INVESTOR'S RIGHTS AGREEMENT
THIS INVESTOR'S RIGHTS AGREEMENT (the "Agreement") is made as of October
24, 1996, by and between IAT Holdings, Inc., a Delaware corporation (the
"Company"), and Vertical Financial Holdings ("Vertical" or the "Investor").
RECITALS
WHEREAS, the Company and the Investor are parties to that certain Stock
Purchase Agreement of even date herewith (the "Stock Purchase Agreement");
WHEREAS, to induce the Investor to invest funds in the Company pursuant to
the Stock Purchase Agreement, the Investor and the Company hereby agree that
this Agreement shall govern the rights of the Investor to cause the Company to
register shares of Common Stock issuable to the Investor upon conversion of
shares of Series A Preferred Stock purchased by the Investor and upon exercise
of a Warrant issued to the Investor pursuant to the Stock Purchase Agreement,
and certain other matters as set forth herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereto agree as follows:
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Common Stock" means shares of the common stock of the
Company, par value $.01 per share.
(c) The term "Form S-3" means such form under the Act as in effect on
the date hereof or any registration form under the Act subsequently adopted
by the SEC which permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the
SEC.
(d) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 1.12 hereof.
(e) The term "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(f) The term "Preferred Stock" means the Company's Series A
Convertible Preferred Stock, par value $.01 per share.
(g) The term "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or
ordering of effectiveness of such registration statement or document.
(h) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Preferred Stock or upon exercise
of the Warrant, (ii) any Common Stock of the Company issued as (or issuable
upon the conversion or exercise of any warrant, right or other security
which is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of the shares referenced in (i) above,
excluding in all cases, however, any Registrable Securities sold by a
person in a transaction in which his rights under this Section 1 are not
assigned in accordance with the terms of Section 1.12 hereof.
(i) The term "SEC" shall mean the Securities and Exchange Commission.
(j) The term "Warrant" shall mean the warrant to purchase shares of
Common Stock of the Company issued to the Investor pursuant to the Stock
Purchase Agreement.
1.2 Request for Registration.
(a) If the Company shall receive at any time after December 31, 1996 a
written request from the Investor that the Company file a registration
statement under the Act covering the registration of at least twenty-five
percent (25%) of the Registrable Securities then held by the Investor, the
Company shall:
(1) within ten (10) days of the receipt thereof, give written notice,
in accordance with Section 3.5 hereof, of such request to all
such other Holders; and
(2) file as soon as practicable, and in any event within sixty (60)
days of the receipt of such request, and use all reasonable
efforts to cause to become effective as soon as practicable, the
registration under the Act of all Registrable Securities which
such Holders request to be registered, subject to the limitations
of Subsection 1.2(b).
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so advise
the Company as a part of their request made pursuant to Subsection 1.2(a)
and the Company shall include such information in the written notice
referred to in Subsection 1.2(a). The underwriter will be selected by the
Company and shall be acceptable to a majority in interest of the Initiating
Holders. In such event, the right of any Holder to include his Registrable
Securities in such registration 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
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Initiating Holders and such Holder) to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting
shall (together with the Company as provided in Subsection 1.4(e)) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting. Notwithstanding any other
provision of this Section 1.2, if the underwriter advises the Initiating
Holders in writing that marketing factors require a limitation of the
number of shares to be underwritten, then the Company shall exclude from
such underwriting (x) first, the maximum number of securities, if any,
other than Registrable Securities, as is necessary to reduce the size of
the offering and (y) then the minimum number of Registrable Securities, pro
rata to the extent practicable, on the basis of the number of Registrable
Securities requested to be registered among the participating holders of
Registrable Securities, as is necessary in the opinion of the managing
underwriter(s) to reduce the size of the offering.
(c) In addition, the Company shall not be obligated to effect, or to
take any action to effect, any registration pursuant to this Section 1.2:
(i) After the Company has effected two (2) registrations pursuant
to this Section 1.2, excluding any registrations effected on Form S-3,
and such registrations have been declared or ordered effective;
provided, that the Company shall not be obligated to effect more than
one registration pursuant to this Section 1.2 in any twelve (12) month
period;
(ii) If the Initiating Holders propose to dispose of shares of
Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made pursuant to Section 1.12 below; or
(iii) If the Company delivers to the Initiating Holders an
opinion, in form and substance acceptable to such Initiating Holders,
of counsel satisfactory to the Initiating Holders that the Registrable
Securities requested to be registered by the Initiating Holders may be
sold or transferred pursuant to Rule 144(k) of the Act.
1.3 Company Registration. If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration effected
by the Company for stockholders other than the Holders) any of its stock or
other securities under the Act in connection with the public offering of such
securities (other than a registration relating solely to the sale of securities
to participants in a Company stock plan, a registration relating solely to a
Rule 145 transaction, a registration on any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities or a
registration in which the only Common Stock being registered is Common Stock
issuable upon conversion of debt securities which are also being registered),
the Company shall, at such time, promptly give each Holder written notice of
such registration. Upon the written request of each Holder given within twenty
(20) days after giving of such notice by the Company in accordance with Section
3.5, the Company shall, subject to the provisions of Section 1.8, cause to be
registered under the Act all of the Registrable Securities that each such Holder
has requested to be registered; provided, that the Company shall not be
obligated to effect more than two (2) registrations pursuant to this Section
1.3.
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1.4 Obligations of the Company. Whenever required under this Section 1 to
effect the registration of any Registrable Securities, the 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 best efforts to cause
such registration statement to become effective, and keep such registration
statement effective for a period of up to one hundred twenty (120) days or
until the distribution contemplated in the Registration Statement has been
completed, whichever first occurs; provided, however, that such one hundred
twenty (120) day period shall be extended for a period of time equal to the
period the Holder refrains from selling any securities included in such
registration at the request of an underwriter of Common Stock (or other
securities) of the Company, and provided further that in the case of any
registration of Registrable Securities on Form S-3 that are intended to be
offered on a continuous or delayed basis, such one hundred twenty (120) day
period shall be extended until all such Registrable Securities are sold, if
applicable rules under the Act governing the obligation to file a
post-effective amendment permit, in lieu of filing a post-effective
amendment which (I) includes any prospectus required by Section 10(a)(3) of
the Act or (II) reflects facts or events representing a material or
fundamental change in the information set forth in the registration
statement, the incorporation by reference of information required to be
included in (I) and (II) above to be contained in periodic reports filed
pursuant to Section 13 or 15(d) of the 1934 Act in the registration
statement.
(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, in the opinion of counsel to the Company, may be
necessary to comply with the provisions of the 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 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 and qualify the securities
covered by such registration statement under such other securities or Blue
Sky laws of such jurisdictions as shall be reasonably requested by the
Holders; provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions,
unless the Company is already subject to service in such jurisdiction and
except as may be required by the Act.
(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. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
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(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 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) 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.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of
such registration.
(i) Furnish, on the date that such Registrable Securities are
delivered to the underwriters for sale in connection with the registration
pursuant to this Section 1, if such Registrable Securities are being sold
through underwriters, or, if such Registrable Securities are not being sold
through underwriters, on the date that the registration statement with
respect to such Registrable Securities becomes effective, (i) an opinion,
dated such date, of counsel representing the Company for the purposes of
such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Holders, and (ii) a letter, dated such
date, from the independent certified public accountants of the Company, in
form and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders.
1.5 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
1.6 Expenses of Demand Registration. All expenses other than underwriting
discounts and commissions incurred in connection with registrations, filings or
qualifications pursuant to Section 1.2, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company and the reasonable fees and
disbursements of one counsel for the selling Holders shall be borne by the
Company.
1.7 Expenses of Company Registration. The Company shall bear and pay all
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to the registrations pursuant to Section
1.3 for each Holder, including (without limitation) all registration, filing,
and qualification fees, printers' and accounting fees relating or apportionable
thereto and, for one such registration only, the reasonable fees and
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disbursements of one counsel for the selling Holders, but excluding underwriting
discounts and commissions relating to Registrable Securities.
1.8 Underwriting Requirements. In connection with any offering involving an
underwriting of shares of the Company's capital stock pursuant to Section 1.3,
the Company shall not be required under Section 1.3 to include any of a Holder's
securities in such underwriting unless such Holder accepts the terms of the
underwriting as agreed upon between the Company and the underwriters, and then
only in such quantity as the underwriters determine in their sole discretion
will not jeopardize the success of the offering by the Company. If the total
amount of securities, including Registrable Securities, requested by
stockholders to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters determine in their sole
discretion is compatible with the success of the offering, then the Company
shall exclude from such underwriting (x) first, the maximum number of
securities, if any, other than Registrable Securities being sold for the account
of other than the Company, as is necessary to reduce the size of the offering
and (y) then the minimum number of Registrable Securities, pro rata to the
extent practicable, on the basis of the number of Registrable Securities
requested to be registered among the participating holders of Registrable
Securities, as is necessary in the opinion of the managing underwriter(s) to
reduce the size of the offering.
1.9 Indemnification. In the event any Registrable Securities are included
in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the officers and directors of each Holder
participating in such registration, any underwriter (as defined in the Act)
for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Act or the 1934 Act, against any
losses, claims, damages, or liabilities (joint or several) to which they
may become subject under the Act, the 1934 Act or state securities and blue
sky laws, or otherwise insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon
any of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto and any document filed in connection
therewith or in connection with any registration or qualification under the
state securities and blue sky laws, (ii) the omission or alleged omission
to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the Act, the 1934 Act or
state securities and blue sky laws or any rule or regulation promulgated
under the Act, the 1934 Act or state securities and blue sky laws and the
Company will pay to each such Holder, underwriter or controlling person, as
incurred, any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the Company shall not be
liable in any such case for any such loss, claim, damage, liability, or
action to the extent that it arises out of or is based upon a Violation
which occurs in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by any
such Holder, underwriter or controlling person; provided, however, that the
indemnity agreement contained in
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this Subsection 1.9(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Company, which consent shall not be
unreasonably withheld.
(b) To the extent permitted by law, each selling Holder will indemnify
and hold harmless the Company, each of its directors, each of its officers
who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any
other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any
losses, claims, damages, or liabilities (joint or several) to which any of
the foregoing persons may become subject, under the Act, or the 1934 Act,
insofar as such losses, claims, damages, or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each
such Holder will pay, as incurred, any legal or other expenses reasonably
incurred by any person intended to be indemnified pursuant to this
Subsection 1.9(b), in connection with investigating or defending any such
loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this Subsection 1.9(b) 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 Holder,
which consent shall not be unreasonably withheld; provided, that, in no
event shall any selling Holder's liability under this Subsection 1.9(b)
exceed the proceeds received by such Holder from the offering (net of any
underwriting discounts and commissions).
(c) Promptly after receipt by an indemnified party under this Section
1.9 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to
be made against any indemnifying party under this Section 1.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
indemnified party (together with all other indemnified parties which may be
represented without conflict by one counsel) shall have the right to retain
one separate counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying 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. The failure
to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action, if prejudicial to its ability
to defend such action, shall relieve such indemnifying party of its
liability under this Section 1.9, but (i) only to the extent of the
liability actually resulting from the failure to deliver written notice and
(ii) the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified
party otherwise than under this Section 1.9.
(d) If the indemnification provided for in this Section 1.9 is held by
a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss,
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liability, claim, damage, or expense referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault
of the indemnifying party on the one hand and of the indemnified party on
the other in connection with the statements or omissions that resulted in
such loss, liability, claim, damage, or expense as well as any other
relevant equitable considerations. The relative fault of the indemnifying
party and of the indemnified party shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party
and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission; provided,
that in no event shall any selling Holder's liability under this Section
1.9(d) exceed the proceeds received by such Holder from the offering (net
of any underwriting discounts and commissions).
(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.
(f) The obligations of the Company and Holders under this Section 1.9
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.10 Reports Under Securities Exchange Act of 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the Act and
any other rule or regulation of the SEC that may at any time permit a Holder to
sell securities of the Company to the public without registration or pursuant to
a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is necessary to enable
the Holders to utilize Form S-3 for the sale of their Registrable
Securities, such action to be taken as soon as practicable after the end of
the fiscal year in which the first registration statement filed by the
Company for the offering of its securities to the general public is
declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company
that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the
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effective date of the first registration statement filed by the Company),
the Act and the 1934 Act (at any time after it has become subject to such
reporting requirements), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such
form.
1.11 Form S-3 Registration. In case the Company shall receive at any time
after the completion of the first registration statement for a public offering
of securities of the Company (other than a registration statement relating
either to the sale of securities to employees of the Company pursuant to a stock
option, stock purchase or similar plan or an SEC Rule 145 transaction), a
written request from the Holders of at least twenty five percent (25%) of the
Registrable Securities then outstanding that the Company effect a registration
on Form S-3 and any related qualification or compliance with respect to all or a
part of the Registrable Securities owned by such Holder or Holders, the Company
will:
(a) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of
any other Holder or Holders joining in such request as are specified in a
written request given within twenty (20) days after receipt of such written
notice from the Company; provided, however, that the Company shall not be
obligated to effect any such registration, qualification or compliance,
pursuant to this Section 1.11: (1) if Form S-3 is not available for such
offering by the Holders; (2) if the Holders, together with the holders of
any other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public (net of any
underwriting discounts or commissions) of less than $500,000; (3) if the
Company has already effected during the previous twelve (12) month period
two (2) registrations on Form S-3, or any equivalent successor form, for
the Holders pursuant to this Section 1.11; or (4) in any particular
jurisdiction in which the Company would be required to qualify to do
business or to execute a general consent to service of process in effecting
such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so
requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All expenses incurred in connection
with a registration requested pursuant to this Section 1.11, including,
without limitation, all registration, filing, qualification, printers' and
accounting fees and the reasonable fees and disbursements of one (1)
counsel for the selling Holder or Holders and counsel for the Company, but
excluding any underwriting discounts or commissions associated with
Registrable
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Securities, shall be borne by the Company. Registrations effected pursuant
to this Section 1.11 shall not be counted as registrations effected
pursuant to Sections 1.2 or 1.3.
(d) The Company shall not be obligated to effect any registration
pursuant to this Section 1.11 if the Company delivers to the Holders
requesting registration under this Section 1.11 an opinion, in form and
substance acceptable to such Holders, of counsel satisfactory to such
Holders, that the Registrable Securities so requested to be registered may
be sold or transferred pursuant to Rule 144(k) under the Act.
1.12 Assignment of Registration Rights. The rights to cause the Company to
register Registrable Securities pursuant to this Section 1 may be assigned (but
only with all related obligations) by a Holder to any transferee or assignee of
such securities, provided: (a) the Company is, within a reasonable time after
such transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; and (b) such transferee or assignee
agrees in writing to be bound by and subject to the terms and conditions of this
Agreement.
2. Covenants of the Company.
2.1 Financial Statements and Other Information. Except as otherwise set
forth below in this Section 2.1, until the Company is subject to the reporting
requirements of the 1934 Act, the Company will deliver to the Investor, for so
long as the Investor holds any shares of the Company's Common Stock:
(a) as soon as available, but in any event within forty-five (45) days
after the end of each quarterly accounting period in each fiscal year,
unaudited consolidated statements of operations and consolidated cash flows
of the Company and its subsidiaries for such quarterly period and for the
period from the beginning of the fiscal year to the end of such quarter,
and consolidated balance sheets of the Company and its subsidiaries as of
the end of such quarterly period, setting forth in each case comparisons to
the annual budget and to the corresponding period in the preceding fiscal
year, and all such statements will be prepared in accordance with generally
accepted accounting principles, consistently applied (except for the
absence of notes and subject to normal year-end adjustments);
(b) as promptly as possible (but in any event within ninety (90) days)
after the end of each fiscal year, audited consolidated statements of
operations and a consolidated statement of cash flows of the Company and
its subsidiaries for such fiscal year and consolidated balance sheets and
statements of stockholders' equity of the Company and its subsidiaries as
of the end of such fiscal year, setting forth comparisons to the annual
budget and to the preceding fiscal year, all prepared in accordance with
United States generally accepted accounting principles, consistently
applied, and accompanied by an unqualified opinion (except for
qualifications regarding specified contingent liabilities) of an
independent accounting firm selected by the Company's Board of Directors;
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(c) prior to the end of each fiscal year, an annual budget (approved
by the Board of Directors) prepared on a monthly, consolidated basis for
the Company and its subsidiaries for the succeeding fiscal year (displaying
detailed anticipated statements of operations and cash flows and balance
sheets), and promptly upon preparation thereof any other significant
budgets which the Company prepares and any revisions of such annual or
other budgets;
(d) promptly (and in any event within thirty (30) days) after the
discovery or receipt of notice of any event or circumstance affecting the
Company or its subsidiaries that is determined in good faith by the Company
to be material to the Company and its subsidiaries, taken as a whole,
including but not limited to, the filing of any material litigation against
the Company or its subsidiaries, acquisitions, mergers, substantial sales
of assets, significant regulatory or legal developments, the commencement
of voluntary or involuntary bankruptcy proceedings, natural or other
disasters, significant changes in management or directors, changes in
auditors, and execution or termination of, or defaults under, material
contracts, a letter from the Chief Executive Officer or Chief Financial
Officer of the Company specifying the nature and period of existence
thereof and, in the case of material litigation, what actions the Company
and its subsidiaries have taken and propose to take with respect thereto;
(e) promptly after transmission thereof, copies of all financial
statements, proxy statements, reports and any other written communications
which the Company sends to its stockholders generally and copies of all
registration statements and all regular, special or periodic reports which
it files with the SEC or with any securities exchange on which any of its
securities are then listed, and copies of all press releases and other
statements made available generally by the Company to the public;
(f) a notice specifying the terms of all sales of the Company's
securities of which the Company is aware, promptly following the
consummation thereof; and
(g) notice of the effectiveness under the Act of the registration
covering the Company's initial public offering, such notice to be provided
by telecopier immediately following the SEC's notification to the Company
of such effectiveness.
Each of the financial statements referred to in this Section 2.1 will be
true and correct in all material respects and will fairly present the Company's
consolidated financial position and results of operations as of the dates and
for the periods stated therein, subject in the case of the unaudited financial
statements to changes resulting from normal year-end audit adjustments (none of
which would, alone or in the aggregate, be materially adverse to the Company's
financial condition, operating results or business prospects). The Company's
obligation to provide to the Investor the materials described in Subsection (e)
above will continue after the Company is subject to the reporting requirements
of the 1934 Act until the Investor no longer holds any shares of the Company's
Preferred Stock (or Common Stock issued upon conversion thereof or upon exercise
of the Warrant).
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2.2 Designated Director. For so long as the Investor shall hold at least 5%
of the shares of the Company's Preferred Stock, (or at least 5% of the Common
Stock issuable upon conversion of the Preferred Stock or upon exercise of the
Warrant), the Investor shall have the right, but not the obligation, to nominate
as a member of the management slate for election to the Company's Board of
Directors by the stockholders of the Company one (1) person and for so long as
the Investor shall hold at least 10% of the shares of the Company's Preferred
Stock (or at least 10% of the Common Stock issued upon conversion thereof or
upon exercise of the Warrant), the Investor shall have the right, but not the
obligation, to nominate as a member of the management slate for election to the
Company's Board of Directors by the stockholders of the Company two (2) persons,
and the Company agrees to use its best efforts to ensure that such person or
persons are duly elected. Moreover, the Company agrees that one such person
shall be elected Co-Chairman of the Board of Directors of the Company.
2.3 Inspection of Property. Until the Company is subject to the reporting
requirements of the 1934 Act, the Company will permit the Investor, or any
representatives designated by the Investor, upon reasonable notice and during
normal business hours and such other times as the Investor may reasonably
request, to (i) visit and inspect any of the properties of the Company and its
subsidiaries, (ii) examine the corporate and financial records of the Company
and its subsidiaries and make copies thereof or extracts therefrom, (iii)
discuss the affairs, finances and accounts of the Company and its subsidiaries
with the directors, senior management and independent accountants of the Company
and its subsidiaries, and (iv) consult with and advise the management of the
Company and its subsidiaries as to their affairs, finances and accounts.
2.4 Positive Covenants. So long as any shares of the Preferred Stock are
outstanding, the Company agrees as follows:
(a) The Company will retain independent public accountants acceptable
to the Investor in its discretion who shall certify the Company's financial
statements at the end of each fiscal year. In the event the services of the
independent public accountants so selected, or any firm of independent
public accountants hereafter employed by the Company are terminated, the
Company will promptly thereafter notify the Investor and will request the
firm of independent public accountants whose services are terminated to
deliver to the Investor a letter from such firm setting forth the reasons
for the termination of their services. In the event of such termination,
the Company will promptly thereafter engage another firm of independent
public accountants of recognized national standing. In its notice to the
Investor the Company shall state whether the change of accountants was
recommended or approved by the Board of Directors of the Company or any
committee thereof.
(b) The Company will retain counsel to the Company acceptable to the
Investor in its discretion.
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(c) The Company's Board of Directors will meet at least once every
fiscal quarter.
(d) The Company shall maintain in full force and effect, fire,
casualty, workmen's compensation and liability insurance policies, with
extended coverage, in such amounts and with such coverage as are carried by
companies in a position similar to that of the Company.
2.5 Termination of Certain Covenants. The covenants set forth in Sections
2.3 and 2.4 shall terminate and be of no further force or effect upon the
consummation of an initial public offering of shares of Common Stock of the
Company.
3. Miscellaneous.
3.1 Successors and Assigns. Except as otherwise provided herein, the terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the respective successors and assigns of the parties (including transferees
of any shares of Registrable Securities). Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
3.2 Governing Law. This Agreement shall be governed by and construed under
the laws of the State of New York, disregarding New York principles of conflicts
of laws which would otherwise provide for the application of the substantive
laws of another jurisdiction. The parties agree that all actions or proceedings
arising in connection with this Agreement shall be tried and litigated only in
the State of New York. The parties waive any right they may have to assert the
doctrine of forum non conveniens or to object to such venue, and hereby consent
to court ordered relief.
3.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.4 Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
3.5 Notices. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effectively
given upon personal delivery or delivery by facsimile to the party to be
notified or four (4) days after deposit with an air courier, the United States
Post Office or air courier in the case of non-U.S. parties, by registered or
certified mail, postage prepaid and addressed to the party to be notified at the
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address indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days' advance written notice to
the other parties.
3.6 Expenses. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and necessary disbursements in addition to any
other relief to which such party may be entitled.
3.7 Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the holders of two-thirds of the
Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this Section 3.7 shall be binding upon each holder of any
Registrable Securities then outstanding, each future holder of all such
Registrable Securities, and the Company.
3.8 Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
3.9 Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
IAT HOLDINGS, INC.
By: /s/ Xx. Xxxxxx Xxxx
---------------------------------
Name:
Title:
Address:
Facsimile Telephone Number:
VERTICAL FINANCIAL HOLDINGS
By: /s/ Xxxxx Xxxx
---------------------------------
Name:
Title:
Address:
Facsimile Telephone Number:
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