1
EXHIBIT 10.2
BIRCH TELECOM, INC.
THIS PURCHASERS RIGHTS AGREEMENT (this "Agreement") is made and entered
into as of February 10, 1998, by and among BIRCH TELECOM, INC., a Delaware
corporation (the "Company"), and the persons identified on Exhibit A attached
hereto (the "Purchasers").
RECITALS
WHEREAS, the Purchasers are parties to the Securities Purchase
Agreement, of even date herewith, between the Company and the Purchasers (the
"Securities Purchase Agreement");
WHEREAS, certain of the Company's and such Purchasers' obligations
under the Securities Purchase Agreement are conditioned upon the execution and
delivery by such Purchasers and the Company of this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties hereto further agree as follows:
1. CERTAIN DEFINITIONS.
Capitalized terms used herein and not otherwise defined shall have the
meaning ascribed thereto in the Securities Purchase Agreement. As used in this
Agreement, the following terms shall have the meanings set forth below:
(A) "Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
(B) "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.
(C) "Holder" shall mean any Purchaser 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 2.9 and Section
3 hereof.
(D) "Initiating Holders" shall mean any Holder or Holders who in the aggregate
hold at least fifty percent (50%)
1
2
of the outstanding Registrable Securities.
(E) "Key Management" shall mean Xxxxx X. Xxxxx, Xxxxxxx X. Xxxxxxxxxxx, Xxxx
X. Xxxxxxx, Xxxxx X. Xxxxxxxx, Xxxxxxx X. Xxxxxx, Xxxxxxx X. Xxxxxx, Xxxxxxx X.
Xxxxxx, Xxxxxxx X. Xxxxxxx, Xxxxxx X. Xxxxxxx and Xxxxxx X. Xxxxx and any other
employee of the Company designated by the Board of Directors, so long as such
individual remains an employee of the Company.
(F) "Management Group" shall mean Xxxxx X. Xxxxx, Xxxxxxx X. Xxxxxxxxxxx, Xxxx
X. Xxxxxxx, Xxxxx X. Xxxxxxxx, Xxxxxxx X. Xxxxxx and Xxxxxxx X. Xxxxxx so long
as such individual remains an employee of the Company.
(G) "Option Shares" shall mean the shares of Common Stock issued upon the
exercise of those stock options granted pursuant to Section 5.7 of the
Securities Purchase Agreement as increased pursuant to Section 8 of this
Agreement.
(H) "Other Purchasers" shall mean persons other than Holders who, by virtue of
agreements with the Company, are entitled to include their securities in certain
registrations hereunder.
(I) "Qualifying Public Offering" shall mean the closing of a firmly underwritten
public offering pursuant to an effective registration statement under the
Securities Act covering the offer and sale of Common Stock for the account of
the Company in which the gross proceeds to the Company (before underwriting
discounts, commissions and fees) are at least $30,000,000.
(J) "Registrable Securities" shall mean (i) the Common Shares; (ii) the shares
of Common Stock issuable upon the conversion of the Series B Preferred Stock and
Series C Preferred Stock, (iii) the shares of Common Stock issuable upon the
redemption of the Series B Preferred Stock; and (iv) the shares of Common Stock
issuable upon the conversion or redemption of the Series B Preferred Stock
issuable upon conversion of the Subordinated Notes; 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," "register" 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
2
3
Section 3.4 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.
(Q) "Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the sale of Registrable
Securities and fees and disbursements of one special counsel for the Holders
(other than the fees and disbursements of counsel included in Registration
Expenses).
2. REGISTRATION RIGHTS.
2.1 REQUESTED REGISTRATION
(A) REQUEST FOR REGISTRATION. If the Company shall receive from Initiating
Holders at any time after the earlier of (I) six years after the date of this
Agreement or (II) one year after the effective date of the first registration
statement filed by the Company pursuant to the Securities Act covering an
underwritten offering of any of its securities to the general public, 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 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) and as would 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)
calendar 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 2.1:
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
3
4
the Securities Act;
B. After the Company has initiated one such registration pursuant to this
Section 2.1(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
Holders have not elected to bear the Registration Expenses pursuant to Section
2.3 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;
(B) Subject to the foregoing clauses (A) through (C), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable 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 such
Holders a certificate signed by the President 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 eighty (180) 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 2.1(d), 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) UNDERWRITING. If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as part of their request made pursuant to Section 2.1 and the
Company shall include such information in the written notice referred to in
section 2.1(a)(i). In such event, the right of any Holder to registration
pursuant to Section 2.1 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting (unless otherwise 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. A Holder may elect to include in such
underwriting all or a part of the Registrable Securities such Holder holds.
(D) PROCEDURES. If the Company shall request inclusion in any registration
pursuant to Section 2.1 of securities being sold for its own account, or if
other persons shall request inclusion in any
4
5
registration pursuant to Section 2.1, 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 Section 2. The Company shall (together with all Holders and other persons
proposing to distribute their securities through such underwriting) 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 2.1, 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, the number of shares to be included in the underwriting or
registration shall be allocated: first, to the Holders of Registrable Securities
pro rata based on the number of shares of Registrable Securities for which
registration was requested; and second, to the Company for securities being sold
for its own account; and finally, to the holders of other securities of the
Company with registration rights pro rata based on the number of shares for
which registration was requested. The Company shall not limit the number of
Registrable Securities to be included in a registration statement pursuant to
this Section 2.1 in order to include shares held by Purchasers with no
registration rights or any other shares of stock issued to employees, officers,
directors or consultants pursuant to the Stock Option Plan, in order to include
in such registration securities registered for the Company's own account. 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, and the securities so excluded shall also be withdrawn from
registration. Any Registrable Securities or other securities 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 2.1(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
this Section 2.1(d).
2.2 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 2.1
hereof), other than a registration relating solely to employee benefit plans, or
a registration relating to a corporate reorganization or other transaction under
Rule 145, 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 2.2(b) below, and in any underwriting involved therein, all the
Registrable Securities specified in a written request or requests, made by any
5
6
Holder and received by the Company within ten (10) calendar 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 a part of the written notice given pursuant to Section
2.2(a)(i). In such event, the right of any Holder to registration pursuant to
this Section 2.2 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 Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected by the Company.
(C) Notwithstanding any other provision of this Section 2.2, 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; second, to the Holders of Registrable Securities pro rata based on the
number of shares of Registrable Securities for which registration was requested;
and finally, to the holders of other securities of the Company with registration
rights pro rata based on the number of Other Shares for which registration was
requested. 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 Purchasers with no registration rights or any other shares of
stock issued to employees, officers, directors, or consultants pursuant to the
Stock Option Plan, in order to include in such registration securities
registered for the Company's own account. 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 excluded or withdrawn from such underwriting shall be withdrawn from
such registration.
If shares are so withdrawn from the registration or 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 as set forth
above.
2.3 EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection
with any registration, qualification or compliance pursuant to Sections 2.1 and
2.2 hereof and reasonable fees of one counsel for the selling Holders shall be
borne by the Company; provided, however, that if the Holders bear the
Registration Expenses for any registration proceeding begun pursuant to Section
2.1 and subsequently withdrawn by the Holders registering shares therein, such
6
7
registration proceeding shall not be counted as a requested registration
pursuant to Section 2.1 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 2.1, such registration shall not be
treated as a counted registration for purposes of Section 2.1 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.
2.4 REGISTRATION PROCEDURES. In the case of each registration effected by the
Company pursuant to Section 2, 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 reasonable 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 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;
(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;
7
8
(F) 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;
(G) Otherwise use its best efforts to comply with all applicable rules and
regulations of the Commission, and make available to its security holders, as
soon as reasonably practicable, an earnings statement covering the period of at
least twelve months, but not more than eighteen months, beginning with the first
month after the effective date of the Registration Statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities Act;
and
(H) In connection with any underwritten offering pursuant to a registration
statement filed pursuant to Section 2.1 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 customary
underwriting provisions and provided further that if the underwriter so requests
the underwriting agreement will contain customary contribution provisions.
2.5 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
Section 2, 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 arises 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 2.5(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 has not been unreasonably withheld).
(B) Each Holder will, if Registrable Securities held by such Holder are included
in the securities as
8
9
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 Purchaser, and each of their officers, directors,
and partners, and each person controlling such Holder or Other Purchaser,
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 Purchasers, directors, officers, partners, legal
counsel, and accountants, persons, 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
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 2.5 exceed the gross proceeds
from the offering received by such Holder.
(C) Each party entitled to indemnification under this Section 2.5 (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
unreasonably be 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 2, to the extent such
failure is not prejudicial. 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 the defense of such claim and litigation resulting therefrom.
(D) If the indemnification provided for in this Section 2.5 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 Indemnified Party
9
10
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.
(E) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in connection with the underwritten public offering are in conflict with
the foregoing provisions, the provisions in the underwriting agreement shall
control.
2.6 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 2.
2.7 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. From and until four years
after the date of this Agreement, if the Company enters into any agreement with
any holder or prospective holder of any securities of the Company giving such
holder or prospective holder any registration rights the terms of which are more
favorable than the registration rights granted to the Holders hereunder, then
the Company shall give equivalent registration rights to the Holders.
2.8 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 reasonable 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 ninety (90) days following the effective date of the first
registration under the Securities Act filed by the Company for an offering of
its securities to the general public;
(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 at any
time after it has become subject to such reporting requirements;
(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 (at any time from and
after ninety (90) days following the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company,
10
11
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.
2.9 TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register securities granted to a Holder by the Company under this
Section 2 may be transferred or assigned by a Holder only to a transferee or
assignee of not less than 200,000 shares of Registrable Securities (as currently
constituted and subject to subsequent adjustments for stock splits, stock
dividends, reverse stock splits, and the like), provided that the Company is
given written notice prior to 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 Agreement.
2.10 "MARKET STAND-OFF" AGREEMENT. If requested by the Company and an
underwriter of securities of the Company, a Purchaser shall not sell or
otherwise transfer or dispose of any securities of the Company held by such
Purchaser (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 that:
(A) such agreement shall only apply to the first such registration statement of
the Company, including securities to be sold on its behalf to the public in an
underwritten offering; and
(B) all officers and directors of the Company are bound by and have entered into
similar agreements.
The obligations described in this Section 2.10 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 Commission Rule 145 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 said one
hundred eighty (180) day period.
2.11 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 Section 2.
3. RESTRICTIONS ON TRANSFER
3.1 TRANSFER. No Purchaser will, voluntarily or involuntarily, directly or
indirectly, sell, transfer, assign, donate, pledge or otherwise encumber or
dispose of any interest in all or any portion of the Securities or Option Shares
(a "Transfer") except pursuant to an Exempt Transfer.
3.2 EXEMPT TRANSFER. The restrictions contained in this Section 3 will not apply
to any Transfer which is one of the following "Exempt Transfers":
(A) the Transfer by a partnership to its partners or retired partners in
accordance with partnership
11
12
interests;
(B) the Transfer by a corporation to its shareholders in accordance with their
interest in the corporation;
(C) the Transfer by a limited liability company to its members in accordance
with their interest in the limited liability company;
(D) the Transfer by a Purchaser to such Purchaser's spouse, lineal descendant,
father, mother, brother or sister ("Immediate Family");
(E) the Transfer by a Purchaser to a custodian or trustee for the account of
such Purchaser or such Purchaser's Immediate Family;
(F) a bona fide pledge or mortgage with a commercial lending institution that
creates a mere security interest; or
(G) pursuant to Sections 5, 6 or 7 of this Agreement.
3.3 SECURITIES LAWS. In addition to any other restriction on Transfer herein,
such Purchaser will not effect any Transfer until the transferee has agreed in
writing for the benefit of the Company to be bound by this Section 3, and:
(A) 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
(B) Such Purchaser 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 if reasonably requested
by the Company, such Purchaser 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; provided
however, that it is agreed that the Company will not require opinions of counsel
for transactions made pursuant to Rule 144 except in unusual circumstances.
3.4 LEGEND.
(A) Each certificate representing Securities shall (unless otherwise permitted
by the provisions of this Agreement) be stamped or otherwise imprinted with
legends substantially similar to the following (in addition to any legend
required under applicable state securities laws):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED TO EFFECTUATE
SUCH TRANSACTION.
12
13
THE SALE, TRANSFER OR PLEDGE OF THIS CERTIFICATE [OR THE SECURITIES ISSUED UPON
CONVERSION OF THIS CERTIFICATE] ARE SUBJECT TO THE TERMS AND CONDITIONS OF A
CERTAIN PURCHASER RIGHTS AGREEMENT BETWEEN THE COMPANY AND CERTAIN HOLDERS OF
ITS SECURITIES, AS THE SAME MAY BE AMENDED AND IN EFFECT FROM TIME TO TIME.
COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY
OF THE COMPANY.
(B) The Company shall be obligated to reissue promptly unlegended certificates
at the request of any Purchaser if the Purchaser shall have obtained an opinion
of counsel at such Purchaser'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.
3.5 IMPROPER TRANSFER. Any attempt to Transfer any Securities or Option Shares
which is not in accordance with this Agreement shall be null and void, and the
Company shall not give any effect to such attempted Transfer in the records of
the Company.
3.6 TERMINATION. The restrictions on the transfer of shares set forth in this
Section 3 shall terminate with respect to each security on the closing of a
Qualifying Public Offering.
4. PRE-EMPTIVE RIGHT
4.1 PRE-EMPTIVE RIGHT. The Company hereby grants to each Purchaser who owns
Series B Preferred Shares, Subordinated Notes or Series C Preferred Shares (such
Purchasers referred to as the "Pre-Emptive Purchasers") the right to purchase a
pro rata portion of New Securities (as defined in Section 4.2) which the Company
may, from time to time, propose to sell and issue (the "Pre-Emptive Right").
Such Pre-Emptive Purchaser's pro rata share for purposes of this Pre-Emptive
Right is the ratio of the number of shares of Common Stock owned by such
Pre-Emptive Purchaser (on an as-converted, as-exercised basis) immediately prior
to the issuance of New Securities, to the total number of shares of Common Stock
outstanding immediately prior to the issuance of New Securities, assuming full
conversion of all securities and full exercise of all outstanding rights,
options and warrants to acquire Common Stock of the Company. Each Pre-Emptive
Purchaser exercising their portion of the Pre-Emptive Right in full (an
"Exercising Pre-Emptive Purchaser") shall have a right of over-allotment such
that if any other Pre-Emptive Purchaser fails to exercise its right hereunder to
purchase its pro rata share of New Securities (a "Non-Purchasing Pre-Emptive
Purchaser"), such Exercising Pre-Emptive Purchaser may purchase such portion, on
a pro rata basis, by giving written notice to the Company within ten (10)
calendar days from the date that the Company provides written notice of the
amount of New Securities such Non-Purchasing Pre-Emptive Purchaser have failed
to exercise its Right hereunder. This Pre-Emptive Right shall be subject to the
following provisions of this Section 4.
4.2 NEW SECURITIES. "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
13
14
(i) securities purchased under the Securities Purchase Agreement or issued
pursuant to the Merger; (ii) securities issuable upon conversion or exercise of
the securities purchased under the Securities Purchase Agreement or issued
pursuant to the Merger; (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 currently authorized, including any type of loan or payment
evidenced by any type of debt instrument, provided such borrowings do not have
any equity features including warrants, options or other rights to purchase
capital stock and are not convertible into capital stock of the Company; (v)
securities issued to employees, consultants, officers or directors of the
Company pursuant to the Stock Option Plan, or any stock option, stock purchase
or stock bonus plan, agreement or arrangement approved by the Board of
Directors; (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) 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 (ix) above.
4.3 NOTICE. In the event the Company proposes to undertake an issuance of New
Securities, it shall give each Pre-Emptive Purchaser 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 such
Pre-Emptive Purchaser shall have twenty (20) calendar days after any such notice
is mailed or delivered to agree to purchase such Pre-Emptive Purchaser'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.
4.4 SELLING PERIOD. In the event any Pre-Emptive Purchaser or Exercising
Pre-Emptive Purchaser fails to exercise fully the Pre-Emptive Right within said
twenty (20) day period and after the expiration of the 10-day period for the
exercise of the over-allotment provisions of Section 4.1, the Company shall have
one hundred twenty (120) calendar 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 one hundred twenty (120) calendar days from the date
of said agreement) to sell the New Securities respecting which any Pre-Emptive
Purchasers' or Exercising Pre-Emptive Purchasers' Pre-Emptive Right option set
forth in this Section 4 was not exercised, at a price and upon terms no more
favorable to the purchasers thereof than specified in the Company's notice to
the Pre-Emptive Purchasers pursuant to Section 4.3. In the event the Company has
not sold within said 120-day period or entered into an agreement to sell the New
Securities in accordance with the foregoing within said 120-day period from the
date of said agreement, the Company shall not thereafter issue or sell any New
Securities, without first again offering such securities to the Pre-Emptive
Purchasers in the manner provided in Section 4.3 above.
14
15
4.5 TERMINATION OF PRE-EMPTIVE RIGHT. The Pre-Emptive Right granted under this
Agreement shall expire upon, and shall not be applicable to, the first sale of
securities of the Company to the public effected pursuant to a registration
statement filed with, and declared effective by, the Commission under the
Securities Act.
4.6 TRANSFER OF PRE-EMPTIVE RIGHT. The Pre-Emptive Right set forth in this
Section 4 may be transferred or assigned by a Pre-Emptive Purchaser only to a
transferee or assignee of not less than 200,000 Series B Preferred Shares or
200,000 Series C Preferred Shares (in each case, as currently constituted and
subject to subsequent adjustments for stock splits, stock dividends, reverse
stock splits, and the like) or $320,000 aggregate principal amount of the
Subordinated Notes, provided that the Company is given written notice prior to
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
Pre-Emptive Purchaser under this Agreement.
5. RIGHT OF FIRST REFUSAL.
5.1 RIGHT OF FIRST REFUSAL. No Purchaser shall sell, assign, pledge, or in any
manner transfer any shares of capital stock of the Company (whether now owned or
hereafter acquired) or any right or interest therein, whether voluntarily or by
operation of law, or by gift or otherwise, except as set forth herein:
(A) If Purchaser desires to sell or otherwise transfer any shares of capital
stock, then such Purchaser (the "Section 5 Selling Purchaser") shall give at
least thirty (30) calendar days written notice thereof to the Company and the
other Purchasers. The notice shall name the proposed transferee and state the
number of shares of capital stock to be transferred, the proposed consideration,
and all other terms and conditions of the proposed transfer.
(B) For twenty (20) calendar days following receipt of such notice, the Company
shall have the option but not the obligation to purchase all (but not less than
all) of the shares of capital stock specified in the notice at the price and
upon the terms set forth in such notice; provided, however, that, with the
consent of the Section 5 Selling Purchaser, the Company shall have the option to
purchase a lesser portion of the shares of capital stock specified in said
notice at the price and upon the terms set forth therein. In the event of a
gift, property settlement or other transfer in which the proposed transferee is
not paying the full price for the shares of capital stock, and that is not
otherwise exempted from the provisions of this Section 5.1, the price shall be
deemed to be the fair market value of the capital stock at such time as
determined in good faith by the Board of Directors. In the event the Company
elects to purchase all of the shares of capital stock or, with consent of the
Section 5 Selling Purchaser, a lesser portion of the shares of capital stock, it
shall give written notice to the Section 5 Selling Purchaser of its election and
settlement for said shares of capital stock shall be made as provided below in
paragraph (d).
(C) If the Company does not elect to purchase the shares specified in the
notice, then the Company shall promptly provide written notice to the Purchasers
of such election (which in no event will be later than 20 calendar days
following receipt of the notice referred to in Section 5.1(a)) and
15
16
the Purchasers may elect to purchase all (but not less than all) of the shares
by delivering written notice to the Company and the Section 5 Selling Purchaser
within ten (10) calendar days after the expiration of the period specified in
Section 5.1(b) above.
(D) In the event the Company and/or any other Purchaser elect to acquire any of
the shares of capital stock of the Section 5 Selling Purchaser as specified in
said Section 5 Selling Purchaser's notice, the Secretary of the Company shall so
notify the Section 5 Selling Purchaser and settlement thereof shall be made in
cash within forty (40) days after the Secretary of the Company receives said
Section 5 Selling Purchaser's notice; provided that if the terms of payment set
forth in said Section 5 Selling Purchaser's notice were other than cash against
delivery, the Company and/or the other Purchaser shall pay for said shares on
the same terms and conditions set forth in said Section 5 Selling Purchaser's
notice.
(E) In the event the Company and/or the other Purchasers do not elect to acquire
all of the shares of capital stock specified in the Section 5 Selling
Purchaser's notice, said Section 5 Selling Purchaser may, within the sixty-day
period following the expiration of the rights granted to the Company and/or the
other Purchaser's herein, transfer the shares of capital stock specified in said
Section 5 Selling Purchaser's notice which were not acquired by the Company
and/or the other Purchasers as specified in said Section 5 Selling Purchaser's
notice.
5.2 TRANSFER EXEMPT FROM RIGHT OF FIRST REFUSAL. Anything to the contrary
contained herein notwithstanding, the following transactions shall be exempt
from the provisions of this section:
(A) A Purchaser's transfer to such Purchaser's Immediate Family.
(B) A transfer any custodian or trustee for the account of such Purchaser or
such Purchaser's Immediate Family.
(C) A Purchaser's bona fide pledge or mortgage with a commercial lending
institution creating a mere security interest.
(D) A corporate Purchaser's transfer of any or all of its shares of capital
stock to its stockholders in accordance with their interest in the corporation.
(E) A transfer by a Purchaser which is a partnership to any or all of its
partners or retired partners in accordance with partnership interests.
(F) A transfer by a Purchaser which is a limited liability company to its
members in accordance with their interest in the limited liability company.
In any such case, the transferee, assignee, or other recipient shall
receive and hold such stock subject to the provisions of this section, and there
shall be no further transfer of such stock except in accord with this section.
5.3 TERMINATION. The foregoing right of first refusal shall terminate on the
closing of a Qualifying Public Offering.
6. CO-SALE RIGHT.
16
17
6.1 NOTICE. If a Purchaser of Series C Preferred Stock or Common Stock proposes
to sell or transfer any shares of Series C Preferred Stock or Common Stock
("Co-Sale Stock") then such Purchaser (a "Section 6 Selling Purchaser") shall
promptly give written notice (the "Notice") simultaneously to the Company and to
each of the Purchasers of Series B Preferred Shares and Subordinated Notes at
least thirty (30) calendar days prior to the closing of such sale or transfer.
The Notice shall describe in reasonable detail the proposed sale or transfer
including, without limitation, the number of shares of Co-Sale Stock to be sold
or transferred, the nature of such sale or transfer, the total consideration to
be paid to the Section 6 Selling Purchaser (including any consideration for the
securities that is paid or to be paid under other arrangements with the Section
6 Selling Purchaser, including but not limited to, compensation for employment
or services in excess of the reasonable value of the Section 6 Selling
Purchaser's services), and the name and address of each prospective purchaser or
transferee.
6.2 NOTICE OF PARTICIPATION. Each Purchaser of Series B Preferred Shares and
Subordinated Notes shall have the right, exercisable upon written notice to the
Company within fifteen (15) calendar days after the Notice, to participate in
such sale of Co-Sale Stock on the same terms and conditions. If the Co-Sale
Stock is Common Stock, then each such Purchaser may sell all or any part of that
number of Common Stock equal to the product obtained by multiplying (a) the
aggregate number of shares of Co-Sale Stock by (b) a fraction the numerator of
which is the number of shares of Common Stock owned by such Purchaser at the
time of the sale or transfer (on an as-converted to Common Stock basis) and the
denominator of which is the total number of shares of Common Stock owned by such
Purchasers at the time of such sale or transfer (on an as-converted to Common
Stock basis). If the Co-Sale Stock is Series C Preferred Stock, then each
Purchaser may sell all or any part of that number of Series B Preferred Shares
or Subordinated Notes equal to the product obtained by multiplying (x) the
aggregate number of shares of Co-Sale Stock by (y) a fraction the numerator of
which is the number of Series B Preferred Shares, including the Subordinated
Notes on an as-converted basis, owned by such Purchaser at the time of the sale
or transfer and the denominator of which is the total number of Series B
Preferred Shares, including the Subordinated Notes on an as-converted basis,
owned by such Purchasers at the time of such sale or transfer. Such notice shall
indicate the number of Series B Preferred Shares, Subordinated Notes, or Common
Shares such Purchaser wishes to sell under his or her right to participate. To
the extent one or more Purchasers exercises such right of participation in
accordance with the terms and conditions set forth in this Section 6, the number
of shares of Co-Sale Stock that may be sold in the transaction shall be
correspondingly reduced.
6.3 TRANSFER. Each Purchaser who elects to participate in the sale pursuant to
this Section 6 (a "Participant") shall effect its participation in the sale by
promptly delivering to the Company for transfer to the prospective purchaser one
or more certificates, properly endorsed for transfer the type and number of
shares of Series B Preferred Stock, Subordinated Notes or Common Stock which
such Participant elects to sell.
6.4 ADDITIONAL TRANSFER PROVISIONS. The stock certificate or certificates or
Subordinated Notes that the Participant delivers to the Company pursuant to
Section 6.3 shall be transferred to the prospective purchaser in consummation of
the sale of the Series C Preferred Stock or Common Stock pursuant to the terms
and conditions specified in the Notice, and the Section 6 Selling
17
18
Purchaser(s) shall concurrently therewith remit to such Participant that portion
of the sale proceeds to which such Participant is entitled by reason of its
participation in such sale. To the extent that any prospective purchaser or
purchasers prohibits such assignment or otherwise refuses to purchase shares or
other securities from a Participant exercising its rights of co-sale hereunder,
such Section 6 Selling Purchaser(s) shall not sell to such prospective purchaser
or purchasers any Co-Sale Stock unless and until, simultaneously with such sale,
such Section 6 Selling Purchaser(s) shall purchase such shares or other
securities from such Participant on the same terms and conditions specified in
the Notice.
6.5 NO ELECTION TO PARTICIPATE. If none of the Purchasers of Series B Preferred
Stock or Subordinated Notes elects to participate in the sale of the Co-Sale
Stock subject to the Notice, such Section 6 Selling Purchaser(s) may, not later
than sixty (60) calendar days following delivery to the Company of the Notice,
enter into an agreement providing for the closing of the transfer of the Co-Sale
Stock covered by the Notice within thirty (30) days of such agreement on terms
and conditions not more favorable to the transferor than those described in the
Notice. Any proposed transfer on terms and conditions more favorable than those
described in the Notice, as well as any subsequent proposed transfer of any of
the Co-Sale Stock by a Section 6 Selling Purchaser(s), shall again be subject to
the co-sale rights of the Purchaser and shall require compliance by such Section
6 Selling Purchaser(s) with the procedures described in this Section 6.
6.6 TRANSFERS EXEMPT FROM CO-SALE RIGHT
(A) Notwithstanding the foregoing, the co-sale rights of the Purchaser shall not
apply to (i) any transfer or transfers by a Section 6 Selling Purchaser(s) which
in the aggregate, over the term of this Agreement, amount to no more than 10,000
shares of Co-Sale Stock held by such holder, (ii) any bona fide pledge or
mortgage of Co-Sale Stock with a commercial lending institution that creates a
mere security interest, (iii) any transfer to the Immediate Family of the
holders of Co-Sale Stock, (iv) any transfer to a custodian or trustee for the
account of the holder of Co-Sale Stock or such holder's Immediate Family, (v)
any transfer or transfers by a holder of Co-Sale Stock to another holder of
Co-Sale Stock (the "Transferee-Holder") so long as the Transferee-Holder is, at
the time of the transfer, employed by, or acting as a consultant or director of,
the Company, or (vi) any bona fide gift; provided that in the event of any
transfer made pursuant to one of the exemptions provided by clauses (ii), (iii),
(iv), (v) and (vi), (A) the holder of Co-Sale Stock shall inform the Purchasers
of such pledge, transfer or gift prior to effecting it and (B) the pledgee,
transferee or donee shall furnish the Purchasers with a written agreement to be
bound by and comply with all provisions of Sections 6 of this Agreement. Such
transferred Co-Sale Stock shall remain "Restricted Stock" hereunder.
(B) The co-sale rights of the Purchasers are subject to, and shall in no manner
limit the right which the Company may have to repurchase securities from the
holder of Co-Sale Stock pursuant to (i) a stock restriction agreement or other
agreement between the Company and the holder of Co-Sale Stock and (ii) the
Pre-Emptive Right set forth in Section 5 hereto.
6.7 TERMINATION OF CO-SALE RIGHTS. The provisions of Section 6 of this Agreement
shall expire
18
19
upon and shall not apply to a Qualifying Public Offering.
7. DRAG ALONG RIGHTS.
7.1 DRAG ALONG RIGHT. If Purchasers holding at least sixty-six and two-thirds
percent (66 2/3%) of the outstanding shares of Common Stock (assuming conversion
or exercise of all convertible securities, options or warrants) ("Initiating
Securityholders") agree to sell or transfer all of their securities of the
Company or agree to the sale of all or substantially all of the assets of the
Company to a third party, then all Purchasers ("Selling Securityholders") will
be required to sell all of their securities of the Company held by them or
acquiesce to the sale of the assets of the Company.
7.2 CONSIDERATION. The consideration to be received by the Selling
Securityholders shall be the same consideration per share to be received by the
Initiating Securityholders for the corresponding class or series of stock, or
type of security, and the terms and conditions of such sale shall be the same as
those upon which the Initiating Securityholders sell their securities; provided
however, that any general indemnity given by the Selling Securityholders,
applicable to liabilities not specific to a particular Selling Securityholder,
to the purchaser in connection with such sale shall be apportioned among the
Selling Securityholders according to the consideration received by each Selling
Securityholder.
7.3 NOTICE. The Initiating Securityholders shall provide written notice to the
other Selling Securityholders setting forth the consideration to be paid by the
purchaser for the Securities and the material terms of the sale within ten (10)
business days after such Initiating Securityholders exercise the Drag Along
Rights pursuant to Section 7.1 ("Drag Along Notice").
7.4 DELIVERY OF SECURITIES. Within ten (10) business days after the date of the
Drag Along Notice, each Selling Securityholder shall deliver to the Company, the
duly endorsed certificate or certificates representing the securities held by
such Selling Securityholder to be sold, and a limited power-of-attorney
authorizing the Company to take all actions necessary to sell or otherwise
dispose of such Securities. In the event that a Selling Securityholder should
fail to deliver the Securities, the Company shall cause the books and records of
the Company to show that such Securities are bound by the provisions of this
Section 7 and that such Securities may only be transferred to the purchaser in
such sale.
7.5 REMITTANCE OF CONSIDERATION. Promptly after the consummation of the sale,
the Purchaser shall remit directly to the Selling Securityholders the total
sales price of the Securities sold pursuant thereto.
7.6 TERMINATION OF COVENANTS. This Section 7 shall terminate and be of no
further force and effect after a Qualifying Public Offering.
8. BOARD OF DIRECTORS.
8.1 NOMINATION AND ELECTION OF DIRECTORS.
19
20
(A) Each Purchaser holding Series B Preferred Shares agrees to cast all votes to
which they are entitled (whether at an annual or special meeting of shareholders
or by written consent in lieu of a meeting or otherwise) in such a manner as to
cause the election of: one (1) designee of News-Press & Gazette Company ("NPG
Director"); one (1) designee of Advantage Capital Missouri Partners 1, L.P
("Advantage Director"); one (1) designee of White Pines Management L.L.C.
("White Pines Director").
(B) In the event that the NPG Director dies, resigns or is removed, then
News-Press & Gazette Company shall be entitled to appoint a successor director
to the Board of Directors to fill the vacancy created by such death, resignation
or removal. In the event that the Advantage Director dies, resigns or is
removed, then Advantage Capital Missouri Partners 1, L.P. shall be entitled to
appoint a successor director to the Board of Directors to fill the vacancy
created by such death, resignation or removal. In the event that the White Pines
Director dies, resigns or is removed, then White Pines Management L.L.C. shall
be entitled to appoint a successor director to the Board of Directors to fill
the vacancy created by such death, resignation or removal.
8.2 BOARD COMMITTEES.
(A) The Purchasers agree to take all actions necessary to cause the Board of
Directors to appoint one of either the NPG Director, Advantage Director or White
Pines Director to any committees of the Board of Directors as requested by the
Purchasers holding a majority of the votes of the Series B Preferred Stock and
Subordinated Notes (on an as-converted to Series B Preferred Stock basis).
(B) The Company shall create an Audit Committee of the Board of Directors
consisting of three members, two members of which shall not be members of the
Management Group or employees of the Company.
(C) The Company shall create a Compensation Committee of the Board of Directors
consisting of three members. Two members of such Compensation Committee shall
not be members of the Management Group or employees of the Company and one
member shall be a member of the Management Group.
8.3 SIZE OF THE BOARD. So long as ten percent (10%) or more of the outstanding
shares of Series B Preferred Stock are held by the Purchasers or at least
$350,000 aggregate principal amount is outstanding under the Subordinated Notes,
the approval by the vote or written consent of the holders of at least a
majority of the then outstanding shares of Series B Preferred Stock and the
Subordinated Notes (on an as-converted to Series B Preferred Stock basis) shall
be necessary to change the size of the Board of Directors.
8.4 ATTENDANCE AT BOARD MEETINGS. Each Purchaser who owns at least 625,000
Series B Preferred Shares or $1,000,000 aggregate principal amount of
Subordinated Notes or any combination thereof (as currently constituted and
subject to adjustment for stock splits, stock dividends, recapitalizations and
the like) (a "Significant Holder") shall have the right to attend, or to appoint
a representative to attend, all meetings of the Board of Directors in a
nonvoting observer capacity, to receive notice of such meetings and to receive
the information provided by the Company to the Board of Directors; provided,
however, that the Company may require as a
20
21
condition precedent to any such Significant Holder's rights under this Section
8.4 that each person proposing to attend any meeting of the Board of Directors
and each person to have access to any of the information provided by the Company
to the Board of Directors shall agree to hold in confidence and trust and to act
in a fiduciary manner with respect to all information so received during such
meetings or otherwise; and, provided further, that the Company reserves the
right not to provide information and to exclude such Significant Holder (or its
representative) from any meeting or portion thereof if delivery of such
information or attendance at such meeting by such Significant Holder (or its
representative) would result in disclosure of trade secrets to such holder or
its representative or would adversely affect the attorney-client privilege
between the Company and its counsel or if such Significant Holder or its
representative is a direct competitor of the Company.
8.5 TERMINATION. Except for the confidentiality provisions of Section 8.4, this
Section 8 shall terminate and be of no further force and effect after a
Qualifying Public Offering.
9. STOCK OPTION PLAN
9.1 OPTION PLAN INCREASE AND GRANTS.
(A) If a Second Closing (as that term is defined in the Securities Purchase
Agreement) takes place pursuant to the Securities Purchase Agreement, the
Purchasers agree to vote all the voting securities of the Company held by them
in favor of an increase in the number of shares of Common Stock authorized for
issuance pursuant to the Stock Option Plan by an amount such that the total
number of shares of Common Stock authorized equals twenty percent (20%) of all
of the outstanding equity securities of the Company, including as outstanding
equity securities issuable upon conversion of all convertible securities of the
Company, but excluding the Series A Preferred Stock (the "Option Plan
Increase").
(B) Such Purchasers shall also cause their representative director on the Board
of Directors of the Company to approve: (i) such Option Plan Increase; (ii) the
grant of options to purchase up to 69.25% of the Option Plan Increase to the
employees to the Company just prior to the closing of the Valu-Line Merger in
proportion to the number of options held as of the First Closing; and (iii) the
grant of options to purchase up to 18.75% of the Option Plan Increase to the
employees of Valu-Line hired by the Company as of the Closing of the Valu-Line
Merger, in proportion to the number of options held as of the First Closing.
9.2 TERMINATION. This Section 9 shall terminate and be of no further force and
effect after a Qualifying Public Offering.
10. PROVISIONS FOR SHARING.
10.1 APPLICABILITY OF PROVISIONS. The provisions of Section 10.2 shall have no
force or effect except upon any liquidation, dissolution or winding up of the
Company (including an "Acquisition" or "Asset Transfer" as such terms are
defined in Section Fourth(C)(2)(g) of the Certificate of Incorporation of the
Company, as amended) in which liquidation, dissolution or winding up of the
Company, the holders of the Series A Preferred Stock or the holders of the
Series B Preferred
21
22
Stock shall receive less than the full amount to which such holders are entitled
pursuant to the terms and provisions of Section Fourth(C)(2)(a) and
Fourth(C)(2)(b), respectively, of the Certificate of Incorporation of the
Company, as amended
10.2 TERMS OF SHARING. Upon any liquidation, dissolution or winding up of the
Company pursuant to which the holders of the Series A Preferred Stock or the
holders of the Series B Preferred Stock shall receive less than the full amount
to which such holders are entitled pursuant to the terms and provisions of
Section Fourth(C)(2)(a) and Fourth(C)(2)(b), respectively, of the Certificate of
Incorporation of the Company, as amended, the holders of the Subordinated Notes
and the holders of Series B Preferred Stock issued upon conversion of the
Subordinated Notes (the "Sub Debt Series B") shall assign and transfer to the
holders of the Series A Preferred Stock and/or to the holders of the Series B
Preferred Stock, other than the holders of Sub Debt Series B, without
consideration, all or such portion of such assets of the Company as the holders
of the Subordinated Notes and Sub Debt Series B shall have received pursuant to
such liquidation, dissolution or winding up of the Company as shall be necessary
to achieve the following adjusted distribution of all assets of the Company
received by the holders of the Subordinated Notes, the holders of the Series A
Preferred Stock, and the holders of the Series B Preferred Stock, in such
liquidation, dissolution or winding up of the Company prior to giving effect to
the foregoing provisions:
(A) First, the holders of Series A Preferred Stock shall be entitled to receive
an amount equal to the sum of (i) $1.60 per share of Series A Preferred Stock
(the "Series A Liquidation Preference"), plus (ii) an amount equal to all unpaid
dividends accrued on such shares of Series A Preferred Stock to the date of
payment of such preference, whether or not earned, whether or not funds of the
Corporation are legally available for the payment of dividends and whether or
not such dividends have been declared by the Board, for each share of Series A
Preferred Stock held by them. If the assets subject to this Section 10.2 shall
be insufficient to make payment in full to all holders of Series A Preferred
Stock of the liquidation preference set forth in this Section 10.2(a), then such
assets shall be distributed among the holders of Series A Preferred Stock at the
time outstanding ratably in proportion to the full amounts to which they would
otherwise be respectively entitled.
(B) Next, the holders of Series B Preferred Stock, other than the holders of the
Sub Debt Series B, shall be entitled to receive an amount equal to all unpaid
dividends accrued on such shares of Series B Preferred Stock to the date of
payment of such preference, whether or not earned, whether or not funds of the
Corporation are legally available for the payment of dividends and whether or
not such dividends have been declared by the Board, up to an amount equal to the
actual interest paid to the holders of Subordinated Notes as of the date of
payment of such preference. If the assets subject to this Section 10.2 shall be
insufficient to make payment in full to such holders of Series B Preferred Stock
of the liquidation preference set forth in this Section 10.2(b), then such
assets shall be distributed among such holders of Series B Preferred Stock at
the time outstanding ratably in proportion to the full amounts to which they
would otherwise be respectively entitled.
(C) Next, (i) the holders of Series B Preferred Stock, other than the holders of
the Sub Debt Series B,
22
23
shall be entitled to receive an amount equal to the difference between (x) all
unpaid dividends accrued on such shares of Series B Preferred Stock to the date
of payment of such preference, whether or not earned, whether or not funds of
the Corporation are legally unavailable for the payment of dividends and whether
or not such dividends have been declared by the Board, and (y) the actual
interest paid to the holders of Subordinated Notes as of the date of payment of
such preference; (ii) the holders of Subordinated Notes shall be entitled to
receive an amount equal to any accrued and deferred interest on the Subordinated
Notes not yet paid as of the date of payment of such preference; and (iii) the
holders of the Sub Debt Series B shall be entitled to receive all unpaid
dividends accrued on the Sub Debt Series B to the date of payment of such
preference, whether or not earned, whether or not funds of the Corporation are
legally available for the payment of dividends, and whether or not such
dividends have been declared by the Board.. If the assets subject to this
Section 10.2 shall be insufficient to make payment in full to all holders of
Series B Preferred Stock and the Subordinated Notes of the liquidation
preference set forth in this Section 10.2(c) then such assets shall be
distributed among the holders of Series B Preferred Stock and the Subordinated
Notes at the time outstanding ratably in proportion to the full amounts to which
they would otherwise be respectively entitled.
(D) Next, (i) the holders of Series B Preferred Stock shall be entitled to be
paid out of the assets of the Corporation an amount equal to $1.60 for each
share of Series B Preferred Stock held by them (the "Series B Liquidation
Preference"); and (ii) the holders of Subordinated Notes shall be entitled to be
paid out of the assets of the Corporation an amount equal to any remaining
unpaid principal amount on such Subordinated Notes. If the assets subject to
this Section 10.2 shall be insufficient to make payment in full to all holders
of Series B Preferred Stock and the Subordinated Notes of the liquidation
preference set forth in this Section 10.2(d), then such assets shall be
distributed among the holders of Series B Preferred Stock and the Subordinated
Notes at the time outstanding ratably in proportion to the full amounts to which
they would otherwise be respectively entitled.
10.3 DEFAULT UNDER THE SUBORDINATED NOTES. In the event of a default under the
Subordinated Notes and if, and to the extent, there is a repayment (or a right
or remedy is exercised in pursuit of a repayment) of principal through an
acceleration of the Subordinated Notes or foreclosure action under the Security
Agreement:
(A) If such action occurs prior to February 28, 2003, the holders of the
Subordinated Notes shall assign and transfer to the holders of the Series A
Preferred Stock and/or to the holders of the Series B Preferred Stock, other
than the holders of the Sub Debt Series B, all or such portion of such assets of
the Company as the holders of the Subordinated Notes shall have received as such
repayment as shall be necessary to achieve the distribution of such assets of
the Company as specified in Section 10.2 above, as if such assets had been
received upon the liquidation, dissolution or winding up of the Company.
(B) If such action occurs on or subsequent to February 28, 2003, the holders of
the Subordinated Notes shall assign and transfer to the holders of the Series A
Preferred Stock and/or those holders of Series B Preferred Stock, other than the
holders of the Sub Debt Series B, who elected to require the Company to redeem
their shares of Series B Preferred Stock all or such portion of such assets of
the Company as the holders of the Subordinated Notes shall have received as such
23
24
repayment, as shall be necessary to achieve the distribution of such assets of
the Company to the holders of the Series A Preferred Stock and to such holders
of the Series B Preferred Stock as specified in Section 10.2 above, as if such
assets had been received upon the liquidation, dissolution or winding up of the
Company.
The holders of the Series A Preferred Stock and/or the holders of the Series B
Preferred Stock who receive any distribution of assets of the Company pursuant
to the provisions of this Section 10.3 shall assign and transfer to the holders
of the Subordinated Notes such portion of their shares of Series A Preferred
Stock and/or Series B Preferred Stock for which the liquidation preference as of
the date of such transfer shall be equal to the amount of assets distributed to
such holders.
10.4 NO THIRD PARTY RIGHTS. The provisions of this Section 10 are intended to
define the rights and obligations of the holders of the Subordinated Notes, the
holders of the Series A Preferred Stock and the holders of the Series B
Preferred Stock and are not intended that any third party shall acquire any
rights or benefits as a result. If the effect of any provision would be to give
any third person a priority status to which they would not otherwise be
entitled, or to subordinate the holders of the Subordinated Notes to a status to
which they would not otherwise be subject, then that provision shall, to the
extent necessary to avoid such priority or subordination, as the case may be, be
given no force and effect, and the rights and priorities of the holders of the
Subordinated Notes, the holders of the Series A Preferred Stock and the holders
of the Series B Preferred Stock shall be determined in accordance with the law.
11. MISCELLANEOUS.
11.1 GOVERNING LAW. This Agreement shall be governed in all respects by the laws
of the State of Missouri, as applied to agreements among Missouri residents
entered into and to be performed entirely within Missouri.
11.2 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.
11.3 ENTIRE AGREEMENT; AMENDMENT; WAIVER
(A) This Agreement (including the Exhibits hereto) constitutes the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof.
(B) This Agreement may be amended or modified only upon the written consent of
the Company and holders of: (i) at least fifty percent (50%) of the Common
Shares, voting together as a single class; (ii) at least fifty percent (50%) of
the Series B Preferred Shares and Subordinated Notes (on an as-converted basis),
voting together as a single class; and (iii) at least fifty percent (50%) of the
Series C Preferred Shares, voting together as a single class.
(C) The obligations of the Company and the rights of the holders of the
Securities under this Agreement may be waived only with the written consent of
the holders of: (i) at least fifty percent (50%) of
24
25
the Common Shares, voting together as a single class; (ii) at least fifty
percent (50%) of the Series B Preferred Shares and Subordinated Notes (on an
as-converted basis), voting together as a single class; and (iii) at least fifty
percent (50%) of the Series C Preferred Shares, voting together as a single
class.
11.4 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 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, facsimile transfer or
delivery.
11.5 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.
11.6 RIGHTS; SEPERABILITY. 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.
11.7 INFORMATION CONFIDENTIAL. Each Holder acknowledges that the information
received by them 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.
11.8 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.
11.9 COUNTERPARTS; EXECUTION BY FACSIMILE SIGNATURE. 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. This Agreement may be
executed by facsimile signature(s).
25
26
IN WITNESS WHEREOF, the parties hereto have executed this Purchasers
Rights Agreement effective as of the day and year first above written.
BIRCH TELECOM, INC. PURCHASER:
By: /s/ Xxxxx Xxxxx By: /s/ Xxxxx X. Xxxxxxx Xx.
Xxxxx Xxxxx, President
Name: Xxxxx X. Xxxxxxx Xx.
Title: President
26
27
EXHIBIT A
PURCHASERS
27
28
TABLE OF CONTENTS
PAGE
1. CERTAIN DEFINITIONS 1
2. REGISTRATION RIGHTS 3
2.1 Requested Registration 3
2.2 Company Registration 5
2.3 Expenses of Registration 6
2.4 Registration Procedures 7
2.5 Indemnification 8
2.6 Information by Holder 10
2.7 Limitations on Subsequent Registration Rights 10
2.8 Rule 144 Reporting 10
2.9 Transfer or Assignment of Registration Rights 10
2.10 "Market Stand-Off" Agreement 11
2.11 Delay of Registration 11
3. RESTRICTIONS ON TRANSFER 11
3.1 Transfer 11
3.2 Exempt Transfer 11
3.3 Securities Laws 12
3.4 Legend 12
3.5 Improper Transfer 13
3.6 Termination 13
4. PRE-EMPTIVE RIGHT 13
4.1 Pre-Emptive Right 13
4.2 New Securities 13
4.3 Notice 14
4.4 Selling Period 14
4.5 Termination of Pre-Emptive Right 14
4.6 Transfer of Pre-Emptive Right 15
5. RIGHT OF FIRST REFUSAL 15
5.1 Right of First Refusal 15
5.2 Transfer Exempt from Right of First Refusal 16
28
29
TABLE OF CONTENTS
(CONTINUED)
PAGE
5.3 Termination 16
6. CO-SALE RIGHT 16
6.1 Notice 16
6.2 Notice of Participation 17
6.3 Transfer 17
6.4 Additional Transfer Provisions 17
6.5 No Election to Participate 18
6.6 Transfers Exempt from Co-Sale Right 18
6.7 Termination of Co-Sale Rights 18
7. DRAG ALONG RIGHTS 18
7.1 Drag Along Right 18
7.2 Consideration 19
7.3 Notice 19
7.4 Delivery of Securities 19
7.5 Remittance of Consideration 19
7.6 Termination of Covenants 19
8. BOARD OF DIRECTORS 19
8.1 Nomination and Election of Directors 19
8.2 Board Committees 20
8.4 Attendance at Board Meetings 20
8.5 Termination 21
9. STOCK OPTION PLAN 21
9.1 Option Plan Increase and Grants 21
9.2 Termination 21
10. PROVISIONS FOR SHARING 21
10.1 Applicability of Provisions 21
10.3 Default Under the Subordinated Notes 23
10.4 No Third Party Rights 24
11. MISCELLANEOUS 24
11.1 Governing Law 24
29
30
TABLE OF CONTENTS
(CONTINUED)
PAGE
11.2 Successors and Assigns 24
11.3 Entire Agreement; Amendment; Waiver 24
11.4 Notices, etc. 24
11.5 Delays or Omissions 25
11.6 Rights; Separability 25
11.7 Information Confidential 25
11.8 Titles and Subtitles 25
11.9 Counterparts; Execution by Facsimile Signature 25
30
31
TABLE OF CONTENTS
PAGE
BIRCH TELECOM, INC.
PURCHASERS RIGHTS AGREEMENT
32
AMENDMENT TO THE PURCHASERS RIGHTS AGREEMENT
The following amendment to the Purchasers Rights Agreement was duly
adopted and approved by the Board of Directors of Birch Telecom, Inc. and shall
become effective upon the approval of the holders of (i) at least fifty percent
(50%) of the Common Shares, voting together as a single class; (ii) at least
fifty percent (50%) of the Series B Preferred Shares and Subordinated Notes (on
an as-converted basis), voting together as a single class; and (iii) at least
fifty percent (50%) of the Series C Preferred Shares, voting together as a
single class.
Section 3.3 of the Purchasers Rights Agreement shall be deleted in its
entirety and the following shall be substituted in its place:
3.3 SECURITIES LAWS. In addition to any other restriction on
Transfer herein, such Purchaser will not effect any Transfer until the
transferee has agreed in writing for the benefit of the Company to be
bound by this Section 3 and by Sections 7 and 8, and:
(A) 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
(B) Such Purchaser 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 if reasonably requested by the Company, such Purchaser
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; provided however,
that it is agreed that the Company will not require opinions of counsel
for transactions made pursuant to Rule 144 except in unusual
circumstances.
1
