Exhibit 3.10
INVESTOR RIGHTS AGREEMENT
BY AND AMONG
ID TECHNOLOGIES CORPORATION
AND
CERTAIN HOLDERS OF ITS CAPITAL STOCK
DATED AS OF SEPTEMBER 24, 1999
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ID TECHNOLOGIES CORPORATION
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INVESTOR RIGHTS AGREEMENT
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SEPTEMBER 24, 1999
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Table of Contents
Page
SECTION 1. REGISTRATION RIGHTS 1
1.1 Definitions 2
1.2 Demand Registration 3
1.3 Form S-3 5
1.4 Company Registration 5
1.5 Inclusion of Stock Held by Officers and Directors 7
1.6 Obligations of Company 7
1.7 Information by Holder 9
1.8 Expenses of Registration 9
1.9 Indemnification 10
1.10 Limitations on Subsequent Registration Rights 12
1.11 Rule 144 Reporting 12
1.12 Delay of Registration; Conversion of Series A Stock To Facilitate Registration 13
1.13 "Market Stand-Off"Agreement 13
1.14 Foreign Registrations 14
1.15 Transfer of Registration Rights 14
1.16 Amendment of Registration Rights 14
1.17 Termination of Registration Rights 14
SECTION 2. BOARD OF DIRECTORS 15
2.1 Constituency of Board of Directors; Quorum 15
2.2 Audit and Compensation Committees 16
2.3 Other Committees 16
2.4 Vacancies 16
2.5 Meetings 16
2.6 Board Expenses 16
2.7 Articles of Incorporation and By-Laws 16
2.8 No Conflicting Agreements 16
2.9 Nature and Term of Agreement 16
SECTION 3. COMPANY COVENANTS 16
3.1 Basic Financial Information and Reporting Requirements 16
3.2 Additional Affirmative Covenants 19
3.3 Negative Covenants 23
3.4 Fees and Expenses 24
3.5 Expiration of Covenants 24
SECTION 4. MISCELLANEOUS 24
4.2 Jurisdiction and Venue 24
4.3 Successors and Assigns 25
4.4 Entire Agreement 25
4.5 Severability 25
4.6 Specific Performance 25
4.7 Amendment and Waiver 26
4.8 Delays or Omissions 26
4.9 Notices 26
4.10 Titles and Subtitles 27
4.11 Counterparts 27
SCHEDULES AND EXHIBITS
Schedule 1 - Schedule of Series A Holders
Schedule 2 - Schedule of Common Stockholders
Exhibit A - Form of Non-Disclosure, Inventions and Non-Competition Agreements
INVESTOR RIGHTS AGREEMENT
This Investor Rights Agreement (the "AGREEMENT") is made and entered
into as of September 24, 1999, by and among ID Technologies Corporation, a North
Carolina corporation (the "COMPANY"), those holders of the Series A Preferred
stock of the Company (or Convertible Debentures convertible into such Series A
Preferred stock of the Company) listed on Schedule 1 attached hereto and made a
part hereof (each, a "SERIES A HOLDER" and collectively, the "SERIES A
HOLDERS"), and those holders of the Common stock of the Company listed on
Schedule 2 attached hereto and made a part hereof (each a "COMMON STOCKHOLDER"
and collectively, the "COMMON STOCKHOLDERS").
Series A Holders, Common Stockholders and each other stockholder of
Company required to become a party hereto, are referred to sometimes herein as a
"STOCKHOLDER" and as "STOCKHOLDERS" collectively.
RECITALS
A. The Common Stockholders hold a majority of the issued and
outstanding Common stock of the Company (the "COMMON STOCK") as of the date
hereof.
B. Series A Holders have previously acquired, or are acquiring from
Company as of the date hereof, Convertible Debentures dated as of the date
hereof in the aggregate original principal amount of Three Hundred Thousand
Dollars ($300,000) (the "DEBENTURES") which are convertible into shares of
Series A Preferred stock of Company (the "SERIES A STOCK"). The Series A Stock
is convertible into shares of Common Stock. The shares of Series A Stock issued
or issuable upon conversion of the Debentures, together with any outstanding
shares of Common Stock issued pursuant to the conversion of Series A Stock and
any shares of Common Stock issued or issuable upon exercise of the Warrants (as
defined herein), are collectively referred to herein as the "INVESTOR SHARES".
D. Company, Series A Holders and Common Stockholders desire to enter
into this Agreement for the purposes, among others, of (i) providing for the
registration of shares, (ii) establishing the composition of Company's Board of
Directors (the "BOARD"), and (iii) establishing covenants concerning the
operation of Company.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties to this
Agreement hereby agree as follows:
SECTION 1.
REGISTRATION RIGHTS
Company hereby grants to each of the Holders (as hereinafter defined)
the registration rights set forth in this Section 1, with respect to the
Registrable Securities (as hereinafter defined) owned by such Holders.
1.1 Definitions.
As used in this Section 1:
(a) The terms "REGISTER," "REGISTERED" and "REGISTRATION"
refer to a registration effected by filing with the Securities and
Exchange Commission (the "SEC") a registration statement (the
"REGISTRATION STATEMENT") in compliance with the Securities Act of
1933, as amended (the "1933 ACT"), and the declaration or ordering by
the SEC of the effectiveness of such Registration Statement.
(b) The term "REGISTRABLE SECURITIES" means (i) the Series A
Stock issued or issuable upon conversion of the Debentures (subject to
the provisions of Section 1.12 hereof); (ii) Common Stock of Company
issued or issuable upon conversion of the Series A Stock or upon
exercise of the Warrants; and (iii) any Common Stock issued or issuable
upon the conversion or exercise of any warrant, right or other security
that is issued as a dividend or other distribution with respect to, or
in exchange or in replacement of, the Debentures, Series A Stock and
Common Stock referred to in (i) and (ii) above; PROVIDED, HOWEVER, that
Debentures, Series A Stock, Common Stock or other securities shall be
treated as Registrable Securities only if and for so long as (A) they
have not been sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, (B) they have
not been sold in a transaction exempt from the registration and
prospectus delivery requirements of the 1933 Act under Section 4(1)
thereof so that all transfer restrictions and restrictive legends with
respect thereto are removed upon the consummation of such sale, or (C)
the registration rights associated with such securities have not been
terminated pursuant to Section 1.17 hereof.
(c) The term "HOLDER" (collectively, "HOLDERS") means Series A
Holders and any transferee of any of the foregoing permitted by Section
1.15 hereof holding Registrable Securities, securities exercisable or
convertible into Registrable Securities or securities exercisable into
securities convertible into Registrable Securities.
(d) The term "INITIATING HOLDERS" means any Holder or Holders
holding in the aggregate (on a fully diluted basis) greater than fifty
percent (50%) of the Registrable Securities then outstanding and not
registered at the time of any request for registration made pursuant to
Section 1.2 of this Agreement.
(e) The term "WARRANTS" shall mean all of those certain Common
Stock Purchase Warrants, each dated as of the date hereof, issued by
the Company to the holders of the Debentures for the purchase of up to
an aggregate of Eight Hundred Thousand (800,000) shares of Common Stock
plus Five Hundred Thousand Dollars ($500,000) of Common Stock.
(f) The term "WARRANT SHARES" shall mean any shares of Common
Stock issued or issuable upon exercise of the Warrants.
1.2 Demand Registration.
(a) Demand for Registration. If Company shall receive from
Initiating Holders a written demand (a "DEMAND REGISTRATION") that
Company effect any registration of at least twenty percent (20%) of the
Registrable Securities of such Initiating Holders (other than a
registration on Form S-3 or any related form of registration statement,
such a request being provided for under Section 1.3 hereof), Company
shall:
(i) promptly (but in any event within ten (10) days
give written notice of the proposed registration to all other
Holders; and
(ii) use its diligent best efforts to effect such
registration as soon as practicable and as will permit or
facilitate the sale and distribution of all or such portion of
such Initiating Holders' Registrable Securities as are
specified in such demand, together with all or such portion of
the Registrable Securities of any Holder or Holders joining in
such demand as are specified in a written demand received by
Company within thirty (30) days after such written notice is
given, provided that Company shall not be obligated to take
any action to effect any such registration pursuant to this
Section 1.2:
(A) prior to two (2) years from the date
hereof;
(B) if within thirty (30) days of Company's
receipt of such a written demand, Company shall
furnish to such Holders a certificate signed by the
President of Company, stating that in the good faith
judgment of the Board, Company will file a
Registration Statement for a public offering of
Company's securities within ninety (90) days,
provided that Company actively employs in good faith
all reasonable efforts to cause such Registration
Statement to become effective and that Company's
estimate of the date of filing such Registration
Statement is made in good faith. Notwithstanding the
foregoing, nothing herein shall restrict, prohibit,
or limit in any way, a Holder's ability to exercise
its registration rights under Section 1.4 hereof.
(C) if Company shall furnish to such Holders
a certificate signed by the President of Company,
stating that in the good faith judgment of the Board
it would be seriously detrimental to Company and its
stockholders for such Registration Statement to be
filed at the date filing would be required, in which
case Company shall have an additional period of not
more than ninety (90) days within which to file such
Registration Statement; PROVIDED, HOWEVER, that
Company shall not use this right more than twice in
any twelve (12)-month period;
(D) during the period commencing on the date
a public offering of the Common Stock by the Company
is approved by the Securities and Exchange Commission
and ending ninety (90) days after such date;
(E) after Company has effected an aggregate
of three (3) such registrations pursuant to this
Section 1.2 and the sale of Registrable Securities
under such registrations have closed;
(F) in any registration having an aggregate
offering price (before deduction of underwriting
discounts and expenses of sale) of less than Fifteen
Million Dollars ($15,000,000); or
(G) in any particular jurisdiction in which
Company would be required to execute a general
consent to service of process in effecting such
registration, qualification or compliance unless
Company is already subject to service in such
jurisdiction and except as may be required by the
1933 Act.
(b) Underwriting.
(i) If the Initiating Holders intend to distribute
the Registrable Securities covered by their demand by means of
an underwriting, they shall so advise Company as part of their
demand made pursuant to this Section 1.2; and Company shall
include such information in the written notice referred to in
Section 1.2(a)(i). In such event, the right of any Holder to
registration pursuant to this Section 1.2 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.
(ii) Company shall enter into an underwriting
agreement in customary form with the underwriter or
underwriters selected by Company and reasonably satisfactory
to a majority in interest of the Initiating Holders, and (if
required by the underwriter or underwriters to do so) all
holders of capital stock of Company proposing to distribute
their securities through such underwriting shall enter into
such underwriting agreement.
(iii) If any Holder disapproves of the terms of the
underwriting, such Holder may elect to withdraw therefrom by
written notice to Company, the underwriter and the Initiating
Holders. The Registrable Securities so withdrawn shall also be
withdrawn from registration, and Company shall not be
obligated to continue the registration statement if the
threshold set forth in Section 1.2(a) (requiring that at least
twenty percent (20%) of the Registrable Securities held by the
Initiating Holders registered) or the minimum aggregate
offering price set forth in Section 1.2(a)(ii)(F) is no longer
met after such withdrawal.
(iv) Notwithstanding any other provision of this
Section 1.2, if the underwriter shall advise Company in
writing that marketing factors (including, without limitation,
an adverse effect on the per share offering price) require a
limitation of the number of shares to be underwritten, then
Company shall so advise all Holders of Registrable Securities
that have requested to participate in such offering, and the
number of shares of Registrable Securities that may be
included in the registration and underwriting shall be
allocated pro rata among such Holders thereof in proportion,
as nearly as practicable, to the respective amounts of
Registrable Securities held by such Holders at the time of
filing the Registration Statement. No Registrable Securities
excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration.
(v) If the underwriter has not limited the number of
Registrable Securities to be underwritten, Company may include
securities for its own account or for the account of other
stockholders in such registration if the underwriter so agrees
and if the number of Registrable Securities that would
otherwise have been included in such registration and
underwriting will not thereby be limited.
1.3 Form S-3. If Company's stock becomes publicly traded, Company
shall use its best efforts to qualify for registration on Form S-3 and to that
end Company shall register the Common Stock under the Securities Exchange Act of
1934, as amended (the "1934 ACT") within twelve (12) months following the
effective date of the first registration of any securities of Company on Form
S-1. After Company has qualified for the use of Form S-3, the Holders of
Registrable Securities shall have the right to request registrations on Form S-3
three (3) times per year under this Section 1.3. Company shall give notice to
all Holders of Registrable Securities of the receipt of a request for
registration pursuant to this Section 1.3 and shall provide a reasonable
opportunity for other Holders to participate in the registration. Subject to the
foregoing, Company will use its best efforts to effect as soon as practicable
the registration of all shares of Registrable Securities on Form S-3, as the
case may be, to the extent requested by the Holder or Holders thereof for
purposes of disposition; PROVIDED, HOWEVER, that Company shall not be obligated
to effect any such registration if the Holders, together with the holders of any
other securities of Company entitled to inclusion in such registration, propose
to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public of less than Five Hundred Thousand Dollars
($500,000). Notwithstanding the foregoing, nothing herein shall restrict,
prohibit, or limit in any way a Holder's ability to exercise its registration
rights under Section 1.2 or 1.4 hereof.
1.4 Company Registration.
(a) Registration. If at any time or from time to time Company
shall determine to register any of its securities, either for its own
account or for the account of security holders, other than a
registration relating solely to employee benefit plans, a registration
on Form S-4 relating solely to an SEC Rule 145 transaction, or a
registration pursuant to Section 1.2 or 1.3 hereof, Company will:
(i) promptly (but in any event within ten (10) days) give to
each Holder written notice thereof; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in
any underwriting involved therein, all the Registrable
Securities specified in a written request or requests, made
within thirty (30) days after receipt of such written notice
from Company, by any Holder or Holders, except as set forth in
Section 1.4(b) below.
Such Registrable Securities shall only be included to the extent that
inclusion will not diminish the number of securities included by
Company. Further, no holder of securities in Company (other than a
Holder) shall be granted any right to register such securities pursuant
to this Section 1.4 if such registration will have the effect of
reducing the number of shares includable by the Holders unless more
than fifty percent (50%) of such Holders provide their written consent
to such registration to Company.
(b) Underwriting.
(i) If the registration of which Company gives notice
is for a registered public offering involving an underwriting,
Company shall so advise the Holders as 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.
(ii) Company and (if required by the underwriter or
underwriters selected for such underwriting by Company) 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.
(iii) If any Holder disapproves of the terms of the
underwriting, it may elect to withdraw therefrom by written
notice to Company and the underwriter. The Registrable
Securities so withdrawn shall also be withdrawn from
registration.
(iv) Notwithstanding any other provision of this
Section 1.4, if the underwriter determines that marketing
factors require a limitation of the number of shares to be
underwritten, Company shall so advise all holders of Company's
securities that would otherwise be registered and underwritten
pursuant hereto, and the number of shares of such securities,
including Registrable Securities, that may be included in the
registration and underwriting shall be allocated in the
following manner: (i) first, the securities requested to be
included therein by Company; (ii) second, the Registrable
Securities requested to be included in such registration
pursuant to Section 1.4(a)(ii), pro rata among such Holders
thereof in proportion, as nearly as practicable, to the
respective amounts of Registrable
Securities held by such Holders at the time of filing the
Registration Statement; (iii) third, other securities
requested to be included in such registration.
(c) Right to Terminate Registration. Company shall have the
right to terminate or withdraw any registration initiated by it under
this Section 1.4 prior to the effectiveness of such registration
whether or not any Holder has elected to include securities in such
registration.
1.5 Inclusion of Stock Held by Officers and Directors. In connection
with any registration effected pursuant to Section 1.4 hereof, the officers and
directors of Company at the time of such registration (collectively, the
"MANAGERS") shall be entitled to include in such registration (on the same terms
and conditions as Holders selling their Registrable Securities in such
registration) shares of Common Stock held by the Managers; PROVIDED, HOWEVER,
that any limitation by the underwriter on the number of shares to be
underwritten in connection with such registration shall first be applied to the
shares so included by the Managers, as provided in Section 1.4(b), and PROVIDED,
FURTHER, that each Manager's right to include shares of Common Stock in a
registration pursuant to this Section 1.5 is contingent upon (i) such Manager's
execution of an indemnification and hold harmless agreement substantially in
accordance with Section 1.9(b), and (ii) such person agreeing to be bound by
Section 1.13 hereof.
1.6 Obligations of Company. Whenever required under this Section 1 to
effect the registration of any Registrable Securities, Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a Registration Statement
with respect to such Registrable Securities and use its diligent best
efforts to cause such Registration Statement to become effective, and
keep such Registration Statement effective for the lesser of one
hundred twenty (120) days or until the Holder or Holders have completed
the distribution relating thereto.
(b) Prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in
connection with such Registration Statement as may be necessary to keep
such Registration Statement effective and to comply with the provisions
of the 1933 Act with respect to the disposition of all securities
covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may
reasonably request in order to facilitate the disposition of
Registrable Securities owned by them.
(d) Use its best efforts to register or otherwise 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 or the managing underwriter,
provided that Company shall not be required in connection therewith or
as a condition thereto to qualify to do business in any such states or
jurisdictions, to subject
itself to taxation in any such states or jurisdictions, to file a
general consent to service of process in any such states or
jurisdictions, or to register the Registrable Securities or seek an
exemption from registration under the securities laws of any state that
requires, as a condition to such registration or exemption, that
Company indefinitely file in such jurisdiction substantially all
reports required to be filed by Company with the SEC.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in
usual and customary form, with the managing underwriter of such
offering. If required to do so by the underwriter or underwriters, each
Holder participating in such underwriting shall also enter into and
perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such Registration Statement, at any time when a prospectus relating
thereto is required to be delivered under the 1933 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 in the light of the circumstances then existing.
(g) If such securities are being sold through underwriters,
furnish at the written request of any Holder including Registrable
Securities in such registration on the date that such Registrable
Securities are delivered to the underwriters for sale in connection
with such registration pursuant to this Section 1 (i) an opinion, dated
such date, of the counsel representing 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
accountants of Company, in form and substance as is customarily given
by independent accountants to underwriters in an underwritten public
offering, addressed to the underwriters.
(h) Use its best efforts to list the Registrable Securities
covered by such Registration Statement with any securities exchange on
which the Common Stock is then listed; PROVIDED, HOWEVER, that each
Holder shall reimburse Company for the pro rata portion of any listing
fees so paid by Company.
(i) Make available for inspection by each Holder including
Registrable Securities in such registration, any underwriter
participating in any distribution pursuant to such registration, and
any attorney, accountant or other agent retained by such Holder or
underwriter, all financial and other records, pertinent corporate
documents and properties of Company, as such parties may reasonably
request, and cause Company's officers, directors and employees to
supply all information reasonably requested by any such Holder,
underwriter, attorney, accountant or agent in connection with such
Registration Statement.
(j) Cooperate with Holders including Registrable Securities in
such registration and the managing underwriters, if any, to facilitate
the timely preparation and delivery of certificates representing
Registrable Securities to be sold, such certificates to be in such
denominations and registered in such names as such Holders or the
managing underwriters may request at least two (2) business days prior
to any sale of Registrable Securities.
(k) Permit any Holder which Holder, in the sole and exclusive
judgment, exercised in good faith, of such Holder, might be deemed to
be a controlling person of Company, to participate in good faith in the
preparation of such Registration Statement and to require the insertion
therein of material, furnished to Company in writing, which in the
reasonable judgment of such Holder and its counsel should be included.
1.7 Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall furnish in writing to Company such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as Company may reasonably request in writing and as shall
be required in connection with any registration, qualification or compliance
referred to in this Section 1.
1.8 Expenses of Registration.
(a) All expenses incurred in connection with all registrations
effected pursuant to Sections 1.2 and 1.4, and the first three (3)
registrations pursuant to Section 1.3, including without limitation all
registration, filing and qualification fees (including blue sky fees
and expenses), printing expenses, escrow fees, fees and disbursements
of counsel for Company (and the reasonable fees and disbursements of
one separate special counsel for all participating Holders) and
expenses of any special audits incidental to or required by such
registration shall be borne by Company; PROVIDED, HOWEVER, that Company
shall not be required to pay stock transfer taxes or underwriters'
discounts or selling commissions relating to Registrable Securities.
(b) Notwithstanding anything to the contrary above, Company
shall not be required to pay for any expenses of any registration
proceeding under Section 1.2 if the registration request is
subsequently withdrawn at the request of the Holders of a majority of
the Registrable Securities to have been registered and such withdrawal
shall not result in a forfeiture of the Holder's right to a demand
registration pursuant to Section 1.2; PROVIDED, HOWEVER, that in the
event that Holders holding at least eighty percent (80%) of the
Registrable Securities agree to forfeit their right to a demand
registration pursuant to Section 1.2 (in which event such right shall
be forfeited by all Holders), then Company shall be required to pay the
expenses of such withdrawn registration. In the absence of such an
agreement to forfeit, the Holders of Registrable Securities to have
been registered shall bear all such expenses pro rata on the basis of
the Registrable Securities to have been registered. Notwithstanding the
preceding sentence, however, if at the time of the withdrawal, the
Holders have learned of a material adverse change in the condition,
business or prospects of Company from that known to the Holders at the
time of their
request, then the Holders shall not be required to pay any of said
expenses and shall retain their rights pursuant to Section 1.2.
1.9 Indemnification.
(a) Company will, and does hereby undertake to, indemnify and
hold harmless each Holder of Registrable Securities, each of such
Holder's officers, directors, partners and agents, and each person
controlling such Holder, with respect to any registration,
qualification or compliance effected pursuant to this Section 1, and
each underwriter, if any, and each person who controls any underwriter,
of the Registrable Securities held by or issuable to such Holder,
against all claims, losses, damages and liabilities (or actions in
respect thereto) to which they may become subject under the 1933 Act,
the 1934 Act, or other federal or state law arising out of or based on
(i) any untrue statement (or alleged untrue statement) of a material
fact contained in any prospectus, offering circular or other similar
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 in light of the
circumstances in which they were made, (ii) any violation or alleged
violation by Company of any federal, state or common law rule or
regulation applicable to Company in connection with any such
registration, qualification or compliance, or (iii) any failure to
register or qualify Registrable Securities in any state where Company
or its agents have affirmatively undertaken or agreed in writing that
Company (the undertaking of any underwriter chosen by Company being
attributed to Company) will undertake such registration or
qualification on behalf of the Holders of such Registrable Securities
(provided that in such instance Company shall not be so liable if it
has undertaken its best efforts to so register or qualify such
Registrable Securities) and will reimburse, as incurred, each such
Holder, each such underwriter and each such director, officer, partner,
agent and controlling person, for any legal and any other expenses
reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action; provided that 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 made in conformity with written
information furnished to Company by an instrument duly executed by such
Holder or underwriter and stated to be specifically for use therein.
(b) Each Holder will, and if Registrable Securities held by or
issuable to such Holder are included in such registration,
qualification or compliance pursuant to this Section 1, does hereby
undertake to indemnify and hold harmless Company, each of its
directors, officers, employees and agents, and each person controlling
Company, each underwriter, if any, and each person who controls any
underwriter, of Company's securities covered by such a Registration
Statement, and each other Holder, each of such other Holder's officers,
partners, directors and agents and each person controlling such other
Holder, 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 in light of the
circumstances in which they were made, and will reimburse, as incurred,
Company, each such underwriter, each such other Holder, and each such
director, officer, employee, agent, partner and controlling person of
the foregoing, 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) was made in such Registration Statement,
prospectus, offering circular or other document, in reliance upon and
in conformity with written information furnished to Company by an
instrument duly executed by such Holder and stated to be specifically
for use therein; PROVIDED, HOWEVER, that the liability of each Holder
hereunder shall be limited to the proportion of any such claim, loss,
damage or liability which is equal to the proportion that the public
offering price of the shares sold by such Holder under such
Registration Statement bears to the total public offering price of all
securities sold thereunder, but in any event not to exceed the net
proceeds received by such Holder from the sale of securities under such
Registration Statement. It is understood and agreed that the
indemnification obligations of each Holder pursuant to any underwriting
agreement entered into in connection with any Registration Statement
shall be limited to the obligations contained in this subsection
1.9(b).
(c) Each party entitled to indemnification under this Section
1.9 (the "INDEMNIFIED Party") shall give notice to the party required
to provide such indemnification (the "INDEMNIFYING Party") of any claim
as to which indemnification may be sought promptly after such
Indemnified Party has actual knowledge thereof, and shall permit the
Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; PROVIDED, HOWEVER, that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be subject to approval by the Indemnified Party
(whose approval shall not be unreasonably withheld) and the Indemnified
Party may participate in such defense at the Indemnifying Party's
expense if representation of such Indemnified Party would be
inappropriate due to actual or potential differing interests between
such indemnified party and any other party represented by such counsel
in such proceeding; 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 1.9,
except to the extent that such failure to give notice shall materially
adversely affect the Indemnifying Party in the defense of any such
claim or any such litigation. 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 therein, to such Indemnified Party,
of a release from all liability in respect to such claim or litigation.
(d) In order to provide for just and equitable contribution to
joint liability under the 1933 Act in any case in which either (i) any
Indemnified Party exercising rights under this Agreement, or any
controlling person of any such Indemnified Party, makes a claim for
indemnification pursuant to this Section 1.9 but it is judicially
determined (by
the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in
such case notwithstanding the fact that this Section 1.9 provides for
indemnification in such case, or (ii) contribution under the 1933 Act
may be required on the part of any such Indemnified Party or any such
controlling person in circumstances for which indemnification is
provided under this Section 1.9; then, and in each such case, Company
and such Holder will contribute to the aggregate claims, losses,
damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that such Holder is responsible for
the portion represented by the percentage that the public offering
price of the securities offered by such Holder pursuant to the
Registration Statement bears to the public offering price of all
securities offered by such Registration Statement, and Company and any
other contributing parties are responsible for the remaining portion;
PROVIDED, HOWEVER, that, in any case, (A) no such Holder will be
required to contribute any amount in excess of the public offering
price of all securities offered by it pursuant to such Registration
Statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 0000 Xxx)
will be entitled to contribution from any person or entity who was not
guilty of such fraudulent misrepresentation.
(e) The indemnities and contribution obligations provided in
this Section 1.9 shall survive the transfer of any Registrable
Securities by such Holder.
1.10 Limitations on Subsequent Registration Rights. From and after the
date of this Agreement, Company shall not, without the prior written consent of
the Holders of greater than fifty percent (50%) of the Registrable Securities
then outstanding and not registered, enter into any agreement with any holder or
prospective holder of any securities of Company, which would allow such holder
or prospective holder to (i) require Company to effect a registration or (ii)
include any securities in any registration filed under Section 1.2, 1.3 or 1.4
hereof, unless, under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of such securities will not diminish the amount of
Registrable Securities which are included in such registration and includes the
equivalent of Section 1.13 as a term.
1.11 Rule 144 Reporting. With a view to making available to the Holders
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, Company
agrees to use its best efforts to:
(a) Make and keep current public information available, within
the meaning of SEC Rule 144 or any similar or analogous rule
promulgated under the 1933 Act, at all times after it has become
subject to the reporting requirements of the 1934 Act;
(b) File with the SEC, in a timely manner, all reports and
other documents required of Company under the 1933 Act and 1934 Act
(after it has become subject to such reporting requirements);
(c) So long as a Holder owns any Registrable Securities,
furnish to such Holder forthwith upon request: a written statement by
Company as to its compliance with the reporting requirements of said
Rule 144 (at any time commencing ninety (90) days after the effective
date of the first registration filed by Company for an offering of its
securities to the general public), the 1933 Act and the 1934 Act (at
any time after it has become subject to such reporting requirements); a
copy of the most recent annual or quarterly report of Company; and such
other reports and documents as a Holder may reasonably request in
availing itself of any rule or regulation of the SEC allowing it to
sell any such securities without registration.
1.12 Delay of Registration; Conversion of Series A Stock To
Facilitate Registration.
(a) No Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
(b) If any registration hereunder requires that the
Registrable Securities be in the form of Common Stock rather than
Series A Stock, Company shall coordinate with all Holders to facilitate
the conversion of Series A Stock into Common Stock and to include such
Common Stock in the Registration (provided the Holder thereof has
exercised its election to register such shares within the time periods
set forth above).
1.13 "Market Stand-Off" Agreement.
(a) Each Holder which is a "ONE PERCENT SHAREHOLDER," as
defined below, hereby agrees that during the "Lock-Up Period" (as
hereinafter defined) following the effective date of a registration
statement of Company filed under the 1933 Act, it shall not, to the
extent requested by Company and any underwriter, sell, pledge,
transfer, make any short sale of, loan, grant any option for the
purchase of, or otherwise transfer or dispose of (other than to donees
who agree to be similarly bound) any Common Stock held by it at any
time during such period except Common Stock included in such
registration; PROVIDED, HOWEVER, that such agreement shall be
applicable only to the first such registration statement of Company
which covers Common Stock (or other securities) to be sold on its
behalf to the public in an underwritten offering. Market stand-off
agreements for subsequent registration statements, if any, shall be as
agreed to by Company, the underwriters and any other party thereto.
(b) For purposes of this Section 1.13, the term "ONE PERCENT
SHAREHOLDER" shall mean a stockholder of Company who holds, prior to
the effective date of the registration statement, at least one percent
of the issued and outstanding Common Stock of Company on an
as-converted, as-exercised, fully-diluted basis (as used herein,
"AS-CONVERTED, AS-EXERCISED, FULLY-DILUTED" shall not include Warrants
for the purchase of up to Five Hundred Thousand Dollars ($500,000) of
Common Stock to the extent such Warrants have not been exercised).
(c) For purposes of this Section 1.13, the "LOCK-UP PERIOD"
shall be the period applicable to all other One Percent Shareholders
with registration rights (whether or not pursuant to this Agreement),
and all officers and directors of Company, who enter into similar
agreements but in any event shall be not less than ninety (90) days
from the effective date of the registration statement.
(d) In order to enforce the foregoing covenant, Company may
impose stop-transfer instructions with respect to the Registrable
Securities of each Holder (and the shares or securities of every other
person subject to the foregoing restriction) until the end of such
period.
1.14 Foreign Registrations. In the event Company and Initiating Holders
agree that it is appropriate to cause to be registered the Registrable
Securities under the laws of a country other than the United States of America,
the parties shall cooperate with each other and shall execute and deliver such
instruments and other items as are appropriate, at the expense of Company, in
order to effectuate such registration, unless such registration would require
either Company or a Holder to execute a general consent to service of process in
effecting such registration, to the extent Company or such Holder are not
already subject to service in such jurisdiction.
1.15 Transfer of Registration Rights. The rights, contained in Sections
1.2, 1.3 and 1.4 hereof, to cause Company to register the Registrable
Securities, may be assigned, conveyed or otherwise transferred to a transferee
or assignee of Registrable Securities, who shall be considered a "HOLDER" for
purposes of this Section 1, provided that such transfer is a "Permitted
Transfer." A "PERMITTED TRANSFER" shall mean: (i) a transaction not involving a
change in beneficial ownership; (ii) transactions involving distribution without
consideration by a partnership to any of its partners, retired partners, or to
the estate of any of its partners, or by a limited liability company to any of
its members, retired members or to the estate of any of its members; (iii)
transfers by an individual to a trust for the benefit of such individual or his
family; (iv) transfers by gift, will or intestate succession to the spouse,
lineal descendants or ancestors of any Holder or spouse of a Holder; or (v)
transfers to any one transferee of at least Ten Thousand (10,000) shares of
Registrable Securities provided that the Company is given prior written notice
of such transfer.
1.16 Amendment of Registration Rights. Any provision of this Section 1
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of Company and the Holders of more than fifty percent (50%) of
the Registrable Securities then outstanding and not registered. Any amendment or
waiver effected in accordance with this Section 1.16 shall be binding upon each
Holder, each future Holder of Registrable Securities and Company.
1.17 Termination of Registration Rights. The rights of any particular
Holder to cause Company to register securities under Sections 1.2, 1.3 or 1.4
hereof shall terminate as to any Holder who holds Registrable Securities equal
to less than one percent (1%) of the issued and outstanding Common Stock of
Company (determined on an as-converted, as-exercised, fully-diluted basis) as
shown on the most recent report or statement published by Company or
distributed the Holders pursuant to Section 3.1 hereof, on the date such Holder
is able to dispose of all of its Registrable Securities in any ninety (90)-day
period pursuant to SEC Rule 144 (or any similar or analogous rule promulgated
under the 1933 Act).
SECTION 2.
BOARD OF DIRECTORS
From and after the date hereof, and until the provisions of this
Section 2 cease to be effective, each Stockholder shall vote any voting security
of Company over which such Stockholder has voting control, and shall take all
other necessary or desirable actions within his or her control (whether in his
or her capacity as a Stockholder, director, member of a Board committee or
officer of Company or otherwise, and including, without limitation, attendance
at meetings in person or by proxy for purposes of obtaining a quorum and
execution of written consents in lieu of meetings), and Company shall take all
necessary and desirable actions within its control (including, without
limitation, calling special Board and Stockholder meetings), so that:
2.1 Constituency of Board of Directors; Quorum.
(a) Constituency of Board of Directors. For as long as there
remain outstanding any Debentures or any principal, accrued interest or
other amounts owed thereunder, or at least Fifty Thousand (50,000)
shares of Series A Stock or Common Stock issued upon conversion thereof
(as adjusted for any combination, consolidation, stock distribution or
stock dividend with respect to such shares), or at least Two Hundred
Sixty-Six Thousand Six Hundred Sixty-Seven (266,667) Warrant Shares (as
adjusted for any combination, consolidation, stock distribution or
stock dividend with respect to such shares), the parties shall vote
their shares of capital stock of Company for a Board of Directors
consisting of five (5) directors, comprised as follows:
(i) One (1) director designated by Centennial Venture
Partners, LLC ("CVP") so long as it remains a Series A Holder
(to be designated after the date hereof and upon Company
obtaining director and officer insurance coverage acceptable
to CVP); and
(ii) The remaining four (4) directors designated by
the holders of Common Stock, voting together as a single class
(on an as-converted, as-exercised, fully-diluted basis).
Notwithstanding anything to the contrary contained in this Agreement,
the provisions of clauses (i) and (ii) of this Section 2.1(a) that
allow a party to designate or participate in the designation of a
director may not be amended without the consent of that party, or (in
the case of the holders of Common Stock) the holders of a majority of
the outstanding shares of Common Stock (on an as-converted,
as-exercised, fully-diluted basis).
(b) Quorum. A majority of the number of directors then
constituting the Board of Directors shall constitute a quorum for the
transaction of business of the Board.
2.2 Audit and Compensation Committees. The Board shall establish an
Audit Committee and a Compensation Committee following the date hereof, each
comprised of (a) one (1) director designated by CVP, and (b) two (2) directors
designated by the holders of Common Stock (on an as-converted, as-exercised,
fully-diluted basis)(one of which two (2) directors shall be a non-management
director).
2.3 Other Committees. Any other committee of the Board shall be created
only upon the approval of a majority of the members of the Board and the
composition of each such committee (if any) shall be proportionally equivalent
to that of the Board.
2.4 Vacancies. In the event that any representative designated
hereunder for any reason ceases to serve as member of the Board or any committee
thereof during such representative's term of office, the resulting vacancy on
the Board or committee shall be filled by a representative designated by the
persons referred to in clauses (i) and (ii) of Section 2.1(a).
2.5 Meetings. Each Holder shall (a) be entitled to notice of, (b) have
the right to attend, (c) receive copies of all materials distributed to
Directors in connection with, and (d) comment for the record at, any and all
Board meetings. The By-laws of Company shall allow directors to attend meetings
of the Board by telephone.
2.6 Board Expenses. Company shall pay all direct out-of-pocket expenses
reasonably incurred by directors in attending each meeting of the Board or any
committee thereof.
2.7 Articles of Incorporation and By-Laws. Each Stockholder further
covenants and agrees to cause Company's Articles of Incorporation and By-Laws to
have provisions consistent with the requirements of Section 3.2(n).
2.8 No Conflicting Agreements. Each Stockholder represents that it has
not granted and is not a party to any proxy, voting trust or other agreement
which is inconsistent with or conflicts with the provisions of this Agreement,
and no Stockholder shall grant any proxy or become party to any voting trust or
other agreement which is inconsistent with or conflicts with the provisions of
this Agreement.
2.9 Nature and Term of Agreement. The provisions of Section 2, which
require Stockholders to vote their shares in accordance with the terms set forth
herein, shall constitute a voting agreement under Section 55-7-31 of the North
Carolina General Statutes and shall terminate automatically and be of no further
force and effect upon the earlier of (i) ten (10) years from the date hereof
(unless extended in accordance with applicable law) or (ii) the occurrence of a
Qualified Public Offering (as defined in Section 3.5 hereof).
SECTION 3.
COMPANY COVENANTS
Company hereby covenants and agrees as follows:
3.1 Basic Financial Information and Reporting Requirements.
(a) Reports and Notifications to Be Delivered by Company.
Company shall furnish to each Series A Holder the following reports and
notices so long as such Series A Holder continues to hold Debentures or
shares of Series A Stock issued upon conversion thereof, Warrants or
any Common Stock issued upon exercise thereof, or any Common Stock
issued upon conversion of Series A Stock.
(i) Annual Financial Statements. As soon as
practicable after the end of each fiscal year, and in any
event within ninety (90) days thereafter, audited consolidated
and consolidating balance sheets of Company and its
subsidiaries, if any, as at the end of such fiscal year, and
audited consolidated and consolidating statements of income,
retained earnings and cash flows of Company and its
subsidiaries, if any, for such fiscal year, prepared in
accordance with generally accepted accounting principles and
setting forth in each case in comparative form the figures for
the previous fiscal year, if any, all in reasonable detail and
accompanied by: (A) a report and opinion thereon by
independent certified public accountants of national
reputation; i.e., a "Big Five" firm or equivalent, who shall
be approved by the Board or the Board's Audit Committee; and
(B) a copy of such accountants' management letter prepared in
connection therewith, if any (as soon as such letter is
available, which may be greater than the aforesaid ninety
(90)-day period).
(ii) Monthly Reports. As soon as practicable after
the end of each calendar month, but in any event within
fifteen (15) days thereafter, "MONTHLY FINANCIAL STATEMENTS"
consisting of:
(A) the unaudited consolidated balance sheet
of Company and its subsidiaries, if any, as of the
end of such month and as of year to date;
(B) unaudited profit and loss statement,
cash flow statement and backlog statement of Company
and its subsidiaries for such month and year to date;
(C) actual results versus Company's and its
subsidiaries', if any, plan for the month and year to
date, setting forth in each case in comparative form
the figures for the corresponding month and year to
date period of the preceding fiscal year; and
(D) a brief (1 page) management summary of
operations,
all in reasonable detail and prepared in accordance with
generally accepted accounting principles and certified by the
principal financial or accounting officer of Company.
(iii) Quarterly Report. As soon as practicable after
the end of each fiscal quarter, and in any event within thirty
(30) days thereafter, a brief (1-2
pages) quarterly report of the President describing important
operational activities during the prior quarter, discussing
variances from budget, stating that such officer has caused
all Major Agreements (defined below) to be reviewed and
indicating whether the Company and its subsidiaries are, or
are not, in compliance with all Major Agreements.
As used herein, "MAJOR AGREEMENTS" means: (i) this Agreement,
(ii) the rights, preferences and designations of the Series A
Stock set forth in the Company's Articles of Incorporation as
in effect on the date hereof, and as amended from time to
time, (iii) any other agreements entered into between Company
and a Series A Holder, and (iv) any other material contract or
agreement to which Company, or any of its subsidiaries, if
any, is a party or by which Company or any of its
subsidiaries, if any, or their properties or assets are bound.
(iv) Annual Operating Plan. At least sixty (60) days
prior to the beginning of each fiscal year, a comprehensive
written operating plan to include projections for the next
three (3) years in the same format as the Quarterly Financial
Statements. All such projections shall represent the good
faith estimate of management as to future operations (and
shall contain a brief certificate to such effect), but it is
acknowledged that such projections are not intended and shall
not be deemed to guaranty the future operations of Company or
its subsidiaries, if any.
(v) Notification of Defaults Under Material
Agreements. Promptly and in any event within ten (10) days
after receipt thereof, copies of any notifications received by
Company or any of its subsidiaries, if any, from its or their
lenders, landlords, or other parties, alleging default under
any Major Agreements, loans, financing transactions, leases,
or similar agreements to which Company or any of its
subsidiaries, if any, is a party.
(vi) Notification of Litigation Proceedings. Promptly
after the commencement thereof, notice (and copies of all
pleadings) of all actions, suits and proceedings before any
court or governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, materially
affecting Company or any subsidiary (including, without
limitation, all material actions filed by or against Company).
(vii) Other Reports. With reasonable promptness, such
other information respecting the business, properties or the
condition of operations, financial or other, of Company or any
of its subsidiaries, if any as Series A Holders may from time
to time reasonably request.
(b) Assignability of Rights to Receive Reports and
Notifications. The rights granted pursuant to this Section 3.1 may not
be assigned or otherwise conveyed by Series A Holders or by any
subsequent transferee of any such rights without the written consent of
Company, which consent shall not be unreasonably withheld; PROVIDED,
HOWEVER, that
Company may refuse such written consent if the proposed transferee is
reasonably believed by Company to be a competitor of Company or if the
proposed transferee has refused to sign a reasonable, written
confidentiality agreement with Company; and PROVIDED, FURTHER, that no
such written consent shall be required if the transfer is a Permitted
Transfer (as defined in subsections (i) through (v), inclusive, of
Section 1.15 hereof) by Series A Holders.
3.2 Additional Affirmative Covenants. Company covenants and agrees that
it will perform and observe the following covenants and provisions, and will
cause each subsidiary of Company, if and when such subsidiary exists, to perform
and observe such of the following covenants and provisions as are applicable to
such subsidiary:
(a) Preservation of Corporate Existence. Preserve and
maintain, and, unless Company deems it not to be in its best interests,
cause each subsidiary to preserve and maintain, its corporate
existence, rights, franchises and privileges in the jurisdiction of its
incorporation, and qualify and remain qualified, and cause each
subsidiary to qualify and remain qualified, as a foreign corporation in
each jurisdiction in which such qualification is necessary or desirable
in view of its business and operations or the ownership or lease of its
properties. Secure, preserve and maintain, and cause each subsidiary to
secure, preserve and maintain, all licenses and other rights to use
patents, processes, licenses, permits, trademarks, trade names,
inventions, intellectual property rights or copyrights owned or
possessed by it and deemed by Company to be necessary to the conduct of
its business or the business of any subsidiary.
(b) Payment of Taxes. Pay and discharge, and cause each
subsidiary to pay and discharge, all taxes, assessments and
governmental charges or levies imposed upon it or upon its income,
profits or business, or upon any properties belonging to it, prior to
the date on which penalties attach thereto, and all lawful claims
which, if unpaid, might become a lien or charge upon any properties of
Company or any subsidiary, provided that neither Company nor any
subsidiary shall be required to pay any such tax, assessment, charge,
levy or claim which is being contested in good faith and by appropriate
proceedings if Company or any subsidiary shall have set aside on its
books sufficient reserves, if any, with respect thereto.
(c) Payment of Trade Debt. Pay, and cause each subsidiary to
pay, when due, or in conformity with customary trade terms but not
later than ninety (90) days from the due date, all lease obligations,
all trade debt, and all other indebtedness incident to the operations
of Company or its subsidiaries, except such as are being contested in
good faith and by proper proceedings if Company or subsidiary concerned
shall have set aside on its books sufficient reserves, if any, with
respect thereto.
(d) Maintenance of Properties. Maintain and preserve, and
cause each subsidiary to maintain and preserve, all of its properties
and assets, necessary for the proper conduct of its business, in good
repair, working order and condition, ordinary wear and tear excepted.
(e) Maintenance of Insurance.
(i) Maintain or cause to be maintained, and cause
each subsidiary to maintain, insurance with responsible and
reputable insurance companies or associations in such amounts
and covering such risks as is customarily carried by companies
engaged in similar businesses and owning similar properties in
the same general areas in which Company or such subsidiary
operates, but in any event in amounts sufficient to prevent
Company or subsidiary from becoming a co-insurer and on such
terms and conditions as are reasonably acceptable to Series A
Holders.
(ii) Maintain or cause to be maintained a policy or
policies of directors' and officers' liability insurance with
responsible and reputable insurance companies or associations,
covering the directors and officers of Company and its
subsidiaries in such amounts and against such risks as is
customarily carried by companies engaged in similar businesses
to that of Company, and on such terms and conditions as are
reasonably acceptable to Series A Holders.
(f) Inspection. Permit any Holder and each transferee thereof
in a Permitted Transfer (as defined in Section 1.15 hereof), its
attorney or its other representative to visit and inspect Company's and
its subsidiaries' properties, to examine Company's and its
subsidiaries' books of account and other records, to make copies or
extracts therefrom and to discuss Company's and its subsidiaries'
affairs, finances and accounts with their officers, management
employees and independent accountants all at such reasonable times and
as often as such holder or such transferee may reasonably request;
PROVIDED, however, that Company shall not be obligated pursuant to this
Section 3.2(f) to provide trade secrets or confidential information or
to provide information to any person whom Company reasonably believes
is a competitor of Company.
(g) Compliance with Laws. Comply, and cause each subsidiary to
comply, with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority, noncompliance
with which could materially adversely affect its business or condition,
financial or otherwise.
(h) Regulatory Compliance. Comply, and cause each subsidiary
to comply, with all minimum funding requirements applicable to any
pension, employee benefit plans or employee contribution plans which
are subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or to the Internal Revenue Code of 1986, as amended
(the "CODE"), and comply, and cause each subsidiary to comply, in all
other material respects with the provisions of ERISA and the Code, and
the rules and regulations thereunder, which are applicable to any such
plan. Neither Company nor any subsidiary will permit any event or
condition to exist which could permit any such plan to be terminated
under circumstances which would cause the lien provided for in Section
4068 of ERISA to attach to the assets of Company or any subsidiary.
(i) Maintenance of Accurate Records. Keep, and cause each
subsidiary to keep, adequate records and books of account in which
complete entries will be made in accordance with generally accepted
accounting principles consistently applied, reflecting all financial
transactions of Company and any subsidiary, and in which, for each
fiscal year, all proper reserves for depreciation, depletion, returns
of merchandise, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
(j) Financing. Promptly, fully and in detail, inform the Board
and Series A Holders of any discussions, offers or contracts relating
to possible financing or refinancing of any nature for Company and/or
its subsidiaries, whether initiated by Company or any other person, and
obtain the prior approval of the Board prior to finalizing any of the
foregoing, except for (A) financing of up to an aggregate in any year
of Two Hundred Thousand Dollars ($200,000), accomplished in the
ordinary course of business which does not include as a feature thereof
any right to acquire any of the equity securities of Company, (B)
arrangements with trade creditors, and (C) utilization by Company or
any subsidiary of commercial lending arrangements with financial
institutions previously approved by the Board.
(k) Non-Disclosure, Invention and Non-Competition Agreements
of Officers and Key Employees. Cause the chief executive officer,
president, chief operating officer, chief financial officer, vice
president of research and development, and vice president of marketing
and sales of Company (the "KEY EMPLOYEES"), each other officer and
consultant of Company (including Xxxxxxx Xxxx and X. Xxxxxxxx X.
Xxxxxxxx) to execute and deliver a Non-Disclosure, Invention and
Non-Competition Agreement substantially similar in form and substance
to Exhibit A attached hereto, with such other terms and conditions and
completed as approved by the Board of Directors of Company.
(l) Right to Call Board and Stockholder Meetings. Company
shall at all times cause its Bylaws to provide that, unless otherwise
required by the laws of the State of North Carolina (i) any two
directors and (ii) any holder or holders of at least twenty percent
(20%) of the outstanding Investor Shares shall have the right to call a
meeting of the Board or stockholders.
(m) Indemnification of Directors. Company shall at all times
maintain provisions in its Bylaws or Articles of Incorporation, as may
be amended or restated from time to time, indemnifying all directors
against liability, and eliminating all directors' liability for breach
of fiduciary duty, to the maximum extent permitted under the laws of
the State of North Carolina.
(n) Election of Officers; Officer Compensation. All officers
of Company must be elected and approved by the Board of Directors and
Series A Holders. Officer salaries must be approved by the Board's
Compensation Committee.
(o) Investment Bankers and Financial Advisors. All investment
bankers and financial advisors engaged by Company must be approved by
the Board of Directors and Series A Holders.
(p) Capital Stock. The Board of Directors of Company shall
allocate One Million Three Hundred Eighty-Three Thousand One Hundred
Forty-Eight (1,383,148) shares of Common Stock for issuance to
Company's directors, officers, employees, advisors and consultants
pursuant to an equity compensation plan established by Company and
approved by Series A Holders (collectively, the "OPTION SHARES"). All
grants of Option Shares by Company to directors, officers, employees,
advisors and consultants of Company shall be subject to approval of the
Compensation Committee of the Board.
(q) Transactions with Officers, Directors, and Subsidiaries.
Company may, directly or indirectly, enter into or permit to exist any
transaction with any officer, director, or any affiliate of any of the
foregoing, PROVIDED, HOWEVER, that the Board shall have first
determined that the terms of such transaction are no less favorable to
Company than those which might be obtained from other persons.
(r) Vesting of Stock Held by Directors, Officers, Employees,
Advisors and Consultants. All Common Stock acquired after the date
hereof by any director, officer, employee, advisor or consultant of
Company shall be subject to vesting provisions and stock repurchase
provisions acceptable to the Series A Holders, and all Common Stock
acquired prior to the date hereof by any director, officer, employee,
advisor or consultant who is or at any time becomes a party to any
Non-Disclosure, Invention and Non-Competition Agreement or similar
agreement with Company shall be subject to stock repurchase provisions
acceptable to the Series A Holders which shall apply in the event of a
breach by any such director, officer, employee, advisor or consultant
of the terms of any such agreement.
(s) Key Man Insurance. Company shall maintain or cause to be
maintained, with financially sound and reputable insurers, life
insurance in the amount of Five Hundred Thousand Dollars ($500,000) on
the life of X. Xxxxxxxx X. Xxxxxxxx, for such period of time as he is
employed by Company or is an officer or director of Company. Such
policy shall be owned by Company and all benefits thereunder shall be
payable to Company.
(t) Corporate Headquarters. Company's headquarters and
principal place of business shall be located on Centennial Campus of
North Carolina State University in Raleigh, North Carolina, except to
the extent such requirement is waived by the Series A Holders.
(u) Research. Company shall use its best efforts to sponsor
research at North Carolina State University.
(v) Approval of Management. CVP shall have the right to
approve any officers or other management of Company hired or appointed
after the date hereof, such approval not to be unreasonably withheld.
(w) Seniority of Debentures. The Debentures shall be senior in
priority to all other indebtedness of Company for borrowed money to
Xxxxxxx X. Xxxx, Xxxxx Xxxxx or any directors, officers, employees,
agents or insiders of Company, other than indebtedness to Xxxxxxx X.
Xxxx existing on the date hereof not in excess of $65,000, and no
payments of any kind on any such indebtedness may be made by Company at
any time during which Company is in default under the terms of the
Debentures.
(x) Disclosure. Company shall not announce, communicate or
otherwise disclose to any other person or entity (by press release,
brochure, written or oral disclosure or otherwise) any information
relating to or on behalf of any Series A Holder, including the
involvement of any Series A Holder with Company and the existence or
terms of any investment in Company by a Series A Holder, without the
prior written consent of such Series A Holder, other than in connection
with standard financial reports distributed to shareholders or as
otherwise required by law.
3.3 Negative Covenants. Company covenants and agrees that it
will comply with and observe the following negative covenants and provisions,
and will cause each subsidiary of Company, if and when such subsidiary exists,
to comply with and observe such of the following negative covenants and
provisions as are applicable to such subsidiary, unless (in each case) otherwise
consented to in writing by greater than fifty percent (50%) in interest of the
holders of shares of Series A Stock issued or issuable upon conversion of the
Debentures and Common Stock issued or issuable upon conversion of the Series A
Stock and exercise of all Warrants. Accordingly, without the requisite Investor
consent, Company and its subsidiaries shall not:
(a) Alter or change the rights, preferences or privileges of
the Series A Stock, or change the rights, preferences or privileges of
any other class or classes of the capital stock of Company, the direct
or indirect effect of which would be to alter or change the rights,
preferences or privileges of the Series A Stock;
(b) Increase or decrease the authorized number of shares of
the Series A Stock; or
(c) Create, by reclassification or otherwise, any new class or
series of shares having rights, preferences or privileges senior to or
on a parity with the Series A Stock.
(d) Redeem any shares of Common Stock (other than pursuant to
any employee agreements or in the payment of any dividends);
(e) Take any action that results in any merger, corporate
reorganization, sale, change of control, or any transaction (or series
of related transactions) in which all or substantially all of the
assets of Company are sold;
(f) Amend or waive any provision of Company's Articles of
Incorporation which has the direct or indirect effect of altering,
changing or otherwise modifying the capital stock of Company;
(g) Take any action that results in the recapitalization,
reorganization, dissolution, liquidation, or change in legal structure
of Company;
(h) Take any action that adversely affects the rights of the
Series A Holders under the terms of the Debentures or the Warrants.
3.4 Fees and Expenses. Company shall reimburse Series A Holders upon
demand for all reasonable costs and expenses (including reasonable attorneys'
fees and expenses) incurred by Series A Holders, or any successor thereto, in
enforcing the obligations of Company under this Agreement or in connection with
any amendment, waiver, consent, supplement or other modification to this
Agreement or any agreement referenced herein.
3.5 Expiration of Covenants. The covenants set forth in this Section 3
shall expire and be of no further force or effect upon the closing of the sale
of shares of Common Stock by Company in an underwritten public offering
registered under the 1933 Act (other than a registration relating solely to
employee benefit plans or to a transaction under Rule 145 under the 1933 Act or
any successor rule thereto) in which (before deduction of underwriter
commissions and selling expenses) the public offering price is equal to or
exceeds Five Dollars ($5.00) per share of Common Stock (subject to adjustment
for stock splits, reverse stock splits and other similar corporate
reorganizations) and the gross proceeds to Company equal or exceed Fifteen
Million Dollars ($15,000,000) (hereinafter, a "QUALIFIED PUBLIC OFFERING"). The
covenants set forth in Section 3.3 shall expire and be of no further force or
effect at such time as there no longer remain outstanding any Debentures or any
principal, accrued interest or other amounts owed thereunder, or at least Fifty
Thousand (50,000) shares of Series A Stock or Common Stock issued upon
conversion thereof (as adjusted for any combination, consolidation, stock
distribution or stock dividend with respect to such shares), or at least Two
Hundred Sixty-Six Thousand Six Hundred Sixty-Seven (266,667) Warrant Shares (as
adjusted for any combination, consolidation, stock distribution or stock
dividend with respect to such shares).
SECTION 4.
MISCELLANEOUS
4.1 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of North Carolina, as applied to agreements among
North Carolina residents made and to be performed entirely within the State of
North Carolina, and without regard to the conflicts of law principles as may
otherwise be applicable.
4.2 Jurisdiction and Venue. Each party to this Agreement hereby
irrevocably agrees that any legal action or proceeding arising out of or
relating to this Agreement or the transactions contemplated hereunder may be
brought in the courts of Wake County in the State of North Carolina or of the
United States of America for the Eastern District of North Carolina, and hereby
expressly submits to the personal jurisdiction and venue of such courts for the
purposes
thereof and expressly waives any claim of improper venue and any claim that such
courts are an inconvenient forum. Each party hereby irrevocably consents to the
service of process of any of the aforementioned courts in any such suit, action
or proceeding, by the mailing of copies thereof by registered or certified mail,
postage prepaid, to its address set forth in this Agreement, such service to
become effective ten (10) days after such mailing.
4.3 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. All certificates or instruments representing shares of capital
stock of Company held by or issued to the parties hereto, whether now
outstanding or subsequently issued, shall be surrendered to Company for
endorsement or be endorsed by Company prior to their issuance with the following
legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
AN AGREEMENT AS SET FORTH IN AN INVESTOR RIGHTS AGREEMENT
AMONG THE HOLDER OF THESE SECURITIES AND CERTAIN OTHER HOLDERS
OF THE ISSUER'S STOCK, A COPY OF WHICH IS AVAILABLE FOR
INSPECTION AT THE PRINCIPAL OFFICE OF THE ISSUER. BY ACCEPTING
ANY INTEREST IN SUCH SECURITIES, THE PERSON ACCEPTING SUCH
INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY
ALL OF THE PROVISIONS OF SAID INVESTOR RIGHTS AGREEMENT.
INCLUDED AMONG THE PROVISIONS OF THE INVESTOR RIGHTS AGREEMENT
ARE CERTAIN VOTING AGREEMENTS.
4.4 Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement among the parties with regard to the subjects
hereof. Nothing in this Agreement, express or implied, is intended to confer
upon any party, other than the parties hereto and their respective successors
and assigns, any rights, remedies, obligations or liabilities under or by reason
of this Agreement, except as expressly provided herein.
4.5 Severability. Any invalidity, illegality or limitation of the
enforceability with respect to Company, Common Stockholder or a Series A Holder
of any one or more of the provisions of this Agreement, or any part thereof,
whether arising by reason of the law of any such person's domicile or otherwise,
shall in no way affect or impair the validity, legality or enforceability of
this Agreement with respect to the remaining parties to this Agreement. In case
any provision of this Agreement shall be invalid, illegal or unenforceable, it
shall to the extent practicable, be modified so as to make it valid, legal and
enforceable and to retain as nearly as practicable the intent of the parties,
and the validity, legality, and enforceability of the remaining provisions shall
not in any way be affected or impaired thereby.
4.6 Specific Performance. The parties hereto acknowledge that a breach
or violation of any of the terms, covenants or other obligations under this
Agreement will result in immediate and irreparable harm to the non-breaching
parties in an amount which will be impossible to
ascertain at the time of the breach or violation and that the award of monetary
damages will not be adequate relief to the non-breaching parties. Therefore, the
failure on the part of any party to perform all of the terms, covenants and
obligations established by this Agreement shall give rise to a right to the
other parties to obtain enforcement of this Agreement in a court of equity by a
decree of specific performance or other injunctive relief. This remedy, however,
shall be cumulative and in addition to any other remedy the parties may have.
4.7 Amendment and Waiver. Except as otherwise expressly provided
herein, (a) any matter requiring the approval or consent of Series A Holders or
holders of Investor Shares shall require the approval or consent of Series A
Holders or holders of Investor Shares, as applicable, or their transferees,
holding greater than fifty percent (50%) of the Investor Shares, and (b) 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, either
retroactively or prospectively, and either for a specified period of time or
indefinitely) with the written consent of Company and Series A Holders (or their
transferees) holding greater than fifty percent (50%) of the Investor Shares;
PROVIDED, HOWEVER, that no such amendment or waiver shall increase the
obligation of a Series A Holder hereunder (as a Series A Holder) or a Common
Stockholder, or directly or indirectly reduce the equity percentage of a Series
A Holder or a Common Stockholder (on an as-converted, as-exercised,
fully-diluted basis), without the written consent of such Series A Holder or
Common Stockholder, as the case may be; and PROVIDED, FURTHER, that no such
amendment or waiver shall reduce the aforesaid percentage of Investor Shares,
the holders of which are required to consent to any waiver or supplemental
agreement, without the consent of the holders of all of such Investor Shares.
Any amendment or waiver effected in accordance with this Section 4.7 shall be
binding upon Company, Series A Holders, Common Stockholders and each of their
future transferees. Upon the effectuation of each such amendment or waiver,
Company shall promptly give written notice thereof to the holders of the
Investor Shares who have not previously consented thereto in writing.
4.8 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to Company, Series A Holders, or any of their
transferees, upon any breach, default or noncompliance of Company, Series A
Holders, Common Stockholders or any transferee under this Agreement, shall
impair any such right, power or remedy, nor shall it be construed to be a waiver
of any such breach, default or noncompliance, or any acquiescence therein, or of
any similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent or approval of any kind or character on
the part of Company or Series A Holders of any breach, default or noncompliance
under this Agreement or any waiver on Company's, Series A Holders' or Common
Stockholders' part of any provisions or conditions of this Agreement must be in
writing and shall be effective only to the extent specifically set forth in such
writing and that all remedies, either under this Agreement, by law, or otherwise
afforded to Company and Series A Holders shall be cumulative and not
alternative.
4.9 Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed effectively given upon
personal delivery or upon confirmed delivery by facsimile or telecopy, or on the
fifth day (or the tenth day if to a party with a foreign address) following
mailing by registered or certified mail, return receipt requested, postage
prepaid, addressed:
(a) if to a Series A Holder, at such Series A Holder's address
as set forth on the schedule attached hereto, or at such other address
as such Series A Holder shall have furnished to the other parties
hereto in writing, with a copy to:
Xxxxxx X. Xxxxxx, Esq.
Xxxxxxx Xxxxxxxxx Xxxxxxx & Xxxxxxx, L.L.P.
Two Hannover Square
000 Xxxxxxxxx Xxxxxx, Xxxxx 0000 (27601)
Post Office Box 1070 (27602)
Raleigh, North Carolina
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
(b) if to Company, at the address noted below, or at such
other address as Company shall have furnished to the other parties
hereto in writing:
ID Technologies Corporation
Attn: X. Xxxxxxxx X. Xxxxxxxx
NCSU Centennial Campus
000 Xxxx Xxxxxx Xxxxx
Xxxxx 000
Xxxxxxx, Xxxxx Xxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Xxxxxx & Xxxxxxx, L.L.P.
Attn: Xxxxx X. X'Xxxxx III
0000 Xxxxxxxx Xxxxxx
Post Office Xxx 00000
Xxxxxxx, Xxxxx Xxxxxxxx 00000-0000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
(c) if to the other Stockholders, at the addresses set forth
on the schedule attached hereto , or at such other addresses as such
Stockholders shall have furnished to the other parties hereto in
writing.
4.10 Titles and Subtitles. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
4.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
SIGNATURE PAGE FOR
COMPANY
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the parties under seal as of the date first above written.
ID TECHNOLOGIES CORPORATION
ATTEST:
By: /s/ X. Xxxxxxxx X. Xxxxxxxx
-----------------------------------
X. Xxxxxxxx X. Xxxxxxxx, President
/s/ Xxxxxxx X. Xxxx
---------------------
(Assistant) Secretary
[AFFIX CORPORATE SEAL]
SIGNATURE PAGE FOR
CENTENNIAL VENTURE PARTNERS, LLC
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the parties under seal as of the date first above written.
CENTENNIAL VENTURE PARTNERS, LLC (SEAL)
By: Centennial Venture Management, LLC,
Manager (SEAL)
By: /s/ Xxxxx X. Xxxxx
----------------------------------
Xxxxx X. Xxxxx, Managing Director
and Manager
SIGNATURE PAGE FOR
XXXXXXX X. XXXX AND XXXXXXX X. XXXX
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the parties under seal as of the date first above written.
By: /s/ Xxxxxxx X. Xxxx (SEAL)
--------------------------
Xxxxxxx X. Xxxx
By: /s/ Xxxxxxx X. Xxxx (SEAL)
--------------------------
Xxxxxxx X. Xxxx
SIGNATURE PAGE FOR
XXXX X. XXXXX
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the parties under seal as of the date first above written.
By: /s/ Xxxx X. Xxxxx (SEAL)
--------------------------
Xxxx X. Xxxxx
SIGNATURE PAGE FOR
INFORMATION RESOURCE ENGINEERING, INC.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the parties under seal as of the date first above written.
INFORMATION RESOURCE ENGINEERING, INC. (SEAL)
By: /s/ X.X. Xxxxxx (SEAL)
--------------------------
Name: X.X. Xxxxxx
------------------------
Title: President
-----------------------
SIGNATURE PAGE FOR
XXXXX XXXXX AND XXXXX XXXXX
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the parties under seal as of the date first above written.
By: /s/ Xxxxx Xxxxx (SEAL)
-----------------------
Xxxxx Xxxxx
By: /s/ Xxxxx Xxxxx (SEAL)
-----------------------
Xxxxx Xxxxx
SIGNATURE PAGE FOR ADDITIONAL PURCHASER
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the parties under seal as of the date first above written.
[For entity purchasers]
------------------------------------------
Name of Purchaser
By: ____________________________________
Name:
Title:
[For individual purchasers]
------------------------------------------
Name:
Address and Facsimile Number of Purchaser:
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
Domicile and Principal Place of Business
of Purchaser:
------------------------------------------
Amount of Investment:
------------------------------------------
Number of Series A Shares:
-------------------------------------
SCHEDULE 1
SCHEDULE OF SERIES A HOLDERS
====================================== ==================== ==================
NAME AND ADDRESS ORIGINAL PRINCIPAL PERCENTAGE OF
AMOUNT OF ORIGINAL
DEBENTURES PRINCIPAL AMOUNT
====================================== ==================== ==================
Centennial Venture Partners, LLC
0 Xxxxx Xxxxx $300,000 100%
Research Xxxxxxxx Xxxx, XX 00000
Telephone:
Facsimile: (000) 000-0000
Attn: Xxxxx X. Xxxxx
====================================== ==================== ==================
Total $300,000 100%
====================================== ==================== ==================
SCHEDULE 2
SCHEDULE OF COMMON STOCKHOLDERS
============================================= ================== ===============
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OF
OF COMMON STOCK SHARES OF
COMMON STOCK
(FULLY-DILUTED)
============================================= ================== ===============
Xxxxxxx X. Xxxx and Xxxxxxx X. Xxxx
0000 Xxxx Xxxx Xxxxxx, Xxxxx X 2,427,404 %
Xxxxxx, Xxxxx Xxxxxxxx 00000
============================================= ================== ===============
Xxxx X. Xxxxx
0000 Xxxxxx Xxxx 1,045,956 %
Xxxxxx, Xxxxx Xxxxxxxx 00000
============================================= ================== ===============
Information Resource Engineering, Inc.
0000 Xxxxxxxxx Xxxxx 1,120,660 %
Xxxxxxxxx, Xxxxxxxx 00000
============================================= ================== ===============
Xxxxx and Xxxxx Xxxxx
320,000 %
0000 Xxxxxxxxxx Xxxxx
Xxxxxxx, Xxxxx Xxxxxxxx 00000
============================================= ================== ===============
Total 4,914,020 %
============================================= ================== ===============
