shall impair any such right, power or remedy of
such Holder nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default therefore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any Holder of any breach or default under this Agreement or any
waiver on the part of any Holder of any provisions or conditions of this
Agreement must be made in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement or by law or otherwise afforded to any Holder, shall be cumulative and
not alternative.
3.6 Rights; Separability. Unless otherwise expressly provided herein, a
Holder's rights hereunder are several rights, not rights jointly held with any
of the other Holders. In case any provision of the Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
3.7 Information Confidential. Each Holder acknowledges that the
information received pursuant hereto may be confidential and for its use only,
and it will not use such confidential information in violation of the Exchange
Act or reproduce, disclose or disseminate such information to any other person
(other than its employees or agents having a need to know the contents of such
information, and its attorneys), except in connection with the exercise of
rights under this Agreement, unless the Company has made such information
available to the public generally or such Holder is required to disclose such
information by a governmental body.
3.8 Titles and Subtitles. The titles of the paragraphs and subparagraphs
of this Agreement are for convenience of reference only and are not to be
considered in construing or interpreting this Agreement.
18
3.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
19
IN WITNESS WHEREOF, the parties hereto have executed this Investors' Rights
Agreement effective as of the day and year first above written.
ENCORE MEDICAL CORPORATION
By:
Name: _________________________________
Title:
INVESTORS:
XXXXX PARTNERS III, L.P.
By: Claudius, L.L.C., its General Partner
By: ____________________________
Name:
Title:
XXXXX PARTNERS INTERNATIONAL III, L.P.
By: Claudius, L.L.C., its General Partner
By: ____________________________
Name:
Title:
XXXXX EMPLOYEE FUND III, L.P.
By: Wesson Enterprises, Inc., its General Partner
By: ____________________________
Name:
Title:
IVY ORTHOPEDIC PARTNERS, LLC
By: ____________________________
Name:
Title:
20
EXHIBIT A
INVESTORS:
Xxxxx Partners III, L.P.
000 Xxxxx Xxxxxx
(x) Xxx Xxxx, Xxx Xxxx 00000
Xxxxx Partners International III, L.P.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Xxxxx Employee Fund III, L.P.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Ivy Orthopedic Partners, LLC
Four Xxxxxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxx Xxxxxx 00000
